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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May 17, 2022
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“What’s good for the United States is good for the New York Stock Exchange. But what’s good for the New York Stock Exchange might not be good for the United States.” – William McChesney Martin
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If this market has you down lately, you have a group of 24 stockbrokers to thank, who signed the Buttonwood Agreement, which basically established the New York Stock Exchange, 230 years ago today. Through all of the country’s ups and downs, the NYSE has weathered it all, and as bad as 2022 has been for markets, the NYSE has seen worse.
This morning, futures are in a positive mood following on the back of strength in Asia and Europe. Rates are higher, the dollar is down, and crude oil is down for the fifth straight day. In order to remain positive, though, we have a busy day of economic data to get through with Retail Sales at 8:30, Industrial Production and Capacity Utilization at 9:15, and then Business Inventories and Homebuilder Sentiment at 10 AM. As if that wasn’t enough, there will be a number of Fed speakers hitting the wires throughout the trading day.
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.
We’re now in the retail leg of earnings season, and this morning’s report from Walmart (WMT) marks the unofficial end of the reporting period as the stock reported weaker than expected EPS despite stronger than expected revenues (you can thank inflation for that). The stock is currently trading down about 7% which is somewhat fitting given how bad this earnings season has been for the stock market.
The graphic below is from our Earnings Explorer and shows every time in the last 20 years that WMT has gapped down 3% or more in reaction to earnings. Just to illustrate how large this morning’s downside move is for WMT, there have only been two other times in the last 20 years that the stock gapped down 5% or more in reaction to earnings. Those reports were both in February (2018 and 2021), and the stock continued lower from the open to close each time. For a company like WMT with such strong operations and logistics, downside surprises of this magnitude have been few and far between.
Below we show a price chart of WMT for the last year. While the stock broke out of a range in early April, the momentum didn’t last long, and by late April the rally reversed. Last week, the stock broke below prior resistance levels, and while it tried to bounce yesterday, the rally ran out of steam right at the 50-day moving average. At current pre-market levels, WMT will not only be trading back below its 200-DMA, but it will also be trading at oversold levels and its lowest point since early March.
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May 16, 2022
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“If you have the right attitude, interesting problems will find you.” – Eric S. Raymond
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Markets are getting off to a slow start this week. Futures, which were modestly lower most of the morning and overnight, have turned modestly higher as we type this. Given the horrendous data coming out of China overnight and the fact that Europe lowered economic growth forecasts, that’s actually not so bad. Treasury yields are basically flat while crude oil prices are modestly lower but still trade just below $110 per barrel. The only economic report on the calendar this morning is the Empire State Manufacturing Index which will give us the first read on data for the month of May. Economists are expecting the headline index to decline from last month’s reading of 24.6 down to 15.
In today’s Morning Lineup, we recap the continued developments in the crypto space (pg 4), market action in Asia and Europe (pg 4), the lousy economic data out of China (pg 5), and a lot more.
After six weeks in a row of declines, will the seventh time be the charm as bulls look to eke out a week of gains for a change? In last Thursday’s reversal, the S&P 500 managed to find some support right around the highs from early Q1 2021 even as it traded to 52-week lows. At the index level, this support level works out to roughly a range of 3,800 to 3,850.
At the sector level, the only one to finish last week in positive territory was Consumer Staples, and just barely at that. On the downside, Real Estate, Consumer Discretionary, Financials, and Technology all fell by more than 3%. Energy was also down substantially but still managed to close out the week at overbought levels. Sectors like Consumer Discretionary, Communication Services, Financials, Real Estate, and Technology all finished off last week more than 8% below their 50-DMAs, so if the momentum from late Thursday and Friday can continue, these sectors have the most room to rally.
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May 13, 2022
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“I’d be a bum on the street with a tin cup if the markets were always efficient.” – Warren Buffett
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Futures are higher this morning, so the only question investors have at the moment is, what time does the sell-off begin? Treasury yields are sharply higher across the board this morning as the 10-year yield is back above 2.9%. Crude oil is up over 1%, while gold declines to around $1,800 per ounce. In the crypto space, we’ve seen some stabilization as bitcoin is trading back above $30K.
On the COVID front, there are some signs that Shanghai will start lifting its lockdown measures at the end of next week, and the government has also denied rumors that similar lockdowns are in store for Beijing.
There was some good news on the economic front as Import Prices were unchanged versus expectations for an increase of 0.6%. The only other report on the calendar is the Michigan Sentiment at 10 AM.
In today’s Morning Lineup, we recap the continued developments in the crypto space (pg 4), overnight economic data out of China and Europe (pg 5), and a lot more.
Barring an epic rally on the final trading day of the week, both the S&P 500 and Nasdaq will put in their sixth straight week of losses today. In the case of both the S&P 500 and Nasdaq, it will be tied with four other periods for the longest weekly losing streak since 2001. Below we show historical weekly losing streaks for the Nasdaq since 1971. While there have been a number of streaks that have been as long, just five have been longer, and only one (1973) lasted longer than seven weeks.
Even more notable than the fact that the Nasdaq has been down for six weeks in a row is the fact that every down week in the last six has been a decline of at least 1.5%. In the Nasdaq’s entire history, there have only been four other periods where the Nasdaq was down for six or more straight weeks and every one of those weeks was a decline of at least 1%. Three (1973, 1980, and 2001) lasted seven weeks, while the streak in 1990 lasted six weeks. In the Nasdaq’s history, losing streaks of this magnitude have been extremely uncommon.
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