Aug 12, 2022
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“Pressure is what you live for… if you are going to be successful in life, you’re going to have pressure.” – Jack Nicklaus
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The S&P 500 has been down on three of the four trading days this week, but it is still up over 1%. Barring a sharp reversal from the current level in the futures market, this would be the fourth positive week in a row. That would be the longest winning streak since early November of last year. Today’s only economic data is Import Prices at 8:30 Eastern (weaker than expected: -1.4% vs -1.0%) and then Michigan Confidence at 10 AM. As has been the case in the last couple of months, traders will be watching the level of inflation expectations in the Michigan report closely. Barring any major surprises in the data, and given the fact that it’s a Friday in August, activity in the afternoon is likely to slow down.
As mentioned above, futures are moderately higher while European equities are trading close to either side of the flat line, but drought conditions in the region continue to raise concerns over transportation and the region’s energy needs heading into winter. While inflation data here in the US was positive this week, both France and Spain reported their highest y/y increases in over 30 years.
Turning to China, five state-owned companies announced this morning that they will voluntarily delist from the NYSE. While none of these companies are particularly active on the NYSE, the symbolic nature of the delisting should not be understated and only further exacerbates the rising tensions between the two countries.
Today’s Morning Lineup discusses earnings and market news out of Europe and the Americas, overnight economic data, and much more.
Falling commodity prices have been one reason for optimism that inflation pressures may have peaked, but over the last five trading days, commodity ETFs in our Trend Analyzer tool have seen some strong moves. Energy-related ETFs have surged more than 6%, while base metals and the broader commodity space in general, have rallied 5% or more. Ag-related ETFs haven’t been as strong relatively speaking, but they’ve still managed to rally over 2%. The only area of weakness in the space has been in precious metals, which have been led lower by gold.
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Aug 11, 2022
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“My fellow Americans, I am pleased to tell you today that I’ve signed legislation that will outlaw Russia forever. We begin bombing in five minutes.” – Ronald Reagan, 8/11/1984
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Politicians are always getting themselves into trouble with hot mics, and with US Presidents, it has happened more than once with respect to Russia. Besides the Reagan comment above, remember ten years ago when President Obama was caught telling Russian President Medvedev that he would have more ‘flexibility’ after the election? Outside of Russia, President GW Bush was once caught on audio at a rally telling VP Cheney that a certain New York Times reporter was a “major league ___-hole”? And then there’s President Biden. Who can forget the ceremony for the signing of the Affordable Care Act into law when Biden as VP grabbed the President and told him that “This is a big f___-ing deal!”
Politicians live their lives under the camera, so it’s only natural that they get caught making these embarrassing comments from time to time, but in a society where everything is recorded, a parent’s advice that you should never say or do anything that you would be embarrassed for your parents to see or hear is more fitting than ever.
In markets today, futures suggest that yesterday’s rally will have additional legs, but PPI and Initial Jobless Claims will have a say over whether these gains can continue throughout the trading day. PPI was much weaker than expected at both the headline and core level and jobless claims were right about in line with expectations. Treasury yields are lower at the long end of the curve, bitcoin is higher and crude oil prices are back above $90 even as OPEC says it sees the market moving into a surplus at some point this quarter.
Today’s Morning Lineup discusses earnings and market news out of Europe and the Americas, overnight economic data, and much more.
Usually, when the market rallies, the VIX declines, and after yesterday’s rally, the VIX closed below 20 for the first time since April 4th after a run into the low 30s during the worst of the market declines earlier this year. One notable aspect of the sell-off during the first half of 2022 was the fact that the VIX didn’t reach extremely high levels that have been typical of prior sell-offs. Therefore it had less distance to fall in order to get back below 20. You’ll notice in the chart below that during the rally in late Q1, the VIX also managed to briefly close below 20 before bouncing back into the 30s, so it will be important to watch and see whether it can stay around these levels in the future.
The streak of VIX closes above 20 lasted 90 trading days, the longest since the 246 trading day streak that ended in March 2021 coming out of the COVID crash. That was the second longest streak of closes above 20 on record trailing only the 331 trading day streak that ended in December 2009. Before the COVID crash, in order to find another streak of 90 or more closes above 20 in the VIX or even 30 for that matter, you have to go all the way back to 2012.
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Aug 10, 2022
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“Having a little inflation is like being a little pregnant.” – Leon Henderson
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It’s been a quiet morning for markets so far, but enjoy the calm before the storm while it lasts. The release of July CPI comes in the next few minutes (or has already been released depending on when you read this), and in the immediate aftermath of the release at least, markets are likely to experience a surge in volatility. How long that volatility lasts will be directly correlated to how much the headline and core aspects of the report deviate from expectations.
Over in Europe, the major equity benchmarks have seen little movement versus yesterday’s close, and if the releases of CPI for both Germany and Italy are any indication (both reports came in right in line with consensus forecasts), maybe there won’t be too many fireworks today. We can always hope!
Today’s Morning Lineup discusses earnings and market news out of Europe and the Americas, overnight economic data, and much more.
Last month, the June CPI surged 1.3% m/m which was the largest increase in headline CPI since September 2005. With the July report expected to come in at just 0.2%, it would represent the smallest m/m increase since January 2021. If the July headline CPI does match expectations, it would be just the fourth time since 1960 that the rate of increase in the m/m reading dropped by a full percentage point or more. The only other three periods where this occurred were September 1973 (-1.4 ppt), October 2005 (-1.2 ppt), and October 2008 (-1.0 ppt). In two of these three periods, the economy was either right on the cusp of or in a recession while the third period was after Hurricane Katrina when gasoline prices in the US temporarily went bananas.
