Jun 22, 2022
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“There are no easy fixes nor any short-term answers to the global supply and demand imbalances aggravated by Russia’s invasion of Ukraine.” – Mike Wirth, CEO of Chevron
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It was fun while it lasted. In the latest example of the two steps backward, one step forward market, most of yesterday’s rally, which wasn’t enough to erase the declines of the prior two trading days, is poised to get erased at the open. Besides the fact that it’s a weekday and the market is open, there isn’t much in the way of a catalyst for this morning’s weakness. Oil prices are sharply lower with WTI down nearly 5%. Unlike most other days this year where equities and US Treasuries have moved in tandem with each other, Treasuries are actually rallying this morning.
There’s no economic data on the calendar to speak of today, but it will be a busy day of Fedspeak with Powell testifying in front of the Senate while Barkin, Evans, and Harker will also be speaking throughout the trading day.
In today’s Morning Lineup, there’s a lot covered as we discuss overnight moves in Asian and European markets, central bank moves, activity in the metals markets, and overnight economic data from Asia and Europe.
The quote above came from a letter to President Biden from Chevron (CVX) CEO Mike Wirth ahead of a scheduled meeting on Thursday between Energy Secretary Jennifer Granholm and US oil executives. The letter argues that the Biden “Administration has largely sought to criticize, and at times vilify our industry.” Wirth goes on to note that “bringing prices down and increasing supply will require a change in approach” and that the industry needs “clarity and consistency on policy matters”. Closing out, Wirth encourages President Biden that in addition to Secretary Granholm, he also “send your senior advisors to this meeting, so they too can engage in a robust conversation.”
Whatever side of the debate you are on with regards to energy policy, the current state of tension between the Federal government and the US oil industry can’t continue. While expectations are low, Thursday’s meeting will hopefully be more than a photo-op for both sides and instead help to bring some clarity to the strategy moving forward.
This morning, the Biden Administration has proposed a three-month holiday from the 18-cent per gallon federal gas tax holiday. While it sounds nice, the majority of economists and industry insiders have said it will do little to ease pressure at the pump and may actually worsen the situation by increasing demand. One study from Wharton found that a ten-month holiday would save consumers between $16 and $47 in total. The current proposal is for just three months which would imply total savings that’s barely enough to cover a McDonald’s value meal!
Despite the weakness in equity futures this morning and confusion surrounding US energy policy, oil prices are sharply lower. At a level of $104 per barrel, WTI has now pulled back 15% from its recent closing high on June 8th and has also broken the uptrend that has been in place since late 2021. Outside of the oil industry, just about everybody is rooting for this chart to keep moving lower. None more than Fed Chair Powell.
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Jun 21, 2022
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“A ship is safe in harbor, but that’s not what ships are for.“ – William Shedd
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It took a day longer than normal, but at least equity markets are kicking off the week on a positive note. Obviously, where we end up today is an entirely different story. It doesn’t take much to erase a market rally these days, but at least there won’t be much in the way of economic data to derail things. The only two reports on the calendar are the Chicago Fed National Activity Index which was barely positive at +0.01 and was the lowest level since last September and Existing Home Sales which will be released at 10 AM Eastern. On the speaker front, Fed Presidents Mester and Barkin will be speaking this afternoon.
In today’s Morning Lineup, there’s a lot covered as we discuss overnight moves in Asian and European markets, the wild weekend in crypto, political trends in Latin America, and economic reports out of Asia and Europe.
Based on where the tracking ETF (SPY) is currently trading in the pre-market, the S&P 500 is poised to gap up 1.7% to kick off the new trading week. As shown in the chart below, if these gains hold through the opening bell it would be the largest upside gap to kick off a new trading week since “Pfizer Monday” on 11/9/20. While this week’s upside gap is the strongest since November 2020, it follows last week’s downside gap of 2.6% which was the largest downside gap to kick off a week in two years.
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Jun 17, 2022
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“We can offer sunshine that glows bright in the afterthought, and scatters the darkness of the tenement for the price of a nickel or a dime.” — L.A. Thompson
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138 years ago yesterday, the first roller coaster in the United States opened at Coney Island. Called the Switchback Railway, it was invented by LaMarcus Thompson, and in the years since the roller coaster has become a staple of American leisure activities. The one area where we like to avoid them as much as possible is in the financial markets. Unfortunately, investors haven’t been able to dodge them this year. Making matters worse, the last several days have been more like the ride Free Fall than anything else. After all, in order to have a roller coaster, there have to be ups and downs.
Futures are higher heading into the last trading session of the week, and whether they hold into the close is probably a bet many investors wouldn’t take at this point given the tendency to give up gains intraday. We’ll also get some important reports on Industrial Production (9:15), Capacity Utilization (9:15), and Leading Indicators (10:00).
In today’s Morning Lineup, there’s a lot covered as we discuss the latest moves from the BoJ, and overnight economic and market data in Asia and Europe.
We’ve been calling it the one step forward and two steps backward market for some time now, and yesterday and today provides another illustration of that pattern. After rallying over 1% following yesterday’s Fed meeting, the S&P 500 is indicated to open down about 2.0% this morning, more than erasing all of Wednesday’s gains. Keep in mind too, that even after Wednesday’s rally, the trailing five-day performance of the S&P 500 was a decline of just under 8%.
For the second week in a row, the S&P 500 is closing out trading with a decline in nine of the last ten weeks. In the post-WWII period, there have only been three other periods where this has occurred. Besides the fact that all three were lousy market environments, another theme they all have in common is that they all occurred in the middle of recessions. In 1970, the economy was six months from bottoming out, while in March 1982, the economy was more than a half year into a recession and eight months from its trough. Lastly, the period ending in early April 2001 was just one month into a recession that had another seven months left to go.
