Market Briefing For Monday, October 2

Saturday update: The U.S. House has just passed the Short-Term 'funding' bill, so that's a 'hail Mary' that avoids a Shutdown, presuming Senate passage. [Update: Senate passed it too.] It's a bit of temporary relief for Monday's S&P as I have suspected could be the case (read the Briefing that follows).

A 'skittish' finish - to the Quarter, related more to the impediment factors of a prospective Government shutdown; while ignoring the New York Fed-Pres. Williams, who talked of 'higher for longer'; but also said likely 'done' with Fund rate increases.

I generally concur, and believed QT balance sheet focus more appropriate. Of course people (not just David Tepper) have been buying things like 6 months CD's and avoiding equities; but we expected heaviness (even more than S&P delivered on the downside) in September; and more skittishness for October.

Of course 'DEBT' is an overlying problem of greater magnitude than 'merely' a Government Shutdown.. but shutting Washington would compel reevaluation, by some rating agencies, and that might be counterproductive to solving this overriding big picture issue. The conundrum is Congress always says they will do temporary funding and then 'fix the problem', which they then don't tackle.

Investment sectors for next year are debatable; I concur with regard to 'AI' in a broad sense; but prefer small riskier speculations whereas the major player stocks wouldn't even budge much based on acquiring any; while the acquired small stock would zoom. It's a 'place your bets' situation; nothing is assured.

On Energy, which currently offers superior yields, many are recommending of course (are they selling to the buyers?); while I lean towards just holding; as I have all year long and even before. In the case of Chevron, for many years. I will give the example that CVX provides something like a 7% basic dividend, or more factoring-in the buyback, and are very diversified for the future; but in my view at these prices the shares are a solid hold, not a buy to be chased.

Market X-ray - simply seeing the End of Quarter shuffle, which notably was to the upside until a last-ditch Republican plan to avert a shutdown got nowhere.

Remember that while everyone believes a down month means stay defensive into October.. well, I don't disagree but remind that a back-to-back downward sequence of September 'and' October, is pretty rare. The bigger issue might be around 'earnings' as far as S&P is concerned; with debates on multiples to apply or be justified in this 'newer' higher rate environment.

The S&P got into the 4200's; not all the way to ~4200 or a break thereof that I speculated could develop into a more-orthodox selling climax, but it wasn't so dramatic, at least not yet. We have stocks that are more expensive in the big cap arena; but we have difficult momentum, monetary or even military issues to contend with in the 4th Quarter. So during volatile phases our suspicion for now will be to be a buyer of suppressed stocks (with finances able to make it through this time without diluting their shareholders to the point of oblivion); in a gradual fashion in anticipation of better action next year and maybe late Q4.

We have 'headline risk' going into October; but not as ugly for broad markets, as the S&P and emotional attitudes would suggest; because of bifurcation. It's also possible that McCarthy puts something together with the holdouts, and if it is about the Southern Border, I think there is bipartisan desire to do something about that.

Anyway what you had Friday wasn't particularly tentative buying; but stripping the mega-caps the market probably provides general and gradual entry more than exit points as we go through October; and that's even if they smash S&P.

Bottom line: the equal weight S&P is 'not' at 19x earnings as some will claim. I've focused on bifurcation for months... and strip-out the 'magnificent seven' types, and you certainly are not at an overall 19 multiple. But yes October will be erratic; not much chance to 'crash' aside those heady mega-cap types.

Stocks are pretty strong considering our downside S&P measures; but again it is the bifurcation that makes volatility tough; and a presume excessive short side of the ledger; with Oil prices ultimately have potential as a determinant.

Finally we have Ford and the UAW not close to a resolution yet. But imagine one morning we awake and the ugly finger stop pointing at each other; there's a shutdown avoidance or end; and China and the U.S. are talking more ... and bingo the volatility turns higher whether it goes lower later or not.

And of course; Oil prices will likely precede yield moves; so there's that. Enjoy the weekend. We all 'eagerly' await Washington; I mean football. Cheers!


More By This Author:

Market Briefing For Tuesday, Sep. 26
Market Briefing For Monday, Sep. 25
Market Briefing For Thursday, Sep. 21

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