The Fly

The Fly on Mike Pence’s head during the Vice-Presidential debate was the most exciting thing that happened this week. In turn, the S&P 500 continued its breakout from the falling wedge pattern in the chart below – a slow and steady climb. The technicals are not showing many negative signs and are indicating that a new all-time high is likely sometime in the coming weeks.

The political cauldron continues to brew as we approach the November election cycle. Is the stock market declaring a winner? Not really, the only thing I can glean is that taxes are unlikely to go up anytime soon if the stock market keeps climbing higher. You can decide what that means for the election.

Also, the stimulus package is not dead and that can act as a catalyst for the stock market. The Fed claims the next stimulus package is the bridge needed to keep the economy afloat until 2021 where I hope the coronavirus becomes a distant memory. To sum it up, the S&P failed to breakdown in September and now volatility is plummeting which signals the odds of a larger correction is being taken off the table regarding the results of the Presidential election.

Chart of the Week!

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Economic & Central Banking Snippets 

  • Federal Reserve Chair Jerome Powell has called on the White House and Congress to agree on a coronavirus relief package, warning of tragic economic consequences without further aid. “Too little support would lead to a weak recovery, creating unnecessary hardship,” Powell says. (WSJ)
  • The September ISM services index rose to 57.8 from 56.9 and that was 1.6 pts above expectations. It compares with 58.1 in July. The breadth was good as 16 of 18 industries saw growth vs 15 in the two prior months. (Boock Report)
  • Initial jobless claims totaled 840k, 20k more than expected and last week was revised up by 12k to 849k. This is now the 6th week in a row that we seem to be settling in to the 800k range. (Boock Report)
  • The labor market has close to 11 million fewer jobs than it had before the pandemic. At the current pace, it will take more than 16 months to recoup those losses, the pain is particularly acute in low-wage, service-sector jobs and the risk of permanent damage is increasing.
Change in Payrolls by Sector
  • Germany, France and Spain all reported August industrial production figures that were below expectations. (Boock Report)
  • U.S. credit-card balances fell for the sixth straight month in August, a sign of caution as households navigate through a sharp recession and slowing recovery. Outstanding revolving credit dropped to $985.3 billion, the lowest level in more than three years, according to consumer credit data from the Federal Reserve. During the same month, personal income fell after an extra $600 a week in federal unemployment benefits expired and consumer spending rose at the slowest pace since May, according to a separate Commerce Department report.
Credit Card Debt Outstanding

Macro Snippets

  • AT&T’s WarnerMedia is planning to begin laying off thousands of workers in the coming weeks. The company reportedly seeks to reduce costs by as much as 20% as the pandemic drains income from movie tickets, cable subscriptions and television ads. (WSJ)
  • NXP Semiconductors raised its Q3 guidance and said the business environment improved at a faster than anticipated pace. Demand rose particularly in the automotive and mobile end markets. It now expects revenue of $2.26 billion instead of $2 billion predicted earlier. The stock is 5% higher in pre-market trading. (Investopedia)
  • Demand for passenger flights this year is likely to decline by more than half compared with 2019, the Organization of the Petroleum Exporting Countries said Thursday. Fuel consumption in the aviation sector won’t surpass pre-coronavirus levels until closer to 2025, the group said in its annual report on oil’s long-term future. (WSJ)
Passenger Flight Activity
  • IBM announced it will accelerate its hybrid cloud growth strategy and spin-off its Managed Infrastructure Services unit into a new public company. (Investopedia)
  • Casual dining space Ruby Tuesday has filed for Chapter 11 bankruptcy following the “unprecedented impact” it faced from COVID-19. It said its restaurants will continue to operate “business as usual” throughout the reorganization process, which it hopes will “reposition the company for long-term stability.” (Investopedia)
  • General Electric said it has received a Wells notice from the staff at the Securities and Exchange Commission for allegedly violating securities laws. The notice was received on September 30 over the company’s accounting for reserves related to an insurance business it started to wind down in prior years. (Investopedia)
  • San Francisco office rents fell 4% from the end of March to the end of September, a decline that was more than double that in any other major U.S. city, according to data firm CoStar Group Inc. But with more people working remotely and some tech companies looking to relocate to cheaper cities, only about 700,000 square feet of new leasing was signed during the third quarter, down 81% compared with the same period in 2019. (WSJ)
New Office Leases in San Francisco
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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.