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Jun 16, 2022
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“Everything is bearable.“ – Wendy Byrde, Ozark
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We’re not quite sure Wendy Byrde would have had 2022’s financial market meltdown in mind when she uttered the three words above. The bad year has gotten even worse this morning as futures are already indicated to erase all of yesterday’s rally. Making matters worse, economic data this morning was very weak as Housing Starts, Building Permits, Philly Fed, Initial Jobless Claims, and Continuing Jobless Claims all came in weaker than economic forecasts. Housing Starts, for their part, were down over 14.4% m/m. This comes a day after the Fed lowered economic growth forecasts and raised its forecast for the unemployment rate in yesterday’s report of economic projections. Given all the weakness, it seems unbelievable that it has all come with the largest rate hike in nearly 30 years and promises of more to come in upcoming meetings. No one said coming out of COVID and all the stimulus programs would be easy, but they didn’t have 2022 in mind either.
In today’s Morning Lineup, there’s a lot covered as we discuss the latest moves of central banks, Asian and European markets, and overnight economic data.
We’ve been calling it the one step forward and two steps backward market for some time now, and yesterday and today provides another illustration of that pattern. After rallying over 1% following yesterday’s Fed meeting, the S&P 500 is indicated to open down about 2.0% this morning, more than erasing all of Wednesday’s gains. Keep in mind too, that even after Wednesday’s rally, the trailing five-day performance of the S&P 500 was a decline of just under 8%.
Assuming that today finishes in the red, the S&P 500 will have only traded up on 43.5% of all trading days this year. While that may not sound all that extreme, in the post-WWII period, there have only been seven other years where the percentage of up days in the first half of the year was lower, and the only two where the percentage was lower than 40% in the first half of the year were 1962 and 1970.
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Jun 15, 2022
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“Everything you’ve ever wanted is on the other side of fear.“ – George Adair
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With last week’s CPI report behind us, the market shifted its focus to the FOMC rate decision, and that day has now arrived. Futures are higher heading into the report, but we just got a slug of economic data (Retail Sales, Empire Manufacturing, and Import and Export Prices). Overall, the results weren’t pretty with Export Prices the only indicator that came in higher than expected. Both Philly Fed and Retail Sales were not only weaker than expected, but they were also negative at the headline level. Economic data is going one way (down), and interest rates are going the other (higher).
In today’s Morning Lineup, there’s a lot covered as we discuss the latest moves in crypto (pg 4), the ECB emergency meeting to address spreads widening in peripheral countries (pg 4), a preview of tomorrow’s BoJ meeting (pg 4) and today’s Fed decision (pg 5), a recap of market moves in Asia and Europe (pg 5), overnight economic data in Asia and Europe (pg 6), and much more.
After four days in a row of 1% to multi-percentage point daily declines, yesterday’s 0.38% drop in the S&P 500 almost seemed like an up day. Nevertheless, yesterday’s decline was large enough to bring the S&P 500’s five-day decline to over 10% which is a magnitude of decline we haven’t seen since the COVID crash (when there were multiple). The chart below shows the S&P 500 (on a log scale) going back to 1960, and the red dots indicate any time when the trailing five-day return was greater than 10%. What’s really interesting to note about this chart is that prior to 2000, the only times since 1950 that the trailing five-day decline exceeded 10% were in May 1962, October 1987, and August 1998. Since 2000, though, these types of declines have become much more commonplace with spikes in downside volatility occurring every few years.
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Jun 14, 2022
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“He says we’re going the wrong way.”
“Oh, he’s drunk. How would he know where we’re going.” – Planes, Trains & Automobiles
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After four days of basically getting their faces beat inside out, bulls are trying to make a comeback this morning aided in part by a PPI report that wasn’t stronger than expected. Small business sentiment also managed to come in slightly better than expected, although it remains weak. One item covered in today’s Morning Lineup commentary is the fact that inflation expectations in the latest ZEW survey didn’t show a pickup in inflation expectations for the US or Eurozone.
In today’s Morning Lineup, there’s a lot covered as we discuss trading in APAC and European markets (pg 4), whether or not the Fed will go 50 or 75 bps tomorrow (pg 5), overnight economic data in Asia and Europe (pg 6), and much more.
Over the last two years or so, the market has come full circle. In February and March of 2020, there was that five-week period where the only direction the market would move was lower. Shortly after, the Federal Government and Federal Reserve unleashed massive amounts of stimulus, and the market started to turn around. By early 2021, the market had completed a complete 180, and the only direction it could move was higher. Then, late last year as government stimulus started to dry up and the Federal Reserve started to get religion on inflation, cracks in the market started to emerge. By early this year, we were calling it a one-step forward and two-step backward market where every positive day was offset by at least two bad days taking the market to progressively lower levels in the process.
As painful as the one-step forward and two-step backward market felt, at least there were some positive days. Over the last few days, it has become a one-directional market, and the direction has been extreme in the wrong way. Over the last four trading days, the net advance/decline (A/D) reading for the S&P 500 has been negative 400 or lower meaning that in each of the last four trading days there have been 400 more stocks that traded lower on the day than higher. To give you some perspective on how extreme this type of streak is, since 1990, there have been ten years where for the entire 12 months there weren’t even four days where the net A/D reading for the S&P 500 was at negative 400 or lower. As shown in the chart below, there has never been a streak of similar duration, and the only time there were even three consecutive days of -400 readings was in August 2015 at the height of concerns over the Chinese yuan devaluation.
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