May 25, 2022
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“All ballplayers should quit when it starts to feel as if all the baselines run uphill.” – Babe Ruth
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On this day in 1935, Babe Ruth hit his last home run before retiring from the game about a week later. Ruth not only hit one home run that day, but he went four for four with three bombs and six RBIs. Like Ruth’s advice in the above quote for when to quit the game, traders should take a similar approach and step back from the tape when the lines on the charts constantly go in the wrong direction. For traders biased to the long side, there’s been a lot of that this year.
Futures are lower again this morning as economic concerns weigh on sentiment and investors find little in the way of urgency to put money to work. The war in Ukraine shows no signs of easing, weekly mortgage applications showed no growth in purchase applications, and this morning’s earnings warning from Dick’s (DKS) suggests that the consumer may be catching a cold.
It’s a relatively quiet day on the economic calendar with Durable Goods (weaker than expected) and Energy Inventories the only reports on the calendar. Outside of DKS, which has already reported, the only major report on the calendar after the close is NVIDIA (NVDA). Semis had been showing some relative strength versus the market up until late last week, so this will be an important report to watch, although NVDA’s high multiple relative to the market means that investors may not be willing to give it much leeway.
In today’s Morning Lineup, we recap on the latest earnings warning in the retail sector from DKS (pg 4), Asian and European markets (pg 4), group performance in the Eurozone (pg 5), the latest economic data out of Asia and Europe (pg 5), and a lot more.
After the first four months of the year where fixed income performed just as poorly as equities, we’ve seen a bit of a rebound in the sector in recent weeks. Below is a snapshot of some major fixed income ETFs from our Trend Analyzer. Despite YTD declines for just about all of them, the last week has seen gains across the board. The majority of the ETFs are still below their 50-DMAs, but the fact that they’ve started to ‘disconnect’ from the performance of equities illustrates how investors are starting to worry more about the health of the economy than inflation.
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May 24, 2022
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“It can be terribly dangerous, even perilous, to assume that because people hold positions of responsibility they are therefore acting responsibly.” – David McCullough
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That rally lasted long. After bouncing from the last hour on Friday through yesterday, US stocks are set to open down by over 1% this morning following Snap’s (SNAP) earnings warning and its comments regarding the weakening broader macroeconomic environment. Adding to the concerns regarding the economy, preliminary PMI readings out of Europe also came in lower than expected. The US versions of these reports will be released later this morning. Given these growth concerns, treasuries are rallying as the 10-year yield drops back down to 2.82%. Oil prices, however, are largely unchanged on the day.
In today’s Morning Lineup, we recap on the latest declines in the tech sector (pg 4), Asian and European markets (pg 4), COVID case numbers (pg 5), the latest economic data out of Asia and Europe (pg 5), and a lot more.
After a 1.87% gain for the S&P 500 (SPY) yesterday, we’re seeing the inverse of a “Turnaround Tuesday” this morning with SPY set to open lower by just over 1%. Since 1993 when SPY began trading, there have only been five prior instances in which SPY rose 1%+ on a Monday and then gapped lower by more than 1% the next morning. As shown below, SPY continued lower from the open to the close on four of the five prior Tuesdays, and one week from the Tuesday open, SPY was down all five times for an average decline of 2.3%. One step forward, two steps back.
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May 23, 2022
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“A library outranks any other one thing a community can do to benefit its people. It is a never-failing spring in the desert.” – Andrew Carnegie
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There’s no need to adjust your screens this morning. Equity futures are actually trading higher. After flirting with bear market territory again last week, the S&P 500 is on pace to open up by about 1%. There’s little in the way of a positive catalyst to point to this morning, but bulls will take what they can get. Whether it can last until the closing bell is an entirely different question altogether.
The economic calendar is quiet today with the Chicago Fed National Activity Index the only report of note. Fed Presidents Bostic and George will be speaking later today, and there will be a number of retail-related earnings reports throughout the week. The only notable reports on the calendar today, though, are Advanced Auto (AAP) and Zoom Video (ZM) which are both after the close.
In today’s Morning Lineup, we recap events in the Russia-Ukraine war (pg 4), Asian markets (pg 4), other economic data out of Europe and Asia (pg 5), and a lot more.
Last week was a rough one for US equities, but it was horrendous for consumer stocks. Consumer Staples, which was modestly higher YTD heading into the week, plunged more than 8%, while Consumer Discretionary, which was already one of the worst-performing sectors YTD, got even worse falling just under 8%. Two other sectors (Industrials and Technology) were down over 3.5% while only three sectors (Energy, Health Care, and Utilities) managed to post gains. The YTD performance gap between Energy and Consumer Discretionary continues to get more ludicrous with each passing week as the gap now stands at just under 80 percentage points, and no other sector is within 40 percentage points of Energy!
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May 20, 2022
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“You make most of your money in a bear market, you just don’t realize it at the time.” – Shelby M.C. Davis
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While an up week is pretty much out of the question, can we at least get a positive close to the week? Futures have been higher for most of the overnight session following a larger than expected interest rate cut out of China. Retail earnings have been a big drag on the market this week with Walmart (WMT) and Target (TGT) declines impacting overall confidence. This morning, Ross Stores (ROST) is also down 25% in reaction to its earnings report which cited some of the same issues, but being the third big retailer blowup this week makes it lose some of the shock value. There’s only so much the market can go down on the same issues.
