Markets slide while bond yields extend their rise

Dow dropped 74, decliners over advancers a very big 5-1 & NAZ was up 88.  The MLP index sank 4+ to the 242s & the REIT index was off 6+ to the 332s as yields rise (1 year low for the REIT index).  Junk bond funds drifted lower & Treasuries continues to see very heavy selling, driving yields much higher.  Oil pulled back a big 2+ to the 88s & gold retreated 20 to 1945 (more  on both below).

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A major benchmark for US stocks the Russell 2000  index, turned negative for the year today, an indicator of broader weakness occurring in the economy that's being masked by a few large cap tech equities.  The small-cap barometer lost 1.6% on the day, pushing its YTD performance a loss of 0.2%.  It is also down 12.5% from its 52-week high.  By comparison, the large-cap-focused S&P 500 & NAZ are up 11% & 26%, respectively.  The Russell 2000's comparative weakness relative to the broad market indexes underscores concerns that the 2023 market rally has been too narrow.  By contrast, the Russell 2000 is often perceived as a better insight into the state of the broader US economy thanks to its focus on smaller businesses whose fate depends more on macroeconomic conditions.  The sell-off in the small cap sector has not been surprising due to the current period of market stress & uncertainty, according to Claro Advisors senior VP Jeff Corey.  “Investors tend to look for quality during times of market volatility, and that consists of stocks with strong balance sheets, significant profit margins, stable business models and growing dividends, and those are characteristics that are not typically found in the small caps space,” Corey said.  Compared to large-cap companies, small caps can also be more sensitive to the higher rate environment.  Lending is also often more difficult for small cap companies versus larger cap names, which are can negotiate lower lending rates.  The 10-year Treasury yield is near 15-year highs & was surging today.  The Russell 2000 has higher sector weight in financials, which makes it more leveraged toward interest rate conditions, said Bespoke Investment Group co-founder Paul Hickey.  “So if you put all those factors together, I wouldn’t say that the Russell 2000 is a canary in the coal mine. That being said, it’s very out of favor,” said Hickey.  The strategist believes that easing pressure on interest rates should help the small cap index bounce back from its oversold period.  He noted that major index ETFs that cover US stocks have are currently trading at “extreme” oversold levels, which could set the Russell 2000 on track to an upward trend.

The benchmark for small cap stocks turned negative for the year

Walmart (WMT), a Dow stock & Dividend Aristocrat, announced changes to job titles & pay structure for its corporate staff starting in Nov.  The changes will largely affect job titles & compensation, although no current workers will see their base pay reduced.  WMT, the largest private-sector employer in the US, said some staff will receive new job titles although their roles, responsibilities, type of work & base pay will be unchanged.  WMT is also updating its bonus targets & stock compensation plans.  "As Walmart has continued to grow and evolve over the years, so have the jobs needed to support our business," a spokesperson said.  "We’re in the process of updating our approach to campus office jobs to ensure we remain competitive in today’s environment, better reflect the work being done today, while streamlining job titles across our campus office roles."  Corp employees at WMT & Sam's Club, the company's warehouse chain, will be reclassified into fewer groups of possible job titles with some pay changes taking effect in Nov.  While most staff will receive the same or higher levels of stock compensation, about 4% of staff will see stock targets reduced to align compensation across different geographies.  Those who are set to see a reduction in stock options will receive a one-time grant to account for the change in total compensation before their options are reset at a lower level going forward.  A spokesperson said that the changes are "good compensation hygiene" aimed at helping ensure the company is "appropriately rewarding similar levels of work."  The stock rose 16¢.
If you would like to learn more about WMT, click on this link:
club.ino.com/trend/analysis/stock/WMT_aid=CD3289&a_bid=6aeoso5b6f7

Major retailer shuffles corporate titles, pay in latest staff move

A top CIA official is warning of the potential threat that China's artificial intelligence programs may pose to US national security, as the agency also seeks to deploy the tech in a way that is beneficial to the US.  Lakshmi Raman, the CIA's director for artificial intelligence, said at the Politico AI & Tech Summit this week that the agency is watching China's AI program, with a concern about how it could leverage the technology.  "They are growing every which way," she said.  That concern echoes concerns from other parts of the federal gov.  The Dept of Homeland Security's threat assessment said that "the proliferation of "accessible artificial intelligence tools likely will bolster our adversaries’ tactics."  "Nation-states seeking to undermine trust in our government institutions, social cohesion, and democratic processes are using AI to create more believable mis-, dis-, and malinformation campaigns, while cyber actors use AI to develop new tools and accesses that allow them to compromise more victims and enable larger-scale, faster, efficient, and more evasive cyber attacks," the assessment said.  But Raman said that the power of the tech also has potential positives for the US, including allowing agents to go thru enormous amounts of data & identify trends that wouldn't be possible without the technology.  She also said that the agency is developing an internal chatbot to help with research & writing.  "What AI sometimes enables in these spaces is the ability to do it at a scale and speed that hasn’t been possible," she added, according to the outlet.  "It’s much more available, and much easier for people."  She also said that the agency is looking to hire, telling the conference that "we need the people who can do this kind of work."  There has been both excitement & concern about the potential uses of the technology.  Lawmakers in Congress recently met with tech giants, union leaders & experts about how best to regulate the technology.

CIA official says China ‘growing every which way’ on artificial intelligence

Gold prices fell to more than 6-month lows, weighed down by a stronger $ & higher bond yields amid bets the Federal Reserve will hold interest rates higher for longer to fight inflation.  The $ index surged to 106.94, gaining nearly 0.7%.  Gold futures for Dec ended lower by $18 at $1847 an ounce.  Gold prices continue to soften as investors prepares for even higher real rates.  A peak in the $ remains elusive as Treasury yields can't stop rising.  A lot of gloom is coming towards the US consumer but that won't lead to safe-haven flows for bullion until the bond market selloff is believed to be over. 

Gold Futures Settle Lower As Dollar Rises On Interest Rate Bets

US crude futures dropped 2.2% to finish at $88.82 a barrel, marking the largest one-day percentage decline in 2 months & the lowest closing price since Sep 13.  Prices surged to a 13-month closing high of $93.68 last Wed, but have fallen each of the 3 sessions since then as investors worry over weak demand & rising spare capacity amid ongoing production cuts by Saudi Arabia & Russia.  ISM data this morning highlighted worries over weak oil & fuel demand as it showed the US manufacturing sector contracted for an 11th consecutive month in Sep.  Another surge higher in the $ today also put some downward pressure on oil prices. The WSJ Dollar Index was recently up 0.6%.

WTI Oil Falls to 2-Week Low on US Data, Dollar

This is a dreary time for the stock market.  The root of the problem for stocks is high interest rates.  Not only are they very high, but there are no signs of reduced rates in the near term.  Sep data which is coming shortly is not likely to send bullish signals.

Dow Jones Industrials