Another variable was thrown into the cesspool of market risk this week as the President is under an impeachment inquiry – not a surprise if you follow the politics. At this point, the markets have so many things weighing on its shoulders that fatigue is beginning to take its toll – the list is too long at this point.

To review the technicals, the S&P 500 rose early in September after a sideways and choppy August to await the Fed and other central banks for a reason to make new all-time highs. We didn’t get the surge higher and now we face an upcoming earnings season with declining profits.

In the chart, the S&P’s last peak was 9/19 and it has been a slow burn lower ever since. We closed below the 50 day on Friday as we hit 2,955 which coincided with the peak established last May. It also looks like we will fill a couple of gaps below us which is normal in chart analysis. The real question is where is the next major low in the S&P 500? A re-test of the lows from the summer wouldn’t surprise me over the next couple of weeks.

SPX: S&P 500 Index

I thought the chart below was telling as it keeps the long-term in perspective as we are clearly in the late stages of an economic cycle. As you can see, the ratio below was in a stable channel from the 1950s until about 1995 where the dot-com mania started. A steady ratio that should have reverted to the mean once the tech bubble popped. However, the Fed’s policies pumped up the value of real estate and mortgage products before the financial crisis and now we have unprecedented amounts of sovereign and corporate debt. Where is the event horizon on this singularity?

Chart of the Week!

In 2016, an estimated $146 billion was spent on cocaine, heroin, marijuana and methamphetamine. Adding these figures together from 2006 to 2016 would put total spending on illegal drugs at $1.5 trillion.

Economic & Central Banking Snippets 

  • The German manufacturing sector continued to worsen in September as its PMI fell below the breakeven of 50 to 41.4 which indicates a recession. This breakdown is the fastest pace of decline in activity since 2009.
  • The Markit US manufacturing and services composite index for September rose to 51 from 50.7, however, export order books continued to weaken. Markit equates this level of activity to GDP growth of only about 1.5% in Q3 and the weakness in manufacturing is now filtering into services.
  • S&P CoreLogic Case-Shiller’s 20-City Composite price index rose just 2.00% in the past year – the weakest growth since August 2012. All 20 cities in the index showed annual gains except for Seattle, where prices were down 0.6% from a year earlier. Phoenix, Las Vegas and Charlotte reported the best annual gains among the 20 cities, led by a 5.8% gain in Phoenix.
  • Japanese manufacturing activity shrank at its quickest pace in seven months in September on the back of the effects of a global economic slowdown and rising trade tensions, data showed. The latest Jibun Bank flash manufacturing purchasing managers index, released on Tuesday, produced a reading of 48.9 for the month, down from 49.3 in August. Any figure below 50 indicates that the manufacturing sector is contracting. (FT)
  • ECB’s board member quits. Germany’s representative on the European Central Bank’s (ECB) executive board has quit, highlighting a widening split over the institution’s recent decision to loosen monetary policy. Sabine Lautenschläger’s departure, which removes the only female member of the ECB’s 25-person governing council, comes weeks before Mario Draghi is set to hand over to Christine Lagarde. (FT)

Macro Snippets

  • The average total cost of employer-provided health coverage passed $20,000 for a family plan this year, up 5% from a year earlier, according to a Kaiser Family Foundation survey. The rate of growth in coverage costs, including those borne by employees, continued to outstrip rises in inflation and wages, squeezing workers despite a low unemployment rate that might encourage companies to sweeten their benefits.
  • German automakers face significant excess supply, and further production cuts may be in order. The export engine of the Euro zone is sputtering.
  • The US Treasury has announced plans to make more data available about US government bond market trading, in its most radical move so far to bring transparency to the $16tn market. Early next year, the Treasury will publicly release data on US government bond trading volumes on a weekly basis through the Financial Industry Regulatory Authority, which has been collecting such data from some of the biggest Wall Street operators since July 2017. (FT)
  • Philip Morris International and Altria have ended merger talks to create a $200bn tobacco giant after the two sides failed to reach a deal amid investor doubts and a regulatory backlash in the US against vaping. A person familiar with the situation said that PMI decided to walk away from the deal after it became apparent that the US government crackdown on vaping would make the merger less attractive. (FT)
  • WeWork is halting all new lease agreements with property owners as the lossmaking group tries to rein in costs, according to people briefed on the matter. Landlords have been bracing for the possibility that WeWork, which has become the biggest office tenant in New York and one of the largest in London, could suspend its expansion. (FT)

That is all for now until next week’s Market Update. Thank you for reading and taking the time to navigate these markets with Kisco Capital.


Paul J. McCarthy, III

President – Kisco Capital

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.