Mar 25, 2022
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“Your information sources should complement one another, and also be redundant because that gives you a way to verify what you’ve learned.” – Andrew S Grove
It almost took an entire quarter but the S&P 500 is on the cusp of its first back-to-back weekly gains in all of 2022. For the Nasdaq, a positive finish to this week would be the first back-to-back weekly gain since November. Futures are currently indicated higher, and the only economic reports on the calendar are Pending Home Sales and Michigan Confidence. Pending Home Sales are expected to bounce back modestly following January’s surprise decline of 5.7%. Michigan Confidence, meanwhile, has been one of the most disappointing economic series of the last several months as it’s well below its COVID lows and at levels last seen in late 2011 and before that the Financial Crisis.
Markets in Europe are modestly positive with the major benchmark indices up between 0.5% to 1.0%. despite weaker than expected sentiment readings in Germany and Italy, while UK Retail Sales unexpectedly declined. Treasury yields in the US are higher again today with the 10-year up to 2.36% while the 5-year is even higher at 2.40%. Crude oil is down another 2% sending WTI down to $110 per barrel, gold is modestly lower, and bitcoin is trading above $44,500.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
Yesterday was a good day for the equity market, but it was especially strong for semiconductors as the Philadelphia Semiconductor Index (SOX) rallied close to 5%, and every stock in the index was up at least 2%!. In the process of Thursday’s rally, the SOX finished the day above its 50 and 200-day moving average for the first time since January and also managed to close back above its highs from last Summer (red line).
We watch the relative strength of the SOX versus the S&P 500 as it has historically been a good leading indicator of the broader market. On the positive side, yesterday’s rally broke the most recent downtrend that has been in place since mid-January, but it came up just short of taking out the high end of last summer’s range.
One thing the SOX has been this year is volatile. Over the last 50 trading days, the index has seen an average daily move of more than 2.5%. That ranks as the highest average daily change since the COVID crash (when it went much higher), and before that, you’d have to go all the way back to the financial crisis to find the last time daily volatility in the SOX was as high as it is now. In the post-dot-com era, this kind of volatility for semiconductors has been extremely uncommon.
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Mar 24, 2022
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“I may have been born at night, but it wasn’t last night” – T. Boone Pickens
We’ve had a positive tone in equity futures for most of the night and into this morning, although the magnitude of the implied gains has been waning in the last several minutes. Initial and continuing jobless claims were just released and both came in lower than expected falling to levels not seen in more than 50 years! Durable Goods Orders, however, weren’t as strong with both the headline and ex Transportation readings coming in at negative levels.
On the geopolitical front, today’s NATO summit is likely to result in some headlines later today as more sanctions will be announced. On the ground in Ukraine, Russian troops still appear to be facing much more significant than expected resistance. For more on that, check out our commentary in today’s report. The strong resistance on the part of Ukraine has been impressive and welcome, but also raises the risk of Russia taking more drastic measures to win the war, something none of us hope to see.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
After a brief period mid-month where the sector took a back seat performance-wise, Energy finds itself back on top of the leaderboard with a gain of over 8% in the last week. For the year, Energy is up nearly 40% and once again remains the only sector in positive territory for the year. For much of the year, Energy’s gain meant pain for sectors like Consumer Discretionary and Technology, but both of these sectors are currently ranked in the top four of the eleven sectors with gains of 4.2% and 2.5%, respectively, over the last week. At the bottom of the list, no sectors are down in the last week, but defensive like Real Estate, Health Care, Utilities, and Consumer Staples have lagged with gains of less than 1%. So the market has been in a bit of a risk-on mode lately. Despite their underperformance over the last week, Utilities and Health Care are two of just four sectors that are in overbought territory.
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Mar 23, 2022
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“Don’t be afraid to give up the good to go for the great.” – John D. Rockefeller
After Jerome Powell hinted at the possibility of the FOMC hiking rates by 50 bps earlier this week, Cleveland Fed President Loretta Mester became the latest Fed official to throw their hat in the ring in support of a 50 bps hike when she said that she would “find it appealing to front-load some of the needed increases earlier rather than later”. Mester is only the first of a number of Fed officials scheduled to speak today with a roster that includes Powell at 8 AM, Daly at 11:45 AM, and Bullard at 3 PM (all times eastern).
Futures are lower this morning as the Nasdaq leads the declines. There’s been no major news regarding the war in Ukraine. President Biden will be traveling to a NATO summit where the US and EU are expected to issue additional sanctions against Russia, and the White House National Security Advisor warned that the war is not going to be easy or quick. Crude oil and gold are basically flat on the morning, while bitcoin is modestly lower as it continues to trade in what has been a relatively narrow range. Volatility in nickel continues, though, with the metal rallying 15% as that market attempts to find equilibrium.
On the economic calendar, mortgage applications fell more than 8% w/w, and the only other report on the calendar for today is New Home Sales at 10 AM. That report is expected to show an increase of about 1.5% to 814K versus January’s reading of 801K and would be down just under 3% versus last year’s level.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
We have really seen some monumental moves in financial markets over the last few weeks. Since we’re talking about the Federal Reserve, the latest example includes the S&P 500’s performance in the week since last week’s hike. From the close last Tuesday before the Wednesday FOMC announcement, the S&P 500 has rallied 5.85%. Going back to 1994 when the FOMC first started announcing its policy decisions on the day of the meetings, the S&P 500’s performance in the five trading days from the close on the day before last week’s announcement has been stronger than comparable time periods following any other rate hike. Heading into this hike, the S&P 500 was trading down further from its 52-week high than nearly every other rate hike since 1994, so the performance over the last week has helped the market to dig itself out of the hole.
