Feb 11, 2022
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“If you’re not a risk taker, you should get the hell out of business.” – Ray Kroc
After yesterday’s E.F. Hutton impersonation by St Louis Fed President James Bullard where he literally spoke and tanked the market, equities are looking to end the week on a high note as futures have erased earlier losses and are now flat to slightly higher. After the market became increasingly concerned with a 50 bps rate hike at the March meeting, some Fed officials were out overnight (Daly and Barkin) downplaying the chances. The only economic indicator on the calendar today is Michigan Confidence which is expected to decline modestly, but the key thing to watch will be inflation expectations.
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.
One of the more notable aspects of this year’s weakness in the equity market has been the fact that there has been nowhere for investors to hide. Through yesterday’s close, both the S&P 500 and long-term US Treasuries were down over 5% YTD. While there have been other times in the past where the S&P 500 or long-term US Treasuries were down 5% over a six-week period, it’s extremely rare to see them both down 5% at the same time.
The scatter chart below shows the rolling 30-day performance of the S&P 500 ETF (SPY) and the iShares 20+ Year US Treasury ETF (TLT) for every day since 2003. During that span, there have only been 26 days where the rolling 30-trading day return for both ETFs was below negative 5% at the same time. Interesting times indeed!
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Feb 10, 2022
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“Things there are no solution to: Inflation, bureaucracy & dandruff.” – Malcolm Forbes
It’s finally here, the CPI report the world has been waiting for. Today’s CPI report for January is very likely one of the most-anticipated economic indicators of the year so far and leading up to it, futures were mixed with the Dow higher while the S&P 500 and Nasdaq marginally lower. That’s certainly a tentative tone given the strong earnings we have seen from the likes of Disney (DIS), Coca-Cola (KO), Uber (UBER), Mattel (MAT), and Twilio (TWLO), which are all up sharply in reaction to their reports. Treasury yields were likewise little changed heading into the report with the 2-year and 10-year maturities trading pretty much unchanged relative to yesterday’s close (1.34% and 1.93%, respectively).
CPI came in higher than forecasts with the headline reading surging 0.6% compared to forecasts for an increase of 0.4%. Core CPI also rose by the same amount versus forecasts for an increase of 0.5%. On a y/y basis, headline CPI was up 7.5% which was the highest reading since 1982. Core CPI was up 6.0% which was also stronger than expected and the highest since 1982. The initial market reaction has been – you guessed it – lower with equity futures selling off and treasury yields moving higher as the 10-year approaches 2.0% and the 2-year trades at 1.45%.
The other indicator released this morning was Jobless Claims which actually came in slightly lower than expected on an initial basis and slightly higher than expected on a continuing basis.
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.
Inflation has easily been the number one concern of investors for the last year now, but in looking at market performance on the day of prior reports since the start of 2021, you wouldn’t necessarily think the markets were preoccupied with inflation. Since the start of 2021, there has only been one CPI report that has come in weaker than expected (August report released on 9/14/21). Of the remaining 12 reports, eight have been higher than forecasts, and four have been right in line with estimates.
Given all those higher than expected reports, you would think that the average S&P 500 performance on CPI days since the start of 2021 would be negative and Treasury yields would move higher, but that hasn’t really been the case. As shown in the table below, the S&P 500’s average performance on the day of CPI reports since the start of 2021 has been a gain of 0.25% (median: -0.04%) with gains 61.5% of the time. Moves in the Treasury market have been even more counter-intuitive. On the 13 prior report days since the start of 2021, the yield on the 10-year US Treasury has dropped an average of nearly 2 basis points (median: -0.6 bps) with increases in yield less than a third of the time.
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Feb 9, 2022
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“A deception that elevates us is dearer than a host of low truths.” – Marina Tsvetaeva
Building upon yesterday’s momentum, US equity futures look to trade higher again this morning following strong sessions overnight in Asia and Europe. While there hasn’t been much in the way of a concrete catalyst, lower COVID case numbers and hospitalizations coupled with a trend of easing restrictions in the states that had some of the strictest mandates has investors optimistic that the long-delayed return to normal may be on the horizon. Today’s economic calendar is light, but there are still a ton of earnings to contend with, and we’re now just 24 hours from the biggest economic indicator of the week (and probably the month) with tomorrow’s CPI report for January.
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’s rally and this morning’s strength in the futures markets have been welcomed by the bulls even if there wasn’t much in the way of a catalyst for the move. As markets look to stabilize after some recent volatility, below we provide a quick snapshot of where the major indices stand on a YTD basis and relative to their 50-day moving averages (DMA). The Nasdaq 100 (QQQ) has been the hardest hit YTD and heads into today’s trading session with a decline of nearly 10%. It is also the only major US index trading more than 5% below its 50-DMA. Along with the Russell 2000 (IWM), QQQ is the only other index ETF trading at ‘oversold’ levels (>1 standard deviation below its 50-DMA).
