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Summer Slumber Ending for the Markets

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Friday, September 25, 2020

Even though it may not seem like it, the laid-back time for market activity is about to come to an end. September-end quarters, which will usher in the heart of Q3 earnings season, are within view, as are moves related to the upcoming General Election — including the first presidential debate, scheduled for next Tuesday evening — and, of course, next week’s ADP and non-farm payroll reports from the Bureau of Labor Statistics (BLS). Time to set the alarm, wipe the summer sand from our eyes, and get back to work (even if it’s still from home).

This morning, we have new Durable Goods Orders reported for August, and the headline number is a disappointment: +0.4% was almost 5x lower than the expected +1.9%, and clearly well off the pace set the previous month, which was revised upward to 11.7%. Strip out Transportation costs and the number remains the same: +0.4%. Ex-Defense, +0.7%. The best view of this new report comes from the non-Defense, ex-aircraft (a proxy for business investment), which came in at +1.8% (1.0% was expected.)

The revision to the previous Core Capital Goods Orders for August rose from 1.9% originally reported to 2.5% today. Now that’s more like it. Shipments were also revised up, from +2.4% to 2.8%. In short, while the headline on new orders of durables was weak, the underlying story is one of more gradual (durable?) strength. No, it’s not in the 12-15% range we had enjoyed in the rebound off pandemic lows, but clearly we’ve burned through a lot of the demand.

Currently, the Nasdaq is holding onto gains in Friday’s pre-market, though the Dow and S&P 500 is down. Perhaps more positive news on Covid-19 vaccine prospects, or a meeting of the minds in Washington DC regarding a new relief bill to support families and small businesses hampered by the pandemic, will come along to give the indexes a shot in the arm to end the week. As it is, currently we’re looking at our fourth straight down-week in the markets.

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