Sep 15, 2023
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“Don’t count the days, make the days count.” -Muhammad Ali
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There’s still 20% of the trading week left, but we’re almost at the finish line. With all the hemming and hawing over how this week’s inflation data would be higher than expected given the surge in oil prices, the major averages are all on pace for a positive week. In September no less!
Equity index futures are generally higher, although the Nasdaq is basically unchanged, even as yields are higher again. The 2-year yield is back above 5% while the 10-year is above 4.3%. There’s a decent chunk of economic data to deal with even after the release of Import Prices and Empire Manufacturing which were both higher than expected. At 9:15, we’ll get Industrial Production and Capacity Utilization, and then at 10, Michigan Sentiment will be the final release of the week..
Over in Europe, major benchmark indices in the region are sharply higher adding to what has been an already strong week. The STOXX 600 is on pace for a gain of over 2% despite an ECB rate hike that some said was a surprise but shouldn’t have been. The key reason for the optimism in Europe, though, is that there’s a very strong likelihood that the ECB is done for the current cycle after taking the benchmark rate to a record high.
As crude oil topped $90 per barrel for the first time since last November, it’s interesting to see how prices of natural gas have seen little movement. It used to be that the two commodities moved somewhat in unison with each other, but that has not been the case this year. As shown in the chart below, since crude oil really started to take off at the end of Q2 it has rallied more than 28%. Nat gas meanwhile not only hasn’t rallied, but it’s down over 3%!
As a result of the recent divergence between the two, the ratio of crude oil to natural gas has surged this year and currently sits at over 30. Besides earlier this year, the only time since 1990 that the ratio between the two was as high or higher was back in the period spanning late 2011 through early to mid- 2013.
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Sep 14, 2023
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“Smart people focus on the right things.” – Jensen Huang
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US equity futures are up slightly this morning as investors digest a surprise rate hike from the ECB and await a slug of economic data at 8:30 AM ET, including August Retail Sales, August PPI, and weekly Jobless Claims.
Markets continue to trade heavy and small-caps continue to underperform as we work our way through what has historically been the worst month of the year for stocks. As shown below, the Russell 2,000 closed below its 200-day moving average yesterday for the first time in months as a short-term head and shoulders pattern has formed.
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Sep 13, 2023
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“You can spend minutes, hours, days, weeks, or even months over-analyzing a situation; trying to put the pieces together, …or you can just leave the pieces on the floor and move…on.” – Tupac Shakur
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Equity futures are taking a cautious tone heading into today’s CPI report for August where headline inflation is expected to rise by 0.6% m/m (largest increase since June 2022) and 3.6% on a y/y basis. European equity market performance hasn’t helped as most indices in the region are down by about 1% as the ECB is likely to hike rates this week by another 25 bps due to stubbornly high inflation. Not helping matters is the fact that economic data in the region including UK GDP and German Industrial Production both came in weaker than expected.
As we’ve noted numerous times in the past, the easy job has been done when it comes to headline inflation and getting it back down to levels more in line with the pre-COVID range will take time. In this morning’s report, the focus will shift to core which is expected to rise by just 0.2% m/m taking the y/y reading down to 4.3%. If the report comes out in line with expectations, it would be the lowest y/y reading in Core CPI since September 2021, and it would also represent the largest decline in the y/y reading from a 12-month high since the early 1980s.
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Sep 12, 2023
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“After a half century in the oil and gas business, I’ve learned a lot of lessons. Few have been cheap.” – T Boone Pickens
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The negative tone in futures this morning is largely attributable to the negative reaction to Oracle’s (ORCL) earnings after the close on Monday. The stock is trading down over 10% which put the stock on pace for its most negative reaction to earnings since December 2011. Besides ORCL, the focus is on Apple (AAPL) which will unveil the new iPhone early this afternoon. In economic news, the only report on the calendar was the NFIB report on small business sentiment. The headline index for that report came in slightly weaker than expected (91.3 vs 91.5) and declined modestly from last month’s reading of 91.9.
