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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May 27, 2022
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“You take an educated gamble. If you don’t occasionally make a mistake, you’re not doing your job.” – James Sinegal
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Is this the week markets finally manage to scratch out a rally? Barring an absolute collapse into the three day weekend, US stocks are poised to finish off the week significantly higher, but before we get to the closing bell, there’s a bunch of economic data to get through, including Wholesale Inventories, Personal Income and Spending, the PCE Core Deflator, and Michigan Confidence.
Treasuries are modestly higher, equities are flat, crude oil is slightly lower, and bitcoin is down heading into the final session before a three-day weekend.
In today’s Morning Lineup, we recap major market moves out of Asia and Europe as well as the comparison in the performance between US and European stocks so far this year.
Memorial Day weekend marks the unofficial start to the summer driving season, and prices heading into the period have surged both this month and on a YTD basis. The national average price of a gallon of gas, according to AAA, sits at $4.60 per gallon, which is up just under 10% this month (third-largest increase since 2005) and 40% YTD (second largest YTD increase since 2005). The 40% YTD increase is more than twice the historical average and follows what was a 35% YTD increase last year. There’s pain at the pump.
Gas prices have no doubt surged, but if there’s any potential silver lining, it is that from a seasonal perspective, we’re at the point in the year where prices tend to peak. Whether prices follow that seasonal pattern this year, though, remains to be seen.
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May 26, 2022
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“Someday neither AI nor us will be able to tell whether we are in a virtual or physical world.” – Jensen Huang
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We’ll be honest, based on the way markets have been trading the last couple of months, we would have expected that if the 7th largest stock (NVIDIA) in the Nasdaq 100 was trading 5% lower in reaction to earnings, that futures for the index would also be lower. Right now, futures are actually trading about 0.4% higher. Is this real?
In addition to the positive tone in futures, there’s also some major M&A news with Broadcom (AVGO) reaching a deal to acquire VMware (VMW) in a cash and stock deal valued at $61 billion in what would be one of the largest tech mergers of all time. On the one hand, a bull would point to this transaction as a sign that companies are finding value in the market after the plunge over the last five months. On the other hand, as recently as February, VMW’s stock was right around the $142.50 price the company agreed to sell itself at today, so does that indicate that management expects limited upside for the industry going forward?
It’s a big morning for economic data with revised GDP for Q1 (revised lower), Personal Consumption (higher than expected), PCE (lower than expected), and Jobless Claims (initial lower than expected, continuing higher) all just released at 8:30. Later on this morning, Pending Home Sales and the KC Fed manufacturing report will be released at 10 AM.
In today’s Morning Lineup, we recap morning earnings reports (pg 4), overnight central bank actions (pg 4), the latest economic data out of Asia and Europe (pg 5), and a lot more.
The Energy sector hit another new 52-week high yesterday further cementing its lead as the top-performing sector in the S&P 500. Given the rally over the last year, it’s pretty hard to believe that the Energy sector is still more than 10% below its record high back in 2014.
Given the rally in Energy, the sector’s relative strength has made a significant turnaround this year. After eight years of near-constant underperformance, the recent outperformance has taken its relative strength to levels not seen in three years.
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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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