There’s no economic data or Fed speakers on the calendar today, so the market will have to find other excuses in order to whip around between gains and losses.
In today’s Morning Lineup, we recap overnight trading in Asia and Europe (pg 4), Taiwan Export Orders (pg 4), and other economic data out of Europe and Asia (pg 5), and a lot more.
Earnings season is over, and all we can say is good riddance. There weren’t a lot of winners this earnings season, but the list of losers is long. The table below lists each of the S&P 500 companies that experienced earnings reaction day declines of 10% or more over the course of the last three months. In total, 20 companies made the list. Again, these aren’t a bunch of rinky-dink penny stocks, they are some of the largest companies in the world.
Topping the list, Netflix (NFLX) reported weaker than expected revenues and lowered guidance, and in reaction saw its stock lose more than a third of its value in a single day! More recently, just this week Target (TGT) missed EPS forecasts and saw its stock lose nearly a quarter of its value. Some of the other more notable losers include Amazon.com (AMZN) which declined 14.1% while Walmart (WMT) saw its stock decline by more than 11%. GE falling 10% isn’t really a surprise these days, but the fact that it has become so much less relevant in the market than it used to still surprises us. In total, 20 companies – or 4% of the index – saw their stocks decline 10% or more in reaction to earnings over the last three months.
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May 19, 2022
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“It is never too late to be wise.” – Daniel Defoe, Robinson Crusoe
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After yesterday’s plunge, bargain hunters are nowhere to be found this morning as futures are lower again and indicating losses of nearly 1% at the open. Markets in Asia and Europe were weak overnight but not as bad as it was here yesterday. Treasury yields are lower this morning as investors start to worry more about rising recession risks, and crude oil is lower. One bright spot this morning is bitcoin which is trading up nearly 1%.
On the economic front, initial jobless claims were higher than expected but still extremely low relative to history. Continuing claims were slightly lower than expected while the Philly Fed came in lower than expected (2.6 vs 15.0). The only other reports on the calendar for today (and the week) are Existing Home Sales and Leading Indicators.
In today’s Morning Lineup, we recap overnight trading in Asia and Europe (pg 4), economic data in Asia and Europe (pg 5), and a lot more.
When the levels of uncertainty in the economy reach levels like they are at now, you get days like the last two where the S&P 500’s daily advance/decline (A/D) reading exceeds +400 one day and then falls below -400 the next. Like the CEOs of two of the nation’s largest retailers, investors have no idea what to make of the current environment.
Yesterday was just the 22nd time since 1990 that the S&P 500 had an ‘all’ day (S&P 500 daily A/D reading above +400) immediately followed by a ‘nothing’ day (S&P 500 daily A/D reading below -400). Of those 21 prior occurrences, none occurred before 2007. The chart below shows where each of those back-to-back readings occurred. While there have only been 22 occurrences over the last 30 years, two of them have now happened this month! Overall, though, these back-to-back readings have generally occurred during pullbacks and are an indication of extreme volatility and uncertainty.
Earlier this year when the market was falling, ‘all or nothing’ days were notably missing. The reason was mostly due to the fact that the Energy sector was moving in the opposite direction of the broader market, so when stocks rallied, the energy sector declined and vice versa. In recent weeks, though, we’ve seen the pace of all or nothing days pick up notably. In just the last 20 trading days, there have been eight all-or-nothing days, which is far from a record but certainly at the high end of the historical range.
For the year, there have now been ten all-or-nothing days, which brings the pace for 2022 up to 26. Again, 26 all-or-nothing days for the calendar year would be nowhere near an extreme for a calendar year, but it is still relatively high. Like the temperature, day-to-day volatility is certainly picking up.
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May 18, 2022
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“Inflation is a form of tax, a tax that we all collectively must pay.” – Henry Hazlitt
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This week the tax of inflation is being felt most by retailers as two of the nation’s largest retailers have gotten absolutely destroyed in the last two days. Futures are indicated lower this morning, but one could make the case, given the plunge in Target (TGT) shares this morning, that it could even be worse. Oil prices are also trading up close to 2%, the ten-year yield is back up to 3%, and the dollar is trading lower.
On the economic front, we’re about to get the latest updates on Housing Starts and Building Permits for April, but if mortgage data is any indication, the data isn’t likely to be very strong.
In today’s Morning Lineup, we recap the continued developments in retail earnings (pg 4), market action in Asia and Europe (pg 4), economic data in Asia and Europe (pg 5), and a lot more.
If you thought yesterday’s 11% pounding of Walmart (WMT) was bad, meet Target (TGT). After reporting significantly weaker than expected earnings on better than expected revenues, shares are trading down more than 20% in the pre-market. The company blamed ‘unexpectedly high costs’ that it faced throughout the quarter for the earnings miss, and didn’t provide much additional detail in its release. Investors aren’t waiting for further clarity, though. With margins falling more than 400 basis points (bps), the stock is trading down more than 20% in the pre-market and is easily on pace for not only its worst earnings reaction day in at least 20 years, but also its worst one-day drop since the 1987 crash.
Yesterday, WMT had its largest one-day decline since the 1987 crash and now TGT is on pace to do the same! The experiences of both companies further reinforce the point that we are operating in one of the most complicated macro environments that any company or investor has had to deal with. Few companies are so entwined into so many aspects of the US economy as WMT and TGT, and their logistics and supply chain operations rival or exceed those of most other companies. If they’re having these types of issues keeping up with the rapidly changing environment, who isn’t?
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