Market Collapse...Is this It?

Is Bidenomics Really working?

KR Opinion

As discussed in previous reports, the recent market decline and aggressive selling reflect a growing lack of confidence among investors. This sentiment shift was triggered by the significant adjustment in employment numbers, causing many to question the reliability of economic data.

The market's reaction was more extreme than usual, as evidenced by the breach of the STX Value on the Market Grid indicator; this occurrence typically happens only about 12% of the time. This extreme movement indicates a heightened emotional response from market participants.

Currently, we're witnessing an expansion of volatility. Overnight trading has shown further selling pressure, pushing markets down by approximately 0.5% or more across various indices. This aggressive action from market participants almost resembled panic selling in some instances, notable for the magnitude of the downward movement.

Interestingly, despite the significant market moves, the typical yield liquidity was not seen in such situations. The bid-ask spread often becomes very thin during these events, allowing for rapid price movements, especially when faced with aggressive sellers. These sellers may be driven by sentiment or "Get Me Out" orders to protect profits.

The recent Bloomberg report on subpoenas for NVIDIA deserves attention. The reporting has exaggerated the situation, with some commentators making unfounded assumptions. In the current market climate, algorithms likely picked up on this negative narrative, amplifying its impact and pushing NVIDIA's stock down more than warranted. While the subpoena is a fact, it doesn't necessarily indicate a material threat to NVIDIA's business.

This situation is reminiscent of past legal battles in the tech industry, such as the prolonged lawsuit between Intel and AMD in the nineties. Often, these legal actions impact a company's long-term prospects less than the market's immediate reaction suggests. However, they can significantly influence market sentiment and create volatility in the short term.

Looking ahead, the focus remains on the upcoming unemployment numbers due on Friday. The ADP employment report, which isn't considered significant, deserves more attention given the recent overstatement of job numbers by the DOL of 818,000 jobs created.

As a non-government entity, ADP's data could provide a more accurate measure of employment trends.

A key takeaway from recent events is the growing skepticism towards official economic data. The need to scrutinize reports more closely and differentiate between more and less reliable data sources is becoming increasingly important.

Seasonally adjusted figures and other manipulated statistics are being viewed with particular caution. These are the most vulnerable statistics.

This erosion of trust in economic data is especially concerning in an election year, where there may be incentives to present data in a favorable light.

The United States markets have long benefited from a reputation for legitimate and trustworthy reporting on economic metrics and corporate financials. However, we may be entering a period when it's becoming increasingly difficult to trust the presented numbers.

In conclusion, yesterday's significant market decline and investors' emotional response are symptomatic of the broader issue of eroding confidence in economic data and reporting.

Looking Back on Tuesday’s action

Financial markets experienced a significant downturn in a turbulent start to the new month. The major stock indices plummeted, with the Dow Jones Industrial Average closing over 600 points lower and the Nasdaq Composite shedding nearly 600 points. The S&P 500 and Russell 2000 also suffered substantial losses, declining by over 100 points and 3.1%, respectively.

Trading volume surged compared to recent weeks' below-average levels. The market's downward trajectory was attributed to normal consolidation activity, exacerbated by growing concerns about global economic growth. These worries were fueled by China's August Manufacturing PMI, which indicated a deepening contraction, and the U.S. ISM Manufacturing Index for August, which showed improvement but fell short of expectations.

In response to these economic concerns and soft data, Treasury yields retreated. The 10-year note yield dropped seven basis points to 3.84%, while the 2-year note yield decreased by four to 3.89%. The CBOE Volatility Index surged 37% to 20.55, reflecting investors' increased hedging activity against potential further market declines.

The sell-off was broad-based, with nine out of eleven S&P 500 sectors registering losses. The information technology sector was hit particularly hard, plunging 4.4% due to weakness in its mega-cap and semiconductor components. The PHLX Semiconductor Index (SOX) plummeted 7.8%, with NVIDIA (NVDA) emerging as a notable casualty, falling 9.5% amidst profit-taking.

The energy sector also struggled, dropping 2.4% in tandem with oil prices. WTI crude oil futures fell 4.3% to $70.37 per barrel, another manifestation of the prevailing growth concerns.

In a significant development, NVIDIA reportedly received a subpoena from the Department of Justice as part of an escalating antitrust probe, according to Bloomberg. This news further contributed to the negative sentiment surrounding the company's stock.

·       S&P 500: +15.9% YTD

·       Nasdaq Composite: +14.2% YTD

·       Dow Jones Industrial Average: +8.6% YTD

·       S&P Midcap 400: +8.3% YTD

·       Russell 2000: +6.0% YTD

Reviewing Tuesday’s economic data:

The August S&P Global US Manufacturing PMI - Final came in at 47.9, slightly lower than the prior reading of 48.0. The August ISM Manufacturing Index registered at 47.2%, slightly below the KR Forecast consensus of 47.5%, but improved from the previous month's 46.8%. These figures reinforce the understanding that conditions in the U.S. manufacturing sector remain weak.

July Construction Spending declined by 0.3%, contrary to the KR Forecast consensus expectation of a 0.2% increase. The prior month's figure was revised to 0.0% from an initial -0.3%. This report highlights that new single-family construction showed weakness in July.

Looking ahead to Wednesday's economic calendar:

The day will begin with the Weekly MBA Mortgage Index at 7:00 ET, which had a previous reading of 0.5%. At 8:30 ET, the July Trade Balance will be released, with the KR Forecast consensus projecting a deficit of $78.5 billion, compared to the prior month's $73.1 billion deficit.

Later, at 10:00 ET, we'll see the July Factory Orders report. The KR Forecast consensus anticipates a 4.5% increase, a significant swing from the previous month's 3.3% decline. The July job openings data will also be released simultaneously, with the figure earlier standing at 8.184 million.

WaveTech Database