To use an analogy, if the equity market is a rubber ball that’s been dropped from a great height on to a hard surface, it would be expected to bounce numerous times, but eventually, that momentum would dissipate, and the ball would come to a stop. Looking at yesterday’s moves, the markets could be in this dissipating phase now.
US markets
US stock indices posted losses, but the VIX increased by just 0.5% and USD/JPY was largely unmoved overnight. 10-year US treasury bond yields appear to have settled around 3.925%.
Looking at some of the internals for US equity markets, selling volumes and the number of declining issues outweighed advancing issues and purchase volumes. In the case of advancing and declining issues, the fallers outweighed the gainers by a ratio of more than 2:1. As of the close in New York last night, only 46% of S&P 500 stocks were trading above their 50-day moving average. That figure falls to just 33% on the 20-day line, and to just 19% in the case of their five-day moving average.
Overall, the internals from the session look negative, but perhaps a period of consolidation at these lower levels is what's required right now. Internet security provider Fortinet bounced by 25.3% after beating on earnings and guiding higher. The sector has been dogged with issues this year, culminating in the recent internet outage caused by a software update at rival provider Crowdstrike, the fallout from which is still ongoing.
Despite its hefty gains, Fortinet’s stock price has been flat over the prior six months. Chipmakers Broadcom and Nvidia both fell by more than 5%. In fact, the S&P 500 information technology sector exhibited poor price action over the session, closing just above the day’s low and well under the high.
European markets
European equity indices have turned lower in early trade today, with the FTSE 100 dropping by 1.2% and the German DAX weaker by 0.98%. The day’s losers include lithography group ASML, sportswear brand Adidas and Spanish bankers BBVA, all of which have shed 2% or more.
There are some gainers in the Euro STOXX 50. Deutsche Telekom is foremost among these, up by 1.25%, a move that takes its 12-month gains to 28.27%. Crude oil is trading lower in European markets, though both UK and European natural gas contracts are up once more. The Dutch TTF contract has added 25.45% in the last month, while UK gas prices have risen by 32.57% in that period; something to watch perhaps as autumn approaches.
Nominally there is little in the way of high-impact macroeconomic data on the calendar. However, the initial and continuing jobless claims in the US today are important, as these numbers acted as a downside catalyst last week.
Point of interest
Berkshire Hathaway has been selling down its equity holdings in stocks like Apple and Bank of America, moving into cash and near-cash assets such as T-bills. In the past, Warren Buffet has used the optionality of being in cash to strike advantageous deals with corporates looking for funding or re-financing. Mr Buffet is also credited with coining the phrase, "when the tide goes out, we get to see who is swimming naked".
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