Jun 13, 2022
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“Come what may, all bad fortune is to be conquered by endurance.” – Virgil
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It’s not a pretty picture for risk assets of any kind this morning as equity indices around the world are down over 2%, US futures are down by about the same amount, treasuries are selling off hard, and crypto prices are down sharply. Concerns over inflation and its impact on economic growth have become heightened over the last several days, and unlike prior periods in recent history where growth has come into question, with inflation pressures as strong as they are, there is little optimism that the Fed can help to cushion the blow.
In today’s Morning Lineup, there’s a lot covered this morning as we discuss prior streaks of 1%+ and 2%+ declines for the market (pg 4), the plunge in crypto prices (pg 5), overnight movements in the yen (pg 6), action in Asian and European markets (pg 6), overnight economic data in Asia and Europe (pg 7), and much more.
The first trading day of the week has already been weak for the market, but today’s 2%+ downside gap in SPY will be, by far, the largest downside gap to start a week of the year and the largest since March 2020.
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Jun 10, 2022
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“Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” – Sam Ewing
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For many investors, today’s CPI report for May has been the most anticipated event of the week, so we hope now that the day is here that these individuals have a hobby that they can fall back on once 8:30 comes and goes. Futures are on either side of the unchanged line heading into the report, so much of today’s performance will hinge on how the report comes in relative to expectations and then what the numbers imply for next Wednesday’s FOMC decision.
In today’s Morning Lineup, we discuss market reaction to yesterday’s ECB decision (pg 4), market activity in Asia and Europe (pg 4), and economic data out of China and Europe (pg 5).
After hovering all morning and in the early afternoon just below the unchanged level, investors rushed for the exits in the last hours of trading yesterday pushing the S&P 500 down over 2%. Most of those declines came in the last hour of trading as the S&P 500 fell 1.25%, finishing right near the low of the day.
Yesterday’s last hour decline was the sixth last hour decline of more than 1% already this year and the largest last hour decline since January. Since the start of 2020, there have now been a total of 19 last-hour declines of 1%+. While there were numerous occurrences in the early days of COVID, there was a full one-year stretch from late November 2020 through November 2021 with no such occurrences. While a sharp sell-off in the last hour of trading brings up fears of “what does the market know that I don’t”, the reality is that next day performance shows no clear-cut trends. Of the 18 prior occurrences since the start of 2020, the S&P 500’s median one-day performance has been a gain of 0.28% with positive returns 55% of the time.
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Jun 9, 2022
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“Everything must be taken into account. If the fact will not fit the theory—let the theory go.” – Agatha Christie
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Well. it was looking like a positive day. Futures were comfortably higher earlier but have pulled back as we approach the opening bell following the ECB’s monetary policy announcement. The European central bank will be ending asset purchases on July 1st, and hiking rates by 25 bps in July and at least another 25 bps at the September meeting.
The only economic data on the calendar today are initial and continuing jobless claims. Initial jobless claims came in at 229K which was more than 20K above forecasts and the highest level since January. Continuing claims, meanwhile, were unchanged at 1.306 million. While initial claims are still at the low end of their historical range, they have also been trending steadily higher now for 12 weeks.
In today’s Morning Lineup, we discuss market and economic developments in China (pgs 4 & 5), the latest ECB rate decision (pg 5), and economic data out of Asia, Europe, and Mexico (pg 6).
With all the volatility that has emblematized 2022, the Memorial Day weekend seems to have really flipped a switch to the Summer doldrums. Over the last eight trading days, the S&P 500 has traded in what has been a relatively tight trading range. During this period, the S&P 500 has traded on either side of 4,125 each day, and the total spread between the intraday high and low has been 2.5% which represents the narrowest eight-day trading range of the year. Investors have been longing for a period of calm in the markets, and for now, at least they’re getting it.
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Jun 8, 2022
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“You must always examine what’s working, evolve your ideas, and change the way you do things.” – Marc Benioff
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Treasury yields and crude oil are moderately higher this morning and that has put pressure on equities which are just modestly lower. There’s not a lot of economic data to speak of, but weekly mortgage applications fell 6.5% to their lowest level, outside of the early COVID days, since 2016. There isn’t much in the way of a catalyst for this morning’s weakness on the equity side of things, but the fact that the OECD lowered economic growth forecasts for this year and next hasn’t helped.
