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.
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 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.
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Aug 30, 2022
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“Logic will get you from A to Z; imagination will get you everywhere.” – Albert Einstein
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After two days of losses, futures have made an attempt to rally today, but as the opening bell approaches, the rally has lost some steam. Treasury yields are still lower on the day as the 10-year yield remains below 3.10%, while crude oil is down over 2%. On the economic calendar this morning, we’ll be getting house price levels from the FHFA (for June) at 9 AM Eastern and then Consumer Confidence and JOLTS at 10 AM.
It seems these days that the market is solely focused on the Fed, but at the individual stock level, it’s Bed Bath & Beyond (BBBY) and everyone else. Over the last 12 trading days, shares of BBBY have either been the best or worst-performing stock in the S&P 1500 on nine different trading days. Not only that, but on one of the three trading days where it wasn’t the best or worst performing stock in the S&P 1500, it was the 2nd worst on one of those days and in the bottom ten on the other two. There are literally hundreds of stocks in the S&P 1500 that will go months or years without cracking the top ten best or worst daily performers list, but for some reason, BBBY has been making it an everyday occurrence lately. Maybe instead of the S&P 1500, we should call it the S&P Bed Bath & Beyond! It’s often tempting for investors to go where the ‘action’ is, but no one ever gets rich following the crowd. Use your imagination. It will take you places.
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Aug 29, 2022
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“The greatest education in the world is watching the masters at work.” – Michael Jackson
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If you planned on a quiet week of trading ahead of the unofficial last week of summer, you might want to adjust your plans. After plunging Friday, the only ones seemingly on vacation this morning are the dip buyers. Equity futures are down nearly 1% while US Treasury yields are moving higher. The 10-year yield has moved back above 3.1% which is still below the highs from June, but the 2-year yield briefly took out those June highs, so the upward direction in rates has resumed following Powell’s hawkish speech on Friday. The economic calendar is quiet today with the Dallas Fed Manufacturing report coming out at 10:30 Eastern. Economists are expecting a negative print but an improvement from July’s level of 22.6.
In many ways, last week was a normal one for the stock market- at least in terms of 2022 performance. To put it succinctly, Energy was up and everything else stunk. As shown in the graphic below from our Trend Analyzer, Energy was up over 4% taking its YTD gain back above 50%, while every other sector fell at least 1% and, in most cases, much more than that. Leading the way to the downside, Technology, Consumer Discretionary, Communications Services, and Health Care all fell more than 4%.
Despite the sharp declines last week, most sectors remain above their 50-day moving averages (DMA) with the only two exceptions being Communications Services and Health Care. It remains to be seen whether last week was a pause in the sharp rally off the June lows or a resumption of the bear market, but if the majority of sectors can stay above their 50-DMAs, the bulls still have some hope to cling to.
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Aug 26, 2022
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“There is no risk-free path for monetary policy.” – Jerome Powell
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Futures have been digging out of their hole all morning, but still remain in negative territory ahead of Powell’s speech in Jackson Hole at 10 AM. Crude oil is modestly higher this morning while US Treasury yields are modestly lower. Outside of the Fed, one big story crossing the wires right now is from Bloomberg which is reporting that the US and China have reached a preliminary deal regarding audits that could avoid delistings of Chinese companies from US exchanges.
It’s also a busy morning for economic data, and for the 8:30 batch, Personal Income and Spending were both weaker than expected, but PCE inflation data came in weaker than expected. At 10 AM, we’ll get the Michigan Confidence report which will be interesting to watch as it will come out just as Powell starts speaking.
Ahead of Powell’s widely anticipated speech today, the equity market is following the technical playbook to a tee. After stalling out just short of its 200-DMA last week, the pullback that followed found support right at the June highs and the brief period of consolidation that occurred right before the August rally run to the 200-DMA. While not necessarily a technical term, the saying, “if at first, you don’t succeed, try again”, seems applicable to where the market is today relative to its 200-DMA. Now, we just have to wait to see if Powell’s speech will provide some fuel for that attempt or put on the brakes. We’ll know within the next couple of hours.
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Aug 25, 2022
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“It’s hard to live your life in color, and tell the truth in black and white.” – Gregg Allman
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We’re still a full day from Powell’s Jackson Hole speech, but futures have shown some resilience this morning indicating a positive start to the trading day. Interest rates are little changed but slightly biased to the upside. It’s a busy day for economic data for jobless claims, GDP, Personal Consumption, and Core PCE all at 8:30 with the KC Fed Manufacturing report coming out at 11 AM. The 8:30 data was just released and Jobless Claims came in lower than expected on both an initial and continuing basis. The revision to Q2 GDP came in at a decline of 0.6% which was slightly less worse than forecasts for a decline of 0.7%. Personal Consumption came in right in line with forecasts at 1.5% while Core PCE was 4.4% which was in line with consensus forecasts. All in all not much in the way of big surprises.
As investors gnaw on their fingernails in anticipation of Friday’s Powell speech in Jackson Hole, they remain anxious about the direction of interest rates. The yield on the 10-year US Treasury has gone from a multi-year high of just under 3.5% in late June down to 2.57% in early August. Since that low, yields have rocketed higher and closed yesterday at 3.10% which is right around the same levels they temporarily peaked at in the Spring. If yields continue higher in the coming days, a run to new highs will seem like a foregone conclusion which would act as a headwind for risk assets, but if yields start to stall out here, the chart of the 10-year yield will look more like a head and shoulders and provide a sigh of relief.
The two-year yield is another story. Just yesterday, the yield finished the day right at 3.39% which was just four basis points (bps) below its June 14th high. Like the 10-year, the direction of the 2-year yield in the coming days will likely play a big role in the stock market narrative for weeks to come.
Whichever way yields move, the 10-year/2-year Treasury yield curve remains firmly entrenched at inverted levels and is one of an increasingly growing number of indicators out there suggesting that the economy is either on the verge of or already in a recession.
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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