Sep 8, 2022
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“A government big enough to give you everything you want is a government big enough to take from you everything you have.” – Gerald Ford
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Futures have been trading rangebound around the unchanged line this morning as the ECB rate decision (hiked rates by 75 bps pretty much as expected) and lower-than-expected initial jobless claims have caused a pickup in trading activity generally in a lower direction. The only other indicator on the calendar in the US is Consumer Credit at 3 PM Eastern. Besides the data, there are plenty of investor conferences and even some Fedspeak on the calendar, so be on the lookout for tape bombs throughout the day.
New UK PM Liz Truss has announced a number of initiatives to help alleviate stress from surging energy prices. In a more long-term measure, she announced a lift of the ban on fracking and plans to approve more drilling for oil. In a more short-term-based measure, the new PM also announced a price cap on energy prices for consumers to take effect for the next two years. That should provide short-term relief, but the quote from Gerald Ford above should serve as a reminder – while prices may be capped, consumers will have to pay for it in some way (either through higher taxes or restrictions on the amount of energy one can use).
Investors have been able to buy and sell long-term US Treasuries via ETFs through the iShares 20+ Year US Treasury ETF (TLT) for just about 20 years now. In the first few years of the TLT’s existence, volatility in the ETF was what you would expect for a US Treasury – low. From 2003 through early 2007, the average daily move of TLT over a trailing 200-day period ranged between 0.30% and 0.70%.
Once the housing market crashed and the Financial Crisis set in, volatility in TLT surged with the average daily move breaching 1% on its way to 1.10%. As markets stabilized in 2009, volatility pulled back but never quite back down to its pre-Financial Crisis range. Then in 2011, volatility surged again as the US had its long-term credit rating downgraded in August 2011. Average daily volatility peaked in that period several months later in April 2012 and then began a multi-year decline to a range of around 0.50% per day.
Like everything else in the economy, COVID wreaked havoc on the Treasury market pushing the average daily move in TLT back up above 1%, but the exaggerated volatility was short-lived, and the market quickly returned to more stable levels by June 2021. The period of calm was just as short-lived, though. As the Fed found religion regarding inflation in late 2021 pushing long-term rates higher, volatility has once again surged. Just yesterday, the 200-day average daily move in TLT once again topped 1% for the first time since June 2020. How long this period of heightened volatility lasts remains to be seen, but if rhetoric on the part of Fed officials is to be believed, a return to calm seems a long way off.
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Sep 7, 2022
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“There’s nothing fair about it, it’s going to create economic hardship,” – Ryan Lance
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The above quote from the ConocoPhillips (COP) CEO from earlier this year was referring to the energy policy of the United States, but it could just as equally have been used as a response to this morning’s WSJ article that the FOMC is planning on a 75 bps rate hike at its September meeting. Whatever your views are regarding the path of inflation and whether a 75 bps hike is actually needed, the impacts will create some level of hardship on what is already a weakening economy. Chair Powell has admitted as much in numerous comments saying that the FOMC’s fight to reverse the post-COVID inflation surge will be ‘painful’.
Futures were modestly higher before the WSJ article was published but have since reversed into negative territory with the S&P 500 indicated to open down by 0.30% with the Nasdaq indicated lower by a similar amount. The Nasdaq is already down seven straight days, which is the longest losing streak since November 2016, and that streak ultimately went on for nine days before ending. Crude oil prices are modestly lower and treasury yields are lower as well.
Maybe we were just overdue for a losing streak like the Nasdaq is currently in the midst of now. Before this one, the last losing streak of seven trading days was right before the 2016 election, and the gap of 1,466 trading days between these two streaks was the longest in the Nasdaq’s history. Prior to the current period, the longest gap between 7-day streaks was from late 2001 until 2006, and the only other gap of over 1,000 trading days ended in January 2016.
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Sep 6, 2022
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“There are things done today in electrical science which would have been deemed unholy by the very man who discovered electricity” – Bram Stoker
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Maybe we needed the weekend to pause and regroup. At least that’s the hope for the bulls. Futures are higher this morning after a news-packed Labor Day which saw volatility in Europe following news that Russia would cut off natural gas supplies to that region of the world until sanctions were lifted. Also, yesterday, OPEC+ announced that it would cut supplies by 100,000 barrels per day reversing the token increase from September after President Biden visited Saudi Arabia in the Summer.
Despite the positive pre-market tone, concerns still loom as the economy remains on a shaky footing and traders have become all to used to the market trading higher and giving up those gains throughout the trading day. The upcoming weeks are busy with investor conferences so be on the lookout for any negative commentary emanating from those get-togethers. In terms of economic data, the only report on the calendar today is the ISM Services for August. Economists are forecasting the headline index to slow modestly from 56.7 in July to a still expansionary reading of 55.0.
