Investors rotated away from Technology and into Energy and Consumer Staples, choosing to redeploy some of their gains in the sector amid concern over a slowdown in spending and burgeoning debt (see below). As we have routinely noted within this column, October and can be volatile and there is no reason to believe this October would be any different. Buckle up but stay alert for opportunities.
- President Trump Signed an Executive Order waiving sanctions imposed against Russia, as it pertains to diesel fuel. The move is an effort to bring down the cost of the fuel that makes the business end of the transportation industry function. Such a move may not provide the supply necessary to reduce prices meaningfully and optically is perhaps not the greatest as we approach November.
- The Technology Select Sector SPDR ETF (XLK) dropped 7.70% last week as investors rotated into other sectors. We attribute the sharp selloff to the rising cost of the credit default swaps especially surrounding debt issued by companies within AI (CoreWeave), rising interest rates in general, profit-taking and nervousness surrounding the upcoming mid-term elections. In our opinion, like past selloffs, this will ultimately be a buying opportunity for the leaders in those sectors (Information Technology, Communication Services and Consumer Discretionary). However, stick to the leaders and be patient. No need to be a hero.
- A research report from Anthropic, written by William Zhou and Daniel Friedman stated that “our experiments suggest that small AI models may be months away from being capable enough to self-replicate on commercial internet-of-things (IoT) devices, like smart ovens and off-brand Android TV boxes. A replicator like this would be challenging to shut down, since there’s no centralized point to shut off—though it may be slow (with a doubling time of days). Unlike non-AI malware, it could also figure out unfamiliar devices on its own. In our evaluations, a 9B model got inference running on 8 of the 9 hardware types we tested.”
Economic Data That Drove Market Sentiment This Past Week…
- U.S. Export Prices rose 2.2% during September (11.6% y/y) after rising 1.2% in August. Import prices rose 1.1% during September (8.1% y/y) after rising 0.5% in August. Agricultural export prices surged 2.6% during September (9.0% y/y), after edging 0.4% higher during August. Non-Agricultural Export Prices rose 2.1% during September (11.8% y/y) after rising 1.3% during August. Please note that import and export prices are not affected by tariffs as they are measured prior to taxes. (Source, U.S. Bureau of Labor Statistics)
- Industrial Production, a measure of strength in the manufacturing, factory and utility sectors, rose 0.7% during September (2.2% y/y), after rising 0.1% during August. Capacity Utilization rose to 76.9% during September from 76.4% when compared to August and from 76.0% y/y. Manufacturing Capacity rose to 75.9% from 75.8% m/m and as compared to 75.8% y/y. (Source, U.S. Federal Reserve)
- Prices at the wholesale level as measured by the Producer Price Index surged 1.3% during September, this after climbing 0.5% higher during August. Over the past year the PPI has risen 6.3%, up from 5.4% in August. Energy prices jumped 10.8% during September (35.4% y/y) after rising 4.5% in August. Final demand food prices rose 1.2% during September (0.0% y/y) after falling 0.3% in August. Excluding food, energy and trade, the core PPI rose 0.5% during September (5.0% y/y), after rising 0.3% in August. Prices for Intermediate Goods rose 2.5% during September (21.5% y/y) after rising 1.8% in August. (Source, U.S. Bureau of Labor Statistics)
- Retail Sales jumped 0.8% in September (6.3% y/y), after rising 1.3% in August. Spending on Motor Vehicle & Parts rose 0.2% during September (2.5% y/y) after rising 0.7% in August. Retail Sales Excluding Motor Vehicles & Parts rose 0.9% during September (7.2% y/y), after gaining 1.4% during August. Two key components of this report, Sales at Gasoline Stations, jumped 6.4% during September (28.1% y/y) after rising 4.0% in August as Food Services and Drinking Place Sales rose 1.1%1during September (7.0% y/y) after rising 1.4% in August. Also of note was the 0.6% rise in sales at electronic & appliance stores (9.4% y/y) as well as the 0.0% rise (5.0% y/y) in sales at clothing and accessory stores. (Source, U.S. Census Bureau)
- Inflation at the Retail Level as measured by the Consumer Price Index rose 0.6% during September (3.7% y/y), after climbing 0.4% during August. The CPI has fallen from a y/y high of 9.1% during June 2022 but remains stubbornly elevated relative to the Fed’s 2.0% target. Energy prices rose 5.2% during September (20.4% y/y) after rising 2.1% in August. Food at home prices fell 0.1% (2.5% y/y) during September after remaining unchanged during August. The cost of shelter rose 0.4% during September (3.2% y/y), after rising 0.3% during August. Excluding food and energy, the core CPI rose 0.3% during September (2.6% y/y), matching the gain registered during August. (Source, U.S. Bureau of Labor Statistics_
- Sales of Existing Homes rose 1.5% (-2.2% y/y) to a Seasonally Adjusted Annualized Rate (SAAR) of 3.99 million units during September from 3.93 million during August. According to the National Association of Realtors (NAR) total housing inventory at the end of August was 1.60 million units, up from 1.57 million units in August and by 4.6% y/y. Unsold inventory rose to 4.8 months during September from 4.6 months one month prior. The report also noted that the median price for all existing homes fell 2.4% (1.3% y/y) to $417,500 in September from $427,700. According to National Association of Realtors Chief Economist Lawrence Yun, “despite the small monthly gain on a seasonally adjusted basis, August and September marked the two slowest months for home sales this year. Further increases in mortgage rates in recent weeks mean fewer buyers can qualify to purchase a home.” (Source, National Association of Realtors)
Economic Reports scheduled to be released this week, include the following – on Tuesday, September Housing Starts; on Thursday, September Index of Leading Economic Indicators (LEI) and Initial Weekly Claims for Unemployment Benefits; and, on Friday, October Consumer Sentiment from the University of Michigan.
Several potentially market moving companies are scheduled to report earnings, to include BHP Group (BHP), RTX (RTX), GE Aerospace (GE), Netflix (NFLX), Abbott Laboratories (ABT), Thermo Fisher Scientific (TMO), IBM (IBM), Texas Instruments (TXN), Meta Platforms (META), Tesla (TSLA), Lam Research (LRCX), Philip Morris (PM), Union Pacific (UNP), Procter & Gamble (PG), ExxonMobil (XOM) and American Express (AXP).
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Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”
