Bespoke’s Morning Lineup – 1/24/22 – More Red

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“Control your own destiny or someone else will.” – Jack Welch

Futures were briefly in the green at the open last night, but that positive tone didn’t last long.  Futures are not only in the red, but the pace of the decline has been picking up steam with S&P 500 futures down 1% and the Nasdaq down about 1.5%.  There were a number of times in the last year when it felt like the market could do nothing but go up.  Now you know how it feels the other way around.

Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.

How steep of a drop for the Nasdaq has it been over the last several days?  The chart below measures the Nasdaq’s spread versus its 50-day moving average (measured in standard deviations) on a daily basis going back to 2009.  As of Friday’s close, the Nasdaq was 3.3 standard deviations below its 50-day moving average which represents the most oversold level since the second half of March 2020 during COVID crash, and since the end of the Financial Crisis in 2009, there have only been a handful of other times that the spread was wider than it is now.  We covered more on this topic in today’s Chart of the Day, which will be emailed out shortly.

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Bespoke’s Morning Lineup – 1/21/22 – Not Even Pretending to Rally

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“The shortage of skilled workers is now so serious that it is dramatically slowing down our economy,” – Christian Duerr, Leader of Free Democratic Party in German Parliament

The quote above illustrates that shortages of labor are not just an issue facing the US economy as aging populations, an acceleration in retirements and closed borders due to COVID shrink the available pool of labor in many countries. While not necessarily a concern in the present moment, these trends are long-term challenges facing advanced economies as birth rates around the world decline.

In markets today, unlike the last two days where futures traded higher only to reverse lower throughout the trading day, they aren’t even pretending to rally as all three major indices are firmly in the red.  Equity markets are currently trading at extreme short-term oversold levels, but it’s going to be hard to convince investors to take a stand on the market heading into the weekend.

Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.

This year’s sell-off in the Nasdaq is really starting to rank up there in terms of the worst starts to a year for the index in its history.  With a decline of 9.5% YTD, it is one of only six years where the index has been down more than 5% in the first 20 days of the year and the third sharpest YTD decline ever.  The only two years that experienced a sharper YTD decline were 2008 (-11.8%) and 2016 (-10.7%).

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Bespoke’s Morning Lineup – Another Attempt At An Advance

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“If you absolutely can’t tolerate critics, then don’t do anything new or interesting.” – Jeff Bezos

The set-up in pre-market futures looks similar today to what it looked like yesterday, but hopefully, the outcome isn’t.  After trading up as much as 1% in early trading yesterday, the Nasdaq quickly gave up all of its gains and more throughout the trading day and finished down more than 1% by the closing bell.  Economic data just released includes jobless claims and the Philly Fed.  Regarding claims, both initial and continuing claims came in significantly higher than forecast, while the Philly Fed actually surprised to the upside even after the big miss from the Empire Manufacturing report earlier this week.

Recent weakness in the market is starting to show up in sentiment surveys, though.  In this week’s survey from AAII, for example, just 21% of respondents reported as bullish while 46.7% were bearish.  In terms of bulls, that’s the lowest reading since July 2020, and for bears it was the highest reading since September 2020.

Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.

The Nasdaq made it official yesterday and reached the 10% threshold for a correction.  In the post-global financial crisis (GFC) period, the current period ranks as the 14th correction for the Nasdaq with the most recent before the current one spanning mid-February through early March 2021.  Overall, post-GFC Nasdaq corrections have seen an average total decline of 15.2% over a span of 53 days. The median during this period is a bit milder at 12.0% over the span of just 36 days.  Going all the way back to 1970, the ‘average’ Nasdaq correction has seen a total decline of 19.5% putting them just shy of bear market territory (median: -16.6%) over a span of 75 days (median: 60 days).  At just 10.2%, therefore, the current correction is still more modest than average, but at 61 days its been longer than average for the post-GFC period.

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Bespoke’s Morning Lineup – 1/19/22 – Strong Housing Data

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“A good first impression can work wonders.” – J.K. Rowling

Futures are attempting a bounce after yesterday’s wallop, and positive reactions to earnings from Bank of America (BAC) and Morgan Stanley are contributing to the positive tone.  The only economic reports for the morning were Housing Starts and Building Permits, and both came in significantly higher than expected and at their second-highest levels since the financial crisis.  The only readings that were strong for each series were in Q1 of 2021.

Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.

First impressions are always important, but they’re not always accurate, and that’s the hope of bulls following the first days of earnings season. Banks kicked off the Q4 earnings season late last week, and two of the largest to report were Goldman Sachs (GS) and JP Morgan Chase (JPM).  The stocks of both banks had abysmal reactions to their reports.

