Bespoke’s Morning Lineup – 6/27/22 – Two Minute Warning

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“In times of rapid change, experience could be your worst enemy.” – J. Paul Getty

Morning stock market summary

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Bulls finally caught a break last week with the S&P 500 up well over 5%, and they’ll be looking to finish up the quarter on a positive note as we head into the end of the first half.  The bears are still comfortably in the lead heading into the half, but a late ‘field goal’ or even ‘touchdown’ for the bulls in the final days would make things look a little more respectable to kick off the second half.  Futures are higher this morning but have been drifting as the opening bell approaches and treasury yields rise as the 10-year trades back near 3.2%.  Investors continue to be tossed around by moves in the treasury market as market rallies tend to push yields higher and eventually to levels that cause angst on the part of equity investors.

Durable Goods orders were just released and came in higher than expected, while later on, we’ll get updates to Pending Home Sales (10:00 AM Eastern) and the Dallas Fed report for June (10.:30).  On the earnings front, we’ll hear from Jefferies (JEF) and Nike (NKE) after the close.

In today’s Morning Lineup, we discuss the news coming out of the G7 meetings, overnight moves in Asian and European markets, US rig counts, and overnight economic data from Asia and Europe.

With gains of over 6%, last week was a very good one for US equities.  Good, that is for every sector except Energy.  Sectors leading the rally included Consumer Discretionary, Health Care, and Real Estate, but Technology and Utilities also outperformed.  Despite the big gains last week, all five sectors are still in the red YTD, and only Health Care is above its 50-day moving average (DMA).  Ironically enough, Energy was the only sector down on the week and is the furthest below its 50-DMA, but it is also the only sector up YTD and with a gain of over 30% it’s leaving the other ten sectors in its dust.

Speaking of the Energy sector, while it has easily been the best performing sector over the last year, the last week of the month has been routinely weak for the Energy sector.  As shown in the chart below, over the last year, the sector has underperformed the S&P 500 in the last week of the month ten out of twelve times with a median margin of 2.5 percentage points in underperformance.  Energy has been a high octane sector lately, but it hasn’t had much in the way of endurance on a month-to-month basis.

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Bespoke’s Morning Lineup – 6/24/22 – Two For Twelve

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“The riskiest strategy is to try to avoid risk altogether.” – Fredrick W. Smith

Morning stock market summary

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This week marks the 12th and final full week of the second quarter and barring a calamitous reversal from pre-market levels, it will be just the second positive full week of trading during Q2.  That’s how bad of a quarter Q2 has been.  Gains this quarter have been awfully hard to come by.

Futures are looking to finish off what has already been a positive week on an up note, but in order to stay there, we’ll have to get through the Michigan Confidence and New Home Sales reports at 10 AM.  The Michigan Confidence report will be an update to the preliminary reading that was released two weeks ago and came in at the lowest level in the history of the survey dating back to 1978. It’s hard to imagine that report getting any worse.

In today’s Morning Lineup, there’s a lot covered as we discuss overnight moves in Asian and European markets, declining volatility in the crypto space, and overnight economic data from Asia and Europe.

It’s been a rough few weeks for copper as yesterday’s 5%+ decline capped off its worst five and ten-day declines since March 2020 at the depths of the COVID crash.  With the title of doctor, copper’s performance is often considered to be a good gauge of the economy’s health, so the recent declines naturally raise economic concerns.

The chart below shows the historical 10-day rate of change in copper going back to 1981. During that span, there have only been seven other periods where copper declined 20% or more in a ten-day span, and as mentioned above, the most recent was during the original COVID lockdowns.  There were also similar or larger declines during the Financial Crisis recession and the recessions of the early 1980s (not quite 20%) and early 1990s.  While large short-term declines in copper did occur during four of the last five recessions, there were also a number of other large declines that occurred outside of recessions (1986, 1987, 2011, and 2018).  Large short-term declines in the price of copper have often occurred during recessions, but they aren’t exclusive to recessions.

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Bespoke’s Morning Lineup – 6/23/22 – The Flying Powell

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“Being on the tightrope is living; everything else is waiting.” Karl Wallenda

Morning stock market summary

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Nine years ago today, people all over the world watched with bated breath as acrobat Nik Wallenda became the first person to walk across the Grand Canyon on a tightrope. Technically, it wasn’t actually the Grand Canyon, but a gorge right near the Grand Canyon National Park.  However, the 1,800-foot highwire trek across the gorge that took place 1,500 feet above the ground (without a net) was impressive.  Wallenda’s Grand Canyon crossing came barely a year after an even more widely watched event where he became the first person to walk a tightrope over Niagara Falls. Talk about an ability to strike a balance!

