Market 10/17: SPY heads toward 440 shrugging off geopolitical risks

SPY heads toward key level 440 ahead of OpEx

The market opened Monday's first trading session of the week with extremely strong buying across all S&P500 sectors during the first hour. Indices rallied SPY 1.05%, QQQ 1.13%, and IWM 1.60% before options flow pressure started reversing against the market and exerting strong influence. This clearly shows investors and traders are not yet ready for a sustained rally, at least not yesterday. Put flow pressure eased in the early afternoon, helping the market recover and maintain range trade for the day.

However, noteworthy is that from yesterday to today, negative delta across the market continues to hold SPY's call wall at 440 while SPX's call wall rises to 4450. Currently, 440 is a key level for SPY in this week's October OpEx, with high likelihood SPY will pull back here and fail to break 440 at least until OpEx ends. Investor and trader sentiment and actions from yesterday and today largely reinforce this view.

SPY's resistance at 440 also coincides with VIX options expiration tomorrow featuring a large volume of 15P and 20C expiring. After tomorrow's VIX OpEx, market volatility will largely increase heading into Friday's OpEx, adding downside risk toward SPY's key put wall at 430.

September retail sales increased more than expected

September retail sales up 0.7% from previous month (expected +0.3%), equivalent to 3.8% YoY increase. This marks the 6th consecutive month of retail sales growth.

Core sales (excluding auto and gas sales) surged (+0.6% vs August) and the Control group (used for GDP) also up 0.6% from previous month.

Most category sales increased, with the strongest gain in Miscellaneous store retailers.

Miscellaneous store retailers had sharply declined in August

Some signs point to housing market weakness. Sales of building materials, electrical equipment, appliances, and furniture all fell from previous month.

Bond yields surge, borrowing costs at record highs

3-month Treasury bill yield hits 5.63% - highest since January 2001.

10-year Treasury yield returns to 4.81% peak, reversing all declines after Hamas attack news

Borrowing costs higher everywhere:

• 30-year mortgage rates at 7.57%, highest since 2000.

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• Credit card delinquency rates continue surging, now at March 2020 levels.

• Delinquency rate on credit card debt for 18-29 year olds now at 9%.

For 30-39 year olds, delinquency rate reaches 7.5%.

Delinquency rates have more than doubled from lows since Fed started hiking rates. 2023 bankruptcies match COVID-19 pandemic levels

Drugstore chain Rite Aid officially files for bankruptcy days after 61st anniversary celebration. Company recorded over $2 billion in losses over past 5 years, closing 50% of stores. Stock

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US manufacturing output down for 7th straight month

Industrial production up 0.3% from prior month, seasonally unadjusted down 1.7% from August.

Manufacturing output up 0.35% from prior month, seasonally unadjusted down 0.5% from August.

Industrial production unexpectedly up 0.3% from August due to slight capacity utilization rise (79.5% to 79.7%). Third straight month of gains.

1. Post-UAW strikes, September light vehicle-auto output down 6.2% from prior month (after August surge).

• Q3 earnings update for major banks

  • Bank of America

  • Bank of America revenue and profit beat Wall Street expectations.

• Net interest income rose 4% to $14.4 billion, about $300 million higher than analysts' estimates, due to higher interest rates and loan growth.

• The bank's credit loss provisions were also better than expected at $1.2 billion, below the $1.3 billion estimate.

2. Goldman Sachs

• Earnings fell 33% to $2.058 billion, equivalent to EPS $5.47

• Revenue fell 1% to $11.82 billion, although the figure was about $600 million higher than expectations.

• Bond trading revenue fell 6% from a year ago to $3.38 billion, but this was nearly $600 million higher than expected.

• Equity trading revenue rose 8% from a year ago to $2.96 billion thanks to derivatives trading about $200 million better than estimated.

Key events this week:

1. Retail Sales data - Tuesday

2. New Home data - Wednesday

3. Existing Home Sales - Thursday

4. Fed Chair Powell speaks - Thursday

5. Q3 2023 earnings season begins

Other news

• LinkedIn, owned by Microsoft, announced layoffs of nearly 700 employees, mostly from the engineering division amid slowing revenue growth

• Tesla (NASDAQ: TSLA) has been ordered to recall nearly 55,000 Model X vehicles produced in 2021-2023 because the vehicle controller may fail to detect low brake fluid levels and display a warning light. 

• Nvidia stock, plunged due to President Biden restricting AI chip sales to China. The stock evaporated nearly $100 billion in value in just over 24 hours.

  • New regulations expand licensing requirements for chip manufacturing equipment to 21 countries besides China and also expand licensing requirements for advanced chip exports to more than 40 countries. These regulations will restrict Nvidia's export of A800 and H800 chips to China.