Apr 7, 2022
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“If you can learn to create a state of mind that is not affected by the market’s behaviour, the struggle will cease to exist.” – Mark Douglas
After two lousy days for the equity market, futures were attempting a bounce but have drifted back towards the unchanged level as treasury yields rise and oil prices bounce. Initial Jobless Claims were just released and they came in at 166K which was below the 200K consensus forecast and the lowest weekly reading since November 1968! Continuing Claims, however, surprised to the upside coming in at a level of 1.523 million versus forecasts for a level of 1.302 million. That’s it for economic data today, but in terms of fed-speak, at 9 AM eastern we’ll hear from Bullard, and then at 2 PM Bostic and Evans will be speaking.
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 rough week for the broader market as the S&P 500 has declined more than 2.5% over the last five trading days (since 3/30 close). In looking at the performance of individual sectors over that span, performance has been about what you would expect in a tape with a more defensive tone. While cyclical sectors like Industrials, Consumer Discretionary, Technology, and Financials have been crushed with declines of more than 4%. Defensive sectors have actually bucked the trend. Utilities have actually risen more than 3%, Real Estate is up over 2%, Consumer Staples has risen 1.8%, and even Health Care is in the green.
What’s also notable about the current levels of sectors is that in spite of the weak tape, just three sectors closed below their 50-day moving averages yesterday, and six sectors are either at overbought or ‘extreme’ overbought levels. That fact says more about how much the market had rallied leading up to the last day of the quarter than it does about the magnitude of the recent declines. After gains like we saw in the back half of March, it is only natural to see the market take a pause or even pull back.
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Apr 6, 2022
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“Bond investors are the vampires of the investment world. They love decay, recession – anything that leads to low inflation and the protection of the real value of their loans.” – Bill Gross
It’s looking like it’s going to be one of those days. Futures were just modestly negative overnight but then started to really weaken as Europe opened for trading and things haven’t stabilized since. The S&P 500 faces losses of around 1% at the open with the Nasdaq down over 1.5%. If equities were looking to rally coming into the week, yesterday’s Fed commentary put at least a temporary stop to that. Interest rates are higher across the curve and the 2s10s yield curve has steepened well out of inverted territory, but that comes along with yields on the 10-year above 2.6% to its highest level in just over three years.
The economic calendar is light today as weekly mortgage applications were the only release, and they fell 6.3% following a 6.8% last week and an 8.1% decline the week before that. Besides that, Energy inventories will be released at 10:30 and the Minutes from March’s FOMC meeting will be released at 2 PM. Philly Fed President Harker and Richmond Fed President Barkin will also be speaking this morning.
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.
For bond investors, these days are tough indeed. With inflation rampant around the world and central banks finally putting the brakes on the gravy train of liquidity, the increase in interest rates has been relentless with bond prices seeing some of their largest declines in years. A case in point is the iShares 20+ Year US Treasury Bond ETF (TLT). It’s already down 13% YTD and indicated to open lower today by another 1%. The chart below shows historical drawdowns from record closing highs in TLT since its inception in late 2002. Based on where the ETF is trading this morning, it has now declined 26% from its last record closing high back in early August 2020. Throughout its history, there have only been a handful of other periods where TLT ever experienced a peak to trough decline of more than 20%, and the only other time it dropped more was coming out of the Financial Crisis.
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Apr 5, 2022
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“The meek shall inherit the Earth, but not its mineral rights.” – J. Paul Getty
Outside of the drama surrounding Twitter (TWTR) and Elon Musk, who is now a board member of the company, there’s not a lot of newsflows this morning centered on US stocks. The only economic report on the calendar is the ISM Services report at 10 AM eastern, but there are also a number of Fed speakers scheduled. At 10 AM, we’ll hear from Minneapolis Fed President Kashkari, and then at 11:05 AM Fed Governor Lael Brainard will likely shed additional light on whether the Fed moves 50 bps at its next meeting. The final speaker of the day will be New York Fed President Williams at 2 PM.
Equity futures are modestly lower today, but the most noteworthy development of the morning is the fact that the 2s10s curve has steepened and has nearly ‘unverted’.
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.
With a month-to-date gain of more than 4% in just two trading days, the run higher in Brazilian stocks has continued into the second quarter. Year to date, the iShares MSCI Brazil ETF (EWZ) is now up over 40%, and given that gain, we don’t know what’s more noteworthy. Is it the fact that since its inception in 2000, this represents the best YTD start for the ETF (through 4/4) on record? Or is it that even after this year’s rally, the ETF is over 6% relative to its high in 2021?
