Aug 16, 2022
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“You should always go to other people’s funerals, or they won’t go to yours.” – George Herman Ruth
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Investors generally expected a weak tone out of this morning’s updates to Building Permits and Housing Starts, and weak homebuilder sentiment provides a clue as to why. Yesterday’s update on homebuilder sentiment from the NAHB for the month of August showed that the US residential housing market is rapidly cooling off. Take the last four months, for example. In three of these four, the headline sentiment reading from the NAHB has missed expectations by at least five points. Historically, the reported reading in this index tends to come in by +/- two points relative to expectations, so misses of five or more aren’t very common. Put another way, before this May there were only ten other months since early 2003 where the headline reading missed expectations by five or more points.
Besides the fact that the last four months have been so weak relative to expectations, it has also now been nine months and running that the headline homebuilder sentiment report has been either in line with or lower than expectations. The last time Homebuilder sentiment was better than expected was back in November! The current streak without a better-than-expected reading now ranks as the second longest since at least 2003. The only streak that was longer came during the early stages of the housing crash in August 2006.
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Aug 15, 2022
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“A day wasted on others is not wasted on one’s self.” – Charles Dickens
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Coming out of a four-week winning streak, bad news out of China has put pressure on stocks to kick off the week. S&P 500 futures have been trading down over half of one percent this morning, but that weakness comes after a four-week rally of over 10% which took the S&P 500 to ‘extreme’ overbought levels (more than two standard deviations above 50-DMA) to close out last week.
The week kicks off on the economic calendar with the Empire Manufacturing report at 8:30 Eastern and then Homebuilder Sentiment at 10 AM. Both of these numbers will be for the month of August, so bulls will want to see improvement in both readings to allay any concerns over the health of the economy.
Today’s Morning Lineup discusses earnings and market news from Europe and the Americas, overnight economic data, including the weaker than expected data out of China which prompted a surprise rate cut, and much more.
A lot of people go on vacation in the second half of August, so things often tend to quiet down. In a perfect world, the slowdown would be accompanied by a period where not much occurs in the markets. Every so often, though, less liquidity at this time of year can exacerbate the impact of news and cause an exaggerated move in markets. Usually, the direction is lower. From a seasonal perspective, the upcoming one-week period has historically been one of the weakest of the year. Over the last ten years, the S&P 500’s median decline from the close on 8/15 through 8/22 has been a decline of 0.26% which ranks in just the 22nd percentile of all one-week periods throughout the year. As bad as the upcoming week has tended to be for stocks, the next three months have historically been one of the better periods as the S&P 500’s median gain has been 4.56% which ranks in the 86th percentile of all three-month periods throughout the year.
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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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