Stocks Falling Sharply into Afternoon on US Policy-Induced Stagflation Fears, Fed "Behind the Curve" Worries, Earnings Outlook Concerns, Tech/Alt Energy Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume:  Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 31.6 +3.6%
• DJIA Intraday % Swing 1.26%
  
• Bloomberg Global Risk On/Risk Off Index 48.9 +2.7%

• Euro/Yen Carry Return Index 146.31 -.15%

• Emerging Markets Currency Volatility(VXY) 12.4 +1.5%

• CBOE S&P 500 Implied Correlation Index 50.5 +1.4% 

• ISE Sentiment Index 97.0 -8.0 points
  

• Total Put/Call .94 +5.6%

• NYSE Arms .93 -28.5%

Credit Investor Angst:

• North American Investment Grade CDS Index 100.6 +2.33%
  

• US Energy High-Yield OAS 403.13 +.64%
• Bloomberg TRACE # Distressed Bonds Traded 435.0 -13.0
  

• European Financial Sector CDS Index 146.15 +3.2% 
• Credit Suisse Subordinated 5Y Credit Default Swap 426.64 -6.3%
  

• Italian/German 10Y Yld Spread 251.0 basis points +8.0 basis points
  

• Asia Ex-Japan Investment Grade CDS Index 180.65 +1.62%
  

• Emerging Market CDS Index 314.15 +2.55%
  

• China Corp. High-Yield Bond USD ETF(KHYB) 25.48 -.33%

• 2-Year Swap Spread 32.0 basis points -3.5 basis points
  

• TED Spread 47.75 basis points +9.75 basis points
  

• 3-Month EUR/USD Cross-Currency Basis Swap -61.0 basis points -1.25 basis points
  
• MBS  5/10 Treasury Spread  173.0 +4.0 basis points
  
• iShares CMBS ETF 45.23 -.81%
• Avg. Auto ABS OAS .79 unch.
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 47.13 -.14%
• 3-Month T-Bill Yield 3.36% unch.
  

• Yield Curve -43.0 basis points (2s/10s) -.25 basis point
  

• China Iron Ore Spot 93.85 USD/Metric Tonne -.55%
• Dutch TTF Nat Gas(European benchmark) 156.20 euros/megawatt-hour -11.1%

• Citi US Economic Surprise Index 5.20 +.5 point

• Citi Eurozone Economic Surprise Index 1.9 +1.4 points
  

• Citi Emerging Markets Economic Surprise Index -2.9 +1.8 points
  
• S&P 500 Blended Forward 12 Months Mean EPS Estimate 235.92 -.15:  Growth Rate +15.6% -.1 percentage point, P/E 15.5 -.4
  
• Bloomberg US Financial Conditions Index -1.14 -11.0 basis points
  
• US Atlanta Fed GDPNow Forecast +2.89% +19.0 basis points
  

• Cleveland Fed Inflation Nowcast Core PCE YoY +5.11% unch.: CPI YoY +8.20% unch.
  
• 10-Year TIPS Spread 2.28 +7.0 basis points
  
• Highest target rate probability for December 14th FOMC meeting: 62.5%(-7.7 percentage points) chance of 4.25%-4.5%. Highest target rate probability for February 1st meeting: 59.1%(-2.5 percentage points) chance of 4.5%-4.75%.
  

US Covid-19:

• 77 new infections/100K people(last 7 days total). 4.4%(-.4 percentage point) of 1/14/22 peak(1,740) -7/100K people from prior report.
  
