Waking Up Now that September Has Ended

 

Well, it sure seems that, like me, the US equity markets are a fan of Green Day. After a rough September with the S&P 500 down 4.8%, NASDAQ 100 down 5.3%, and Russell 2000 down 3%, the first day of October was a rousing success. The positive results of the Merck pill seemed to help flip the switch. September is the worst month for most major global indices. I looked at 21 global indices below and about half showed their worst performing month as September. Maybe this is why Green Day wrote that song?

Here comes the rain again
Falling from the stars
Drenched in my pain again
Becoming who we are

As my memory rests
But never forgets what I lost
Wake me up when September ends

Also last week, we saw a couple of American Idiots resign. There has been some speculation of the real reason the Fed Presidents resigned. Most think it has to do with their personal trading, but there’s been some talk of removing two very hawkish voices to make accommodation much easier. Some believe this is the opening to place two more dovish replacements in their place. The Fed’s makeup will be a topic for the press over the next year or so, as Uncle Jerome’s future is still up for debate. I just have to say Good Riddance. 

This week we’ll continue looking for more political nonsense coming out of Washington. They’re grandstanding around both the Debt Ceiling and the Infrastructure bill tied to some other non-related social plans. I’ll be waiting for the September jobs number on Friday as well as keeping an eye on the Treasury Rates. Something else that should get people excited is the GM investor event. Wedbush’s Dan Ives thinks we might see some forward looking info around their EV goals.

Earnings Watch

Last Week

I highlighted Jefferies as a possible winner this past week. They reported on Thursday afternoon and had a nice beat. The stock responded decently, up 2% on the open and basically stayed there.

Other names to highlight from last week were BBBY, who had a huge miss and ended the week down more than 25%, and UNFI, who was the best performer reporting this week. UNFI beat by 46% on EPS and jumped 3% on the next open, but rose about 30% by the end of the week.

This Week

We’re still waiting for the masses, but a few of my personal favorite brands report. Pepsi is by far the largest name reporting, but I’m like Uncle Warren and prefer Coke any day of the week. The parent companies of some of my favorite products, Constellation Brands (STZ) and Duckhorn Portfolio (NAPA), report this week. Comtech Telecom (CMTL) is the only name worth looking at. The small cap name is showing an 8% Predicted Surprise, but it’s a pretty wild stock and has averaged a 15% beat on EPS with only 4 analysts covering it. The stock also has some volatility after reporting with an average absolute move of nearly 13% over it’s last 20 reports. It’s been up 24% and down 19%, so it should be fun.

Equity Capital Markets (Via Refinitiv’s IFR)

It was another decent week in the ECM space. Nearly $5B in notional in the US plus another $9B out of Europe. Most deals were on the smaller side, but there were a few billion dollar plus out of the Middle East. The story of the week was the two names that didn’t even hit the ECM desk in the US. Direct listings of Amplitude (AMPL) started trading on Tuesday at a value of $5B, and then Warby Parker (WRBY) hit the market on Wednesday valued at $6.6B. We’ll enter Q4 with five IPOs scheduled for the week in both the US and Europe.

Best of the Week

Daniel shares some amazing stories about the early days of investing in Emerging Markets. He tells one about a company in Russia where the owner was provided with an offer he could not refuse from friends of the Kremlin at a large discount to market value. He also talks about why good companies and countries are important in emerging markets not just good numbers. I'm always fascinated with stories of the history of early market features that everyone now takes for granted.

Daniel Graña – Janus Henderson Investors Emerging Markets Equity - Listening time: 52 minutes

Best of the Rest

It’s not about what you say, it’s about what you do. I must have heard that line hundreds of times. Looks like it applies to the ECB too. This chart below from Jim Reid at Deutsche Bank shows the actions of the Fed at some key inflection points in the price of oil.

Is The Price Of Oil All That Matters To Central Banks

If you’re an equities trader/investor, you don’t really need to pay attention to rates. Or do you? MarketWatch highlighted this report from Goldman Sachs that shows a correlation between quick rises in rates and performance of equities. The article also shares a chart that looks at long and short duration equities.

Tech stocks were just stomped. Here’s what to watch next, according to Goldman Sachs.

As we saw above, Goldman has showed that a quick rise in rates isn’t great for stocks, but the story about high rates being bad for tech stocks has been some of the worry for investors. Will a rise eventually take away the punch bowl? Ben takes a look at the performance of the QQQ and it's correlation with the 10 year Treasury. Guess what? It's not what you may think it is.

Are Rising Interest Rates Bad For Tech Stocks?

I don’t typically like to pick guests from the same podcast in back to back weeks, but Bill nailed another one. I found this interview a great follow up to some of the shipping issues over the past few months. I love to follow some of this at a high level, because the content is fascinating to me. I’ve highlighted the delays at the US ports before. Below is a chart showing the number of ships waiting to get into Long Beach (LA) ports. Just tell your wife that her anniversary present is on one of those ships. Refinitiv's Eikon also has some of the best analysis too. Like this page the analyst team built specifically to track the Coup happening in Guinea, which could have a major impact on Bauxite and in turn aluminum production in China. Everything is connected.

J Mintzmyer - Shipping Extraordinaire - Listening time: 88 minutes

Speaking of supply chains, many of the industry heads involved in global transport are calling on governments to stop with all the bull dookie and end travel bans and restrictions that are impacting their workforce. The article notes that these industries account for $20T in trade and represent more than 65M workers globally. They’re asking that their workers be given access to vaccines to help ease some of the strains on the supply chains.

Joint open letter – Transport heads call on world leaders to secure global supply chains

This one might be a little too much on regulation for some, but as the EU and UK are looking at changes to enhance liquidity and resilience in markets. They’re looking to see if Reg NMS should be used as a guideline on how to proceed with new regulations. This article highlights a report that thinks Reg NMS should not be in the cards for Europe. Reg NMS was introduced in 2007 and made life slightly more difficult to put on negotiated trades. Reg NMS also brought on the breakup of the duopoly of the the NYSE and NASDAQ in the US markets. Now, as the article notes, we have 16 exchanges, 32 dark pools, and more than 200 wholesalers. Europe is already fragmented and is looking for a consolidated tape. 

What is Reg NMS and could it be beneficial for Europe?

We’re about to see the Earnings reports kick it up a notch, so that means black out periods are about to start. This chart from Deutsche Bank shows the increasing number of companies that will need to pause their repurchase programs. Many believe these programs provide a bid to their stocks.

https://matttopley.com/topleys-top-10-september-28-2021/

One for the Road

Learning the ropes on how larger option trades hit the tape and how they get hedged. This is a nice shorter educational video around how things work on the desk.

Gaming Option Orders - Watch time: 27 minutes

Thanks for reading. I hope you avoid the boulevard of broken dreams.

Michael