All of the major indices had a rough week as the NASDAQ led the way lower with a loss of 4.1% – the worst week since March. However, the momentum to the downside abated into Friday’s close and volatility did not spike this week like we saw in the steep sell-off in March. In the chart below, I plotted the volatility index (VXX – purple line) verses the S&P 500 ETD (SPY) to show how volatility behaves when stocks decline. The decline in March caused the VXX to rocket higher which was a good predictor of the decline – the two move inversely from each other. However, this week the VXX and the S&P moved in the same direction which tells me a market crash is not on tap.
We also have the Fed meeting on Wednesday so perhaps the market will hit the brakes early next week as stimulus measures are not going away until we see a COVID-19 vaccine. If I am right, there is a good shot we make new highs before considering the potential stock market volatility around the uncertainty of the Presidential election.
Chart of the Week!
Economic & Central Banking Snippets
- U.S. inflation appears to be picking up in a few parts of the economy. The Labor Department said its consumer price index (CPI) rose 0.4% in August, topping a Reuters estimate of a 0.3% gain. The Core CPI, which strips out volatile food and energy prices, also climbed 0.4% to build on a 0.6% surge in July. However, a chunk of those gains came from an increase of more than 5% in used car and truck prices. It was the biggest gain for used cars and trucks since 1969. (CNBC)
- Home purchase applications rose 2.6% w/o/w and is up a robust 40% y/o/y. Refi’s were up by 3% w/o/w and 60% y/o/y. The average 30 yr mortgage rate was little changed at 3.07%, just off the record low. (Boock Report)
- The U.S. government is paying less as it borrows more, which may be one reason investors appear more comfortable than Congress with funding another recession bailout bill (now unlikely before the election). Interest payments in the federal budget declined about 10% in the first 11 months of this fiscal year, when America was running up its biggest deficit since World War II. Over the next few years, servicing the national debt will be cheaper than at any time in the past half-century when measured against the size of the economy, according to the Congressional Budget Office. The current level of American national debt is approaching $27 trillion. (Bloomberg)
- Unemployment claims were unchanged at 884,000 last week, the Labor Department said Thursday. Claims fell steadily for weeks after hitting a peak of about 7 million in March, but the pace of descent has slowed and claims remain above the prepandemic record of 695,000. The total number of workers receiving assistance from state and federal programs also remained high in late August, as more Americans turned to pandemic-related programs for assistance. The total of about 29.6 million people, which lags two weeks behind new state claims figures, includes temporary pandemic programs for self-employed and gig workers in addition to those receiving regular state benefits. (WSJ)
- The mortgage market recorded its best quarter in years as the housing market is booming in 2020. Lenders issued $1.1 trillion in home loans between April and June, according to mortgage-data firm Black Knight Inc. That was the biggest quarter in the company’s records, which date to 2000. Lenders extended roughly $2.5 trillion in home loans in all of 2019. Refinancings, up more than 200% from a year ago, drove the increase. Mortgage rates hit new lows multiple times this year, falling below 3% for the first time in July. The low rates have made millions more Americans eligible to save money on their monthly payments. Purchase mortgages, though, fell 8% from a year earlier.
- The IPO market is about to heat up as some of the biggest names are poised to hit the market next week such as cloud database vendor Snowflake and gaming technology company Unity Software. They’ll be joined by several other enterprise software companies, as well as Amwell, a telehealth provider based in Boston. Lise Buyer, founder of tech IPO advisory firm Class V Group, said that a bunch of companies that had originally been aiming to debut in April or May put their plans on hold when Covid-19 became the dominant economic story. With the market bouncing back and tech stocks soaring in recent months, some of those companies restarted their prep work to shoot for the post-Labor Day window, which is often a busy period for IPOs as bankers and investors return from summer vacation. (WSJ)
- Italian antitrust regulators have launched investigations against Google, Apple and Dropbox for practices related to cloud storage services. All three are accused of collecting and using data for commercial purposes without properly informing customers or receiving consent in a fair manner. Dropbox is further accused of failing to provide information on withdrawing from the contract. (Investopedia)
That is all for now and thank you for being a subscriber!
President – Kisco Capital