Feb 3, 2022
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“There are decades where nothing happens, and there are weeks where decades happen.” – Vlad Lenin
Good Morning Subscriber,
This earnings season, you could even say there are after-hours sessions where decades happen. Between earnings reports from Netflix (NFLX), PayPal (PYPL), and Meta Platforms (FB) last night, some very large market cap stocks have lost a fifth of their value overnight. These kinds of declines in reaction to one quarter’s worth of corporate performance are not exactly normal market events, and in the case of FB, today’s decline could be the largest single-day decline in market cap for a single stock in history! These are some unprecedented moves, and we’re not even halfway through earnings season!
We have a busy day of economic data ahead as well with Non-Farm Productivity, Unit Labor Costs, Jobless Claims, ISM Services, Durable Goods, and Factory Orders. Jobless Claims were already released and came in right around expectations while Non-Farm Productivity topped forecasts and Labor Costs were lower than expected. Following last month’s weaker than expected ISM Services report, the headline index is expected to show further deceleration this morning but still come in at a healthy reading of around 60.0. Durable Goods and Factory Orders, meanwhile, are both expected to show declines of less than 1%.
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 looked like an encouraging day for the Nasdaq 100 as the index traded and closed back above its 200-DMA, but that’s unlikely to last long as the index is expected to gap down more than 2% at the open this morning putting it back below its 200-DMA.
Going back to 2000, today will likely be the Nasdaq 100 ETF’s (QQQ) 106th downside gap of more than 2%. In the charts below, we show its performance from the open to close on the day of prior downside 2%+ gaps broken out by weekday along with the frequency of positive returns for each day of the week. Overall, the best day for QQQ to gap down 2% has been Wednesday as it has averaged a gain of 1.52% from the open to close with positive returns 54.5% of the time. Average intraday gains on Tuesday haven’t been nearly as strong (0.42%), but QQQ has been more consistent to the upside with gains 60% of the time. Unfortunately, Thursdays haven’t been a very good day for QQQ to gap down 2%+. On those 17 prior occurrences, QQQ’s average performance from the open to close has been a decline of 0.02% with positive returns less than a third of the time.
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Feb 2, 2022
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“It is an old device in Wall Street—to change the colour of the certificates in order to make them more valuable.” – Edwin Lefèvre
Everyone knows that stock splits are completely meaningless when it comes to a company’s fundamentals, but yet companies continue to split their stocks anyway, and more often than not, the price of a stock gets at least a short-term boost from the announcement. The latest example was last night when Alphabet (GOOGL) said they would split the stock on a 20-1 basis. So rather than trading for around $3,000 per share, GOOGL will trade for around $150 per share post-split.
Again, the split means nothing in terms of GOOGL’s fundamentals, but it does make the stock more palatable for investors looking to add a position. In a world where most brokerage firms now offer fractional shares, a company’s share price should be even less of a factor, but from the psychological perspective of an individual investor, it feels better to own a few shares of a company’s stock rather than a fraction of one share of a company’s stock. GOOGL’s split wasn’t the only news for the stock last night. The company also reported a very large earnings beat, and while the stock split is no doubt a contributing factor behind today’s move, the earnings results are the primary driver of today’s move.
GOOGL’s earnings results are helping to push futures in the green this morning as the Nasdaq is indicated to open up by more than 1%. S&P 500 futures are also firmly higher, while the Dow, where GOOGL is not represented (at least for now) is only looking at fractional gains. Besides GOOGL. strong results from AMD are also contributing to the positive tone in tech, but that strength has been offset from weak results from PayPal (PYPL) and Starbucks (SBUX).
In economic news, the only report of the day is ADP Private Payrolls, and it was a big dud. While economists were forecasting an increase of nearly 200K jobs in January, the actual reading was a decline of 301K as the Omicron wave that spread across the country caused major – although likely temporary- disruptions to the economy.
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 seen some big moves over the last five trading days as the Nasdaq 100 (QQQ) has rallied close to 6%. Behind QQQ, the S&P 100 (OEF) is also up over 5%. At the other end of the spectrum, the three weakest indices are all connected to small caps. In other words, the latest bounce has been driven completely by mega-caps. Even after the market has started to dig itself out of the January hole, every major index ETF remains below its 50-day moving average (DMA) and nearly half are still oversold, including the Nasdaq 100.
Turning back to GOOGL, the stock is currently indicated to open up by a little over 10% this morning which would be the 9th time in its history that the stock gapped up over 10% in reaction to earnings with the last occurrence all the way back in October 2015. In the prior eight periods where GOOGL gapped up over 10% in reaction to earnings, the stock continued higher during the trading day five out of eight times for a median gain of 0.19%.
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Feb 1, 2022
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“To be successful in life, you must get in the habit of turning negatives into positives.” – George Foreman
The last two trading days of the month helped to soften the blow, but a lot of people are probably happy to turn the page on January and start a new month. Futures are mixed to kick off the month with the S&P 500 and Dow futures modestly lower while the Nasdaq is slightly higher. Major economic reports today will include the ISM Manufacturing report, Construction Spending, and JOLTS which will all be released at 10 AM. In the case of all three reports, this morning’s prints are expected to show some deceleration relative to last month’s readings.
We’ve already seen a decent number of earnings reports this morning with UPS trading up sharply after reporting an earnings triple play, but this afternoon will be even busier with Alphabet (GOOGL) headlining. Other notables will include General Motors (GM), Starbucks (SBUX), PayPal (PYPL), and AMD.
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 Nasdaq was looking at a loss of more than 10% heading into the final trading day of January, but Monday’s 3%+ rally moderated the decline to a still steep 8.98%. With a rally of more than 6% in the month’s last two trading days, January was only the sixth month in the Nasdaq’s history where the index rallied more than 5% in the final two trading days of the month. Before January, the last occurrence was more than twenty years ago in May 2000. As shown in the table and chart below, back around the peak of the dot-com bubble there were actually three different occurrences in the span of less than a year, and before that, you had to go back to October 1987. The only other occurrence was in March 1980.