It’s hard to believe after the last week few weeks of selling that the S&P 500 still isn’t even at oversold levels. As shown in the graphic from page two of the Morning Lineup, just three sectors – Consumer Staples, Health Care, and Communication Services – are currently oversold while Energy is the lone sector at overbought levels. While the S&P 500 isn’t oversold, it did close out last week below its 50-day moving average (DMA) along with every other sector except Energy and Utilities.
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Sep 2, 2022
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“I’m just opposed to a pure inflation-only mandate in which the only thing a central bank cares about is inflation and not employment.” – Janet Yellen
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It’s understandable that the Friday before Labor Day is quiet as people look to get the most out of the last unofficial summer weekend, but the ‘flatness’ in futures is pretty remarkable given the volatility this week. The fact that it’s an employment report Friday makes the tranquility even more notable. Tune in at 4 PM to see if it lasts the entire day. Heading into this Friday’s report, the Non-Farm Payrolls report has been stronger than expected for four straight months, and the only other time in the last 25 years that it had a longer streak of beating expectations was in September 2020 when the August report topped estimates for a fifth straight month.
Outside of equities, energy is mixed with crude oil trading about 2% higher while nat gas is down over 3% and below $9/mmbtu. Treasury yields are modestly lower, but the 10-year yield is still at 3.25%.
The equity market had a pretty impressive reversal yesterday helping the S&P 500 to avoid a five-day losing streak following Fed Chair Powell’s hawkish speech in Jackson Hole last Friday. The rebound wasn’t enough to push the Nasdaq into positive territory for the day, although it did finish well off the intraday lows. Semis also managed to bounce, but the Philadelphia Semiconductor Index (SOX) still finished down over 1% on the day. Not only was it the 5th straight day of losses for the SOX, but it was also the 5th straight decline of 1% or more, a streak in which it has dropped more than 11%.
The current losing streak for the SOX ranks as the longest run of 1%+ daily declines since January 2016 and just the 12th such streak in the index’s history. Of those prior eleven, just three went on to last a sixth day and none extended to seven. Just as we noted in a post yesterday how the magnitude of the decline in reaction to Powell’s Jackson Hole speech ranked on the extreme side relative to history, losing streaks like the one the SOX is in (or hopefully on the tail end of) right now have been uncommon over time.
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Sep 1, 2022
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“Someday computers will make us all obsolete.” – Bobby Fischer
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The new month is kicking off on an even busier than normal note in terms of economic data. At 8:30, we’ll get the usual weekly jobless claims reports which are both expected to rise modestly. They will be joined with Non-Farm Productivity and Unit Labor Costs. Then, since it’s the first day of the month, at 10 AM we’ll get the releases of Construction Spending and ISM Manufacturing. Both reports are expected to show weakness relative to their prior readings, but the Prices Paid component of the ISM report is expected to slow falling from 60.0 down to 55.3.
Futures are lower heading into the opening bell which would put the S&P 500 on a five-day losing streak ever since Powell’s speech last Friday in Jackson Hole. Outside of the US, international markets were also broadly weaker overnight and into this morning on hawkish central bank commentary and slowdown concerns related to another COVID lockdown in China impacting 21 million residents of Chengdu. The 10-year yield is slightly higher trading just shy of 3.2% and oil is lower.
We’ll discuss it in more detail later today, but with the market weakness since last Friday’s Jackson Hole speech, investor sentiment has really weakened. A case in point is the weekly sentiment survey from the American Association of Individual Investors (AAII). In this week’s update, bearish sentiment surged eight percentage points rising from 42.4% to 50.4%. While readings above 50% have been more common this year, in the history of the survey since 1987, less than 4% of weekly readings have been higher than this week’s level of bearish sentiment.
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Aug 31, 2022
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“The market is not an invention of capitalism. It has existed for centuries. It is an invention of civilization.” – Mikhail Gorbachev
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Futures have been trading on either side of unchanged throughout the overnight session as equity markets look to break the post-Jackson Hole losing streak. Treasury yields are higher, but crude oil is lower again as WTI has broken below $90 per barrel.
In economic news, after a summer sabbatical, ADP released its re-tooled Private Payrolls report which came in well below forecasts at a level of 132K versus consensus forecasts for a reading above 300K. The only other report on the calendar for the last trading day of August is the Chicago PMI at 9:45. That report is expected to improve slightly to 52.4 from last month’s weaker-than-expected reading of 52.1.
In yesterday’s Chart of the Day, we discussed the weakening breadth picture in the S&P 500 since the rejection of the 200-DMA back on 8/16. This is illustrated in the 10-day advance/decline (A/D) line for the S&P 500 which dropped yesterday to its most oversold levels since mid-June.
One sector where breadth has been notably weak has been Technology. As shown in the chart below, not only has the 10-day A/D line for the S&P 500’s largest sector dropped to its lowest levels since June, but the Technology sector’s 10-day A/D line hasn’t been more oversold in the last year.
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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