Jul 21, 2022
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“I like liquor — its taste and its effects — and that is just the reason why I never drink it.” – Stonewall Jackson
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On this anniversary of the battle of Bull Run, the first major conflict of the Civil War, and as bulls wage another battle against the bear market trend, the above quote from Stonewall Jackson seems applicable. As investors and/or traders, it’s always important to recognize your weaknesses and take steps to avoid them. Those who tend to overtrade or get emotional in reaction to market headlines should take a step back and keep things in perspective. Earnings season is a time of heightened volatility where each major earnings report tends to get extrapolated to the broader economy until the next earnings report sends a different contradictory message.
The market has strung a number of good days together as bank stocks have rallied in reaction to their reports kicking the earnings season off on a positive note. Overall, results have generally been better than expected which has been a good sign. Next week, we’ll get into the heart of earnings season; not only will the pace of reports pick up, but we’ll also hear from the largest companies in the market.
This morning’s market tone is biased to the downside as all the major US averages are indicated to open flat to modestly lower, but there has been some volatility following news of the ECB’s 50 bps rate hike (hinted at earlier this week) hitting the tape. The big move has been in crude oil which is trading down over 4% and near its lowest levels since the first quarter as supplies from Libya ramp up and Russia has resumed the supply of natural gas on the Nord Stream pipeline. On the economic front, it’s a busy day for data with Jobless Claims and the Philly Fed report at 8:30 eastern and leading indicators at 10.
Today’s Morning Lineup discusses earnings news out of Europe and the US, the latest ECB decision, events in the Ukraine and Italy, and economic data from around the world including UK home prices and weekly US mortgage application data.
The rally we have seen in stocks over the last week has been a textbook example of risk-on. Take a look at sector performance below. Besides cyclical sectors leading while defensives have lagged, outside of the Energy sector, the leading sectors over the last week (Consumer Discretionary, Technology, and Communication Services) are also the ones down the most YTD. Conversely, sectors that have declined or seen the smallest gains over the last week have all outperformed YTD. On the topic of energy, while it has been a leader over the last week, today’s 4.5% decline in crude has the sector trading down 2.5% in the pre-market.
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Jul 20, 2022
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“The single observation I would offer for your consideration is that some things are beyond your control.” – Neil Armstrong
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It was over 50-years ago today that Neil Armstrong became the first human to walk on the moon. Stocks didn’t go into orbit yesterday, but the S&P 500 and Nasdaq did manage to finally break back above their 50-day moving averages, ending, for the S&P 500, what was the longest streak since the Financial Crisis. This morning, the tone is much more subdued as futures have given up earlier gains as investors digest the latest batch of earnings. On the economic calendar, the only report of note is Existing Home Sales, which is expected to show a modest decline relative to last month.
Today’s Morning Lineup discusses earnings news out of Europe and the US, major earnings reports, and economic data from around the world including UK home prices and weekly US mortgage application data.
Both the S&P 500 and Nasdaq broke some extended streaks of trading below their 50-DMAs yesterday. For the S&P 500, the streak ending at 60 trading days was the longest since the 72-day streak ending all the way back in 2008, and it was just the 19th streak of 60 or more trading days in the post-WWII period. Now the S&P 500 just needs to work up enough strength to get back to its 200-DMA which is still 10.7% above yesterday’s close.
The Nasdaq’s streak of closes below its 50-DMA was even longer at 68 trading days, although that was only the longest streak of closes below that level since the 69-day streak ending in January 2019. Before that you have to go back to the 72 trading day streak ending in December 2008 to find a longer streak. In the Nasdaq’s history dating back to 1971 there have now only been 15 streaks where the index traded below its 50-DMA for 60 or more trading days. Finally, while the S&P 500 is 10.2% below its 200-DMA, the Nasdaq is much further in the hole at 17.2% below its 200-DMA.
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Jul 19, 2022
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“Lots of companies don’t succeed over time. What do they fundamentally do wrong? They usually miss the future. I try to focus on that: What is the future really going to be?” – Larry Page
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After a disheartening late-day decline yesterday, futures are attempting a ‘turn-around Tuesday’ this morning. In addition to a handful of high-profile earnings reports from IBM, Johnson & Johnson (JNJ), and Lockheed Martin (LMT), we also just got the latest update of Building Permits and Housing Starts which came in mixed relative to expectations. Building Permits were slightly higher than expected and Housing Starts missed slightly.
