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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Aug 4, 2022
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“Far and away the best prize that life offers is the chance to work hard at work worth doing.” – Theodore Roosevelt
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Futures were higher earlier but have given up much of their gains as we head into the open. Initial Jobless Claims were just released and came in at 260K which is just 1K shy of a post-COVID high. Continuing Jobless Claims saw a larger increase hitting the highest levels since April. In the UK, the BoE raised rates by 50 bps which was the largest hike since 1995. What’s ironic about the move is that at the same time the central bank raised rates by the most in more than 25 years, it also warned of a long recession.
Today’s Morning Lineup discusses earnings and market news out of Europe and the Americas, rate hikes in Brazil and the UK, a look at LNG markets on news of a sooner-than-expected restart at the Freeport terminal, and much more.
Yesterday was the 58th time in 2022 that the Nasdaq experienced a one-day rally or decline of 2% or more, and it is only August 4th! To put that in perspective, we’re just under 150 trading days into the year, so at the current pace, we’re seeing an average of about two 2%+ daily moves per week! How does that stack up relative to history? Going back to 1971, even if there aren’t any more 2% moves for the rest of the year, 2022 would rank as the 6th highest number of 2% days in a calendar year in the Nasdaq’s history. That’s just four less than the total for 1999, 25 behind the total for 2008, but well more than 40 below the triple-digit totals seen in 2000, 2001, and 2002. The record for the greatest number of 2% days in a calendar year came in 2000 when the 2% threshold was crossed 134 times or more than once every other day.
2022 already ranks as the sixth highest number of 2% days in a calendar year in the Nasdaq’s history, but when we compare the number of 2% days this year through the end of July to the first seven months of all other years, it ranks as the third most. As shown in the chart below, the only two years that had more 2% daily moves YTD through 7/31 than 2022 (57) were 2000 (84) and 2001 (74). Other years that were close were 2002 (54) and 2009 (51).
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Aug 3, 2022
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“Economics is extremely useful as a form of employment for economists.” – John Kenneth Galbraith
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Normally on the first Wednesday of the month, we’d be discussing the release of the ADP Private Payrolls, but that report is still on the DL as economists work on revising its methodology to make it a more accurate gauge of payroll trends in the economy. The only reports on the calendar today are Durable Goods, Factory Orders, and the ISM Services report which will all be released at 10 AM Eastern. It’s been another busy day for earnings, and the results continue to surprise to the upside with EPS and revenue beat rates that are higher than most analysts and strategists would have expected heading into earnings season.
Equity futures are higher this morning, oil is higher as OPEC+ only agreed to a small increase in daily output, and Treasury yields are continuing their steep run higher which began yesterday morning at right around this time. After trading well below 2.6% yesterday, the yield on the 10-year is now pushing 2.8%.
Today’s Morning Lineup discusses earnings and market news out of Europe and the Americas, Pelosi’s visit to Taiwan, a detailed look at PMI and economic data from around the world, and much more.
As oil prices have pulled back in the last couple of months, stocks in the Energy sector have also experienced a hiccup as growth-oriented names have enjoyed some time in the sun. Technology is one sector that has experienced a rebound, and that bounce has shown up in the chart of Energy’s relative strength versus the Technology sector. From the summer of 2020 through late last year, there was a push and pull with lots of noise between the two sectors, but neither one had anything to show for it as they essentially performed in line with each other during that entire period. Beginning in late 2021, though, when the Fed apparently got religion with respect to surging inflation, tech stocks plunged while energy names surged. That run essentially continued uninterrupted right up to mid-June. In the span of under two months, though, Energy has given up 40% of its outperformance versus Technology. Easy come easy go.
Given its outperformance in the years coming out of the Financial Crisis, there’s almost a Pavlovian instinct for investors to look towards the technology sector for outperformance. Over the last two years, though, the sector has essentially generated zero alpha. Comparing the sector’s relative strength to the S&P 500, Technology is barely positive versus August 2020.
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Aug 2, 2022
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“The more you sweat in peace, the less you bleed in war.” – Norman Schwarzkopf
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With Speaker Pelosi reportedly en route to Taiwan as we type this, markets are on edge this morning as China has threatened military action if the planned trip takes place. Only Chinese authorities know exactly what the response will be, but we would expect more bluster than bite. After a relatively slow day of earnings news yesterday, today will be a busy day, and there have already been a number of important reports this morning from the likes of Caterpillar (CAT), Uber (UBER), and Marriot (MAR) among others. After the close, among others, we’ll hear from AMD, Gilead (GILD), Occidental (OXY), PayPal (PYPL), and Starbucks (SBUX).
Today’s Morning Lineup discusses earnings news out of Europe and the Americas, the rate hike in Australia, a detailed look at other economic data from around the world, and much more.
32 years ago today, Iraq invaded Kuwait, spurring a monumental surge in oil prices. In the first five trading days of August alone, WTI surged more than 35% and nearly doubled in price through the fall as tensions in the region boiled over. There are still more than enough geopolitical issues around the globe today to worry about, but unlike in August 1990, crude oil prices have been moving in the opposite direction.
After briefly trading above $130 per barrel earlier this year, crude oil has declined nearly 30% from its peak to under $95 per barrel, and just yesterday, closed below its 200-DMA for the first time in over six months.
As shown in the chart below, yesterday’s close below the 200-DMA ended what was the 12th longest streak of consecutive closes above the 200-DMA for WTI since the early 1980s. The streak that just ended was the longest since the 269 trading day streak that ended last November. That streak was the third longest on record trailing only the 276 trading day streak that ended in April 2000 and the 330 trading day streak that ended in August 2008.
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Aug 1, 2022
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“Ladies and gentlemen, rock and roll.” – John Lack
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41 years ago today, teens, pre-teens, and other people resembling the cast of “Stranger Things” watched “Video Killed the Radio Star” as MTV revolutionized the entertainment industry by making music both a listening and viewing experience. Eleven years later, in 1992, MTV mixed things up again with the launch of “The Real World” in what ultimately became the start of the reality TV revolution. The life cycle of MTV has been interesting to watch. What started as a network intended solely for ‘watching’ music, has become a network that now shows little or no music at all. MTV’s experience also shows the importance of adapting and changing with the times. Peter Drucker may not have had MTV in mind, but the phrase most famously applied to him still applies. Innovate or die.
Futures started off the month of August with losses last night but have erased much of the weakness so far this morning. Treasury yields are only marginally higher, crude oil is lower, while gold is higher. The big economic indicator of the day is the ISM Manufacturing report at 10:00 AM Eastern. Economists expect the headline reading to come in at 52.2 versus June’s reading of 53.0. Any reading under 53.0 would be the weakest reading in two years (June 2020).
Today’s Morning Lineup discusses earnings news out of Europe and the Americas, global PMI data for July, a detailed look at other economic data from around the world, and much more.
There may not be an official start date, but August represents what many consider the dog days of summer when, for a lot of people, the market is the last thing on their minds. Historically, there have been a number of calamitous events that began or transpired in August, but overall stock market returns during this time of year have been middling. The snapshot below from our Seasonality tool shows that over the last ten years, the S&P 500’s median performance from the close on 8/1 over the next week, month, and three months has ranked between the 50th and 60th percentile. For the next week, the S&P 500’s median gain has been 0.40%. The next month has had a median gain of 1.15% while the next three months have seen a median gain of 2.75%. Nothing especially notable, but the way this year has gone, a gain is a gain!
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