Sep 16, 2022
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“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.” – Jerome Powell
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It’s looking like another day of declines heading into the weekend after FedEx (FDX) lowered guidance last night, making an already weak backdrop even weaker. FDX wasn’t the only company to warn since the close yesterday. Companies like GE and Huntsman (HUN) also lowered guidance citing issues like supply chain bottlenecks and high energy costs. If the S&P 500 does finish down 1% today, it will be the sixth straight week of a gain or loss of 1%+ on the last trading day of the week. That would be the longest streak since May 2020 (ten weeks) and tied for the second-longest streak since at least 1952 (when the five-day trading week on the NYSE started).
The only economic report on the calendar is the Michigan Sentiment report at 10 AM Eastern. Economists expect the headline reading to bounce to 60.0 from 58.2 at its last read. The most important aspect of the report to watch, though, is inflation expectations. In that respect, economists are expecting one-year inflation expectations to fall to 4.6% from 4.8% while 5-10 year inflation expectations are forecast to remain unchanged at 2.9%.
When Powell said back in August that businesses and households would feel ‘pain’ from higher interest rates he wasn’t lying, but is a situation like FedEx (FDX) what he had in mind? The stock is currently trading down over 20% in the pre-market which would rank as the worst single-day decline for the stock since its IPO in 1978. Declines of this magnitude weren’t even felt during the 1987 crash, the financial crisis, or during the COVID crash. At the open today, FDX will still be well above its COVID lows (when global trade essentially shut down temporarily), but it will be right at levels it was trading at right before COVID hit US shores.
Given the trends we have seen this year, you would have expected FDX to be blaming increased labor and energy costs as well as supply chain bottlenecks for the weakness in results, but those issues were notably absent. Instead, FDX cited “global volume softness that accelerated in the final weeks of the quarter” and “macroeconomic weakness in Asia and service challenges in Europe”. With a warning like this, it raises the question of whether the Fed is too busy fighting yesterday’s battle and missing what’s on the horizon.
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Sep 15, 2022
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“The key to risk management is never putting yourself in a position where you cannot live to fight another day.” – Dick Fuld
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To some, September 15th means that summer ends in a week, but others remember September 15th as the day Lehman died. Regardless of what comes to your mind first, it’s a lousy day. Equity futures are lower, treasury yields are higher, and crude oil is lower heading into what is going to be a busy day for data. Things kicked off at 8:30 with jobless claims, retail sales, import prices, Empire Manufacturing, and the Philly Fed. Jobless Claims were better than expected as were Retail Sales. Import Prices were less weak than expected, and finally, both the Empire and Philly Fed reports were negative, although the Empire was slightly better than expected while the Philly report was weaker. Perhaps most notable was that in both regional Fed reports, the Prices Paid components were at the lowest levels since December 2020. At 9:15, we’ll get updates on Industrial Production and Capacity Utilization, and then finally at 10:00 we’ll finish the day of data with Business Inventories.
Asian markets were mixed overnight while Europe is mostly higher. Japan’s Finance Minister warned markets that any intervention in the currency markets would be ‘swift’ and not announced in advance. In Europe, an ECB policymaker said he sees price pressures spreading out in the economy and warned that the central bank might be forced to raise rates more than expected.
September has historically been a lousy month for stocks, and the second half of the month has been notoriously weak. Over the last 40 years, the S&P 500’s median performance has been a decline of 0.49% with positive returns just 40% of the time. Making matters even worse, the years where the S&P 500 was down in the second half of the month saw a much larger magnitude of decline (-1.92%) than the years when it was up (1.07%). The last ten years have been even more painful. From 2012 to 2021, the second half of September has only been up three times and the median decline has been 0.81%.
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Sep 14, 2022
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“He who fears being conquered is sure of defeat.” – Napoleon Bonaparte
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Futures were modestly higher relative to yesterday’s decline for a little while this morning, but those gains have evaporated almost as fast as yesterday’s decline erased the prior four days of gains. Yesterday was pretty much a bloodbath in the equity market as not a single stock in the S&P 1500 was up 5%, and only 18 stocks in the entire index of 1500 stocks were even up on the session. Strangely enough, though, only 12 stocks in the index declined 10%+. For a day when the index was down over 4%, that’s a surprisingly low number. we’ve seen more stocks down by 10%+ on days when the broader market was only down 1%.
After yesterday’s hotter-than-expected CPI report, the August PPI was right in line at the headline level with a 0.1% m/m decline and an 8.7% y/y increase. Stripping out food end energy, the m/m reading was 0.4% compared to expectations for a gain of just 0.3%. The y/y reading was also higher than expected at 7.3% versus forecasts for an increase of 7.0%. This report certainly wasn’t as bad as the CPI report, but levels remain stubbornly high.
At the open yesterday, the S&P 500 erased the prior two days of gains, and by the close, it had basically erased the gains of the two days before that. How’s that for efficiency? As bad as the sell-off was, the one thing bulls have working in their favor is that the uptrend line off the June lows has held for now. If that trendline – currently around 3,920 – doesn’t hold today, it won’t be much of a positive backdrop for a time of year that has historically already been among the weakest times of the year.
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Sep 13, 2022
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“As soon as you become complacent your show gets canceled.” – Dick Wolf
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32 years ago today, a new show called “Law & Order” debuted on NBC. “Law & Order” opened to little fanfare, but it has gone on to become one of the most successful and long-running franchises on TV. At the peak of linear TV, there probably wasn’t a time of day that the show or one of its numerous spin-offs was not airing somewhere on cable TV, and the famous “dun dun” sound effect has become one of the most recognizable sounds on TV.