• New Covid-19 patient hospital admissions per 100K population -84.3%(-.4 percentage point) from peak 7-day avg. of 1/9/22 - 1/15/22
  

Overseas Futures:

• Nikkei 225 Futures: Indicating -356 open in Japan 
• China A50 Futures: Indicating +216 open in China

• DAX Futures: Indicating -7 open in Germany

Portfolio:

• Slightly Higher:  On gains in my commodity sector longs, index hedges and emerging market shorts
  

• Disclosed Trades:  Added to my (IWM)/(QQQ) hedges
  

• Market Exposure:  Moved to Market Neutral
  

Morning Market Internals

NYSE Composite Index:

• Volume Running -5.4% Below 100-Day Average 
• 10 Sectors Declining, 1 Sector Rising
• 18.4% of Issues Advancing, 77.9% Declining
• 11 New 52-Week Highs, 237 New Lows
• 21.8%(-10.5%) of Issues Above 200-day Moving Average
• Average 14-Day RSI 42.0 -4.0
  
• Bloomberg Global Risk-On/Risk-Off Index 49.5 +3.9%
  
• Russell 1000: Growth/Value 15,362.61 -1.03%
  
• Vix 31.0 +1.5%
• Total Put/Call 1.01 +13.5%
• TRIN/Arms .71 -45.4% 

Friday Watch

Evening Headlines

Bloomberg:        

• Japan’s Households Spend Less as Higher Inflation Bites.  
• Pubs and Restaurants Hit by 15% Inflation in UK Food Costs.  
• UK Opens Oil and Gas Licensing Round as Energy Crisis Grows.
• Samsung Profit Sinks 32% as Memory Chip Downturn Worsens.   
• Economists See Argentina Inflation Surpassing 100% by December. 
• Asia Stocks Fall in Early Trade Ahead of Jobs Data: Markets Wrap
• Oil Poised for Biggest Weekly Rally Since March on OPEC+ Move.
• Twitter Trial Against Musk Is Halted to Allow Deal to Close.  
• Tesla Shares Take Hit on Risk That Musk Must Sell to Buy Twitter.
• ESPN Nears Large New Partnership With DraftKings.  
• Mississippi River Drought Forces Goods to Pricier Rail, Trucks.
• Mester Says No Evidence to Support Slowing Pace of Fed Rate Hikes.  
• Fed Officials Keep Hammering Hawkish Message on Rates Heading Up.
• Even After $100 Billion, Self-Driving Cars Are Going Nowhere.  
• San Francisco’s Office-Vacancy Rate Tops 25% as Tenants Depart.

Wall Street Journal:

• Biden, Venezuela and the Oil Dictators. This Administration wants more oil anywhere except in America.
• Germany Finally Says the F-Word: ‘Fracking’. A country used to buying gas elsewhere suddenly remembers there’s a lot in the ground at home.
• At Least 36 Dead in Thailand Child-Care Center Shooting.
• Ukraine’s Appeal for Longer-Range Missiles Presents Fresh Test of U.S. Support.
• Russian Men Flee to Alaska to Escape Draft.
• TikTok Parent ByteDance Sees Losses Swell in Push for Growth.
• Fed Officials Say Stubborn Inflation Justifies Rate Rises.
• Levi Posts Small Sales Increase Amid Supply-Chain Challenges.
• IMF to Lower Global Growth Forecast.
• Florida Businesses Can’t Require Covid Vaccine Proof, Court Rules.

Fox News:

• WATCH:Kanye blasts 'godless' media and addresses 'White Lives Matter' shirt in Tucker Carlson interview.
• Battery-powered cars are exploding from water damage after Hurricane Ian.

CNBC.com:

• Musk must complete Twitter deal by Oct. 28 to avoid trial, judge rules.
• AMD warns of third-quarter revenue shortfall on weaker PC demand, supply chain issues.
• Bitcoin hovers around $20,000, and Celsius execs pulled out crypto before collapse: CNBC Crypto World.
  

MarketWatch:                 

• What Friday’s jobs report means for stocks. Investors shouldn’t expect a break from the market whiplash, say strategists.
  
• DraftKings stock jumps on report of partnership with ESPN.
  
• A recession is coming fast, Titan chairman says, and stock market is acting ‘a little crazy right now’.  
• Dashed hopes for a Fed pivot are morphing into a sense of dread in financial markets.  
• Biden official says ban on gasoline exports still on the table, as White House responds to OPEC+ supply cut.

