Aug 24, 2022
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“If you want to succeed you should strike out on new paths, rather than travel the worn paths of accepted success.” – John D. Rockefeller
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Trading this morning has been directionless, but it’s better than the alternative of weakness which has been the prevailing tone. Fed Chair Powell’s Jackson Hole Speech on Friday continues to be the main focus of investors, and expectations for the tone of the speech are low. Have you spoken to anyone in the last seven days who thinks Powell’s message will be a positive for the market?
In economic news this morning, Durable Goods for July were unchanged, which was weaker than expected, but ex Transportation, the reading came in better than expected (+0.3% vs +0.1%). The only other report on the calendar is Pending Home Sales at 10 AM.
Treasury yields are mostly lower across the curve except for the two-year which is 2 bps higher and further flattening or inverting various portions of the yield curve. In commodities, crude oil continues to run higher following reports yesterday that OPEC would consider cutting production and that has pushed WTI up to just under $95 per barrel.
As oil prices have moved back into the mid-90s per barrel and natural gas surges to multi-year highs, the Energy sector has gotten a jump. Since its July 14th low, the Energy sector has rallied more than 20% taking it from extreme oversold to extreme overbought levels in the span of six weeks, and as of yesterday’s close, the sector is less than 11% from its 52-week high in June.
Perhaps even more impressive than the rebound in price has been the about-face in the percentage of stocks in the sector trading above their 50-day moving average (DMA). While not a single stock in the sector was above its 50-DMA less than three weeks ago, as of yesterday’s close all but one name was above that level (bottom chart). The lone hold-out has been Baker Hughes (BKR), but even it is now just barely 2% below its 50-DMA. Falling oil prices and the prospects of lower inflation have played an important role in the broader market’s summer rally, but the recent trends for oil and natural gas and stocks in the Energy sector may be starting to shift.
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 23, 2022
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“Coaches have to watch for what they don’t want to see and listen to what they don’t want to hear.” – John Madden
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Futures are marginally higher this morning as investors continue to apprehensively await Friday’s speech by Fed Chair Powell in Jackson Hole. After a quiet day for economic data to kick off the week, today we’ll get updates on manufacturing and services activity with preliminary PMI readings from S&P 15 minutes after the opening bell. Then, 15 minutes later, we’ll get the release of the August Manufacturing report from the Richmond Fed along with New Home Sales. Investors aren’t expecting much in the way of strength from these reports, so hopefully for bulls, they don’t put too much upward pressure on interest rates as the 10-year yield is once again comfortably above 3%.
It’s getting to the point where you can set your clock to it. When the yield on the 10-year US Treasury hits 3%, sell stocks. Back in early May, when we first topped 3%, the S&P 500 dropped 5% in a week and 1% over the next month. In early June, it happened again. The 10-year yield topped 3% for the first time in four weeks, and once again the S&P 500 dropped 9% in the next week and 7% over the next month. Yesterday, the 10-year yield once again moved above 3% for the first time in a month, and the S&P 500 fell 2%!
The chart below shows the S&P 500 over the last 12 months with red dots indicating every day that the 10-year yield finished north of 3%. Not a good thing for equity performance. Will this be the market’s third strike or will the third time be the charm?
You can’t fault equity investors for being uneasy given the moves we have seen in the US Treasury market lately. Back in mid-June, the year/year change in the 10-year yield was more than 200 basis points (bps), and it still stands at 177 bps. That magnitude of change in the span of a year is practically unheard of during the careers of most people currently on Wall Street. While there were similar spikes in yield coming out of the Financial Crisis and back in mid-2004, the only period where yields experienced an even greater increase was back in early 2000.
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 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%.
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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.
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 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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