May 9, 2022
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“History provides a crucial insight regarding market crises: they are inevitable, painful, and ultimately surmountable.” – Shelby M.C. Davis
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The post-FOMC hangover has carried through the weekend as foreign equities and now the US are all trading sharply lower to start the week. Higher interest rates, higher inflation, and higher geopolitical tensions remain the key headwinds facing the equity market and fixed income, and they don’t show many signs of abating at this point. The only thing equities have going for them is that every major US index heads into the week at oversold levels.
In today’s Morning Lineup, we recap the shifting sentiment in the tech sector to profits over growth (pg 4), Chinese trade date (pg 6), investor sentiment (pg 6), and a lot more.
With equities poised to open down over 1% this morning, the S&P 500 will be trading right near new lows for the year and right around lows from last April and May. It’s been a while since the S&P 500 has traded at a 52-week low, but that’s a real possibility this morning.
Looking at where sectors stand heading into the week, the snapshot below from our Trend Analyzer shows that last week was a mixed picture for markets. While Real Estate, Consumer Discretionary, and Consumer Staples were all down over 1%, Energy surged over 10%, while Utilities managed to rally over 1%. On a YTD picture, the trend remains the same. YTD it has been basically Energy and everything else.
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May 6, 2022
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“Invest in yourself. Your career is the engine of your wealth.” – Paul Clitheroe
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4,131.93. That’s the level the S&P 500 will have to close above today in order to end the four-week streak of declines. After yesterday, it’s hard to believe that the S&P 500 is still up on the week, but as long as it doesn’t fall more than 0.36%, that will remain the case. There’s still a lot for the market to navigate through between now and the 4 o’clock closing bell, including the April Non-Farm Payrolls report and a number of Fed speakers.
On the jobs front, Non-Farm Payrolls came in higher than expected (428K vs 380K), the Unemployment Rate was unchanged at 3.6%, and average hourly earnings rose by less than expected (0.3% vs 0.4%) and were up 5.5% on a y/y basis.
In today’s Morning Lineup, we recap overnight events in Asia and Europe (pg 4), the drawdown in Asian and European stocks (pg 5), other Asian and European economic data (pg 6), and a lot more.
As we pointed out in our Chart of the Day earlier this week, breadth, as measured by the S&P 500’s 10-day advance/decline (A/D) line had yet to reach (and still hasn’t) extreme readings relative to other pullbacks since 1990. Yesterday’s mauling, though, did mark the fourth time in the last ten trading days that the net A/D reading for the S&P 500 was -400 or less. Going back to 1990, there have only been four other periods where there have been this many or more ‘Nothing’ days in a 10-trading day span. The most recent was in March 2020 when there were a total of six in ten days. The other three periods were September 2015 (peak of four), October 2011 (peak of five), and October 2008 (peak of five).
Obviously, the periods shown above occurred during market downturns, and that is evident in the chart below where every red dot indicates days when the 10-day trailing total of ‘Nothing’ days was four or more. Looking at each of the prior periods below and measuring performance from the first day in each one when the 10-day total reached four, the S&P 500 continued to see additional declines over the following one, three, six, and twelve months in 2008, but for the other three periods shown, performance over the following three, six, and twelve months was positive. Is the current period more like 2008 or the other three periods? Or is it a completely different period altogether?
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May 5, 2022
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“Democracy is the destiny of humanity; freedom its indestructible arm” – Benito Juárez
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Futures are moderately lower this morning following yesterday’s major post-Fed surge. After taking the declines into account, though, the S&P 500 is still higher than it was heading into the last hour of yesterday’s trading. Economic data this morning was mixed to negative. Non-Farm Productivity and Initial Jobless Claims were weaker than expected, Unit Labor Costs were higher than expected, and Continuing Jobless Claims were the only data point that was stronger than economist forecasts.
In today’s Morning Lineup, we recap overnight events in Asia and Europe (pg 4), the BoE’s latest policy decision (pg 5), other Asian and European economic data (pg 6), and a lot more.
With the market rallying 2% on a Fed day for the second time in a row and the S&P 500 rallying more than 1% in the final hour of trading for the second time this week, you can’t fault investors for feeling a sense of deja vu. As noted on Twitter, yesterday was the first time since April 2009 that the S&P 500 rallied more than 2% on back-to-back Fed days.
Shifting the focus to last-hour rallies, 1%+ gains in the final hour of trading aren’t nearly as uncommon. Since the mid-1980s, it has happened 168 times and looking at the chart, they have occurred in all types of market environments – uptrends, downtrends, near peaks, and near bottoms, so it’s hard to read too much into their significance.
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May 4, 2022
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“During this time of reopening, we are likely to see some upward pressure on prices…But those pressures are likely to be temporary as they are associated with the reopening process.” – Jerome Powell
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The above comments from Fed Chair Jerome Powell were made a year and six days ago today, and we’d be willing to bet that when he made them he never imagined that one year later CPI would be over 8.5% on a y/y basis and accelerating. It just goes to show that predicting the future is hard, and today’s foregone conclusions are often hindsight’s most embarrassing moments.
