S&P 500 Index with three tops.

Holiday Breakdown!

The meteoric rise of the stock market since June hit a wall this week as technical resistance was too much for a continued advance. As I have shown you the chart below over the past few weeks, there is trend-line resistance from the 2009 low around the 3500 area in the S&P Index that was firmly rejected this week.

Long-term chart of the S&P 500 Index.

If we zoom in, we can see that this same trend line has been struck twice before in recent history – the January 2018 top and the February 2020 high.

Zoomed in view of the 2009 trend line and three recent tops.

Let’s not forget interest rates. The market got a double whammy this week as both bonds and stocks fell in price so there was nowhere to hide in this regard. The chart below shows 30Yr Treasury yields and the S&P 500 Index which have diverged for some time now. The two began to converge this week so perhaps the Fed’s ability to keep control of the long-end of the curve will be questioned if rates continue to march higher.

Plotting the 30Yr Treasury Yield verses the S&P 500 Index.

In either case, volatility in risk assets is rising as valuations and technicals are stretched. Some of the Fed governors this week hinted that there is a limit to their programs without providing any details on where they would stop. My read is that the Fed is getting concerned they are pumping up the stock market too much and that we may get some “guidance” or clarity at their next meeting on September 15th.

Chart of the Week!

According to the analysis, which only includes public companies and private companies with public debt and/or assets/liabilities over $2 million or $10 million, respectively, 424 companies announced their bankruptcy through August 9 this year, up 22% from the same period last year and the highest level since 2010.

Statistica - US Bankruptcies are rising and at a 10 year high.

Economic & Central Banking Snippets 

  • The U.S. economy added 1.4 million jobs in August, the Labor Department said Friday, down from 1.7 million in July and down sharply from the 4.8 million added in June. Payrolls are still more than 11 million jobs below their pre-pandemic level. (WSJ)
Cumulative change in jobs since August 2016.
  • The unemployment rate fell to 8.4%, down significantly from 14.7% in April and 10.2% in July. The drop brings the rate below the peak of the last recession a decade ago, when unemployment briefly hit 10%, but joblessness is still higher than the peak of many past recessions.
  • The U.S. trade deficit surged in July to $63.6 billion, the highest level in 12 years, as imports jumped by a record amount. The Commerce Department reported that the July deficit, the gap between what America buys and what it sells to foreign countries, was 18.9% higher than the June deficit of $53.5 billion. It was the largest monthly deficit since July 2008 during the 2007–2009 recession. The July deficit increase was driven by a record 10.9% increase in imports, which rose to $231.7 billion. Exports were also up but by a smaller 8.1% to $168.1 billion. (WSJ)
  • The interbank lending rate in Europe continues to move into negative territory in a sign that their economy will be weak for some time.
The Eurozone’s interbank lending rate.

Macro Snippets

  • Moody’s Investors Service has lowered its outlook to negative on all U.S. municipal bond sectors except for housing-finance agencies and water, sewer, and public power. Municipal bond defaults have reached their highest rate since 2011, the aftermath of the last recession, according to Municipal Market Analytics data. Still, Americans continue to invest in municipal bond mutual funds, which have seen 16 straight weeks of inflows since mid-May. (Investopedia)
  • Apple has delayed privacy updates to its operating system which will impact Facebook and Google to 2021. The changes are expected to make it harder for publishers to target ads and measure their campaigns. “To give developers time to make necessary changes, apps will be required to obtain permission to track users starting early next year,” it said. (Investopedia)
  • The Justice Department plans to bring an antitrust case against Google as soon as this month, according to The New York Times. Justice Department officials told lawyers involved in the antitrust inquiry into Alphabet, the parent company of Google and YouTube, to wrap up their work by the end of September. (Investopedia)
  • Commission-free broker Robinhood is reportedly being investigated by the SEC for civil fraud over its early failure to fully disclose its practice of selling clients’ orders to high-speed trading firms, according to The Wall Street Journal. The investigation is at an advanced stage and the company could have to pay a fine exceeding $10 million if it agrees to settle. (Investopedia)
  • The U.S. Centers for Disease Control and Prevention (CDC) will temporarily halt evictions nationwide through the end of 2020 in an effort to slow the spread of COVID-19. Of the 43 million renters, those making less than $99,000 per year cannot be evicted if they sign declarations that they have exhausted their best efforts to pay rent and are likely to become homeless due to eviction. They are still obligated to pay accrued rent or housing payments in accordance with their lease or contract, and landlords can still evict them for other reasons. (Investopedia)
  • Companies have raised more debt in the US bond market this year than ever before, as a dash for cash during the coronavirus crisis took issuance past previous full-year totals with months left to go. However, the deluge of fundraising has raised concerns that companies are racking up debt even as earnings remain depressed. 
Us Corporate Bond issuance.
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That is all for now and thank you for being a subscriber!


Paul J. McCarthy, III

President – Kisco Capital

Paul McCarthy

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