Zero Hedge:

• Hundreds Of Thousands Of Americans Sought Medical Care After COVID-19 Vaccination: CDC Data.
• Global Trade Forecast 'Darkens' On Central Bank Tightening, Inflation, Ukraine War.
• DACA Ruled Illegal After Appeals Court Cites 'Severe Deficiencies'.
• Most Americans In Over 25 Years Suffer 'Real' Pay Cut Under Biden Admin; Fed Report Shows.
• Democrats Attack Lake As 'Extremist' As 2024 Republicans Flock To Her.
• Air Force Scrambles Jets After North Korea Flies 12 Warplanes Near Inter-Korean Border.
• Washington Gave $28M To Chinese Entities For Joint Research Since 2015: Report.
• Feds Have Enough Evidence To Slap Hunter Biden With Tax, Gun Charges: WaPo.
• Democrat-Led Texas Border Town Busses Migrants To New York.
• US stocks and bonds declined amid a firmer dollar and higher yields after further hawkish Fed rhetoric - Newsquawk Asia-Pac Market Open.
• AMD Tumbles After Catastrophic Preannouncement, Drags Down Chip Sector.
• Are we decoupling from rates?
• China's Zero-COVID Madness Hammers 'Golden Week' For Tourism, Shopping.
• Dollar bid while Stocks and Treasuries sold ahead of pivotal NFP - Newsquawk US Market Wrap.
• US Gasoline Demand Unexpectedly Soars To Highest In Five Years As Inventories Crater.
• Shoplifting In California Is Out Of Control Due To Zero Consequences: District Attorney.
• Are Retail Investors Done? Biggest Liquidation Since 2020 As Retail Is Now 'Selling The Rally'.
• Bonds & Stocks Falter On Flood Of FedSpeak, Payrolls Paranoia.

Newsmax:  

• Feds Believe They Have Enough to Charge Hunter Biden With Tax, Gun Crimes.
• House Candidates: 'National Shift' of Hispanics to GOP.
• Energy Alliance Head: Open Drilling, Not US Reserves.

TheGatewayPundit.com:

• Conservative Latinos Once Voted For Dems — Recent Polling Shows a 65 Point Swing to Republicans.
• Tony Fauci Defends Funding of Dr. Daszak and EcoHealth to Continue Their Bat Research in Southeast Asia.
• WATCH LIVE: 6 PM MST – Arizona’s US Senate Debate Between Trump-Endorsed Blake Masters And Biden Backing Mark Kelly.
• HILARIOUS AUDIO: Democrat Gubernatorial Nominee Katie Hobbs Struggles To Name One Thing She’s Learned From The Hispanic Community At Embarrassing Hispanic Townhall Event.
• It’s Definitely Election Time: Joe Biden to Pardon all Federal Marijuana Offenses – New Rule Affects a Total of ZERO Individuals in Federal Prison.
• Democrat Fetterman, Who Lived Off of Mommy and Daddy Until He Was 50, Kept a Light Schedule as PA Lt. Gov – Didn’t Show Up to Work.
• It’s Happening: Alaska Borough Bans Voting Machines for All Future Elections.
• Catholic Mother Arrested In England in Front of Her Children Over Anonymous Posts on Chat Room and Twitter Posts.
• US Army Releases New and Insane Strategic Plan to ‘Mitigate the Key Effects of Climate Change’.
• FIGHTING BACK: State Treasurer Withdraws Nearly $800 Million in Funds From BlackRock Over Leftist “ESG” Efforts.
  

The Epoch Times:

• CCP Runs Police Outpost in New York City, Part of Global Network of Transnational Repression: Report.
• UN Votes Down Debate on Uyghurs After CCP Lobbying.

OpenVAERS:

• VAERS US COVID Vaccine Adverse Event Reports. 871,837 Reports(+4,210 from prior week) Through September 23rd, 2022.

SKirsch.com:

• Using the MGH numbers with our own VAERS queries, we have 247 cases per million doses from the MGH study divided by 5.97 cases per million doses from VAERS. 247/5.97 = 41. This suggests that the VAERS under-reporting factor (URF) is 41X.

