Aug 9, 2023
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“Goodness is the only investment that never fails.” – Henry David Thoreau
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US equity markets finished in the red yesterday, but the story of the session was the intraday rally seen from lows made around 11 AM ET right through the close. 90 minutes into the trading day, the S&P was down well over 1%, but the index rallied about 75 basis points over the final five hours of the day to close down just over 40 bps.
Heading into today’s session, futures are higher by about 20 bps. That should be enough to get the S&P above the top of the intraday downtrend channel that has formed over the last week, but whether it holds is a different story. We’ll find out in a few hours!
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Aug 8, 2023
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“The finest steel has to go through the hottest fire.” – President Richard Nixon (who announced his resignation on this day in 1974)
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US equity futures are down quite a bit (-85 bps) this morning on weakness in China and Europe, and the S&P 500 (SPY) is currently set to give up all of yesterday’s gains when it opens for trading.
The dollar is rallying while Treasury yields and oil prices are falling, and the only economic indicator of note today was the monthly release of small business sentiment from NFIB. Sentiment came in slightly higher than expected, but it’s still very low relative to history.
As shown below, after reporting earnings over the weekend, Berkshire Hathaway (BRK/B) traded to a new all-time high yesterday.
Berkshire (BRK/B) is now the 7th largest stock in the S&P 500 with a market cap of $794 billion yesterday afternoon. $794 billion! As shown below, the 7th largest stock in the S&P ten years ago was Walmart (WMT) with a market cap of just $254 billion, and Apple in the top spot had a market cap of just $422 billion. Fast forward ten years and we now have five stocks with $1+ trillion market caps and two with $2+ trillion market caps.
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Aug 7, 2023
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“The optimist thinks this is the best of all possible worlds. The pessimist fears it is true.” – J. Robert Oppenheimer
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After selling off more than 1% in afternoon trading into the close on Friday, US index ETFs are trading slightly higher pre-market with SPY up 20 bps and QQQ up 30 bps. There is little news to speak of other than a stronger than expected earnings report from Berkshire Hathaway over the weekend that has BRK/B trading up about 1.3% in pre-market trading.
As shown below, only three of the major US index ETFs tracked in our Trend Analyzer tool remain in overbought territory, while the rest are now neutral. The three that are still just slightly overbought are two small-cap ETFs (IJR, IWM) and the Dow 30 (DIA). Over the last five trading days, both the S&P (SPY, IVV) and the Nasdaq 100 (QQQ) are down roughly 1.25% — not a big sell-off, but enough to cool things off a bit.
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Aug 4, 2023
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“We all go Do, Re, Mi, but you’ve gotta find all the other notes yourself.” – Louis Armstrong
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Futures are mixed heading into the July jobs report, as positive earnings from Amazon.com (AMZN) and a lackluster reaction to Apple (AAPL) earnings offset each other. None of this will matter once the jobs report hits the tape, though, and after what has already been a tentative start to August, the market is hoping for a soft number.
Employment report Fridays are known for being important market days with heightened volatility. While the recent focus on inflation has relegated the monthly jobs to more of a backseat role, it’s still an important report. The chart below shows the rolling 12-month average of the S&P 500’s average daily percentage move (up or down) on Non-Farm Payroll report days going back to 2000. Exactly a year ago, the 12-month average was near a historical extreme on the low side as the S&P 500’s average daily move on employment report days had slid below 0.5%, but since then, we’ve seen a steady move higher. Back in June, the average daily move peaked at a post-COVID high of 1.3%, and while that seems high, there were other periods (early 2000s, during the Financial Crisis, and in early 2019) when the average daily move was even higher. As much as investors would like a nice quiet Friday heading into the weekend, history suggests otherwise.
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Aug 3, 2023
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“You can never cross the ocean unless you have the courage to lose sight of the shore.” – Christopher Columbus
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The change in the calendar has brought with it a change in the mood of investors as stocks have traded lower on each of August’s first two trading days and are currently indicated to open lower today as well. The weakness hasn’t just been confined to US stocks either as most global benchmarks are all down on the month. Stocks in Europe have been especially weak with declines in excess of 3% in the first three trading days after more broad-based weakness this morning.
Today’s weakness comes despite some weaker than expected inflation data where PPI for the Eurozone declined more than expected (-0.4% vs -0.3% expectation). That was more than offset, though, by general weakness in the Services PMI indices. While Germany experienced better than expected growth France, Italy, and Spain missed forecasts.
Today’s economic slate in the US is jammed packed with Non-Farm Productivity, Unit Labor Costs, and Jobless Claims at 8:30. Then, after the open we’ll get updated Services PMI data from S&P and ISM. Along with those reports, we’ll also get updates on Factory Orders and Durable Goods. Besides all the economic data, don’t forget that both Amazon.com (AMZN) and Apple (AAPL) will report after the close.
531 years ago today, Christopher Columbus set sail heading west from Spain in search of a western route to China. For the next 70 days, Columbus sailed the uncharted seas with no sight of dry land until he reached what is thought to be the Bahamas on October 12th, 1492. For most people, it’s hard enough, even with Waze, to get around their own city, but looking back at Columbus’ voyage, one can only imagine what was going through his mind travelling across the ocean with no cell phone, GPS, or even a map! It makes worrying about which way the market goes from here after a credit downgrade seem trivial, but like the quote from Columbus above, there’s no reward without risk.
Yesterday’s sell-off in US stocks moved both the S&P 500 and Nasdaq out of overbought territory for the first time since May. In the case of the Nasdaq, it was the first time since before Cinco de Mayo that the index didn’t close at overbought levels, and at 60 trading days, that streak was the longest since August 1997. Yesterday’s decline in the Nasdaq was also the worst day for the index since 2/21 and just the fourth one-day decline of 2% this year. For the sake of comparison, last year at this time the Nasdaq already had 33 one day declines of 2% on its way to 46 for the year.
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Aug 2, 2023
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“True courage is being afraid, and going ahead and doing your job anyhow, that’s what courage is.” – Norman Schwarzkopf
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Just as Wall Street brokerage firms have been tripping over themselves to upgrade their views of the US economy and forecast a soft landing as opposed to a recession for the US economy, Fitch came out of the blue last night and downgraded their rating of US debt from AAA to AA+. The rationale behind the downgrade had nothing that couldn’t have been said at any point in the last couple of years, so the timing is curious. Then again, if you’re going to issue a downgrade, maybe it’s better to do it during a period of relative calm rather than in the middle of a period of heightened volatility like S&P did back in 2011.
Market reaction to the downgrade has been muted. Equities did sell-off overnight but have rebounded off their overnight lows and are now pointing to a decline of 0.6% at the open. The only economic report of the day was ADP Employment which blew past expectations once again. Earnings results have also been positive, but stock price reactions to those results remains underwhelming as investors start taking profits following the massive gains from the first half of summer.
While the US debt downgrade should theoretically cause higher interest rates, as we saw back in 2011, that was not the reality. This morning, yields are pretty subdued with little in the way of changes across the curve, and any moves have been to the downside. From a longer-term perspective, though, if the charts of the 10-year and 30-year US Treasury yields were stocks, technicians would likely be bullish.
After tests of the 4% level this year back in early March and early July, the 10—year yield is once again bucking up against 4%. The more often the yield tests this resistance level, the weaker it tends to get, so when and if yields do convincingly break through 4%, they’re likely to immediately test the highs from late last year.
If recent moves in the 30-year are any indication, more upside in the 10-year yield is likely. Yields at this part of the yield curve have already broken through this year’s resistance levels and at just under 4.1% are at the highest level since November.
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