In yesterday’s email, we noted the absolute and relative strength of the Energy sector in the first five trading days of September. When the opening bell rang on Monday, it looked as though that strength would continue to start the week. Within the first few minutes of trading, the Energy sector was up just under 1% and trading at a YTD high, but from there it ran out of gas and proceeded to drift lower all day. By the time they rang the closing bell, the Energy sector finished the day down well over 1%.
When a stock or index makes both a higher high and a lower low relative to the prior day’s range, technical analysts refer to it as an outside day, and it is considered a signal of a potential reversal in the prior trend. The actual record of these patterns playing out as expected is mixed, but we would note that the S&P 500 had a similar outside day right at the high in late July and has yet to get back to those levels in the seven weeks since.
Getting back to the Energy sector, in its history since 1990, yesterday was just the sixth time that the sector had an outside reversal day that was comprised of an intraday high of at least 0.5% relative to the prior close but where it closed the day down over 1%.
In today’s Morning Lineup post, we looked at how the sector performed following prior reversals like Monday’s, and if you sign up for a two-week trial to Bespoke Premium to you can check out the full details.
Sep 11, 2023
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“A Nation became a neighborhood; all Americans became New Yorkers.” – George Pataki
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After a weak start to September, futures are heading into the new week on a positive note. There’s a handful of important economic reports this week, including CPI (Wed), PPI (Thur), and Retail Sales (Thur), but the week will start off quietly as there are no economic or earnings reports on the calendar. One notable release today, though, will be the NY Fed’s survey of Consumer Expectations which has become a widely watched gauge for inflation expectations.
The last five trading days, which also encompass all of September, have been weak for US stocks as nine out of eleven sectors are down month to date and seven of them are down over 1%. Despite the weakness, the losses have been relatively contained as Industrials is the only sector down more than 2%. Behind Industrials, Technology, the most important sector in the market given its weighting, is down 1.63%. To the upside, the only two sectors positive this month are Utilities (+0.35%) and Energy (+3.52%). In a market environment preoccupied with inflation, it shouldn’t be a surprise that when the Energy sector rallies over 3%, the rest of the market may struggle.
Looking at the Energy sector, ever since late June, the sector ETF (XLE) has been steadily trending higher moving from oversold to overbought territory, and it is now less than 2% from its 52-week high in November and less than 10% from its all-time high in 2014.
The Industrials sector has been weak (like the rest of the market) of late, and on Friday it closed right at the lower end of a short-term trading range, but even of that level breaks, the sector ETF (XLI) is trading comfortably above the high end of its trading range from 2023.
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Sep 8, 2023
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“You hit home runs not by chance but by preparation.” Roger Maris
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After three down days in a row for the S&P 500 and four for the Nasdaq, futures suggest that bulls may end up going o-fer the week. While they are down, the magnitude of the losses at this point remains modest, so anything can happen. Crude oil prices are back to their winning ways this morning after yesterday’s decline ended a nine-day winning streak, and treasury yields are basically flat on the day. It’s a slow day for data and earnings, although NY Fed President Williams spoke last night and suggested that officials need to see more data before determining what to do with rates. At this point, a hike in September (or even November) looks highly unlikely.
September has historically been a weak month for stocks, but when it comes to seasonal market trends, as Charles Dickens may have put it, it’s a tale of two timeframes. The snapshot below comes from the Seasonality Tool on our website, and it shows the S&P 500’s median performance in the one and three months following the close on 9/8 based on the last ten years of trading.
In the month following the close on 9/8, the S&P 500’s median performance over the last ten years has been a decline of 0.62% which ranks in just the ninth percentile relative to all other rolling one-month periods. Not that we need to tell you, but that’s pretty bad.
While seasonal trends for the upcoming month have been poor, performance in the three months following the close on 9/8 have been among the best relative to any rolling three-month period throughout the year. As shown below, the median gain of 4.65% ranks in the 87th percentile relative to all other three-month periods throughout the year.
The stock market may be coming up on the best of times when it comes to the calendar, but to get there, it must get through the worst of times first.
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