Nik Wallenda is just one of a long line of ‘Flying Wallendas’ that have for decades been known for their death-defying stunts that mostly involve high-wire acts without a net.  Living on the edge is simply in their blood.

Up until recently, Fed Chair Powell has been attempting his own ‘Wallenda act’ looking to strike a delicate balance between raising interest rates to fight inflation and avoiding throwing the economy into recession on the other.  Just like Nik Wallenda’s walks over the Niagara Falls and The Grand Canyon, many out there say that it simply can’t be done.  Powell, on the other hand, remained optimistic up until recently, arguing in mid-May that removing accommodation and raising rates could be achieved with a ‘softish’ landing in the US economy that may be a ‘little bumpy’ but ‘still a good landing’.

In the month since those May comments, though, Powell has sounded less confident, increasingly leaning on the recession side of the wire in order to prevent a fall further onto the side of inflation.  Just yesterday, in Senate testimony, the Fed Chair noted that “We’re not trying to provoke, and don’t think that we will need to provoke, a recession, but we do think it’s absolutely essential that we restore price stability, really for the benefit of the labor market, as much as anything else.” Wallenda ultimately proved all his doubters wrong.  Is Powell’s balance anywhere near as good?

Futures have been bouncing around this morning, but have mostly been in positive territory after yesterday’s rebound from a sharply lower open.  Jobless Claims were just released and came in very slightly higher than expectations at 229K compared to forecasts for 226K.  Continuing Claims, on the other hand, came in 5K lower than the consensus forecast of 1.32 million.  Looking ahead to the rest of the day, Powell will testify in front of the House at 10 AM, and the EIA will release Natural Gas stockpiles at 10:30.  The release of crude oil inventories, which were already delayed by a day due to the Juneteenth holiday, has been postponed indefinitely due to system issues.

In today’s Morning Lineup, there’s a lot covered as we discuss overnight moves in Asian and European markets, central bank moves, and overnight economic data from Asia and Europe.

Treasury yields are down this morning with the 10-year yield below 3.1% after topping out at just under 3.5% a little over a week ago.  In the five trading days that ended yesterday (6/22), the 31 basis point decline in the 10-year yield was the largest since the COVID crash, although it followed what was the largest five-day increase in over five years.

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Bespoke’s Morning Lineup – 6/22/22 – Giving it Back

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“There are no easy fixes nor any short-term answers to the global supply and demand imbalances aggravated by Russia’s invasion of Ukraine.” – Mike Wirth, CEO of Chevron

Morning stock market summary

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It was fun while it lasted.  In the latest example of the two steps backward, one step forward market, most of yesterday’s rally, which wasn’t enough to erase the declines of the prior two trading days, is poised to get erased at the open.  Besides the fact that it’s a weekday and the market is open, there isn’t much in the way of a catalyst for this morning’s weakness.  Oil prices are sharply lower with WTI down nearly 5%.  Unlike most other days this year where equities and US Treasuries have moved in tandem with each other, Treasuries are actually rallying this morning.

There’s no economic data on the calendar to speak of today, but it will be a busy day of Fedspeak with Powell testifying in front of the Senate while Barkin, Evans, and Harker will also be speaking throughout the trading day.

In today’s Morning Lineup, there’s a lot covered as we discuss overnight moves in Asian and European markets, central bank moves, activity in the metals markets, and overnight economic data from Asia and Europe.

The quote above came from a letter to President Biden from Chevron (CVX) CEO Mike Wirth ahead of a scheduled meeting on Thursday between Energy Secretary Jennifer Granholm and US oil executives.  The letter argues that the Biden “Administration has largely sought to criticize, and at times vilify our industry.” Wirth goes on to note that “bringing prices down and increasing supply will require a change in approach” and that the industry needs “clarity and consistency on policy matters”.  Closing out, Wirth encourages President Biden that in addition to Secretary Granholm, he also “send your senior advisors to this meeting, so they too can engage in a robust conversation.”

