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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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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