Dec 22, 2022
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“Make a game plan and stick to it. Unless it’s not working.” – Yogi Berra
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Today is looking like a back-to-normal 2022 day for US stocks as futures are trading lower. The gains were fun while they lasted. Looking on the bright side, there are only five trading days left in the year. Elsewhere in markets, the 10-year yield is down slightly to 3.65% while oil has been quietly rallying and is now just under $80 per barrel.
The economic calendar is busy today as many reporting agencies try to squeeze in this month’s reports before Christmas. Data released so far hasn’t been particularly market-friendly as revised GDP came in higher than expected (3.2% vs 2.9%) and Core PCE was revised higher (4.7% vs 4.6%). Jobless claims were also strong with initial claims coming in lower than expected (216K vs 222K) and continuing claims also coming in slightly better than expected (1,672K vs 1,675K). If they were to have any impact on Fed policy, none of these reports would suggest less of a hawkish stance.
The more things change, the more they stay the same. Even after two days of gains, sector performance over the last five trading days has been pretty poor and almost exactly in line with performance rankings on a YTD basis. As shown in the scatter chart below which compares YTD performance versus the last week, there has been a clear correlation between the two with an r-squared of 0.78. Heading into year-end, investors are following the game plan of selling their losers and buying the few winners.
Looking at a snapshot from our Trend Analyzer, four of the S&P 500’s eleven sectors are down over 4% in the last week, another four are down more than 2%, two are down over 1%, and only Energy is higher. In terms of where sectors are now trading with respect to their trading ranges, there’s still pretty much of an even split between sectors trading above and below their 50-day moving average with six above and five below. Consumer Discretionary is the only sector in oversold territory. While that may seem like an ominous sign heading into the Christmas season, it’s worth remembering that retailers usually underperform at this time of year. Also, Tesla (TSLA) makes up about 13% of the sector, so the stock’s weakness has been a drag on the overall sector.
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Dec 21, 2022
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“The graveyards are full of indispensable men.” – Charles de Gaulle
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As we get closer to Christmas, the pace of news starts to slow, so that’s why one of this morning’s headlines concerns a Twitter poll. After more people voted that they wanted him to step down as CEO of the social media company, Elon Musk announced that he will step down as CEO of Twitter once he finds “someone foolish enough to take the job!” Elon has also suggested in the past week that no one besides him with the ability to do so would take on the job of leading the company when he noted, “No one wants the job who can actually keep Twitter alive. There is no successor.”
We also had some positive (or not as bad as expected) earnings news after the close on Tuesday with Nike (NKE) trading up over 10% and FedEx (FDX) up close to 5%. Expectations heading into the Q4 earnings season next month have really been negative, but at least these companies are starting off with a good first impression.
On the economic calendar this morning, the only reports scheduled are Existing Home Sales and Consumer Confidence at 10 AM.
Even with US stocks on pace for their second straight day of gains, it hasn’t been a pretty December for stocks. What was an uptrend from the October lows has been broken in a convincing way, and the only hope for chart watchers now is that the June lows hold creating what could turn out to be a reverse head-and-shoulders pattern.
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Dec 20, 2022
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“To lose is to win” – Japanese Proverb
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If the above statement is true, 2022 should end up as one of the best years ever. Right? Futures are mixed this morning, but there was still some big news overnight in central bank moves as the Bank of Japan raised the upper bound of its cap on the 10-year JGB yield by 0.25 percentage points to 0.50%. While the move wasn’t entirely a surprise, the timing was. Just yesterday, in our Morning Lineup, we discussed how this type of action would likely be taken in April when Kuroda retires from the BoJ.
While equity futures have seen little impact from the BoJ news, interest rates in the US are higher across the board this morning with the 10-year yield up to 3.66%. In economic news, the only data on the calendar today is Building Permits and Housing Starts at 8:30. Building Permits missed by a mile while Housing Starts actually posted a slight beat.
The Bank of Japan’s jolt to financial markets overnight had one of the most direct impacts on the value of the yen which surged 3% relative to the dollar. Besides just the last 24 hours, it has been a very strong two months for the yen. After the dollar peaked at 150 yen two months ago today, it has experienced a sharp move lower falling more than 10% versus the yen and looking at the chart in recent weeks, there have been a number of sharp single-day moves lower.
