Jan 9, 2023
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“The finest steel has to go through the hottest fire.” – Richard Nixon
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It’s a merger Monday to start the week with three relatively small deals by today’s standards. In the biotech space, CinCor (CINC) will be acquired by AstraZeneca (AZN) in a deal that could be valued at up to $1.8 billion while Albireo (ALBO) will be acquired by Ipsen for just under $1 billion. Both of those stocks are trading up 90% or more in the pre-market. Outside of biotech, software company Duck Creek Technologies will be acquired by Vista Equity Partners for $19 per share in cash ($2.6 billion). While the deal represents a 46% premium to Friday’s closing price, it’s worth noting that DCT traded for just under $60 per share in early 2021. So, the price of the deal is still less than a third of where it once traded during the height of the mania in software stocks.
Along with the deal activity, futures are seeing some follow-through from Friday’s big rally, and growth stocks are leading the move higher with Nasdaq futures trading up just over 0.5%. Some of the reasons for optimism this morning include reports that China has removed all of its border restrictions and that the saga to elect a Speaker of the House is finally behind us. Yields are slightly higher on the long end of the curve, and it’s a quiet day on the economic calendar.
Friday’s rally for the bulls was a nice respite from what had been some disappointing sessions. On the positive side, it was nice to see the S&P 500 finally break out of what had been a nearly two-week very tight trading range- and not break out of that range to the downside! For all the optimism about the rally, it’s still important to note that the S&P 500 wasn’t even able to close out the week above its 50-day moving average (DMA). Late in the day Friday, it attempted to take out that level but pulled back modestly into the close after briefly touching it.
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Jan 6, 2023
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“The telegraph would bind man to his fellow-man in such bonds of amity as to put an end to war.” – Samuel Morse
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In what has been an overall trend of weaker economic data, the monthly non-farm payrolls report has been an oasis. Heading into this morning’s report, the headline reading had come in better than expected for a record eight straight months, and this morning’s stronger-than-expected report extends the streak to nine. The only notable current streak we can think of that has gone longer is the 11 unsuccessful votes to elect a Speaker of the House.
While the headline reading has enjoyed a record streak of better-than-expected readings, the trend heading into this month and which still remains in place is one of weaker momentum. As shown in the chart below, while readings have been positive for the last two years, they have generally been trending lower. Combining the streak of better-than-expected readings with the actual readings in the total number of jobs created, economists were correct in forecasting a slowdown in job growth, but they overestimated the pace of it.
Not only that, but average hourly earnings and the length of the average workweek both came in weaker than expected.
Heading into this morning’s report, other indicators of employment that we saw earlier this week, including the ADP Private payrolls and jobless claims, investors were gearing up for a hot number this morning. The fact that the headline reading only came in 20K above expectations and that wage growth was weaker than expected are both modest positives.
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Jan 5, 2023
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“Yesterday’s home runs don’t win today’s games.” – Babe Ruth
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Futures had reversed overnight lows and moved into positive territory earlier, but the stronger-than-expected ADP Private Payrolls report coupled with lower-than-expected jobless claims has pushed equities back in the red. Jobless claims were just released and also came in better than expected on both an initial and continuing basis, and that hasn’t helped the tone heading into the opening bell as the 10-year US Treasury yield has spiked up to 3.75%.
It was a close call but Santa did come this year as the S&P 500 posted a positive return during the seven trading day window (the last five trading days of one year and the first two of the next) when the Santa Claus Rally is said to occur. With a gain of 0.80%, though, it was a smaller-than-normal rally. As shown in the chart, that continues a trend of recent subdued returns during this period. In fact, the last time the S&P 500 rallied more than 2% during the Santa Claus Rally was back in 2013, and that ten-year drought without a 2% rally is the longest since at least 1953 when the five-day trading week on the NYSE in its current form began. Hey Santa, stop being such a cheapskate!
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Jan 4, 2023
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“Yet we still live in a troubled and perilous world. There is no longer a single threat. There are many. They differ in intensity and in danger. They require different attitudes and different answers.”– Lyndon B Johnson
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Investors are waking up to a bit of – dare we say it – goldilocks this morning as commodity prices and treasury yields are both lower and economic data out of Europe has been positive. Service sector PMIs for the Eurozone and each of the largest economies in the region have come in better than expected while some inflation-related reports have come in lower than estimates. Import Prices in Germany for the month of November dropped more than expected (-4.5% vs -1.6%) and French CPI for December unexpectedly declined. In response, futures are modestly higher heading into what is likely to be an eventful day with ISM Manufacturing and JOLTS at 10 AM, and the FOMC Minutes at 2 PM.