Starting with YTD starts, the chart below shows the YTD gain for EWZ going back to 2001. This year’s 40.8% gain easily ranks as the strongest YTD gain for the ETF since its launch.
As mentioned above, the last year has been a roller-coaster for EWZ. Even after this year’s sharp rally, which began on 1/5, EWZ remains more than 6% below its June 2021 high.
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Apr 4, 2022
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“Given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy.” – Elon Musk
Heading into today, it was looking like a quiet start to what was looking like a slow week as the economic calendar is light and earnings season doesn’t kick off for at least another week. That changed a bit following news that Elon Musk had taken a passive 9.2% stake in Twitter (TWTR) pushing the stock up by more than 25% in pre-market trading to its highest level since late November. Last week on Twitter, Musk made the statement at the top of this note and then followed up with the question, “What should be done?” Well, this morning we appear to be getting an answer. Twitter has long been criticized for not realizing its full potential, and TWTR shareholders are hoping Musk can move the company in that direction.
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.
With the stock poised to open up more than 20% this morning, it will be just the fourth time in its history as a public company in 2013 that TWTR has gapped up more than 20%. Two of those days were in reaction to earnings (July 2014 and February 2018), and then on the day of its IPO in November 2013. Today, it’s all Elon.
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Apr 1, 2022
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“The strength of the team is each individual member. The strength of each member is the team.” – Phil Jackson
It’s a new quarter today, but markets will get right into it today with a good deal of economic data. For starters, we get the March employment report at 8:30 eastern, and then at 10 AM, we’ll get Construction Spending and the ISM Manufacturing report. While payrolls are expected to show a modest decline, ISM Manufacturing is expected to see a modest bounce. With the employment report, though, the devil will be in the details.
In Europe, equities are trading higher following what has generally been weak manufacturing PMI data in the region. Interest rates are moving higher on the day while crude oil has dropped below $100 per barrel.
After a plunge into the close yesterday, futures are looking to claw back those losses in early trading, but even at current levels, we’re only basically back to where we were a half-hour before yesterday’s close.
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.
April may bring showers in terms of the weather, but historically it has been one of the greener months of the year. Over the last 100 years, the Dow’s average gain of 1.46% with positive returns 62% of the time ranks as the third-best of any month behind July (1.65%) and December (1.52%). In the last 50 years, the 68% frequency of positive returns hasn’t been the most consistent, but the 2.21% average gain is easily the highest of any month. Likewise, the average gain of 2.21% in the last 20 years has also been the strongest of any month. Not only that, but with just three down Aprils over the last 20 years, no other month during this period has been more consistent to the upside.
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Mar 31, 2022
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“I ought to be jealous of the tower. She is more famous than I am.” – Gustave Eiffel
133 years ago today, the Eiffel Tower, one of the most iconic landmarks in the world today opened for business. It may sound hard to believe, but when the tower first opened a number of critics thought it would be an eyesore on the Paris landscape, and twenty years after it opened the Eiffel Tower was almost demolished when the lease on the land it stood on expired. The main reason it was spared was because of its utility as a radio antenna! More than 100 years later, the mere thought of Paris without the Eiffel tower would be considered a sacrilege. Just like in the stock market and everything else in life, one person’s (or generation’s) trash is another one’s treasure.
In markets this morning, investors want nothing to do with oil as WTI is trading down more than 5% on reports of a massive stockpile release from the US Strategic Petroleum Reserve (SPR). For more on this and how the SPR works, make sure to check out our explanation in today’s Morning Lineup. The weakness in futures has equity futures up modestly, but it’s the last day of the quarter, so expect to see a decent amount of volatility throughout the trading day.
In economic news, we just got a slug of economic data this morning, and there weren’t that many major outliers. Perhaps the biggest outlier was Personal Spending which rose 0.2% versus forecasts for an increase of 0.5%.
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 still a day left in the quarter, and despite the strong rally in the last couple of weeks, for the majority of stocks and sectors, it has been a quarter to forget. On a year-to-date basis, Energy is the clear leader with a gain of more than 40%, but over the last week, both Utilities and Financials have moved into positive territory for the year. At the other end of the spectrum, Communications Services, Consumer Discretionary, Technology, and Real Estate are all still looking at losses of more than 5%. Not great, but it could have been a lot worse were it not for the 3.5%+ gains in the last week.
While the vast majority of sectors are looking at YTD declines to close out Q1, they’re also trading at short-term overbought levels. All eleven sectors are currently above their 50-DMAs, and all but Financials and Communication Services are also ‘overbought’ (at least one standard deviation above their 50-DMA.
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