Futures are actually higher this morning, and while we’re still far from the closing bell, a positive close would be the S&P 500’s first three-day winning streak since late March. Before we can get there, though, we still have to digest the weaker than expected ADP Private Payrolls Report which came in at 247K compared to forecasts for an increase of 385K. At 10 AM, we’ll get the ISM Services report, which is expected to show a modest uptick from 58.3 to 58.5. The big event of the day, obviously, will be the FOMC rate decision at 2 PM and the press conference at 2:30. For much of Powell’s tenure as Fed Chair, when he speaks, investors sell, so hopefully for the bulls, the most hawkish outcome is already priced in.
In today’s Morning Lineup, we recap overnight events in Asia and Europe (pg 4), India’s emergency rate hike (pg 4), the war in Ukraine (pg 4), other European economic data (pg 5), and a lot more.
Mick Jones of The Clash couldn’t decide whether he should stay or go, and in a similar way, the market can’t decide whether it wants to rise or fall. While the ultimate direction this year has been to the downside, in looking at the intraday range of the S&P 500 over the last 100 trading days, we’ve increasingly seen a trend where the market trades in positive and negative territory in the same session.
The chart below shows the 100-day rolling number of days where the S&P 500 tracking ETF (SPY) traded in both positive and negative territory relative to the prior day’s close. Through yesterday’s close (5/3), the S&P 500 traded in positive and negative territory on 69 of the last 100 trading days. That’s slightly off the recent peak of 71, but as shown in the chart, the market hasn’t been this indecisive since July 2014. Make up your mind already!
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May 3, 2022
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“In times of great stress or adversity, it’s always best to keep busy, to plow your anger and your energy into something positive.” – Lee Iacocca
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Futures have been trading on either side of the flatline this morning and most of the overnight session as investors look to digest Monday’s volatility. US Treasury yields are modestly lower along with crude oil prices, while bitcoin is either modestly higher or lower depending on when you look. In economic data, Germany had some better than expected data related to employment, and this morning in the US we’ll get updates on Factory Orders, JOLTS, and Durable Goods.
In today’s Morning Lineup, we recap overnight events in Asia and Europe (pg 4), economic data in China and Europe (pg 5), and a lot more.
That was quite a reversal in the S&P 500 yesterday! After trading down over 1% heading into the final hour of trading, the market got an early start on a ‘turnaround Tuesday’ and rallied nearly 2% into the close. By the time the closing bell rang, the S&P 500 was up over half of a percent.
Reversals like Monday’s always feel great in the moment, but do they really mean anything in terms of the market’s future direction? Since the early 1990s, yesterday was just the 17th time that the S&P 500 was down at 3 PM but rallied by more than 1.5% in the final hour of trading to finish the day in positive territory. The two most recent occurrences were this past January (1/24) and before that December 2018 (12/27/18). After that, you have to go back to October 2011 to find the most recent occurrence. The chart below shows the S&P 500 on a long-term basis going back to 1995, and we have included red dots to show the day of every prior reversal like yesterday when the S&P 500 was down at 3 PM, rallied more than 1.5% in the last hour, and then closed in positive territory.
Looking at the various occurrences, there appears to be little in the way of a clear trend. While there were multiple occurrences during the dot-com bust and the financial crisis, there were also a number of occurrences just after the March 2009 low and in the years since.
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May 2, 2022
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“Take a simple idea, and take it seriously.” – Charlie Munger
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Futures were modestly positive for most of the overnight session but have weakened as we get closer to the opening bell. After a day like last Friday, it’s all but guaranteed that we’re likely to see continued volatility today. As they say around the roulette wheel, “Round and round it goes. Where it stops nobody knows.”
Economic data at 10 AM will also be a big factor in where the market trades today, but the looming Fed meeting mid-week will be on everyone’s mind. While the current rate hiking cycle has already been called the most aggressive in a generation, it’s important to remember that the Fed has only hiked 25 bps so far. That will change this week as a hike of at least 50 bps is pretty much fully priced in. The most ironic aspect of it all, though, is that after months of delay, the Fed is starting to ramp up the pace of hikes just after a negative Q1 US GDP print, slower than expected economic data, and even weaker data in China and Europe.
In today’s Morning Lineup, we recap overnight events in Asia and Europe (pg 4), economic data in China and Europe (pg 5), as well as a recap of PMI data for April (pg 6).
It’s often said that the stock market is one of the only places where investors don’t like bargains. In other words, when the market is rallying investors love stocks, but when it declines, investors can’t get out fast enough. Warren Buffett is one investor who has bucked the conventional approach of many investors and consistently used weakness as an opportunity. His actions in Q1 were a perfect example. In this weekend’s annual meeting, one slide that stood out was the breakdown of Berkshire Hathaway’s equity purchases during the quarter. Of the nearly $52 billion in purchases made by Berkshire in Q1, just under 80% of it occurred during the highlighted period in the chart (from 2/21 through 3/15) when prices in the quarter were at their weakest.
It’s also worth keeping in mind what Berkshire was buying during the quarter. It wasn’t growth stocks that were down the most. Instead, it was mostly in stocks with reasonable valuations like Chevron (CVX). Occidental (OXY), Alleghany (Y), HP (HPQ), and even Apple (AAPL).
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