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Durable Goods +1.8%, More than Double Estimates

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Monday, September 27, 2021

We greet a new trading week with much stronger-than-expected Durable Goods Orders for the month of August. While analysts did expect a bounce-back from a weaker July, partially on strong order numbers reported from Boeing (BA - Free Report) , the headline +1.8% blew away estimates of +0.6% for the month, and the biggest figure since May’s +3.2%. July’s initially reported -0.1% has been revised way up in the final read, to +0.6%.

Stripping out volatile transportation goods orders — a good way to solve for a particularly good month at a company like Boeing — we see this number come all the way down to +0.2%. But for the all-important non-defense, ex-aircraft core capital goods orders, we see a very solid +0.5%, with July’s +0.1% revised up to +0.3%. Non-defense, ex-aircraft is known as a proxy for general business investment, and is a very closely watched metric. Year over year, core cap goods are +14% — a very good number.

Shipments/orders for August came in at +0.7%, down a tad from the +0.9% the previous month. Overall, however, we’re looking at confident enterprises putting investment capital to work in the nuts and bolts of their businesses. One thing to keep in mind, however, is that these headline figures are preliminary reads; revisions may take them to vastly different places down the road. But for now, we’ll take it.

We also see this morning the 10-year Treasury bond yield back above 1.5%, for the first time since late June. Excessive liquidity from the Fed has kept our economy awash with cash, which has been very accommodative for equity investment (hence the near-record highs once again) and had kept the 10-year between 1.2% and 1.3% pretty much all summer. But the new leg up may spell recent months as a longer-term low point in borrowing costs, barring any unforeseen headwinds.

We may get one of those very things this Friday, however, if the debt ceiling in Congress is not raised, as is currently being discussed in some political circles. It could, in fact, cause a government shutdown, as well as a possible — though not probable — default on U.S. loans taken. We did see such an event in 2010, which took our country’s investment status down from AAA for the first time in history. Eventually, lawmakers capitulated, and life returned pretty much to normal.

Pre-market futures to start the week are mixed: while the Dow is +50 points at the hour, the Nasdaq is -120, with the S&P 500 splitting the difference, -10 points. These are slightly improved over the past half-hour or so, a half-hour or so ahead of the opening bell. Stocks in Q3 look to be closing higher, for now the sixth-straight month. While the Great Reopening has had plenty of hiccups, it has also not disappointed on wealth-gathering in the market indexes. And this looks to continue.

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