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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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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