Another notable report this morning was the latest Merrill Lynch Fund Managers Survey which showed widespread pessimism on the part of respondents. According to the report, exposure levels to risk assets were taken down to their lowest levels since the Financial Crisis while cash levels are higher now than at any other time since 2001!
Today’s Morning Lineup discusses earnings news out of Europe and the US, handicapping the ECB decision, and economic data from around the world.
Everyone wants to see inflation subside, and we welcome any sign of a pullback in upward price pressures. The latest datapoint optimists are glomming on to is the fact that the national average price of a gallon of gas dropped below $4.50 per gallon yesterday after touching $5 as recently as mid-June. That’s a decline of nearly 10%!
The move lower in gas prices is welcomed by us more than anybody, but before we all close the book on this chapter in the inflation saga and let our guard down, we should keep in mind that from a seasonal perspective, we are in what has historically been a relatively weak time of year for prices at the pump. Prices typically peak for the year around Memorial Day, trade sideways through the summer, and then decline into year-end. Second, while prices are down sharply after the last month, it follows what was a parabolic increase in prices year to date through mid-June.
Despite a 7.2% decline so far in July and a nearly 10% decline over the last month, the national average price of a gallon of gas is still up 9.3% over the last three months, 36.8% year to date, and 42% over the last year! That’s hardly a trend of lower prices. Moving further out, the percentage gains have been even larger. Over the last two years, Americans are paying more than double what they were paying for gas, and over the last three and four years, the average price has increased by roughly 60%.
We’re pleased as anyone with the direction of gas prices over the last month, but just as we’ve seen countless examples of the market or individual stocks in downtrends stage an impressive rally only to give it all back again, let’s hope this move lower in gas prices isn’t a false alarm in the other direction.
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Jul 18, 2022
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“Let me assert my firm belief that the only thing we have to fear is fear itself” – Franklin D. Roosevelt
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What was looking like a very strong start to the week a couple of hours ago is now looking more like merely a positive start to the week as S&P 500 futures went from up well over 1% to up about 75 basis points (bps). Given the market’s tendency to kick off the week on a down note this year, though, and positive start to the week is a win. Consider this, including today, of the 29 weeks so far in 2022, the S&P 500 tracking ETF (SPY) has only opened higher on the first trading day of the week ten times.
Economic data is light today with Homebuilder Sentiment the only report on the calendar. The pace of earnings will pick up as the week goes on, but already we’ve already had reports from Bank of America (BAC) and Goldman Sachs (GS). Neither company had any major landmines, and while BAC is flat in the pre-market, GS is up over 3%.
Today’s Morning Lineup discusses earnings news out of Europe, action in Asian and European markets, and economic data from around the world.
Last Friday’s rally helped to end what was a lousy week up until that point on a positive note. Heading into the day, the S&P 500 was down for five straight days, and even after the rally, finished the week down nearly 1%. But with a strong finish and futures trading where they are right now, both the S&P 500 and the Nasdaq are poised to erase just about all of last week’s losses at the opening bell.
There’s been an awful lot of bottom talk circulating over the last few days, and the charts of the Nasdaq 100 (QQQ) and S&P 500 (SPY) have been showing some positive signals as they both managed to make higher lows last week. There’s still a lot of resistance to work through on the upside, though, as the 50-day moving averages and prior highs from this summer loom above. Given the market’s tendency to disappoint bulls in prior rallies this year, traders are increasingly less likely to give the market the benefit of the doubt and give an all-clear.
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Jul 15, 2022
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“The erosion of our confidence in the future is threatening to destroy the social and the political fabric of America.” – President Jimmy Carter 7/15/79
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43 years ago today, President Carter addressed the nation in what has become the now famous crisis of confidence speech. Today, we find ourselves in a very similar situation with rampant inflation and sentiment among Americans at multi-decade lows. Reading through Carter’s speech today, you would have thought he was talking about the present-day United States.
Unfortunately, from an economic perspective, Carter’s speech was followed by two separate recessions (the double-dip) in the next four years. The first started five months later in January 1980 and lasted just six months. The expansion that followed lasted only a year, and in January 1981 a second contraction began lasting 16 months in what at the time was tied for the longest recession since the Great Depression. On a more positive note, there have only been 35 trading days where the S&P 500 closed at a lower level than where it was at the time of Carter’s speech, and the maximum downside was 4%.