Covid-19(Data, Maps, Graphs):

• Our World in Data:  New Global Covid-19 Cases(7-day rolling average graphs). New US Covid Hospital Admissions/ICU Admissions/Deaths
  
• FT.com:  Fully Vaccinated by Country(graph). Global Lockdown Stringency Index(map).
• Bloomberg.com:  International Travel Restrictions.  Case Graphs by State.
  
• NYTimes.com:  County Trends and Clusters. Local ICU Occupancy.
  
• Brown School of Public Health:  Covid Severity by State/County(map).  US Hospital Capacity(region).
  
• CovidActNow:  Covid Severity/Infection Rate by Metro Area.
  
• KFF:  US Vaccinations by Race/Ethnicity.
  
• Carnegie Mellon: Covid-Like Symptoms in Community. Covid Symptom Searches on Google. Covid-Related Dr.Visits.  Restaurant Visits. Wearing Masks. (graphs)
  
• Safegraph.com:  Commerce Patterns(graphs).

Night Trading 

• Asian equity indices are -1.0% to -.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 180.25 +9.25 basis points. 

• China Sovereign CDS 100.0 +2.25 basis points.
  

• Bloomberg Emerging Markets Currency Index 47.18 -.04%   
• Bloomberg Global Risk-On/Risk Off Index 47.87 +.62%. 
• Bloomberg US Financial Conditions Index -1.04 -1.0 basis point.
  
• Volatility Index(VIX) futures 29.82 -.08%
• Euro Stoxx 50 futures -.38%.

• S&P 500 futures -.1%.

• NASDAQ 100 futures -.16%  

Morning Preview Links

Earnings of Note 
Company/Estimate 

 

Before the Open: 

• None of note
  

After the Close:

• None of note
  

Economic Releases

8:30 am EST

• The Change in Non-Farm Payrolls for Sept. is estimated to fall to 250K versus 315K in Aug.
• The Unemployment Rate for Sept. is estimated at 3.7% versus 3.7% in Aug.
• Average Hourly Earnings MoM for Sept. is estimated to rise +.3% versus a +.3% gain in Aug.
  

10:00 am EST

• Wholesale Trade Sales MoM for Aug. is estimated to rise +.5% versus a -1.4% decline in July.

3:00 pm EST

• Consumer Credit for Aug. is estimated to rise to $25.0B versus $23.811B in July.

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The China Trade Data report could also impact global trading today.

US Equity Market Hours

• 9:30 am - 4:00 pm EST
  

BOTTOM LINE: Asian indices are modestly lower, weighed down by technology and financial shares in the region. I expect US stocks to open modestly higher and to weaken into the afternoon, finishing modestly lower. The Portfolio is 25% Net Long heading into the day.

Stocks Reversing Lower into Afternoon on US Policy-Induced Stagflation Fears, Diminished Fed "Pivot" Hopes, Dollar Strength, Utility/Alt Energy Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume:  Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 29.8 +4.3%
• DJIA Intraday % Swing 1.13%
  
• Bloomberg Global Risk On/Risk Off Index 48.1 -.5%

• Euro/Yen Carry Return Index 146.75 -.45%

• Emerging Markets Currency Volatility(VXY) 12.3 +.6%

• CBOE S&P 500 Implied Correlation Index 48.6 +1.14% 

• ISE Sentiment Index 113.0 +24.0 points
  

• Total Put/Call .89 +1.14%

• NYSE Arms 1.09 +26.7%

Credit Investor Angst:

• North American Investment Grade CDS Index 96.83 -.47%
  

• US Energy High-Yield OAS 403.41 -2.21%
• Bloomberg TRACE # Distressed Bonds Traded 448.0 -16.0
  

• European Financial Sector CDS Index 141.75 -.47% 
• Credit Suisse Subordinated 5Y Credit Default Swap 469.14 -4.1%
  

• Italian/German 10Y Yld Spread 243.0 basis points -1.0 basis point
  

• Asia Ex-Japan Investment Grade CDS Index 176.24 +2.13%
  

• Emerging Market CDS Index 305.10 +.12%
  

• China Corp. High-Yield Bond USD ETF(KHYB) 25.55 -.24%

• 2-Year Swap Spread 28.5 basis points -1.0 basis point
  

• TED Spread 38.0 basis points +1.25 basis points
  

• 3-Month EUR/USD Cross-Currency Basis Swap -59.75 basis points +3.75 basis points
  