Wherever the CPI report comes in this morning, one thing we can say is that weaker than expected reports have been hard to come by in the post-COVID world. Last month’s report was the tenth straight month that headline CPI was either higher than or in line with expectations. That is the longest streak of months without a lower-than-expected report since at least 1999. Not only that, but the current streak started just a month after what at the time had been the longest streak just ended. In other words, over the last 20 months, we have seen the two longest streaks without a lower-than-expected CPI report over at least the last 20 years.
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Aug 9, 2022
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“Somebody needs to do something — it’s just incredibly pathetic that it has to be us.” – Jerry Garcia
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Yesterday it was NVIDIA (NVDA), and today it’s Micron’s (MU) turn as the company lowered revenue guidance citing a challenging market in which customers were working down inventories. Today’s revenue warning is the second in just over a month. The last time MU lowered guidance on June 30th, it said sales for Q4 would come in at a range of $6.8 billion to $7.6 billion compared to analysts’ forecasts of $9.1 billion. This morning, MU is saying that revenues will come in at or below the low end of its guidance from June 30th. In other words, in the span of a month and ten days, MU has lowered sales forecasts by at least 25%!
Given the warning from MU, the negative tone in the futures market this morning has been most pronounced in the Nasdaq where futures are down more than half of one percent. Along with the weakness in equity futures, bond yields are modestly higher and crude oil is up over 1%. In economic data, Small Business Sentiment came in modestly better than expected, rising slightly from last month’s level, while Non-Farm Productivity was roughly in line with expectations and Unit Labor Costs were higher than forecast.
Today’s Morning Lineup discusses earnings and market news out of Europe and the Americas, overnight economic data, yesterday’s raid on Mar-a-Lago, and much more.
As the S&P 500 looks to make a higher high and break its downtrend from its high over six months ago, the cumulative advance/decline (A/D) line has already crossed both milestones. As shown in the chart below, in addition to breaking the downtrend from its high right around the turn of the year, the S&P 500’s cumulative A/D line also just recently made a higher high. Even during Monday’s trading, while the S&P 500 traded fractionally lower, the A/D line was actually firmly in positive territory at more than +100.
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Aug 8, 2022
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“Because only if you’ve been in the deepest valley can you ever know how magnificent it is to be on the highest mountain.” – Richard Nixon
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People always need a scapegoat, and in the Summer of 1974 with the economy stuck in a deep recession and inflation surging, the buck stopped at Richard Nixon. Mired in the Watergate scandal and with impeachment proceedings underway, Nixon announced his intention to resign from office the following day. Nixon’s resignation didn’t staunch the bleeding, and over the following two months, the S&P 500 declined another 20% before finally bottoming in early October. By the following February, though, stocks were already back at pre-resignation levels, and they didn’t look back from there. While stocks bottomed, the rest of the 1970s wasn’t a particularly good period for the economy or markets though. There are plenty of similarities between now and the early 1970s, but the differences are probably even greater, and the market backdrop isn’t nearly as bad now as it was 48 years ago today.
Today’s Morning Lineup discusses new trends in US industrial policy, earnings and market news out of Europe and the Americas, and much more.
The S&P 500 managed positive returns last week making it the third straight week of gains. That may not sound all that impressive at first, but when you consider that there were only three up weeks in the entire second quarter, it sounds like a much bigger deal. Last week’s rally was on the small side as the S&P 500 rose less than 0.5%, but six sectors managed to post gains.
Leading the way higher were Technology and Communication Services, which each rallied more than 1%, followed by Consumer Discretionary which came up just shy of the 1% mark. On the downside, three sectors also declined more than 1%, but the big loser was Energy. With a decline of 6.81% last week, XLE dropped below its 50-DMA and is the only sector heading into this week below that level. Energy may be the biggest loser recently, but it still tops the leaderboard on a YTD basis by a wide margin (+34.31%) and is one of just two sectors, along with Utilities (+5.22%), that is in the black YTD.
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Aug 5, 2022
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“When you invest, you are buying a day that you don’t have to work.” – Aya Laraya
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It’s another jobs day. Inflation has become the biggest issue facing the markets lately, so jobs reports aren’t quite as important as they once were, but today’s report will still have implications concerning FOMC policy. Headline jobs came in much better than expected, the Unemployment Rate was lower than expected, average hourly earnings were better than expected, and average weekly hours came in higher than expected. More jobs, longer hours, and more pay. The immediate response in the market was for futures to pull back sharply and interest rates to spike higher.
Today’s Morning Lineup discusses earnings and market news out of Europe and the Americas, the now likely to pass reconciliation bill in the Senate, and much more.
It may sound hard to believe given the year it has been for stocks, but this week the S&P 500 closed further above its 50-day moving average (DMA) than at any other point since April 2021! The chart below shows the spread (in percentage terms) between the S&P 500’s price and the 50-day moving average over the last two years. After spending a number of months below the 50-DMA, the S&P 500 crossed above it in late July and made a bee-line for the 5% threshold this week. Between now and April 2021, there were two other periods where the spread approached 5%. The first was in November 2021 when the S&P 500 came up just short of 5%, and then back in late March when the spread briefly topped 5%. Back in the November period, the S&P 500 actually went on to make new highs even as the internals of the market were already deteriorating. Back in late March, though, right when the spread topped 5%, the rally ran out of gas.
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