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”.
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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.
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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