It wasn’t a particularly great year for financial assets anywhere across the spectrum in 2022. The only area to buck the trend was Energy. To start off 2023, though, Energy has been among the weakest areas as WTI opened the year with a decline of 3.9% on Tuesday (and is down an additional 3%+ this morning). With that decline, the Energy sector tumbled 3.5% (and is down another 1.5% in the pre-market).
The chart for WTI doesn’t look particularly encouraging. After making a lower high last June, the sector has been in a relatively consistent downtrend for more than six months, and a key trend since that peak has been multiple occurrences where the sector tried to rally back above its 50-DMA but failed. The last week has been the most recent example. After failing to take out its 50-DMA yesterday, WTI’s plunge yesterday was its largest decline to kick off a new year since 2007.
Even as oil prices have plunged from their 2022 highs, Energy stocks have held up impressively well. It was only back in mid-November that the Energy sector made a new high for the year while oil prices were well off their highs. Despite the outperformance, the sector’s technical picture has deteriorated. November’s peak was technically a higher high, but it’s starting to look more like a double-top. The fact that after trading below its 50-DMA in early December, the Energy sector has had multiple failed attempts to trade back above that level is a concern for longs. Like crude oil, Tuesday’s 3.6% decline was the weakest opening-day performance for the sector to start a year since 2007.
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Jan 3, 2023
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“The beginning is always today.” – Mary Shelley
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It’s a new year but it’s looking like the same old market as positive futures drift off their highs into the opening bell. With treasury yields sharply lower, crude oil and natural gas also lower, and foreign equity markets firmly higher to kick off the year, it’s a positive backdrop for equity bulls to start the year. After a quiet week data-wise to close out the year, things will pick up this week with Construction Spending, ISM, and an Employment report all headlining the calendar on this shortened week.
People tend to put a lot of emphasis on first impressions, so what looks like a positive start to the year for stocks should be a welcome sign. With the S&P 500 (as proxied by SPY) poised to gap up 0.45% at the open this morning, it would be the best start to a trading year since 2020 when SPY gapped up 0.52%. If stocks manage to take out that level at the open, it would be the strongest start to a year since 2017 (0.68%). The last time SPY gapped up 1%+ to start a year was in 2013 (1.9%), and that followed a nearly equally strong start to the year in 2012 when SPY gapped up 1.8%.
So, how important are these first impressions in terms of the remainder of the year? For all years since 1994, when SPY had a larger than average opening gap to start the year, its median performance from the open on the first trading day of the year through year-end was a gain of 13.93% with positive returns 82% of the time. That’s nothing to sneeze at, but it’s actually right in line with the historical average for all years since 1994. On the other hand, in the four years when SPY gapped down to start the year (1996, 2014, 2016, and 2019), its median performance for the remainder of the year was 18.3% with positive returns all four times.
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Dec 30, 2022
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“Hope smiles from the threshold of the year to come, whispering ‘it will be happier’…” – Alfred Lord Tennyson
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
In case you missed it last Friday, we emailed out our annual Bespoke Report which covers everything you need to know about the setup for financial markets and the economy heading into 2023. You can read it here.
Bespoke Report 2023
At least we hope next year will be happier! That’s not the case this morning, though, as markets are giving the pulls one last dagger to close out the year. Nasdaq futures are currently down over 1% while the S&P 500 is indicated to open down roughly half of one percent. Besides the fact that the calendar still says 2022, there’s little in the way of catalysts driving the weakness. US Treasury yields are modestly higher on the day while crude oil trades lower. The only economic report on the calendar today is the Chicago PMI which is expected to rebound following last month’s surprise plunge. That index could use a lift as it’s currently in the midst of its largest y/y decline since 1980! From a market perspective, can today’s closing bell come soon enough?
For all the volatility we’ve seen this month, it was surprising to see that the nine 1% days in the S&P 500 (up or down) this month only ranks tied for 10th going back to 1952 when the five-day trading week in its current form started on the NYSE. In fact, even last year just as the S&P 500 was about to peak, the month of December had more 1% daily moves. The other years with more 1% days in December all stand out in market history as some of the most volatile years in market history, including 2008 when there were 15 (more than two-thirds of all trading days in the month) 1% daily moves.
There’s still one trading day left in the year, and if the S&P 500 has another 1% day today it will move 2022 into a tie for 5th place with 1974, 1998, 2000, and 2018 in terms of 1% daily moves in December.
Where December 2022 stands out more, however, is in the number of 1% down days. With six 1%+ declines this December, it already ranks as tied for the third most 1% declines during the last month of the year since 1952. The only years with more were 2008 and 2018 while 1973, 1974, 2000, and 2002 are tied with this year. The only thing positive we can say is that it’s almost over, and hopefully, the new year will be ‘happier’.
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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