Mar 17, 2022
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“There are far, far better things ahead than any we leave behind.” – C.S. Lewis
After two strong days, equities are experiencing a bit of a hangover this morning with futures lower across the board. There’s been a lot of discussion concerning the equity market’s wild swings following the announcement, with a sharp sell-off initially followed by a rebound that erased all the original post-FOMC losses. While the Fed’s new projections for rate hikes were more hawkish than its prior forecast, the new numbers were essentially in line with what the market was already pricing in.
Crude, which dropped more than 20% from its recent peak is bouncing back as WTI trades near $100 per barrel, and treasury yields pull back a bit. The 2s10s yield curve continued to flatten overnight, dropping back below 20 bps to new post-COVID lows.
While markets rallied partly on hopes yesterday of a potential ceasefire in Russia, that optimism dried up this morning as the Kremlin says any reports of progress are ‘wrong’.
There’s another busy day of economic data with Housing Starts, Building Permits, Philly Fed, and Jobless Claims all at 8:30, while Industrial Production and Capacity Utilization will be released 15 minutes before the opening bell. The 8:30 reports all came in better than expected, so we’ll see if the 9:15 data can make it a perfect day.
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.
US stocks have enjoyed quite a rally over the last two trading days. The Nasdaq has rallied more than 2.5% on back-to-back trading days. That’s an impressive streak and isn’t all that common, although we would note that the last back-to-back run of 2.5%+ gains was less than two months ago in late January. Going back to 1996, this week’s streak is just the 27th time the Nasdaq has rallied more than 2.5% on back-to-back trading days, but more often than not, these kinds of rallies have occurred during bear markets.
Of the 27 prior steaks, 11 occurred during the dot-com bust from March 2000 through October 2002, and another four occurred during the financial crisis. Of the remaining 12 occurrences, seven occurred leading up to the March 2000 peak, three occurred between October 2002 and March 2003, and the last two have occurred since the start of 2020.
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Mar 16, 2022
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“There’s no one thing that’s true. It’s all true.” – Ernest Hemingway
Global equities are surging this morning following yesterday’s rally in the US. In Asia, Chinese and Hong Kong stocks surged following some policy changes from the Chinese government and positive comments related to overseas listings of ADRs. Led higher by tech, the Hang Seng was up over 9%, but to put that rally in some perspective, the index is still down 2.5% over the last week. That’s how oversold Hong Kong was heading into the session!
We’ve got a busy slate of data on the docket today with Retail Sales, Import Prices, Business Inventories, and Homebuilder sentiment all coming out between 8:30 and 10:00 AM. Retail Sales were weaker than expected across the board with the ex Autos and Gas reading actually declining. One silver lining was that January’s reading was revised higher. Import Prices, however, also came in weaker than expected on both a m/m and y/y basis.
As if that wasn’t enough, the Fed will announce its first rate hike at 2 PM and then Chair Powell will hold a press conference at 2:30. And as has been the trend during his tenure, when the Fed Chair speaks, people sell. Also, don’t forget, Ukrainian President Zelenskyy will address Congress at 9 AM Eastern. It’s going to be a busy day!
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, the Senate approved a bill to make Daylight Savings Time a permanent feature beginning in 2023. Obviously, the most important thing to consider when a change like this is made, is what will the impact be on the market? To answer that question, in the table below, we calculated the performance of the S&P 500 during Daylight Savings time (DST) and Standard time going back to 2007 when the start of DST was moved to early March. For each year, DST performance shows the S&P 500’s change from the March start through the November end while the Standard time performance shows the change from the start of Standard time in November through the beginning of DST in the following year.
Overall, the S&P 500’s average and median performance during DST has been a gain of 7.5% with positive returns 80% of the time. During Standard time, the S&P 500’s average performance has only been a gain of 2.01% (median: +6.4%) with gains two-thirds of the time. Overall, the S&P 500’s performance during DST is an average of more than 5 percentage points better than its performance during Standard time, and on a cumulative basis, the S&P 500 is up more than 154.8% during DST compared to a gain of just 20.0% during Standard time. If that isn’t reason enough to keep Daylight Savings Time permanent, we don’t know what is! Move over ‘Fed Put’ hello Permanent Daylight Savings Time.
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Mar 15, 2022
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“In times of rapid change, experience could be your worst enemy.” – J. Paul Getty
Equity prices are recovering off early lows as commodity prices, especially oil, plummet. The cause of the decline could be attributed to either concern over weaker demand as the latest COVID wave washes ashore in China, or optimism over the war in Ukraine and the potential for a ceasefire. Those are two very different catalysts and would both have very different implications for the market and global economy as well.
In economic data, February PPI was just released and it came in weaker than expected at both the headline and core levels. Core PPI came in at just 0.2% which was tied for the lowest reading since the end of 2020. While inflation data was weaker than expected, Empire Manufacturing was a disappointment falling 11.8 versus expectations for a level of 6.8. That March reading for Empire Manufacturing was the weakest since May 2020.
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.
What a month it has been for crude oil. After finishing off February at a level of $95.72, WTI rallied nearly 30% on a closing basis and over 35% on an intraday basis in the span of just over a week. After hitting that multi-year high just a week ago, crude oil has practically round-tripped its entire early March gain, falling more than 22%. If these levels hold through the end of the day, it would rank as the largest decline from a 52-week high in the span of a week or less for WTI on record! Now, if prices at the pump would only reverse that quickly.