Following Friday’s report from JPM, the stock declined 6.15% which ranks as the worst earnings reaction day performance for the stock in at least 20 years beating out the 6.06% decline the stock experienced in January 2009 during the thick of the financial crisis.  The reaction in GS to its earnings report on Tuesday wasn’t much better with the stock falling just under 7%.  That was large enough to rank as the second-worst earnings day reaction for the stock behind only the 11.56% decline in April 2009 just as markets were coming out of the financial crisis.

As disheartening as a bad first impression can be, one potential bright side is that it can have the effect of resetting the bar low, and in early trading, both Bank of America (BAC) and Morgan Stanley (MS) are trading up close to 3% in reaction to their reports.  Whether those gains can hold through the opening and closing bell, though, is another story.


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Bespoke’s Morning Lineup – 1/18/22 – At Least It’s Tuesday

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“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” – Winston Churchill

Despite an extra day off, the equity market is not looking like it’s going to get off to a good start to the trading week with futures on the major averages all lower.  After outperforming the S&P 500 last week, the Nasdaq is leading the charge lower this morning with a decline of over 1%.  The culprit this morning, as it seems to be every day, is interest rates as the yield on the 10-year tops 1.8% and the 2-year yield moved back over 1%.

On the earnings front, reports so far this morning have been mixed, but the most high-profile report so far has been Goldman (GS) which actually missed EPS forecasts and is trading down over 5%.  It’s not looking like a positive start to the shortened week, but at least it’s Tuesday already.

Lastly, in just announced news, Microsoft (MSFT) is planning to acquire Activision Blizzard (ATVI) for $95 per share in cash. On the economic side, the Empire Manufacturing report for January came in much weaker than expected falling to -0.70 versus December’s reading of 31.9.  That was the largest m/m decline since the early days of the pandemic in April 2020.  This report comes on the same day the markets are now pricing in a 100% chance of a 25 bps rate hike in March and even a slight chance for 50 bps!

Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.

The Nasdaq 100 tracking ETF (QQQ) is set to open down over 1% this morning which would be the fourth downside gap of at least 1% over the last 50 trading days.  The way the Nasdaq has been trading lately, we were actually surprised that the number of downside gaps wasn’t higher.  In any event, the rolling number of downside 1%+ gaps for QQQ is now at the highest levels since last July, but still just a fraction of the pace we saw during the COVID crash.  Over the last five years, there have been 77 prior downside gaps of 1%, and on those days, the median change from the open to close for QQQ has been a gain of 0.30% with positive returns 57% of the time.  However, when those downside gaps occurred on the first trading day of the week (Monday or Tuesday), the median change from the open to close was actually a decline of 0.08% with gains just half of the time.

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Bespoke’s Morning Lineup – 1/14/22 – And They’re Off

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“When you expect things to happen – strangely enough – they do happen.” – J.P. Morgan

If you were hoping for a quick bounceback following yesterday’s decline, think again.  While futures were higher overnight, all of those prior gains have evaporated.  Tech is leading the way lower once again, but Financials aren’t providing any support as investors have generally been selling JP Morgan (JPM), Wells Fargo (WFC), Citigroup (C), and Blackrock (BLK) following their reports.  The only one of those four that’s higher this morning is WFC, while JPM and C are both down over 4%.  As noted in our Earnings Season Preview yesterday, the major financials typically react negatively to their Q4 reports, so far this earnings season doesn’t appear to be an exception.

It may be Friday, but it’s a relatively busy day for economic data to close out the week with Retail Sales, Import and Export Prices, Industrial Production, Capacity Utilization, Business Inventories, and Michigan Confidence all on the calendar.  Retail Sales just hit the tape and came in much weaker than expected.

Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.

Yesterday was a gut punch for the technology sector.  Take semiconductors, for example.  Boosted by a strong earnings report from Taiwan Semiconductor (TSM), the Philadelphia Semiconductor Index (SOX) traded more than 2% higher in early trading but then reversed lower finishing right near its low of the day and down more than 2% from Wednesday’s close.  That marked the first time the index was up 2%+ intraday but finished the day down more than 2% from its prior day close since April 2020.

In the entire history of the SOX dating back to the mid-1990s, there have only been 42 prior occurrences where it was up 2%+ intraday but finished the day down 2%+, and only three of those occurred in the post-Global Financial Crisis period.  As shown in the chart below, the majority of the prior occurrences came during the unwind of the dot-com bubble from March 2000 through October 2002. What makes yesterday’s reversal unique is that even after the decline, the SOX is still just 6.3% below its 52-week high.  The average distance from their respective 52-week highs of the other 42 occurrences was over 40%, and there wasn’t a single time where the SOX was as close to a 52-week high as it is now.  The only other occurrence where the SOX was even within 10% of a 52-week high was on 3/14/00.

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