In today’s Morning Lineup, we discuss the OECD’s downgrade of global growth forecasts (pg 4), central bank actions in emerging markets (pg 4), market activity in Asia and Europe (pg 4), and economic data out of Asia and Europe (pg 5).
The US Dollar is up over 1% versus the yen this morning as the one-way trade in that currency pair continues. Over the last year, the dollar has rallied more than 20% versus the yen, and since the start of the year, the gain has been more than 16%. From a longer-term perspective, the dollar’s rally puts it at the highest level versus the yen since February 2002, and if it rallies another half of one percent, it will be at the highest level since 1998. This rally spells trouble for Japanese consumers, but for manufacturers in the country, the weak yen is a welcome trend.
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Jun 7, 2022
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“The only thing you can be sure of is that there are times when large numbers of stocks are priced too high and other times when they’re priced too low.” – Benjamin Graham
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Everything seems to be trading lower this morning. Futures were already lower overnight, but Target’s (TGT) second profit warning in less than three weeks has dragged them lower. TGT is trading down over 9%, which is even more than the 6% that Bitcoin is trading down following proposed legislation in the Senate to regulate cryptocurrencies. Although the two senators bringing forth the legislation both just noted in an interview that they could see bitcoin as a diversified part of investor retirement portfolios.
In today’s Morning Lineup, we discuss the latest proposed crypto legislation (pg 4), the larger than expected rate hike in Australia (pg 4), market activity in Asia and Europe (pg 4), TGT’s warning (pg 5), and economic data out of Europe (pg 5).
TGT has long been considered one of the most well-run retailers in the United States, so when a company of its caliber is forced to revise guidance less than three weeks after already significantly cutting guidance, you can only imagine how hard this environment has been for businesses across the economy. In its announcement this morning, TGT pointed to a ‘rapidly changing environment’, ‘external volatility’, and ‘unusually high transportation and fuel costs’ as reasons for lowering Q2 margin guidance from 5% down to 2%. On the bright side, the company said that the actions it was taking now should help improve long-term margins in the second half of the year and that demand remained generally strong. You can’t fault the company for taking proactive steps to address conditions, but there’s no guarantee that the environment is suddenly going to stop ‘rapidly changing’, or that external volatility will suddenly abate, and it certainly doesn’t seem like transportation and fuel costs are going to decline from their ‘unusually high’ levels.
With the stock indicated to gap down close to 10% this morning, TGT has now declined 46% from its high less than seven months ago. For a stock that had a market cap of more than $125 billion late last year, a decline of this magnitude is significant, to say the least. TGT remains just about 10% above its pre-COVID peak so we can’t yet add it to the list of stocks that have unwound all of their post-COVID gains, but it’s getting close.
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Jun 6, 2022
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“The eyes of the world are upon you. The hopes and prayers of liberty-loving people everywhere march with you.” Dwight D Eisenhower
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It’s a bounceback Monday for the markets to kick off the week as news regarding China’s COVID restrictions and the country’s crackdown on the tech sector may be easing. Nasdaq futures are leading the charge higher, but the S&P 500 is also indicated to open up by over 1%. Oil is modestly higher, although off its earlier highs, Treasury yields are slightly higher, and crypto is sharply higher.
In today’s Morning Lineup, we discuss weekend developments in the Russia-Ukraine war (pg 4), the upcoming UK no-confidence vote (pg 4), and economic data out of China and the rally in that country’s tech sector (pg 5).
The week is starting off on a positive note for equities, but remember that today’s levels at the open still won’t be enough to erase last Friday’s declines. Additionally, all of the major averages are still trading below their 50 and 200-day moving averages, and they remain mired in pretty well-defined downtrends with a series of lower highs and lows. The only one of the three indices listed below that has broken its short-term downtrend is the Nasdaq 100, but it’s also seen the steepest declines. As we head into the new week, the Russell 2000 is down in six of the last seven weeks, and the Nasdaq 100 and S&P 500 are down in eight of the last nine weeks.
As far as individual sectors are concerned, it remains a case of Energy (XLE) and everybody else as the former is the only sector in overbought territory. The only other sectors even above their 50-DMAs at this point are Materials (XLB) and Utilities (XLU). If there’s any silver lining at this point, it’s that while most sectors remain below their 50-DMAs, only one (Consumer Staples, XLP) is actually at oversold levels.
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