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Mar 14, 2022
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“Life is like riding a bicycle. To keep your balance, you must keep moving.” – Albert Einstein
It’s a new week, and while it has been typical to see futures lower on the first trading day of the week so far this year, the S&P 500 and Dow are currently indicated higher. Nasdaq futures were higher earlier but have given up those gains. The catalyst for the weakness in tech stocks this morning is likely due to new COVID lockdowns in China and the impact that these shutdowns will have on tech supply chains.
Crude oil prices are down over 5%, and the cause for that decline seems to be tied to some positive sentiment related to cease-fire negotiations over the Russia-Ukraine war, but it could also be related to concerns over demand as China starts new rounds of Covid lockdowns. One thing for sure, is that a new wave of lockdowns in China, will not be good for global economic growth.
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.
It’s a new week for the markets in what has been a lousy year. Heading into the week, all but four sectors are oversold, while Energy and Utilities actually finished last week at overbought levels. Consumer Staples (XLP) was the big loser last week falling close to 6%, while Technology (XLK) and Communication Services (XLC) fell more than 3%. On a year-to-date basis, the performance disparity between Energy and everyone else continues to widen. While XLE is up over 38% YTD, no other sector is in the black, and Consumer Discretionary (XLY), XLK, and XLC are all underperforming the Energy sector by more than 50 percentage points YTD. Gaps in performance of that magnitude are pretty much unprecedented.
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Mar 11, 2022
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“And Lord, we’re especially thankful for nuclear power, the cleanest safest energy source there is. Except for solar, which is just a pipe dream.” – Homer Simpson
It’s just a coincidence that Google searches for the term ‘nuclear war’ are hitting a record high as we’re marking the 11th anniversary of the Fukushima nuclear disaster in Japan, but the term nuclear has been showing up a lot lately. Whether it is Germany’s plan to shut down its nuclear power plants and make it even more reliant on Russian energy, or the Russian invasion of Ukraine that has raised risks of a nuclear accident at the site of the former Chernobyl plant or Ukraine’s other nuclear power plants that are operational, or the risk of nuclear war with Russia if NATO comes in to actively help defend Ukraine, you can’t get away from the subject of nuclear lately.
Thankfully, equity markets look to be putting a lot of these concerns aside temporarily giving investors a reprieve heading into the weekend. S&P 500 futures are currently up over 1%, crude oil is up over 1%, gold is down 1.5%, the 10-year yield is flat right at about 2.0%, and bitcoin is right around $40,000. The positive tone in equities was present for most of the night but just got an added boost shortly before 7 AM on reports that Russian President Putin said there were positive shifts in talks with Ukraine. At this point, the markets will take whatever good news they can get, but keep in mind that Putin is also the one who said Russia wouldn’t invade Ukraine.
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.
It’s been a pretty nasty week for US equities since the close last Thursday. During that span, the S&P 500 is down over 2% while the Nasdaq is down 3%. The worst performing sector during this period has been Consumer Staples (XLP) which is down close to 5%, while Technology (XLK) and Financials (XLF) are both down over 3%. Rounding out the top five of biggest losers, Communication Services (XLC) and Consumer Discretionary (XLY) are both down over 2.5%. Not surprisingly, all five of the aforementioned sectors are also at short-term oversold levels.
While most sectors are lower, three have managed to buck the trend over the last week. Energy (XLE) has been the biggest winner, rising close to 6%, followed by Utilities (XLU) and Real Estate (XLRE). Unfortunately for the broader market, though, these three sectors are also the smallest sectors in terms of their weightings in the overall S&P 500.
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Mar 10, 2022
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“The best way to destroy the capitalist system is to debauch the currency.” – Vladimir Lenin
It was fun while it lasted. After a much-welcomed rally Wednesday, futures are firmly in the red this morning and set to give up a little more than a third of their gains from yesterday, and as we’ve been typing this the losses have only been mounting. For the S&P 500, that would put this week’s losses at over 2% for the week. Meetings between foreign ministers from Russia and Ukraine did not yield any substantive results, so the fighting looks set to continue. Elsewhere in Europe this morning, the ECB left rates unchanged (as expected), but announced a faster timeline for its plan to wind down asset purchases.
The big economic event of the day is obviously CPI, and it’s not going to be pretty as the headline reading is expected to increase 0.8% relative to January, while the core reading is forecasted to increase 0.5%. Don’t forget about jobless claims, though. The weekly reading on initial claims is expected to come in at a level of 225K. One combination of data that the markets will not want to see is higher than expected readings on both fronts.
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.
There’s no arguing that the current levels of inflation are high and likely to go even higher in the months ahead. Since the start of 2021, there has only been one month (August 2021) where headline CPI has come in weaker than expected, and the compounded impact of these higher than expected monthly readings is the fact that today’s report for the month of February will mark the 9th straight month that y/y headline CPI has been above 5%. That’s a pretty long streak, but looking back over history, it’s nowhere close to as long as some of the prior streaks we have seen. Late in WWII and into 1920, headline CPI was above 5% for nearly five years. In the early 1940s during WWII through 1951, there were three separate streaks where headline CPI was above 5% y/y for at least a year. Then there was the 1970s coming out of the Vietnam War and into the early 1980s when there were three streaks that lasted at least 20 months including a five and a half year streak ending in 1982.
To put it another way, in the entire decade of the 1970s, more than 75% of all CPI readings were above 5% and the average y/y reading was 7.1%. Inflation is painful right now and will likely get worse from here, but the current period is still nowhere near the 1970s.
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