The chart below shows the five-day performance of the S&P 500 following every prior rate hike announcement since 1994. Overall, the average five-day return of the S&P 500 following the 41 rate hike announcements has been a decline of 0.08% with positive returns less than half of the time (44%). The current period is easily the strongest on record, and the only two other periods where the S&P 500’s performance was even close were in March 2000 and before that June 1999. Granted, the S&P 500 was down sharply ahead of this hike, but any time March 2000 is the closest comparison you can find, that’s a comparison bulls don’t want to see.
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Mar 22, 2022
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“Patience and fortitude conquer all things.” – Ralph Waldo Emerson
Treasuries have continued to sell-off this morning following yesterday’s trouncing in the wake of Powell’s comments regarding the potential for a 50 bps rate hike at upcoming FOMC meetings. Equities, on the other hand, have seemingly ignored the higher rates and traded higher. In the commodity space, crude oil and gold are both essentially flat.
In the Russia-Ukraine war, talks for a potential ceasefire have seemingly stalled as the Russians argue that Ukraine is dragging its heels, while Ukraine asserts that it will not cede any land to Russia. Zelensky has now even asked the pope to step in and mediate. As the talks stall, Russia hasn’t let up with its military strikes even after reports suggest that its ground game has been faltering.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
The last week of trading has really seen some extraordinarily strong finishes for the market. The chart below shows the S&P 500’s performance in the last hour of trading so far in 2022. For much of January and through February, the majority of days saw the equity market sell-off into the close. In fact, at one point in late January, the performance of the S&P 500 in the final hour of trading was the weakest since October 1987. Over the last five trading days, though, in the middle of a war in Europe where you would think concerns of overnight headline risk would be at their highest, we have seen five straight days where the S&P 500 has gained at least 0.33% in the last hour of trading. It may not be uncommon to see one or two days of similar gains in the last hour of trading, but to see five straight is extremely rare. In fact, to find the last time this happened, you have to go all the way back to July 2002! Talk about finishing off on a high note!
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Mar 21, 2022
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“Let Hercules himself do what he may / The cat will mew and dog will have his day.” – William Shakespeare
After a big rally last week, equity markets are heading into the week a bit groggy this morning as futures are indicated lower to kick off the week. As we note in the commentary of this morning’s report, though, it’s not unprecedented to see weakness following a strong rally into a triple witching options expiration.
Oil prices are near $110 per barrel this morning as Russia-Ukraine tensions show no signs of abating. In fed-speak, there’s a number of speakers on the calendar and the week kicked off with Atlanta Fed President Bostic who said he sees a total of six rate hikes for 2022 and another two in 2023.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
In what was a strong week for the equity market, it was clearly an example of every dog having its day as the worst-performing sector’s YTD led the rally while Energy, the one sector that was up YTD heading into the week, finished in the red. Whether you want to call it a dash for trash or some other variation, sectors that had faced the most serious selling pressure had their shining moment of 2022.
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Mar 18, 2022
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“Economics is a very difficult subject. I’ve compared it to trying to learn how to repair a car when the engine is running.” – Ben Bernanke
Early weakness in the futures yesterday gave way to the luck of the Irish as the major averages all closed sharply higher bringing the string of 1%+ gains for the S&P 500 up to three. Futures are a bit weaker this morning than they were at this time yesterday, so it may prove more difficult to turn the tide again today. This morning’s call between Biden and Xi at 9 AM could be an important catalyst regarding how the war in Ukraine plays out. China has been more favorable to the Russian side and has ramped up criticism of the US in recent days, with some officials in Washington worried that the country will start providing direct assistance to Russia.
The economic calendar is relatively quiet today with Existing Home Sales and Leading Indicators (both at 10 AM) the only reports on the calendar. St. Louis President James Bullard has already been out this morning saying he advocates a 3% Fed Funds rate by year-end and a more rapid reduction in the balance sheet.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
Movements in the crude oil market have been pretty nuts both recently and over the last two years. For starters, think about this. Over the last two years, crude oil has traded at both its lowest level EVER and within 12% of its highest price ever. 88% of its entire historical range in less than two years!
Over a shorter time window, prices have also been volatile. For just the sixth different period since the early 1980s, WTI crude oil has seen its average daily move exceed 4% over the last 50 trading days. As shown in the chart below, the last 50 trading days join 1986, 1990, 2008, 2016, and 2020 as one of the most volatile two-month periods for the commodity on record.
Not only has crude oil traded erratically, but the equity market’s reaction to moves in the crude oil market have also been hard to decipher. Take the equity market’s reaction to the daily moves on March 1st and yesterday. On both days, WTI rallied more than 8% and broke above $100 in the process. Yet on 3/1, the S&P 500 fell 1.55% in reaction to the move, while yesterday it rallied 1.23%. It just goes to show you that even if you could predict the future, knowing the market’s reaction would be far from a layup.
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