When “Law & Order” first aired, the reviews weren’t positive. The Hollywood Reporter called the show “a program that fails to properly function.” Based on the initial reviews, it’s hard to imagine that the original episode in 1990 would spawn multiple spin-offs and thousands of hours of content. But like all successful investments, it takes a creative and forward-looking mind to see how something that may look ordinary today can turn into something very valuable down the line. On to the markets…
Inflation is the big indicator to watch today, and consensus expectations had the headline number penciled in at a m/m decline of 0.1% with the core reading rising 0.3%. The actual numbers were stronger than expected with the headline rising 0.1% while the core reading was double expectations. Markets were positioned for a weaker print, so the strong number completely reversed (and then some) the positive tone in equity futures. It’s hard to remember a time when an 8:30 number caused such a sharp and near-instantaneous reversal in futures. After official numbers like these, it’s impossible to say that inflation isn’t a problem anymore, but at the same time, it doesn’t change the fact that the pile of secondary indicators showing softening inflation pressures from peaks just a few months ago has really started to pile up.
Just like inflation, breadth has gone from one extreme to the other but in a much tighter timeframe. Coming off the June lows, we saw extremely positive breadth in the S&P 500. Then, towards the tail end of the late summer sell-off, breadth turned extremely negative. The last four trading days, however, have seen breadth reverse again with four straight days of net positive readings in excess of +250 and two positive ‘all or nothing days’ (days where S&P 500 net daily breadth reading comes above +400 or below -400). Long story short. It’s been a broad rally.
With two all-or-nothing days in the last week, we wanted to update our chart of occurrences by year. With 26 so far this year, 2022 is on pace for 37 all-or-nothing days this year, and if that pace comes in, it will rank as the third-highest total since the end of the Financial Crisis and the 7th highest total for all years since 1990. Although the period before 2000 doesn’t even really count, since all-or-nothing days were so rare back then.
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Sep 12, 2022
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“See things in the present, even if they are in the future. ” – Larry Ellison
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It looked earlier like futures were going to pick right up where they left off last week, but the positive tone in the pre-market has been weakening ahead of the opening bell. There wasn’t much to drive the positive tone earlier, and there has been no apparent catalyst for the weakness in the last half hour. It’s a quiet day for data today as there are no economic reports on the calendar, and the only earnings report of note is Oracle (ORCL) after the close. The big report of the week comes tomorrow, though, when August CPI will be released at 8:30 AM. Economists are currently forecasting the headline reading to show a decline of 0.1%, although, given the trajectory of gas prices and other secondary indicators, so-called whisper numbers are even more negative.
The holiday-shortened week started off poorly last week but finished on a strong note with three straight gains including two days where the S&P 500 surged 1%+ on solid (+400) breadth. The rally also helped to bring the S&P 500 back above its 50-DMA. It’s been a roller-coaster summer for US stocks as the monster rally in the S&P 500 tracking ETF (SPY) off the June lows failed right at the 200-DMA and downtrend line from the January highs. The sell-off was arrested last week right at the uptrend from the June lows, and with three weeks of trading left in the third quarter, the S&P 500 finds itself in a bit of no man’s land.
All eleven sectors have turned in positive returns over the last five trading days (which includes the Friday before Labor Day). Materials and Consumer Discretionary have led the stampede with gains of just under 5% while Financials aren’t far behind rallying by 3.65%. Consumer Staples is the only sector up less than 1% and one of just three sectors still below its 50-DMA. The only two other sectors below that level are Communications Services and Technology. They are also both the only sectors down over 20% YTD. Given its size in the market, Technology is usually the sector that leads the ship, but it is nice to see that the broader market can rally even if that sector underperforms.
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Sep 9, 2022
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“I believe that, young or old, we have as much to look forward to with confidence and hope as we have to look back on with pride.” – Queen Elizabeth II
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After its longest losing streak in years ended earlier this week, the Nasdaq is now on pace for a third straight day of gains and a positive week for stocks. The last time the Nasdaq was up three days in a row was to close out July. The catalyst for this morning’s rally appears to be weaker-than-expected inflation data out of China and some weakness in the dollar. Treasury yields are flat to lower even as crude oil is up over 1%.
While she was queen 15 different prime ministers served under Queen Elizabeth II. That’s a lot! Another statistic we found interesting was that during her reign there were also 13 separate bear markets in the US (20%+ declines from a high on a closing basis with no rallies of 20%+ in between), including one where the S&P 500 declined over 50% and another where it dropped over 48%. Besides those, there were five other bear markets where the S&P 500 lost more than one-third of its value. In economic terms, there have been eleven confirmed recessions in the US since the Queen was coronated in 1953, and we could be on the verge of a twelfth now.
During each of these economic and market downturns, it probably felt like the end of the world, and you couldn’t have faulted someone for panicking at the moment, but with the benefit of hindsight, each of those periods ended up being nothing more than a bump in the road (some more than others). During the Queen’s reign, the S&P 500 rallied more than 16,000% or more than 7.6% annualized before even taking dividends into account. With dividends, the annualized rate of return is over 10%. US Real GDP per capita over that same period increased by three and a half times rising from $17,093 to $59,288. With the benefit of all that experience, if you had told the Queen that the economy was contracting or that stocks were on the verge of a bear market, rather than pull her hair out and freak out, instead, in her normally calm demeanor, she would have likely responded with something along the lines of “been there, done that”.
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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