September 15, 2021
Good morning,
September is really earning its malcontent reputation this year, and we’re only half way through. So far this month, when the opening bell has rung, the bears have come out to play. Overnight equity futures have been up every day this month except one and in each case, the S&P cash index has fallen from its opening print.
The last time we saw such a streak was February 2020 as the Covid crisis was percolating under the surface – ugh, not a comfortable comparison. Prior streaks occurred in Dec 2018 (market was in freefall), October-November 2016 (unnerving period before the election) and August 2015 (China devaluation). Not good at all – let’s go deeper.
Since the early 80’s (when intraday data begins, if you can believe that) there have been 31 prior occasions when S&P cash dropped from its opening at least 6 times in a row. The aggregate decline for the current streak of only 2.04% (we talked about this on Monday’s MN) is the 4th smallest of the 31 prior streaks. The only smaller drops came in ’91, ’92 and ’96 – none famous for adverse market outcomes.
While there is no guarantee that these relationships hold moving forward, bulls can derive some comfort from the fact that while intraday selling has been brutally consistent recently, its magnitude has been far more gentle and perhaps it is no cause for concern.
As I’ve tried to do for each quarterly call Jeffrey Gunlach hosts for his DoubleLiine investors – here are the key takeaways from yesterday’s webcast:
- Gundlach put a heavy emphasis on the tools of the Fed, comparing it to the gadgets on the Johnny 7 toy gun from the 1960s. He claims it’s distorting the market, giving examples like gaps between delinquencies and foreclosures, ultra-low interest rates, and negative yields that mirror the moves of the ‘70s.
- Gundlach is eyeing the labor market, showing that the biggest gaps in jobs are the younger cohort. He highlighted worries around the inability to hire workers and says the expiration of unemployment benefits may have an effect.
- Gundlach reiterates economic growth as mostly a function of spending that is helping U.S. trade partners as well. South Korea was given an example.
- Gundlach says yields on 30-year Treasuries for the past couple of months have neared 2% and turned around. He said despite unattractive negative yields, that pattern creates a trading opportunity. Gundlach says he thinks TIPS look pretty expensive and prices are not attractive.
- Gundlach remains neutral on commodities and the dollar near term, but remains a long-term bear for the greenback.
- In regards to the equities space, Gundlach said he had bought European stocks for the first time in a long time, a trade that’s working out just OK so far. He’s staying away from emerging markets, but would reconsider his thoughts should the dollar signal that it’s breaking to the downside, he said.
Be well,
Mike