Jul 5, 2022
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“Know your strengths and take advantage of them.” – Greg Norman
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Bulls checking the market before they went to sleep last night probably breathed a little sigh of relief that futures were higher following Friday’s rally. At least they slept OK. Waking up this morning, those dreams of gains turned into the reality of losses, and stocks are poised to open back up in the red for the quarter. Welcome back to 2022.
Recession fears are front and center again this morning, especially in Europe as concerns of natural gas shortages heading into the winter months put the likelihood of recession as near certain with the only question being how long and how deep.
On the calendar today, the only economic reports of note are Factory Orders and Durable Goods at 10 AM.
In today’s Morning Lineup, we discuss moves in Asian and European markets, a recap of the plunge in the euro, and more.
July 4th is usually a period when Americans are brimming with patriotism and that possibly helps to explain why equities have historically performed so well during the holiday week. In the post-WWII period, the S&P 500 has had a median gain of 0.88% during the July 4th holiday week with positive returns over 70% of the time (71.4%). The two best July 4th holiday weeks were in 2010 (5.42%) and 4.02% just two years ago in 2020. As shown in the chart, the S&P 500 heads into this year with a six-year run of positive returns during July 4th week, but that pales in comparison to the 19-year run from 1951 through 1969 when the S&P 500 averaged a 1.79% average weekly gain.
With the S&P 500 down just under 20% heading into this week and down 2.2% last week, will the patriotism of July 4th be enough to offset the pessimism regarding the market and economy? It’s going to be tough. The table below lists the seven prior years since WWII that the S&P 500 was down more than 10% heading into July 4th week. In those seven years, the S&P 500’s average performance during the July 4th week was a decline of 0.56% (median: -0.75%) with positive returns just two out of seven times.
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Jul 1, 2022
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“Remember too that your time is your one finite resource, and when you say “yes” to one thing you are inevitably saying “no” to another.” – Andrew S Grove
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Futures are picking up in Q3 right where they left off in Q2, but the declines have been contained to this point. Weak guidance from Micron (MU) as well as further concerns regarding the health of the consumer following profit warnings in the retail sector haven’t helped sentiment. Concerns are only more elevated that the economy is either already in or on the verge of a recession even as the Fed continues to press its case for more aggressive policy moving forward.
The only economic indicators of note today are the ISM Manufacturing for June and the May Construction Spending report. If global PMI data that has already been released today is any indication, don’t set your expectations all that high. Given the holiday weekend coming up, we would normally expect a Summer Friday like today to be on the quiet side, but given the way this year has played out, who knows.
In today’s Morning Lineup, we discuss moves in rates markets and what they’re pricing in regarding Fed policy, movements in Asian and European markets, a recap of global PMI data, and more.
As economic concerns have been ratcheted higher in recent weeks, we’ve seen a sharp pullback in US Treasury yields across the curve that followed the mid-June spike in reaction to the May CPI report and the preliminary UMich Confidence report. While yields remain elevated, the uptrend that had been in place since earlier this year appears to have been broken. Going forward, the path of interest rates, especially the yield on the 2-year, will go a long way in determining how stocks perform in the second half. If the pace of increases experienced in the first half continues in the second half, investors may be facing a long six months.
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Jun 30, 2022
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“Everything is going to be fine in the end. If it’s not fine it’s not the end.” – Oscar Wilde
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Could you think of a more fitting finish to the worst first half of a trading year in more than 50 years? Maybe a 5% decline instead? Futures are indicated lower this morning with the S&P 500 trading down more than 1.4%. Economic concerns continue to weigh on sentiment as PMI data in China for June rebounded but came in weaker than expected while Industrial Production in Japan also showed considerable weakness and badly missed forecasts. Stocks in Europe are also lower this morning, although economic data wasn’t as bad relative to expectations.
Given the economic weakness and plunging stock prices, Treasury yields are falling both in the US and Europe. The 2-Year US Treasury yield is back below 3%, while the 10-year yield at 3.03% isn’t that far behind. On the economic front, at 8:30, we’ll get updates on Personal Income (inline), Personal Spending (weaker), PCE Deflator (lower than expected), and Jobless Claims (generally inline), and then at 9:45 we’ll get the June read of the Chicago PMI. In response, futures have bounced, but the S&P 500 is still indicated to open down by 1%.
In today’s Morning Lineup, we discuss the latest weakness in Asian and European markets, as well as a look at international economic data.
If current levels in SPY hold, today will be just the 15th time since the ETF’s inception in the early 1990s that it gapped down more than 1% on the last trading day of the month. Of those 14 prior occurrences, only three were also on the last trading day of the quarter, and today will be the first time that it gapped down this much on the last trading day of the half. In terms of how SPY traded from the open to close on these days, the average (0.54%) and median (+0.49%) return is actually better than the average for all last days of a month since 1993. However, while the sample size is small, on all three days that SPY gapped down 1%+ to close out the quarter, traders weren’t in a rush to snap up any bargains as SPY traded lower from the open to close all three times.
