Aug 22, 2022
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“You are always a student, never a master. You have to keep moving forward.” – Conrad Hall
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It’s another weak showing for the bulls this morning as investors assess the upcoming Jackson Hole Fed meeting and grasp to come up with what could be a positive takeaway for financial markets. Risk assets have had big summer rallies and Powell and Company have no interest in being seen as cheerleading the gains, so it is widely assumed that the tone will be hawkish. It’s a quiet day on the data front, as the only economic report on the calendar is the Chicago Fed National Activity Index for July which actually came in better than expected at +0.27 versus expectations for a reading of -0.25.
In what looks like a textbook example of a bear market rally grinding to a halt right at resistance, the S&P 500’s attempt to take out its 200-day moving average (DMA) proved extremely unsuccessful in its first and only attempt last week. The bulls cut out early Friday and still appear to be on vacation heading into the new week as the S&P 500 appears to be bookending the weekend with declines of over 1% on each side. Rallies can’t go on forever, so the pullback shouldn’t surprise anyone, but if the bulls don’t get back on the field soon, the S&P 500’s chart will only look increasingly worse.
The S&P 500 snapped a four-week winning streak last week, and most sectors contributed to the decline. Leading the way lower, Communication Services and Materials each pulled back over 2%. In the process, Communication Services moved back into the down 25% YTD range and is one of only two sectors that is no longer overbought. Besides these two sectors, five others pulled back over 1% last week, so the declines were broad-based. On the downside, defensives attracted investor interest with Consumer Staples and Utilities rallying more than 1%. Along with those two, Energy also managed to rally more than 1% taking its YTD gain back over 46%.
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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Aug 19, 2022
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“If you don’t know who you are, the stock market is an expensive place to find out.” – Adam Smith, The Money Game
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With August coming to an end soon and what has historically been the worst month of the year for the stock market — September — on deck, this morning we looked for years similar to 2022 that saw strong S&P 500 gains in the first two months of Q3 even though the index was still down big YTD.
Only two other years since WW2 really fit the bill. Both 1962 and 1970 saw 7%+ gains in the first two months of Q3 with the S&P still down more than 10% YTD through August. Below is a chart showing the YTD % change throughout the year in 1962, 1970, and so far in 2022. The patterns look quite similar, and it’s noteworthy that 1962 and 1970 were both mid-term election years for first-term Presidents, just like 2022.
In September 1962, the S&P fell 4.8%, but after that weakness, the index surged higher in Q4. In September 1970, the S&P rallied 3.3% and continued to gain sharply in Q4 as well. In both 1962 and 1970, the S&P was higher from the end of August through year-end. Investors would certainly take a repeat of that this year!
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Aug 18, 2022
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“Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.” – Edwin Lefèvre, Reminiscences Of A Stock Operator
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US equity futures are slightly higher ahead of the open this morning as jobless claims just came in weaker (better) than expected and Philly Fed came in stronger than expected. Outside of the 8:30 AM ET data, there’s not much else going on today.
The S&P 500’s action around resistance at its 200-DMA continues to be watched closely by traders. Yesterday’s declines continued the pullback that began late in the day on Tuesday when the index touched up against the 200-DMA in afternoon trading. To get above the 200-day at this point, the index needs to rally about 1.25% from yesterday’s close.
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Aug 17, 2022
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“What started as a temporary measure driven by the pandemic is now our new standard.” – Brian Cornell
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After Walmart (WMT) capped off the strongest earnings season for US stocks in years, a bit of a hangover appears to have set in for investors this morning. Futures were only modestly negative in the middle of the night, but there has been a steady drift lower throughout the early morning hours to the point where S&P 500 futures have traded down over 75 basis points as we type this. Looking for a culprit, earnings don’t fit as a narrative. The most high-profile report this morning has been Target (TGT) which reported weaker-than-expected results, but the stock is only trading down 2%. Hardly enough to warrant a decline of this magnitude. Trading in Europe may be to blame as major benchmarks in the region are down following a higher-than-expected inflation report in the UK that pushed the y/y rate above 10%. With the FOMC Minutes on tap, maybe investors are fearing some hawkish text in the minutes.
