Nov 1, 2022
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“For every moment of triumph, for every instance of beauty, many souls must be trampled.” – Hunter Thompson
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After the best month for the DJIA since 1976 (and a strong but not nearly as notable month for the S&P 500 and Nasdaq), the markets are looking to kick off November on the same bullish footing as both the S&P 500 and Nasdaq are on pace to open higher by over 1%. It’s not just US stocks that are rallying either. Chinese stocks surged overnight on rumors that the country would relax its COVID restrictions, and the gains followed right into the European markets as major averages on the continent are up over 1% across the board. Bond yields are also lower and commodities are rallying. In fact, just about everything except for the dollar is trading higher this morning. Even the yen is up!
There are three economic reports on the calendar this morning, and they’re all at 10 AM. The JOLTS report is lagged a month (September), but that will be an important indicator to watch to see if there’s any follow-through from last month’s big drop. A decline well below 10 million would be just what the Fed would want to see heading into this week’s meeting. Also at 10 AM, we’ll get September Construction Spending which is expected to fall by 0.6% compared to last month’s decline of 0.7%, and most importantly, the ISM Manufacturing report is expected to decline right to 50.0. Anything below that would indicate a contraction in the manufacturing sector.
Earnings season is barely half over, but already it’s been a memorable one. Think about this for a minute. While Apple (AAPL) managed to buck the trend and rally over 7% in reaction to its earnings report last week, the other mega-caps in the S&P 500 like Alphabet (GOOGL), Amazon.com (AMZN), Microsoft (MSFT), and Tesla (TSLA) all fell 7% or more in reaction to their reports. Additionally, Meta (META), which is no longer a mega-cap because it fell so much, lost a quarter of its market cap in a single day! Despite the pummeling in the S&P 500’s largest stocks, the index is still up over 6% this earnings season. Talk about resilience!
The chart below compares the performance of the S&P 500 at this point in earnings season to the same point (24 calendar days) in each prior earnings season since the start of 2009. The 6.4% rally so far ranks as the best since Q3 2011. Going back to the start of 2009, there have only been two other earnings seasons where the S&P 500 was up more at this point in the reporting period, and there were only a total of five where it was up more than 5%. Now, just because equities have done well this reporting period doesn’t mean it’s off to the races from here (last earnings season the S&P 500 also performed well only to crater from late August through early October), but the market’s ability to rally with no help from its ‘generals’ is impressive.
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Oct 31, 2022
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“It’s better to burn out than to fade away.” – Neil Young
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After an exceptionally strong end to last week, equities are in a bit of a letdown mode to close out October as S&P 500 futures are down about 0.30% with the Nasdaq weaker. A number of weak data points out of China and Europe along with continued geo-political concerns haven’t helped sentiment. The 10-year yield is firmly above 4% again this morning and crude oil prices are nearly 2% lower and back below their 50-DMA. It’s been nice over the last several sessions not to have to contend with the FOMC, but that will all change on Wednesday when they will likely raise rates by 75 bps for an unprecedented fourth straight meeting.
We’ve seen some wild finishes to the trading week lately. Over the last 12 weeks, there has only been one Friday where the S&P 500 didn’t finish up or down at least 1% (9/16), and over the last six weeks, the last trading day of the week has seen a gain or loss of at least 1%. Not only that, but the last trading day of the week has become even more volatile over the last four weeks. Of the four Fridays this October, the S&P 500 has rallied or declined at least 2% each time. The first two Fridays of the month experienced declines of 2.8% and 2.4%, respectively and the last two Fridays have seen gains of 2.4% and 2.5%.
Prior to this month, going back to 1952 when the five-trading day week was established on the New York Stock Exchange, there were only four times when the last trading day of the week had a daily move of +/-2% for three straight weeks, but none of those streaks never extended to four. There’s a first for everything, though, and this month’s streak is the first time in over 70 years that the S&P 500 has ever had four straight 2% gains or losses to end a trading week.
Last Friday’s 2%+ gain for the S&P 500 capped off what was a weekly gain of just under 4% for the S&P 500 in what was a broad rally. Sectors leading the way higher were Industrials, Utilities, Financials, Real Estate, and Consumer Staples which all had gains of over 6%. Health Care and Technology also marginally outperformed the S&P 500 gaining over 4%. On the downside, Communications Services was by itself the to downside as negative reactions to earnings from Alphabet (GOOGL) and Meta (META) weighed on the sector. Lastly, even though they all rallied over 1.5%, Consumer Discretionary, Energy, and Materials all underperformed.
As far as the major indices are concerned, the chart patterns for both the Nasdaq 100 and the S&P 500 look very similar. The key difference between the two is that while the S&P 500 managed to rally back above its 50-DMA last week, the Nasdaq 100, weighed down by weakness in mega-cap stocks and their reactions to earnings, has yet to break above that critical level.
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Oct 28, 2022
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“We have never said that we’re perfect. We’ve said that we seek that. But we sometimes fall short.” – Tim Cook
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We’re seeing another day this morning where Nasdaq futures are much weaker than the broader market. The culprit this morning is Amazon.com (AMZN) which is trading down over 13% after dropping as much as 20% in after-hours trading. The Nasdaq is indicated to open down over 1% while the S&P 500 is down by about half that. Treasury yields are higher this morning, and the 10-year yield briefly traded back above 4% before falling following the latest batch of economic data. Another factor contributing to the weakness in the tech sector is a report that the Biden Administration is considering adding additional restrictions on technology exports to China.
It’s been a busy morning of economic data and the Employment Cost Index (+1.2%), Personal Income (+0.4%), and PCE Prices (+0.3%) were all in line with forecasts. Personal Spending (+0.6%) was higher than expected, and at 10 AM we’ll get Pending Home Sales and Michigan Confidence.