The technical definition of a market correction is a decline of 10% or more from a peak, and with the S&P 500 currently down just over 5% YTD, 2020 would currently qualify as a ‘half-correction’. SPY has barely moved out of oversold territory, but like the Nasdaq 100, it also remains below its 50-DMA. Finally, the Dow is often considered to be one of the least representative of the major indices, and it’s living up to that reputation this year. With a decline of just over 2% YTD, the Dow’s performance looks nothing like any of the other indices, and it’s the only one that is also anywhere close to trading above its 50-DMA. In fact, if current levels in the futures hold, it will be the only index ETF above its 50-DMA today.
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Feb 8, 2022
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“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.” – Warren Buffett
Futures are modestly higher for the S&P 500 and Dow this morning, but the Nasdaq is indicated to open lower in what’s looking like a mixed session for stocks. Futures started to lose some steam shortly after the European open as Treasury yields have been moving higher with the 10-year eclipsing 1.95% to its highest level since summer 2019.
The latest read on small business sentiment dropped to an 11-month low, but 61% of companies surveyed reported that they have raised prices, so inflation pressures remain firm. On a brighter note, WTI is trading back below $90 after hitting multi-year highs late last week.
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’re barely a month into the new year, but 2022 is shaping up to be a year where it’s Energy and everyone else. Year to date, the sector is up over 25%, and besides Financials, which is up less than 3%, every other sector is staring at losses. The chart below shows the performance of the ProShares S&P 500 Ex Energy ETF (SPXE) compared to the performance of the S&P 500 Energy sector ETF over the last year. For much of the last twelve months, Energy has outperformed the S&P 500 Ex Energy, but as the calendar flipped to 2022, the divergence has widened out to extreme levels. Even as Energy has risen more than 25% this year, the rest of the S&P 500 is down close to 7% on a market-cap-weighted basis, and that has stretched the one year performance gap between the two ETFs over the last year to 50 percentage points (63.96% vs 13.95%).
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Feb 7, 2022
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“I have never in my life envied a human being who led an easy life. I have envied a great many people who led difficult lives and led them well.” – Theodore Roosevelt
After a lower start overnight, futures have slowly picked up steam this morning and are now in modestly positive territory across the board with the Nasdaq leading the way higher. Overnight, economic data in Asia was on the weak side with China’s Services PMI missing expectations while Japan’s index of Leading Indicators decelerated relative to December.
Here in the US today, the only economic report on the calendar is Consumer Credit at 3 PM Eastern. On the earnings front, key reports after the close today include Amgen (AMGN), Tenet Healthcare (THC), and Simon Properties (SPG).
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.
If you talk to just about any investor lately, they’ll tell you that it has been a difficult year in the market. Putting the recent moves into perspective, it could have been a lot worse. Friday’s close marked 23 trading days since the S&P 500’s last closing record high, and during that span, the S&P 500 is down 6.2%. When comparing the last 23 trading days to other 23 trading day periods since 2000, there have been plenty of periods where the market saw much larger declines. Prior to the current period, the last time the S&P 500 declined 6% over a 23 trading day period was in late September 2020, but six months before that we saw what was the largest decline in a 23 trading day period since the Great Depression when the S&P 500 lost more than a third of its value from its peak on 2/19/20 to its low on 3/23/20.
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Feb 4, 2022
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“Always buy your straw hats in the Winter” – Benjamin Graham
There’s a lot of ‘straw hats’ on sale in the market lately, but the question is how far they are from their ‘final markdowns’. Futures were much higher overnight, but have been drifting lower ever since Europe opened for trading. Amazon.com (AMZN) is still up over 10% following its earnings report after the close yesterday, and that’s helping to keep Nasdaq futures marginally higher this morning while the S&P 500 is flat and Dow futures are down. One asset not on the sale rack is crude oil as WTI is firmly above $90 and looks headed to triple-digits.
The big market event of the morning was the January Non-Farm Payrolls report, and after two months where economists were expecting a strong report and received much weaker than expected news, today they were expecting a weak report due to Omicron, but as luck would have it, the results came in much stronger than expected. The initial reaction in the markets was for higher rates and lower equities, so it looks like bulls may be heading into the weekend disappointed.
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 market couldn’t keep bouncing forever, but even after the rally off of last week’s lows, yesterday’s decline was a tough one for bulls to stomach. As shown in the chart below, while the bounce brought the S&P 500 back above the 200-DMA – a level it still trades above now – it stalled out just below the 50-DMA, and yesterday’s sell-off brought it back below the highs from late last summer. How the S&P 500 trades today following AMZN’s strong report will likely say a lot in whether yesterday’s weakness is the beginning of another leg lower.
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