• MBS  5/10 Treasury Spread  169.0 +2.0 basis points
  
• iShares CMBS ETF 45.52 -1.32%
• Avg. Auto ABS OAS .79 +8.0 basis points
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 47.23 -.39%
• 3-Month T-Bill Yield 3.36% -1.0 basis point
  

• Yield Curve -42.75 basis points (2s/10s) -3.25 basis points
  

• China Iron Ore Spot 94.25 USD/Metric Tonne +.25%
• Dutch TTF Nat Gas(European benchmark) 166.90 euros/megawatt-hour -3.91%

• Citi US Economic Surprise Index 4.70 -2.8 points

• Citi Eurozone Economic Surprise Index .5 -2.3 points
  

• Citi Emerging Markets Economic Surprise Index -4.7 -.8 point
  
• S&P 500 Blended Forward 12 Months Mean EPS Estimate 236.07 -.18:  Growth Rate +15.7% -.1 percentage point, P/E 15.9 -.1
  
• Bloomberg US Financial Conditions Index -1.02 -5.0 basis points
  
• US Atlanta Fed GDPNow Forecast +2.70% unch.
  

• Cleveland Fed Inflation Nowcast Core PCE YoY +5.11% unch.: CPI YoY +8.20% unch.
  
• 10-Year TIPS Spread 2.21 unch.
  
• Highest target rate probability for December 14th FOMC meeting: 74.6%(+10.3 percentage points) chance of 4.25%-4.5%. Highest target rate probability for February 1st meeting: 62.9%(+10.7 percentage points) chance of 4.5%-4.75%.
  

US Covid-19:

• 84 new infections/100K people(last 7 days total). 4.8%(-.4 percentage point) of 1/14/22 peak(1,740) -7/100K people from prior report.
  
• New Covid-19 patient hospital admissions per 100K population -83.9%(unch.) from peak 7-day avg. of 1/9/22 - 1/15/22
  

Overseas Futures:

• Nikkei 225 Futures: Indicating -261 open in Japan 
• China A50 Futures: Indicating +375 open in China

• DAX Futures: Indicating +1 open in Germany

Portfolio:

• Higher:  On gains in my commodity sector longs, index hedges and emerging market shorts
  

• Disclosed Trades:  Added to my (IWM)/(QQQ) hedges
  

• Market Exposure:  Moved to 25% net long
  

Bear Radar

Style Underperformer:

• Mid-Cap Value -.9%
  

Sector Underperformers:

• 1) Utilities -2.4% 2) REITs -2.2% 3) Telecom -2.1%

Stocks Falling on Unusual Volume: 

• HCP, XEL, EVRG, BLNK, IVR, T, CAG, SGH, BEPC, DOCU, AEP, EQIX, TGNA, MPW, DTE, SO, AVAV, LEVI, WDC, LAD, AN, WM, GNRC, WEC, RRC, GPRE, CCI, WU, TROX, OPI, CNP, CNK, RSG, MRVI, DLR, BIPC, SPLK, INBX, SMTC, SI, FBC, RGP and MNTK
  

Stocks With Unusual Put Option Activity:

• 1) TIP 2) WDC 3) SYF 4) SABR 5) JNK
  

Stocks With Most Negative News Mentions:

• 1) ANGO 2) SI 3) GMRE 4) NIO 5) SPLK
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Mid-Cap Growth -.5%

Sector Outperformers:

• 1) Oil Service +.9% 2) Homebuilding +.4% 3) Energy +.2%

Stocks Rising on Unusual Volume:

• BHVN, BSIG, SAVA, SNDX and PINS
  

Stocks With Unusual Call Option Activity:

• 1) SABR 2) STZ 3) MAT 4) PCG 5) AES

Stocks With Most Positive News Mentions:

• 1) CCNC 2) STAB 3) PRVB 4) BBRW 5) PERI
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume