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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Jun 3, 2022
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“Work takes on new meaning when you feel you are pointed in the right direction. Otherwise, it’s just a job, and life is too short for that.” – Tim Cook
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In the middle of the night, it was looking like it was going to be a positive start to the last trading day of the week, but then news of the Musk ‘super bad’ memo filtered out where the CEO said he wants the company to cut 10% of its workforce citing concerns over the economy. Ever since then futures have been moving steadily lower and are currently indicating a 0.65% decline at the open. Obviously, that could change considerably with the release of the May employment report. Overseas in Europe and Asia, we haven’t seen nearly the degree of negative sentiment in those equity markets as Asia was higher, and Europe is pretty much flat. Treasury yields are little changed across the curve, and crude oil is down modestly.
The May Non-Farm Payrolls report was just released and the headline number was modestly stronger than expected 390K vs 325K. The Unemployment Rate was unchanged at 3.6% versus expectations for a decline to 3.5%. The average workweek was in line with forecasts (34.6) and average hourly earnings rose slightly less than expected (0.3% vs 0.4%).
In today’s Morning Lineup, we discuss Musk’s memo (pg 4), activity in Asian and European markets (pg 4), and selected economic data from Asia and Europe (pg 5).
Don’t call it a comeback, but if (pretty big if at this point following the TSLA news) the S&P 500 can manage to drop less than 0.45% today, it will mark the second straight week of positive returns for that index. The chart below shows the rolling six-month total number of positive weeks for the S&P 500. Just two weeks ago, after a streak of seven weekly declines, the rolling number of positive weeks dropped below ten for the first time since 2011. What’s also notable to highlight is that in early May, the S&P 500 ended a ten-year run where the six-month average never dropped as low as ten, and that was the longest streak without a reading that low in the entire post-WWII period. The prior record was ten years from early 1991 through early 2001.
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Jun 2, 2022
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“We should take comfort that while we may have more still to endure, better days will return.” – Queen Elizabeth II
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The quote above from Queen Elizabeth was from a speech in the early days of COVID, and with life getting back to ‘normal’ in most western economies, she was definitely right. The Queen’s comments from two years ago can also be attributable to the current market environment. 2022 hasn’t been enjoyable, and it’s more likely than not that investors will still have further volatility and losses to endure, but better days will come, even if – like COVID – those better days take longer than expected to return.
It’s been a busy morning of economic data today with ADP Employment missing expectations and showing the smallest level of job growth since April 2020. Unit Labor Costs were also revised more than a full percentage point higher, while the revision of Non-Farm Productivity showed a slightly less negative number. Jobless Claims were also just released, and on both an initial and continuing basis, the reported readings were lower than expected.
Heading into this morning’s data, futures were already higher, but they’ve given up some of those gains as interest rates ticked higher following the releases.
In today’s Morning Lineup, we discuss recent trends in the oil market (pg 4), activity in Asian and European markets (pg 4), and selected economic data from Asia and Europe, and the US (pg 5).
When it comes to semiconductors, we typically focus on the group’s relative strength versus the S&P 500 as a leading indicator for the broader market. This morning, however, we wanted to highlight the actual price chart of the Philadelphia Semiconductor Index (SOX). The group has been a steady outperformer in recent weeks, and unlike the major averages which are nowhere near their 50-day moving averages (DMA), the SOX has actually traded above that level in each of the last three trading days. The only problem is that it also closed below that level all three times. In market downtrends, declining moving averages often act as resistance, so the failed rallies of the last three days leave the bulls somewhat discouraged.
We were curious to see how common it is for the SOX to repeatedly run into resistance at its 50-DMA, so the chart below shows streaks where the index traded above its 50-DMA intraday but finished the day below that level. The current streak of three trading days is the longest streak since August 2018, and to find a longer streak you have to go all the way back to August 2007. While the current period has often been compared to the early 2000s, bulls can take some solace in the fact that there was never a similar streak in the years from 2000 through 2003.
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Jun 1, 2022
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“Often we look so long at the closed door that we do not see the one which has been opened for us.” – Helen Keller
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It’s a new month and markets are looking to start off on a good note with equity futures modestly higher across the board. Positive sentiment this morning has been driven by earnings from Salesforce (CRM) and Victoria’s Secret (VSCO). In economic data, German Retail Sales came in weaker than expected for the month of April, and PMI data for the month of May in both Asia and Europe generally showed a slowing but still growing trend.
Looking ahead here in the US, Construction Spending (April), ISM Manufacturing (May), and JOLTS (April) will all be released at 10 AM.
In today’s Morning Lineup, we discuss recent trends in the natural gas market (pg 4), activity in Asian and European markets (pg 4), May PMI trends from around the world (pg 5), and then selected economic data from Asia and Europe (pg 6).
We’ve noted the wide divergence in performance between individual sectors this year, but within the commodity space, the discrepancies are even wider. As shown in the snapshot of our Trend Analyzer below, the spread in YTD performance among commodity-related ETFs through the end of May is over 130 percentage points! At the top of the list, the US Natural Gas Fund (UNG) has rallied more than 123% even after falling more than 7% over the last five trading days. Behind UNG, the next best performing ETFs are also energy-related but they’re up less than half as much as UNG. At the other end of the spectrum, precious metals have been the worst performers YTD as Silver (SLV) is down nearly 8%, while gold-related ETFs are barely hanging on to gains. That may not sound like much, but compared to equities, which are down by double-digit percentages this year, flat is 2022’s version of up.
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May 31, 2022
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“We can draw lessons from the past, but we cannot live in it.” – Lyndon Johnson
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After major US equity indices broke what were the longest weekly losing streaks in decades, it’s back to reality again this week as futures are lower across the board. Yesterday’s announcement that Europe would ban imports of most Russian oil has crude trading up over 3% this morning leading to further concerns of potential inflationary pressures. China reported PMI figures for May overnight, and while both the Manufacturing and Services sectors remain in contraction, the magnitude of the weakness wasn’t as bad as expected.
It’s a busy day of economic data this morning as we’ll get Case Shiller Home Price Data at 9 AM along with the Chicago PMI at 9:45 and then Consumer Confidence at 10 AM (all times eastern).
In today’s Morning Lineup, we recap key events in the Russia-Ukraine war (pg 4), activity in Asian and European markets (pg 4), and key economic data from Europe (pg 5).
As mentioned above, the EU embargo of Russian oil raises concerns of further inflationary pressures, which at the moment aren’t showing any signs of getting under control. Just this morning, headline inflation in the region rose more than expected rising to a record high of 8.1% y/y. That’s up from a y/y reading of negative 0.3% just 17 months ago. It’s only a 20-year history, but the fact that headline inflation in Europe has gone from close to record lows and then easily to record highs is pretty extreme.
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