This morning, futures are indicated higher in what bulls hope will end a five-day losing streak for the S&P 500, but first, we’ll have to get through the July Empire Manufacturing report, Retail Sales, Industrial Production, Capacity Utilization, Business Inventories, and Michigan Confidence. In other words, look out for landmines.
Speaking of confidence, the Michigan Confidence index is at lower levels now than it was when Carter gave his ‘malaise’ speech and for that matter, at any time since the survey started in the late 1970s. As we all remember, in the preliminary release of that report last month, inflation expectations ticked higher leading to a more aggressive rate hike from the Federal Reserve. Ultimately, that uptick in inflation expectations was revised away, so that will be the key aspect to watch of that report today.
Today’s Morning Lineup discusses policy moves out of DC ahead of the midterms, earnings, news, action in Asian and European markets, and economic data from China.
Carter’s ‘Crisis of Confidence’ speech focused a lot on high energy prices and his proposals to help reduce the US dependence on foreign oil. Ironically, today President Biden is in the Middle East asking Saudi Arabia to pump out more oil into the global market. Thankfully for Americans, we’ve already started to see relief as oil prices are well off their highs from earlier in the year and below $100 per barrel. That has negatively impacted the Energy sector where prices have cratered in recent weeks. Just yesterday, the sector fell another 1.9% taking its peak to trough decline (on a closing basis) down to 26.3% which is actually five percentage points more than the S&P 500 is down from its peak!
In the process of yesterday’s decline, the Energy sector also closed below its 200-DMA for the first time in over 200 trading days (September 2021). While it has been nearly ten months since the Energy sector last traded below its 200-DMA, the streak that just ended wasn’t particularly extreme relative to history. As recently as early 2017, there was a slightly longer streak, and back in August of last year, there was a streak that lasted 185 trading days. The most extreme streaks for the sector occurred back in the late 1990s and early 2000s when there were two separate periods that stretched roughly three years each!
Following its 25% haircut, the Energy sector may have broken support at its 200-DMA yesterday, but it is also right around two other potentially important levels. As shown in the chart below, yesterday’s close coincided with the high from 2019 and is now only modestly above its uptrend line from late 2020 which began when the sector made a higher low following the COVID crash.
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Jul 14, 2022
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“I am struck that so many of our leaders in the U.S. forget how strong our country can be.” – Jamie Dimon
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The market has taken on a bit of a streaky vibe in the last few weeks. After four straight down days to close out June where the S&P 500 fell 3.2%, the month of July started out with a four-day win streak where the S&P 500 rallied 3.1%. Since those four days ending last Thursday, the S&P 500 has been down four straight days falling 2.6%. The current four-day losing streak looks like it’s going to extend to five days as futures are indicated another 1.35% lower.
Besides the litany of issues facing the market all year, the catalyst for this morning’s weakness is weak results from Conagra (CAG), JP Morgan (JPM), and Morgan Stanley (MS). CAG is down 2.5% after reporting weaker than expected EPS and lowered guidance, MS is only down fractionally, and JPM is poised to open more than 3% lower putting it on pace to fall in reaction to earnings for the eighth straight quarter.
The commentary from the earnings release for JPM wasn’t particularly uplifting:
“The U.S. economy continues to grow and both the job market and consumer spending, and their ability to spend, remain healthy. But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road. We are prepared for whatever happens and will continue to serve clients even in the toughest of times.”
In economic news, PPI came in higher than expected on both a headline and core basis, while initial jobless claims ticked up to 244K which was the highest level since last November. The rise in jobless claims hasn’t been particularly steep, but it has been consistent ever since, bottoming out in Mid-March.
Today’s Morning Lineup discusses earnings from JPMorgan (JPM) and Morgan Stanley (MS), moves in Asian and European markets, and economic data from around the world.
It’s not just stock prices that have been on the decline this week. Crude oil prices have fallen sharply and WTI briefly traded below its 200-DMA this morning as it trades down near $93. As shown in the chart, while prices did run up in anticipation of the event, all of the increases in crude oil prices since Russia invaded Ukraine have now been erased.
The fact that oil prices are back to levels they were trading at right before Russia invaded Ukraine has been taken as a win by investors, and we wish we could say the same thing about the S&P 500. Unlike crude oil, which has managed to return back to pre-invasion levels, stock prices have kept falling.
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