Whatever the cause, after yesterday’s rally screeched to a halt just shy of the 200-day moving average (DMA), the bulls’ second effort looks pretty weak at this point. We’ll see if Retail Sales either add to the misery or put a pep in the market’s step.
Today’s Morning Lineup discusses earnings and market news from Europe and the Americas, overnight economic data, and much more.
Walmart’s (WMT) earnings report after the close yesterday marked what we generally consider to be the unofficial end to earnings season. If you’re a bull, you’re probably sad to see this one come to an end. Through yesterday’s close, the S&P 500 was up over 10% since earnings season began July 8th, and that represents the best earnings season performance for the index since the Q2 reporting period in 2009! Since the start of 2009, the just-completed earnings season also marks the 13th time that the S&P 500 has rallied 5% or more during an earnings season (six weeks from the Friday before the first big banks report numbers).
With strong performance during the reporting period, the natural question for investors is whether the gains we have seen have been borrowed from the future. Looking back at prior strong earnings seasons, that doesn’t appear to be the case. In the 12 prior reporting periods, the S&P 500’s median change from the end of earnings season through quarter-end was a gain of 2.38% with positive returns 75% of the time. That’s actually modestly better than the median gain of 1.75% and positive returns 73% of the time for the remainder of all other quarters.
Instead of borrowing from future gains this earnings season, maybe the S&P 500 was just collecting on its ‘loan’ during the June swoon?
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Aug 16, 2022
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“You should always go to other people’s funerals, or they won’t go to yours.” – George Herman Ruth
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Investors generally expected a weak tone out of this morning’s updates to Building Permits and Housing Starts, and weak homebuilder sentiment provides a clue as to why. Yesterday’s update on homebuilder sentiment from the NAHB for the month of August showed that the US residential housing market is rapidly cooling off. Take the last four months, for example. In three of these four, the headline sentiment reading from the NAHB has missed expectations by at least five points. Historically, the reported reading in this index tends to come in by +/- two points relative to expectations, so misses of five or more aren’t very common. Put another way, before this May there were only ten other months since early 2003 where the headline reading missed expectations by five or more points.
Besides the fact that the last four months have been so weak relative to expectations, it has also now been nine months and running that the headline homebuilder sentiment report has been either in line with or lower than expectations. The last time Homebuilder sentiment was better than expected was back in November! The current streak without a better-than-expected reading now ranks as the second longest since at least 2003. The only streak that was longer came during the early stages of the housing crash in August 2006.
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Aug 15, 2022
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“A day wasted on others is not wasted on one’s self.” – Charles Dickens
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Coming out of a four-week winning streak, bad news out of China has put pressure on stocks to kick off the week. S&P 500 futures have been trading down over half of one percent this morning, but that weakness comes after a four-week rally of over 10% which took the S&P 500 to ‘extreme’ overbought levels (more than two standard deviations above 50-DMA) to close out last week.
The week kicks off on the economic calendar with the Empire Manufacturing report at 8:30 Eastern and then Homebuilder Sentiment at 10 AM. Both of these numbers will be for the month of August, so bulls will want to see improvement in both readings to allay any concerns over the health of the economy.
Today’s Morning Lineup discusses earnings and market news from Europe and the Americas, overnight economic data, including the weaker than expected data out of China which prompted a surprise rate cut, and much more.
A lot of people go on vacation in the second half of August, so things often tend to quiet down. In a perfect world, the slowdown would be accompanied by a period where not much occurs in the markets. Every so often, though, less liquidity at this time of year can exacerbate the impact of news and cause an exaggerated move in markets. Usually, the direction is lower. From a seasonal perspective, the upcoming one-week period has historically been one of the weakest of the year. Over the last ten years, the S&P 500’s median decline from the close on 8/15 through 8/22 has been a decline of 0.26% which ranks in just the 22nd percentile of all one-week periods throughout the year. As bad as the upcoming week has tended to be for stocks, the next three months have historically been one of the better periods as the S&P 500’s median gain has been 4.56% which ranks in the 86th percentile of all three-month periods throughout the year.
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