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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Mar 1, 2023
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“If you find yourself suddenly wearing a hot cup of coffee on the way to work, the day can only get better from there.” – Anonymous
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Futures were looking to start the new month off on a positive note, but that tone has shifted and the current setup is for a modest decline at the open. Following yesterday’s stronger-than-expected inflation data in France and Spain, this morning it was Germany’s turn to report hot inflation data, and that predictably, has been followed by hawkish commentary from ECB officials. In China, stronger-than-expected Manufacturing PMI data led to a 4% rally in Hong Kong’s Hang Seng, but stronger growth in China will be greeted as inflationary by the market, hence the move higher in US treasury yields. Economic data on the calendar today includes Manufacturing PMI reports from S&P and ISM as well as Construction Spending. Minneapolis Fed President Kashkari will also be speaking this morning, so you can expect the headlines from that even to be hawkish.
2023 is already 16% complete, so we can start to get a read on how trends are shaping up. Below we summarize the performance of S&P 500 sectors through the end of February. On a YTD basis, there’s been quite a bit of disparity in sector performance as four sectors are up over five percent, and two are down over 5%. Between the extremes, more than 20 percentage points separate the best-performing sector (Consumer Discretionary) which is up 12.7% from the worst-performing sector (Utilities) which is down close to 8%. Looking at where sectors finished out February relative to their trading ranges, not a single sector is overbought relative to its 50-day moving average, nearly half are below their 50-day moving averages, and four sectors are oversold. That’s not what you would expect to see in a year where the S&P 500 is up nearly 4% YTD.
While there’s a wide dispersion in sector performance after the first two months of this year, it’s a big improvement versus where the market stood at this time last year. Twelve months ago, more than 40 percentage points divided the best-performing (Energy) and the worst-performing sectors (Consumer Discretionary), six sectors were oversold, and the only sector above its 50-DMA was Energy. February wasn’t a great month for stocks, but it sure beats where things stood last year at this point.
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Feb 28, 2023
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“Life, Liberty, and the Pursuit of Happy Hour.” – Hawkeye Pierce
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After yesterday’s rally that lost momentum throughout the trading day, futures are looking to start the day higher again today as positive and not as bad as feared earnings have lifted the mood in early trading. Treasury yields are modestly higher but mostly behaving while crude oil is up close to 2%. European stocks are modestly higher and well off their lows of the morning as investors shake off stronger-than-expected inflation data out of France and Spain. On the economic calendar in the US, Wholesale Inventories were just released (weaker than expected; down 0.4% versus +0.1% consensus), and later this morning we’ll get Case Shiller data, Chicago PMI, Consumer Confidence, and Richmond Fed.
40 years ago, tonight, nearly half of all Americans and three-quarters of all TVs in the United States were tuned into the same channel. Never had such a large number of Americans watched the same event at the same time. What were they watching? It wasn’t the Super Bowl. The Redskins had already beaten the Dolphins a month earlier after the strike-shortened season. No, on this Monday night, they were watching Hawkeye Pierce leave the 4077th Mobile Army Surgical Hospital for the last time on the series finale of M.A.S.H. Outside of its first season in 1972, when the show was almost canceled, M.A.S.H. was one of the top-rated shows on TV in every other season of its eleven-year run. M.A.S.H. fans watched the series finale and were sad to see it go, but subconsciously many of them were probably saying good riddance.
M.A.S.H. coincided with a dark period in the American economy, and its end can be looked back on as being symbolic of throwing some of the last vestiges of the 1970s behind us. The fact that the most popular comedy of the 1970s and early 1980s was set on a hospital base in a war zone where the plot of nearly every episode was interrupted by an incoming influx of war casualties says all you need to know about the psyche of Americans in the 1970s.
The chart below shows the performance of the S&P 500 from the first episode of M.A.S.H in September 1972 to the series finale in February 1983. Less than four months after the show first aired, the S&P 500 peaked and went on to lose nearly half of its value over the next 18 months before bottoming out and slowly reclaiming the declines of the bear market over the next several years. In fact, it took three-quarters of a decade before stocks finally made new highs again, and the real breakout of the 1980s bull market wasn’t for another two years after that in August 1982, six months before the show ended.
The performance of the S&P 500 during M.A.S.H. was bad enough in nominal terms, but when you factor in the crushing inflation of that period into the equation, performance was even weaker. After deflating the S&P 500 by headline CPI during the 1970s and early 1980s (gray line), you can see why M.A.S.H was a period of American history many were happy to forget. Is it any surprise that after a decade of high inflation, war, and general economic malaise, that as M.A.S.H. was getting ready to sign off, Americans were now turning the channel to a washed-up baseball player running a bar in Boston? Americans were ready for a drink. Cheers!
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Feb 27, 2023
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“Money cannot consistently be made trading every day or every week during the year.” – Jesse Livermore
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It may have only been four trading days, but last week was a tough one for the bulls. When the dust finally settled, the S&P 500 closed modestly back below its 50-day moving average as well as its uptrend from the October lows. If the market can recover quickly from here, technicians will look past Friday’s breakdown as it wasn’t entirely convincing, but for now, the burden of proof has shifted to the bulls. One thing we can be pretty confident of is that with less than 1% separating them, by the end of the week, the S&P 500 will probably either be above both its 50 and 200-day moving averages or below them.
Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals. We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!
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