Whatever side of the debate you are on with regards to energy policy, the current state of tension between the Federal government and the US oil industry can’t continue.  While expectations are low, Thursday’s meeting will hopefully be more than a photo-op for both sides and instead help to bring some clarity to the strategy moving forward.

This morning, the Biden Administration has proposed a three-month holiday from the 18-cent per gallon federal gas tax holiday.  While it sounds nice, the majority of economists and industry insiders have said it will do little to ease pressure at the pump and may actually worsen the situation by increasing demand. One study from Wharton found that a ten-month holiday would save consumers between $16 and $47 in total.  The current proposal is for just three months which would imply total savings that’s barely enough to cover a McDonald’s value meal!

Despite the weakness in equity futures this morning and confusion surrounding US energy policy, oil prices are sharply lower.  At a level of $104 per barrel, WTI has now pulled back 15% from its recent closing high on June 8th and has also broken the uptrend that has been in place since late 2021.  Outside of the oil industry, just about everybody is rooting for this chart to keep moving lower.  None more than Fed Chair Powell.

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Bespoke’s Morning Lineup – 6/21/22

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“A ship is safe in harbor, but that’s not what ships are for.“ – William Shedd

Morning stock market summary

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It took a day longer than normal, but at least equity markets are kicking off the week on a positive note.  Obviously, where we end up today is an entirely different story. It doesn’t take much to erase a market rally these days, but at least there won’t be much in the way of economic data to derail things.  The only two reports on the calendar are the Chicago Fed National Activity Index which was barely positive at +0.01 and was the lowest level since last September and Existing Home Sales which will be released at 10 AM Eastern. On the speaker front, Fed Presidents Mester and Barkin will be speaking this afternoon.

In today’s Morning Lineup, there’s a lot covered as we discuss overnight moves in Asian and European markets, the wild weekend in crypto, political trends in Latin America, and economic reports out of Asia and Europe.

Based on where the tracking ETF (SPY) is currently trading in the pre-market, the S&P 500 is poised to gap up 1.7% to kick off the new trading week.  As shown in the chart below, if these gains hold through the opening bell it would be the largest upside gap to kick off a new trading week since “Pfizer Monday” on 11/9/20.  While this week’s upside gap is the strongest since November 2020, it follows last week’s downside gap of 2.6% which was the largest downside gap to kick off a week in two years.

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Bespoke’s Morning Lineup – 6/17/22 – Trying To Go Out On A Positive Note

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“We can offer sunshine that glows bright in the afterthought, and scatters the darkness of the tenement for the price of a nickel or a dime.” — L.A. Thompson

Morning stock market summary

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138 years ago yesterday, the first roller coaster in the United States opened at Coney Island.  Called the Switchback Railway, it was invented by LaMarcus Thompson, and in the years since the roller coaster has become a staple of American leisure activities.  The one area where we like to avoid them as much as possible is in the financial markets.  Unfortunately, investors haven’t been able to dodge them this year.  Making matters worse, the last several days have been more like the ride Free Fall than anything else.  After all, in order to have a roller coaster, there have to be ups and downs.

Futures are higher heading into the last trading session of the week, and whether they hold into the close is probably a bet many investors wouldn’t take at this point given the tendency to give up gains intraday. We’ll also get some important reports on Industrial Production (9:15), Capacity Utilization (9:15), and Leading Indicators (10:00).

In today’s Morning Lineup, there’s a lot covered as we discuss the latest moves from the BoJ, and overnight economic and market data in Asia and Europe.

We’ve been calling it the one step forward and two steps backward market for some time now, and yesterday and today provides another illustration of that pattern.  After rallying over 1% following yesterday’s Fed meeting, the S&P 500 is indicated to open down about 2.0% this morning, more than erasing all of Wednesday’s gains.  Keep in mind too, that even after Wednesday’s rally, the trailing five-day performance of the S&P 500 was a decline of just under 8%.

For the second week in a row, the S&P 500 is closing out trading with a decline in nine of the last ten weeks.  In the post-WWII period, there have only been three other periods where this has occurred. Besides the fact that all three were lousy market environments, another theme they all have in common is that they all occurred in the middle of recessions.  In 1970, the economy was six months from bottoming out, while in March 1982, the economy was more than a half year into a recession and eight months from its trough.  Lastly, the period ending in early April 2001 was just one month into a recession that had another seven months left to go.

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