Mar 9, 2023
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“A minute’s success pays the failure of years.” – Robert Browning
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It’s been a relatively quiet morning in the markets today, but the bias had been negative as stocks in Europe are down about half of a percent. Economic data just released here in the US, though, showed that jobless claims came in above expectations with initial claims topping 200K and continuing claims topping 1.7 million. Both of these readings are the highest since December. In response to the weaker employment readings, futures have been rallying. Investors and the Fed may like this data, but you can bet that Senator Warren won’t be very happy. There’s no other data on the calendar today, so now the focus will shift to tomorrow’s February Non-Farm Payrolls.
It’s hard to believe it was 14 years ago when the S&P 500 finally made its financial crisis low setting the stage for a new bull market. Things weren’t looking good for the market or the global economy back then, but from the close on March 9, 2009, through yesterday (3/8/23), the S&P 500 rallied 490% which works out to an annualized return of 13.5%- without even including dividends!
Obviously, returns will look remarkable when you measure them from the absolute low, but what may be even more notable is to look at how an investor would have fared had they gone ‘all-in’ at the highs in October 2007 right before all hell broke loose.
The chart below shows the performance of the S&P 500 from its high on 10/9/07 through yesterday (3/8/23). Just over a year after that investment, you would have been down 50% on your way to a total decline of 57% but had you held on through those lows, your total gain since 10/9/07 would have been 155% which works out to 6.3% annualized and again, not including dividends. That’s obviously a lot less than the 13.5% annualized return you would have had from the lows in March 2009, but 6.3% still beats the level of yield you can currently get from any point on the US Treasury yield curve. The key word here is currently.
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Mar 8, 2023
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“Impossible is not a fact. It’s an opinion.” – Muhammad Ali
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After modest gains overnight and earlier this morning, futures have slipped modestly into the red following yesterday’s Powell-induced decline. While past declines in response to Powell’s comments have sometimes been justified due to seemingly abrupt changes in policy, moving targets, and/or inconsistencies in his remarks, yesterday’s testimony in front of the Senate contained essentially nothing Fed officials haven’t been saying for the last several weeks, so either the markets didn’t believe what they were hearing for the last month or yesterday was an overreaction.
Markets in Europe are modestly lower at the moment in a follow-through from yesterday and more hawkish commentary from an ECB official who noted that the bank will continue hiking rates for a period of time after the March meeting. These comments came as Q4 GDP was weaker than expected, and German Retail Sales unexpectedly declined.
Speaking of Europe, while its economy has been lagging behind the US, stocks in the region have continued their recent outperformance of stocks here in the US. The first chart below shows the performance of the FTSE Europe ETF (VGK). After a sharp rally off its October lows, VGK has been in a sideways range for most of 2023 but has still managed to trade within a close range of its 52-week high. After yesterday’s decline, in fact, VGK was just 7% from a 52-week high.
US stocks, meanwhile, have been much weaker. While the rally in VGK took it back near its highs from last Spring, the rally in the S&P 500 ETF (SPY) barely even took it back above its December highs let alone the peaks from August and April. After yesterday’s decline, SPY was twice as far below its 52-week high (-14%) as VGK.
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Mar 7, 2023
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“Observation is a dying art.” – Stanley Kubrick
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It’s been a wild ride for natural gas over the last two trading days. After an 8% rally Friday, natural gas plunged more than 14% on Monday for its largest one-day decline since June 30th and its 15th worst day since 1990. 2023 is barely more than two months old, but yesterday’s decline was the 5th time this year that natural gas had a single-day move (up or down) of 10%+, and that follows last year when there were a record 18 daily 10%+ moves. If the pace of volatility that natural gas has seen so far this year were to continue for the remainder of the year, there would be 28 single-day moves of 10%+. For some perspective, before last year there were just three years (1996, 2001, and 2009) where natural gas experienced ten or more single-day moves of 10%+.
The record volatility of natural gas can be further illustrated by looking at the commodity’s average daily move over a rolling 200-trading day period. Before 2022, the average daily percentage move in natural gas prices never exceeded 3.8% and from 2012 right up until COVID, the average daily move never exceeded 2.6%. Covid and the war in Ukraine changed all that, and nowadays, on any given day, a daily move of 4.6% in natural gas has become the norm as this degree of volatility in the commodity has never been experienced before.
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Mar 6, 2023
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“Nothing a couple of aspirin can’t cure.” – Peggy Olson, Mad Men
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The headlines say that the market’s fate all comes down to the next 13 trading days, but this ‘important’ period for the market is starting off slowly. Equity futures are oscillating around the unchanged line even as Treasury yields and commodities have pulled back. Crude oil down over 1% while natural gas plunges more than 12% on little news. Just to illustrate how quiet things are this morning, bitcoin is down less than 5 dollars – not percent – but dollars!
It may be quiet this morning, but the market has been giving headaches to both bears and bulls in the last several weeks. A quick look at a chart of the S&P 500 illustrates the frustration being felt on both sides. On a side note, it was ironic to see this morning that Bayer filed its patent for the ultimate headache cure (or at least one of them), aspirin, on this day in 1899.