The USD/JPY cross is now significantly below its 200-DMA after closing below that level earlier this month for the first time since early 2021 – nearly two years earlier! Going back to 1972, that streak of 462 trading days was the longest streak of closes above the 200-DMA on record and just the fourth streak that lasted more than a year.
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Dec 19, 2022
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“Humbug” – Ebenezer Scrooge
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If there’s any consolation to this Monday morning, it’s that there are only nine trading days left to go in 2022, and it’s only fitting that the world was introduced to Ebenezer Scrooge 179 years ago today with the publication of A Christmas Carol by Charles Dickens. Futures are actually slightly higher this morning (but giving up ground as the morning goes on). News-wise, the next two weeks are likely to be rather quiet, and the only economic report on the calendar today is homebuilder sentiment at 10 AM. In international markets this morning, the only headlines of note are the fact that COVID cases in China are reportedly surging as the country rips the band-aid off of its zero-COVID policy, while in Japan, there is talk that the BoJ will finally revise its monetary policy to a more hawkish stance.
Last week was a disheartening one for bulls as the optimism of a break above the 200-DMA and the potential for a break of the S&P 500’s downtrend was quickly erased. Not only were bulls not able to break the downtrend, but the S&P 500 also gave up its 50-DMA as well.
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Dec 16, 2022
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“It isn’t what we say or think that defines us, but what we do.” – Jane Austen
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A bad week just keeps getting worse as futures are continuing their post-FOMC sell-off. Heading into this week, the thought of weaker CPI and the Fed signaling a step down to 25 bps hikes at future meetings would have been considered a positive. That’s exactly what we got, but after an initial surge following Tuesday’s CPI, equities have been doing nothing but trading lower. Hawkishness from the FOMC and ECB has investors concerned that rates will be higher for longer raising the odds for a hard landing.
Well, 2022 you’ve finally done it. If there was any doubt about how bad of a year it has been, today’s decline in the S&P 500 will move 2022 into the lead for the largest number of 1% declines to close out the trading week going back to 1952 when the NYSE started the current five-trading day workweek. Heading into today, there were 15 declines of at least 1% in the S&P 500 on the last trading day of the week which was tied with 1974 and 2008 and one ahead of 2000 for the most in a single year.
Despite the record number of 1%+ declines to close out the week, the S&P 500’s cumulative decline this year on the last trading day of the week has been a decline of less than 9%. The reason is that not only has this year seen the highest frequency of 1%+ declines to close out the week, but it also tied with 1999 for the highest number of 1%+ gains (14).
All in, including today, the S&P 500 has ended the week with a gain or loss of at least 1% 30 times this year, or 60% of the time! Talk about an emotional market. And there are still two Fridays left after today!
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Dec 15, 2022
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“I was now resolved to do everything in my power to defeat the system.” – Oskar Schindler
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Investors didn’t like what they heard from Powell yesterday, and after sleeping on it overnight, they like what they heard even less. Futures are sharply lower this morning, but it’s not all because of the Fed. Since the close yesterday, we’ve seen a number of other central bank rate decisions around the world, plus a big batch of bad data from China where retail sales, unemployment, industrial production, and property prices all came in weaker than expected. This morning in the US, we’ve also seen a bunch of data, and it has also generally been weaker. Retail Sales, Empire Manufacturing, and Philly Fed all came in weaker than expected, while initial jobless claims were stronger than expected, and continuing claims came in right in line with forecasts.
This morning’s negative tone in the futures is disheartening for investors as it looks like just another failed test of the 200-DMA and the downtrend line that has been in place since the start of the year. Only time will tell if that ends up being the case, but the fact that the Fed continues to push the hawkish narrative right into what is an increasingly large pile of recession signals doesn’t inspire a lot of confidence.
Looking at the chart of the S&P 500, one light of encouragement is the fact that while the S&P 500 completely reversed course and sold off following its two prior tests of the downtrend, in the current one, it has been hanging around right around those levels for a few weeks now. There’s a saying in technical analysis that the more support or resistance is tested, the weaker it becomes, so the fact that we’ve seen multiple tests of the current downtrend with increasing frequency in the last few weeks could be just what the market needs to get through that level. That’s the hope at least!
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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