May 12, 2022
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“Money does not buy you happiness, but lack of money certainly buys you misery.” – Daniel Kahneman
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Today, the futures aren’t even attempting to sucker traders in with a rally, so maybe today, we’ll actually get a bounce. Treasuries are continuing to rally again this morning, while crude oil trades modestly lower and crypto plunges. Overnight, China pledged further support to its economy. On the geopolitical front, Finland has said it is preparing to apply for membership in NATO, and Russia has responded by threatening retaliatory steps of both military and ‘other’ measures.
We just got a chunk of economic data in the form of PPI and jobless claims. In terms of PPI. headline CPI was in line with forecasts at a m/m gain of 0.5%. Core PPI rose much less than expected at 0.4% vs 0.7%, but data for March was revised higher. In terms of jobless claims, initial claims came in 10K higher than expected 203K vs 193K while continuing claims showed another drop falling to 1.343 million versus forecasts for 1.372 million. Equity futures have seen little in the way of a reaction to the news while treasury yields remain lower.
In today’s Morning Lineup, we recap the recent developments in the crypto space (pg 4), overnight earnings (pg 5), economic data out of Europe (pg 6), and a lot more.
The year is barely more than a third over, but already the Nasdaq has had 24 different over the course of just 90 trading days. That works out to more than once a week! Again, we still have nearly two-thirds of the year left ahead of us, but already, the number of 2%+ daily declines this year ranks as the 8th highest in the Nasdaq’s history. The only years that were higher were 1999, 2000, 2001, 2002, 2008, 2009, and 2020. If, and this is a big if, the current pace of 2% declines continues, 2022 wouldn’t quite catch 2000 for the record number of 2% declines in a single year, but it would be a close second.
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May 11, 2022
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“The greatness of a man is not in how much wealth he acquires, but in his integrity and his ability to affect those around him positively.” – Bob Marley
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The hype surrounding today’s CPI report has reached levels we don’t know if we’ve ever seen for another similar report. Whether it comes in much better or worse than expected, we can pretty much guarantee that like every other report that gets so hyped up, no one will even remember it a few days from now. Outside of the CPI report, energy inventories will be released at 10:30, and given some of the concerns regarding diesel supplies, this report has the potential to be a market mover.
After a back and forth session yesterday, futures are higher again this morning but whether these gains hold or not will largely depend on how CPI comes in relative to expectations. The rally in US futures comes on the heels of a 1%+ rally in major European markets even after German CPI increased at its fastest year/year pace since 1974 (7.4% which was in line with expectations).
Heading into today’s CPI report, treasury yields are lower across the curve, the dollar is lower and WTI is up over 4% and back above $100 to $104 per barrel.
In today’s Morning Lineup, we recap the recent developments in stablecoins (pg 4), overnight earnings (pg 4), Chinese CPI (pg 5), and a lot more.
Inflation running at multi-year highs for the last several months should surprise no one. What sticks out to us is the fact that economists have been so behind the curve in catching up to it. The chart below shows the 24-month rolling number of monthly headline CPI reports coming in lower than expected.
Leading up to today’s report, just three headline CPI reports in the last 24 months surprised to the downside, and the last weaker than expected report was all the way back in September. Before that, you have to go back to the October 2020 report. The current rolling 24-month total of three ranks as the lowest number of weaker than expected reports since at least 2000. There’s been no shortage of criticism for the Federal Reserve and how it has failed to get ahead of the surge in inflation, but economists haven’t fared much better.
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May 10, 2022
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“It always seems impossible until it’s done.” – Nelson Mandela
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It’s been a painful three days for US equity investors, and they’re looking to catch a break today as S&P 500 futures are indicating a rally of about 1% at the open. Investors have been fooled enough times this year already by a strong tape at the open, so you can’t fault them for viewing this morning’s rally with a fair amount of skepticism.
Treasuries are also rallying this morning as the 10-year yield is back below 3%. The only economic news on the calendar this morning was the NFIB Small Business Optimism report which was unchanged from March and slightly ahead of expectations.
Over in Europe, economic sentiment came in better than expected whole Industrial Production in Italy managed to come in unchanged versus forecasts for a decline of 1.9%.
In today’s Morning Lineup, we recap the recent developments in stablecoins (pg 4), overnight earnings (pg 5), economic data out of Asia and Europe (pg 6), and a lot more.
After breaking below support to close last week, the bottom fell out of the Nasdaq 100 yesterday as the index dropped to another 52-week low and its lowest level since November 2020.
With the Nasdaq 100 at 52-week lows, we wanted to check in on its valuation and how it looks relative to the S&P 500. The chart below shows the historical premium in the Nasdaq 100’s P/E ratio relative to the S&P 500. For the last ten years, there has never been a point where the Nasdaq 100 traded at a cheaper valuation than the S&P 500, and the average premium during that span has been 23.1%.
Towards the end of 2019, right before COVID, the Nasdaq 100’s premium valuation to the S&P 500 was right in line with its historical average, but that premium exploded higher during COVID reaching as much as 50% in late 2021. Through a combination of earnings growth and rapidly falling stock prices, much of the air has come out of the Nasdaq 100’s premium relative to the S&P 500, but it still remains elevated relative to the historical average.
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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
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
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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