What a month it has been for the Energy sector. Since its recent low in late September, the S&P 500 Energy sector has rallied about 30% and is currently within 4% of its early June high. Looking at a longer-term chart of the sector shows that it has consistently found support at the trendline that extends back to the higher low it made in late 2020. The fact that it managed to bounce at that support during the last leg lower was impressive given that it followed what was a lower high for the sector in late August.
With its gain of over 60% YTD, Energy has trounced the market on a YTD basis, and while the sector has yet to take out its high from June, its performance gap with the S&P 500 did manage to make a new high yesterday as it’s now outperforming the S&P 500 by 80 percentage points YTD.
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Oct 27, 2022
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“You should welcome a bear market, since it puts stocks back on sale.” – Jason Zweig
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It’s a very mixed picture for equity futures this morning with the Dow indicated up pretty sharply while the Nasdaq is down by a similar magnitude driven in large part by shares of Meta Platforms (META) which is down over 20% and struggling to hang on to triple-digits. The ECB just announced its policy decision and hiked rates by 75 bps (as expected). Here in the US, we have a busy morning of economic data, plus big earnings reports from Amazon.com (AMZN) and Apple (AAPL) after the close.
The US Dollar index peaked about a month ago, and its move lower has coincided with the bounce that we’ve seen in US equity indices. The same trend has played out over a shorter one-week time frame as well, which you can see in the Trend Analyzer snapshot below. Over the last five days, the US Dollar Bullish ETN has fallen 2.8% and broken below its 50-day moving average. At the same time, every other area of financial markets has moved higher within its trading range.
Yesterday, the US Dollar Index broke below its 50-DMA for the first time since August, and it traded the farthest below its 50-DMA since early January. As shown below, the August break did not last long, as the Dollar’s uptrend resumed almost immediately.
This morning the Dollar is back up, and a resumption of its uptrend will almost assuredly coincide with a resumption of the equity market’s downtrend. We’ll certainly be keeping an eye on FX today.
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Oct 26, 2022
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“Solving big problems is easier than solving little problems.” – Google Co-Founder Larry Page
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Bulls have finally seen some green over the last couple of weeks. In fact, the S&P 500 has gained 1%+ on six of the last nine trading days. Below is a log chart of the S&P 500 since 1952 (when the 5-day trading week began) with red dots showing prior times the index has gained 1%+ on six of the prior nine trading days (the first occurrence in at least three months). As you can see, it is not common, and aside from the occurrence in March of this year, prior periods where this happened saw massive gains over the next six and twelve months.
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Oct 25, 2022
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“There are a lot of mistakes made in games. That one just happened to be more visible than some of the others.” – Jim Marshall
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58 years ago today, Vikings defensive end Jim Marshall recovered a 49ers fumble and ran it back to the endzone for a defensive touchdown. At least he thought it was. Unfortunately for Marshall, he ran into the wrong endzone turning what he thought was a Vikings touchdown into a safety. The Vikings still ended up winning the game, so the only people potentially impacted by Marshall’s bonehead play were the gamblers.
Less than two weeks ago, the S&P 500 closed at a new low for the year the day before what was widely anticipated as the most important economic report in weeks with the release of the September CPI on 10/13. That report was a ‘big play’ for the bears as both the headline and core readings came in higher than expected, and the y/y core reading hit a new cycle high of 6.6%. Stocks opened the day of the 13th sharply lower, and bears continued to run with it from there. Like Jim Marshall, though, they went the wrong way! The S&P 500 finished the day of the 13th up 2.6% and is now up 6.3% from its closing low on 10/12.
Despite the rally, 2022 is still a blowout as the S&P 500 remains down over 20% YTD with the Nasdaq down nearly 30%, so, like the “Purple People Eaters” of the early 1960s, the bears can still laugh about the wrong way move. The chances for Bulls this year are still slimmer than they are of Lloyd Christmas ending up with Mary Swanson, but stranger things have happened. Back in Super Bowl LI, the Falcons were up 28-3, and we all remember how that one ended. So “there’s a chance” however slim it may be.
The ‘wrong way rally’ has taken a breather this morning as futures are moderately lower ahead of a relatively busy day for economic data with Case Shiller housing numbers at 9 AM and then Consumer Confidence the Richmond Fed report at 10 AM. With the weakness in equities, treasury yields are lower and crude oil is down about 1%. The pace of earnings reports has really picked up steam and the results this morning have been somewhat lackluster. Of the nearly 40 reports so far this morning, 64% have exceeded EPS forecasts, and 62% of exceeded revenue estimates. Also slightly more companies have lowered guidance than raised it. The first big test of the earnings season will start after the close, though, when Alphabet (GOOGL) and Microsoft (MSFT) report after the close.
It seems as though this year stock prices have been driven entirely by interest rates, but a close look shows that in recent weeks that hasn’t entirely been the case. Take a look at the chart of the S&P 500. While it briefly broke below its June lows in late September and early October, it has recently rebounded and yesterday actually closed more than 3% above its June low.
If interest rates were the primary driver of stock prices, given where the S&P 500 is trading, you would expect to see the US Treasury yields right around or maybe even below the levels it was at in mid-June. That hasn’t been the case though. Take the 10-year yield, for example. At the S&P 500 lows in June, the yield on the 10-year peaked at 3.47%. It eventually fell back down to as low as 2.57% in early August, but since then has surged right through the June highs all the way up to yesterday’s high of 4.27%, or 80 basis points more than the June high. The fact that equities have been able to hang in relatively well despite the surge higher in yields suggests that stocks may be starting to look past the pressure from higher rates.
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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