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Jan 31, 2022
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“Success is not final; failure is not fatal: It is the courage to continue that counts.” – Winston Churchill
US equity futures are trading down towards their lows of the morning after trading higher most of the night. A key concern for the market continues to be – you guessed it – the Fed, and comments from Atlanta Fed President Raphael Bostic suggesting the possibility of a 50 basis points (bps) hike has some investors on edge. A read of his comments, though, shows that he only said ‘every option is in the table for every meeting’, and then went on to say that his views will follow incoming data rather than committing to some pre-set plan. With more than six weeks between now and the March meeting, there’s probably going to be a lot more headlines like this as investors look to decipher and dissect every comment from every Fed official for signs of where they’re leaning.
The economic calendar is on the light side today with Chicago PMI and Dallas Fed the only reports on the calendar. The Chicago report is forecast to show slower growth than December while the Dallas read on manufacturing activity is expected to come in right around December’s levels. Earnings data is also on the light side today, but that won’t last as the rest of the week will be one of the busiest of the earnings season.
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 the month we’ve had, there isn’t much positive to say about the equity market so far in 2022. One silver lining could be seasonality. The gauges below taken from today’s Morning Lineup show that the upcoming one and three-month periods for the S&P 500 are among the best one and three-month periods of the year. Over the last ten years, the S&P 500’s median performance from the close on 1/31 out through the next month has been a gain of 3.94% while the forward three-month return has been a gain of 5.68%. Those median performance numbers are good enough to rank in the 98th and 85th percentile, respectively, relative to all other one and three months periods of the year. Seasonal trends are only one part of the puzzle when it comes to market returns and they can easily be outweighed by other factors, but at least the market has the calendar working in its favor.
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Jan 28, 2022
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“I’m only rich because I know when I’m wrong.” – George Soros
Markets are flipping the script this morning as the pattern of futures overnight and into this morning has been the complete opposite of the pattern Wednesday night into Thursday morning. Whereas futures traded lower most of the night Wednesday and rallied into the open, overnight futures were positive but started to aggressively sell-off after Europe opened. Geopolitical events are a major issue weighing on sentiment as President Biden reportedly told Ukrainian President Zelensky that a Russian invasion was ‘virtually certain’ even as Zelensky has asked Biden to tone down the rhetoric and ‘ calm down the messaging’.
It may be Friday, but there are some important economic data on the calendar. The Employment Cost Index, Personal Income, and Personal Spending all just hit the taps while Michigan Confidence will hit the wires at 10:00. In terms of the reports already released, the Employment Cost Index rose slightly less than expected while Personal Income saw a smaller than expected increase and Personal Spending dropped right in line with forecasts (-0.6%).
As we have noted throughout the last several trading days, futures have done a terrible job at predicting market direction lately, so there’s a good chance that by the time the closing bell rings, things will look different than they do now.
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 S&P 500 is currently down just over 10% from its recent record highs in what has been a relatively rapid deterioration in equity markets. In the span of just two weeks, the S&P 500 tracking ETF has given up both its 50-day and 200-day moving average (DMA), and neither level provided anything in the way of support. The next level to watch is the lows from last fall, and that level may not even hold through the end of the day.
While the 50 and 200-DMAs for SPY didn’t provide much in the way of support, on Wednesday’s first attempt to rally back above the 200-DMA, it acted as resistance. In Wednesday’s trading, the S&P 500 opened higher and briefly rallied above the 200-DMA but faded throughout the trading day. Just as the 200-DMA tends to provide support in an up-trending market, it tends to act as resistance during downtrends, so until SPY can rally back above its 200-DMA, the burden of proof is on the bulls.
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Jan 27, 2022
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“There is no risk-free path for monetary policy.” – Jerome Powell
Futures are pointing to a higher open this morning ahead of a busy morning for economic data and what has already been a busy overnight session for earnings and one that saw some wild moves in futures. With Asia down sharply overnight, S&P 500 futures were down well over 1% in the middle of the night, so thankfully most US investors were asleep to see that! As Europe opened for trading, sentiment started to rebound with markets in that region of the world posting mixed returns. Wherever futures are now, it’s unlikely they will stay right where they are for the remainder of the day. The market is attempting to find a new equilibrium point, and that process will keep markets volatile in the weeks ahead.
As mentioned above, the economic calendar is loaded this morning. Jobless claims were mostly inline, Durable Goods missed expectations, GDP was much stronger than expected while Personal Consumption was weaker. On the inflation front, the GDP Price Index was higher than expected at just under 7% while the Core PCE rose 4.9% which was in line with forecasts. The only two reports left on the calendar for today are Pending Home Sales and KC Fed Manufacturing which will both hit the tape at 10 AM.
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 market action showed broad-based declines across the board as the S&P 500 dropped more than 1.6% from 2 PM through the close and every sector dropped more than 0.65%. Sectors hardest hit in the after-meeting sell-off were some of the sectors you would most expect. The rate-sensitive Real Estate sector was the hardest hit falling 2.27%. Behind Real Estate, growth-oriented sectors like Technology, Consumer Discretionary, and Communication Services all reversed their gains falling more than 2%.
At the other end of the spectrum, defensive sectors like Utilities and Consumer Staples held up the best along with Financials which was the only other sector not to reverse at least 1% lower in the aftermath of Powell’s hawkish comments.
Try as they might to seek a port, if the Fed continues to guide to a more hawkish policy stance than markets anticipate at the time, there will little in the way of places for investors to hide in order to avoid at least some of the waves.
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