In late January/early February, the S&P 500 broke above its December highs and its 200-day moving average forming what looked like the first real higher high since the peak in early January. At that point, the S&P 500 was further above its 200-DMA than at any point since it first broke below that level early last year. Then, the January employment report was released.
January’s much stronger-than-expected employment report coupled with a strong Retail Sales report and higher-than-expected inflation data, shifted the narrative quickly back to one where things were overheating and inflation was going to turn higher. The market quickly reacted with a radical shift in market pricing for Fed policy as Treasury yields surged. Stocks immediately reversed much of the gains from January, and the Dow actually ticked into the red for the year. The S&P 500’s pullback wasn’t as bad, but late in the month, it was back below its 50-DMA and once again testing its 200-DMA.
An intraday bounce on that first test briefly rekindled some optimism, but by last Thursday morning, the S&P 500 was back below its 200-DMA and both bears and bulls started to prepare for another leg lower. As hope was fading, stocks staged an intraday rebound that continued right into Friday. Now, heading into the new trading week, the S&P 500 is back above its 200-DMA and 3% above Thursday’s lows. Bulls are feeling confident again, but with Jay Powell scheduled to testify tomorrow, the employment report coming out Friday, and then CPI next week, don’t start snorting at the bears just yet, they may just need that aspirin back by next week.
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Mar 3, 2023
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“For the execution of the journey to the Indies I did not make use of intelligence, mathematics or maps.” – Christopher Columbus
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After three weeks of declines, it was looking like March would only add to the tally. Thursday’s rally pushed the S&P 500 into positive territory for the week, though, and with futures indicated higher now, equities are on pace for a positive week…if they can get through today. It’s a relatively quiet day on the economic calendar today with PMIs for the services sector, the only reports scheduled for release. These are important indicators to watch for signs of whether or not the economy is running too hot, and the international versions of these reports released this morning showed strength. January’s economic data fed a narrative that the economy just wouldn’t quit even as the Fed tried its best to squash it. This week’s data for February like Consumer Confidence, Chicago PMI, and ISM Manufacturing, though, weren’t exactly positive, and they all missed expectations.
One area of the markets not rallying this morning is crypto. After a 50% rally through its high over Presidents’ Day weekend, bitcoin has been correcting for the last two weeks capped off with a 4%+ decline in early trading today. After today’s drop, the pullback is close to 10%, and bitcoin is on pace to close below its 50-day moving average (DMA) for the first time in nearly two months.
A break below the 50-DMA is typically considered a bearish signal, but in bitcoin’s case, this type of pattern hasn’t been followed by a clear trend. During the parabolic runup from 2016 through 2017, any time bitcoin closed below its 50-day moving average after trading above it for at least 50 days it almost always immediately recovered to new highs. Beginning in 2018, though, bitcoin was slower to recover following these types of breaks. In three of the four periods since the start of 2018, prices experienced pretty sizable pullbacks at least in the short term, but they were still always followed by new highs. In dollar terms, last year’s pullback in bitcoin was unlike any other, but in percentage terms, it has been in this type of situation before. As bitcoin has ‘matured’ it has tended to follow more typical technical patterns versus the early days when all it did was win, so a pause in this year’s rally, at least in the short-term, wouldn’t be surprising.
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Mar 2, 2023
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“It is amazing how many drivers, even at the Formula One Level, think that the brakes are for slowing the car down.” – Mario Andretti
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If you’re looking at the positive Dow futures this morning, you’re getting a misleading picture of the setup heading into the trading day. That’s because a 15%+ rally in salesforce (CRM) is responsible for about 100 points of the rally. Without CRM, the Dow would also be poised to open lower. Both the S&P 500 and Nasdaq are trading lower with Tesla (TSLA) acting as a bigger drag on the Nasdaq.
Stocks have been in a bit of a rut ever since the Presidents Day weekend as the S&P 500 has declined over 3% and closed lower than its opening print on all seven trading days. In total now, we’ve seen a pullback of just over 5% since the recent peak in early February. Today, the focus of investors will be on Non-Farm Productivity, Unit Labor Costs, and jobless claims all at 8:30.
The year is only two months old, but already some of the typical seasonal trends in the economy seem to be bucking the trend. Whether it was due to the weather, seasonal adjustments, or just underlying strength, economic data surprised to the upside after a December that was mostly weaker than expected.
One area where the pattern has been the opposite of the seasonal norms at this point in the year is gasoline prices. While national average prices, as tracked by AAA, typically only see marginal gains in the month of January, this year prices surged more than 9%, which ultimately translated to higher levels of inflation. In February, though, we saw much of the increase in prices from January reverse itself, and prices finished the month down more than 4% for the largest February decline since 2006. As a result of that pullback, the national average price, which was up way more than normal YTD at the end of January, is now actually up slightly less YTD this year than in an ‘average’ year. While gas prices were an accelerant for inflation in January, they’re likely to be a damper on it in February.
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