Sep 20, 2022
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“The sea is dangerous and its storms terrible, but these obstacles have never been sufficient reason to remain ashore.” – Ferdinand Magellan
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Just like yesterday, futures are lower this morning as interest rates continue to make new multi-year highs while crude oil is marginally higher. The major news event of the overnight session was a 100 basis point rate hike from Sweden’s Riksbank. That was the largest rate hike for the central bank since 1992. In economic news, Germany’s headline PPI increased 7.9% month over month. Yes, you read that right- month over month. In the US, Building Permits and Housing Starts came in mixed relative to expectations. Housing Starts were expected to come in roughly unchanged at 1.45 million, but the actual reading came in at 1.575 million. Building Permits, however, missed expectations by just about as much as starts beat (1.517 million vs 1.610 million consensus forecast).
As has been the case for most of the year, interest rates are on the rise again this morning. The 2-year and 10-year US Treasury yields are up about 4 basis points (bps) pushing both up to new multi-year highs. What’s somewhat notable about the moves in the last 24 hours is that for the first time in just over three months, both the 2 and 10-year yields are at 52-week highs.
In the case of the 2-year yield, its yield has been hitting 52-week highs pretty much every day since Labor Day, but the 10-year yield only took out its June highs yesterday. No matter how many times we say it, it’s hard to imagine that less than nine months ago, ten-year yields were at 1.5% while two-year yields were less than 0.75%.
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Sep 19, 2022
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“Objects in motion stay in motion in the same direction unless acted upon by an unbalanced force.” – Isaac Newton
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There’s very little in the way of economic or earnings data this morning, the Fed is in its blackout period, and the buyback window is closed. Therefore, there appears to be very little in the way of catalysts to interrupt the current path of equities which has been lower and interest rates which have been higher. Futures are indicating a decline of about 0.75% at the open for the S&P 500, and the 10-year yield is above 3.5%. The only economic report on the calendar today is homebuilder sentiment, and given the moves in interest rates, it’s hard to imagine an upside surprise.
The negative start to this week follows what was a lousy week for not just US equities but equities all over the world. US stocks were easily the worst performers last week with the S&P 500 (SPY) and Nasdaq 100 (QQQ) both falling 5%, but other major regional equity ETFs all fell at least 2.5%. Of the nine ETFs listed below, they are all at least 4% below their 50-DMAs, all of them are oversold, and all but three (SPY, ACWI, and VPL) are down 20% YTD. It’s not even three-quarters finished, but 2022 is already shaping up to be one of the worst in the post-WWII period for not just US stocks but stocks all over the world.
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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.
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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