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Jun 29, 2022
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“In times of adversity and change, we really discover who we are and what we’re made of.” – Howard Schultz
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After two days in a row where the S&P 500 opened firmly in positive territory but gave up all of those gains and then some throughout the trading day, futures were lower earlier on but have picked up a little bit of steam as we approach the opening bell. Treasury yields are lower this morning as investors shift out of risker assets on economic concerns.
On the economic calendar, revised GDP was just released and came in slightly weaker than expected at a level of -1.6% versus forecasts for a decline of 1.5%. Personal Consumption significantly missed expectations (1.8% vs 3.1% estimate), GDP Price Index came in higher (8.2% vs 8.1%), and Core PCE was also revised higher (5.2% vs 5.1%). Lower than expected growth and higher than expected inflation. Not exactly the combination equity investors want to see.
In today’s Morning Lineup, we discuss the latest moves in Asian and European markets, as well as a look at plunging economic confidence in Europe, South Korea, and Sweden.
After opening firmly in positive territory yesterday and trading up over 1% in early trading, the S&P 500 steadily traded lower throughout the trading day and finished near the lows of the day with a decline of over 2%. Intraday reversals like these where the market opens strong only to have the rug pulled out from under it really do a number on what is already battered investor sentiment. 2022 isn’t even half over, but yesterday’s reversal is already the fourth time this year that the S&P 500 has traded up at least 1% at some point in the trading day only to finish down over 1%. The other three days were 1/20/22, 4/21/22, and 5/11/22.
The year is less than half over, but if it ended today, 2022 would already rank as the third-largest number of negative reversals of this magnitude in a calendar year behind only 2008 (12) and 2009 (7). Like an old pair of socks, this market just can’t stay up.
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Jun 28, 2022
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“When the final result is expected to be a compromise, it is often prudent to start from an extreme position.” – John Maynard Keynes
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Just like yesterday, futures are higher this morning but off their highs from earlier this morning. Surprisingly, the rally has been accompanied by rising oil prices and higher treasury yields, but news that China has cut the required quarantine time for incoming travelers in half has investors optimistic that the country may further loosen its zero-COVID policy. Hopefully the outcome today is better than yesterday.
In economic news, Wholesale Inventories rose 2.0% which was below consensus forecasts but the level still remain elevated relative to history with May being the fourth straight month of 2% readings or higher.
In today’s Morning Lineup, we discuss the news coming out of the G7 meetings, overnight moves in Asian and European markets, and a look at polling numbers ahead of the mid-term elections.
Despite strength this morning, commodities have succumbed to profit-taking recently, and the majority of the ETFs tied to the sector have seen declines over the last week. Leading the way to the downside, Natural Gas (UNG) and the DB Agriculture Fund (DBA) have seen declines of over 5% in just the last week putting them into oversold levels. While the weakness in commodities has been a welcome development and sparked optimism that inflation pressures may finally be starting to roll over, the majority of these same ETFs are still up sharply YTD. UNG is up over 77% YTD even after the 6.6% decline in the last week, while the Commodity Total Return ETN (DJP) still sits on a gain of over 25%. In order for investors to really be confident that commodity price pressures have really turned the corner, we’ll need to see the weakness that has characterized the end of the quarter follow through into the second half.
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Jun 27, 2022
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“In times of rapid change, experience could be your worst enemy.” – J. Paul Getty
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Bulls finally caught a break last week with the S&P 500 up well over 5%, and they’ll be looking to finish up the quarter on a positive note as we head into the end of the first half. The bears are still comfortably in the lead heading into the half, but a late ‘field goal’ or even ‘touchdown’ for the bulls in the final days would make things look a little more respectable to kick off the second half. Futures are higher this morning but have been drifting as the opening bell approaches and treasury yields rise as the 10-year trades back near 3.2%. Investors continue to be tossed around by moves in the treasury market as market rallies tend to push yields higher and eventually to levels that cause angst on the part of equity investors.
Durable Goods orders were just released and came in higher than expected, while later on, we’ll get updates to Pending Home Sales (10:00 AM Eastern) and the Dallas Fed report for June (10.:30). On the earnings front, we’ll hear from Jefferies (JEF) and Nike (NKE) after the close.
In today’s Morning Lineup, we discuss the news coming out of the G7 meetings, overnight moves in Asian and European markets, US rig counts, and overnight economic data from Asia and Europe.
With gains of over 6%, last week was a very good one for US equities. Good, that is for every sector except Energy. Sectors leading the rally included Consumer Discretionary, Health Care, and Real Estate, but Technology and Utilities also outperformed. Despite the big gains last week, all five sectors are still in the red YTD, and only Health Care is above its 50-day moving average (DMA). Ironically enough, Energy was the only sector down on the week and is the furthest below its 50-DMA, but it is also the only sector up YTD and with a gain of over 30% it’s leaving the other ten sectors in its dust.
Speaking of the Energy sector, while it has easily been the best performing sector over the last year, the last week of the month has been routinely weak for the Energy sector. As shown in the chart below, over the last year, the sector has underperformed the S&P 500 in the last week of the month ten out of twelve times with a median margin of 2.5 percentage points in underperformance. Energy has been a high octane sector lately, but it hasn’t had much in the way of endurance on a month-to-month basis.
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