Feb 24, 2022
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“Do not try to make circumstances fit your plans. Make plans that fit the circumstances”. – George S. Patton
It’s setting up to be a painful morning for investors in the US and around the world as financial markets are reeling in every corner of the world. It’s safe to say that markets weren’t expecting such a rapid escalation and Russian airstrikes throughout Ukraine, so the negative reaction is warranted. That being said, it’s not as though markets were anywhere near their highs heading into today. The Russell 2000 was already in a bear market, the Nasdaq was knocking on the door, and the S&P 500 was in correction territory.
Economic data this morning was mixed with jobless claims coming in lower than expected, but inflation-related indices like the GDP Price Index and Core PCE both came in higher than expected. Given the macro headlines, though, futures have seen little in the way of an impact.
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.
Based on where futures stand now, the Nasdaq will open for trading with a decline of about 3%, putting the index down 21% from its record high back in November. In the history of the index dating back to 1971, this will be the 12th drawdown of 20%+ from a record high. What’s also worth highlighting is that the current drawdown represents the 3rd 20%+ drawdown from a record high in the last 3.5 years.
On a related note, today could mark the fifth straight 1%+ decline for the Nasdaq which would be the longest streak of 1% daily declines since October 2008.
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Feb 23, 2022
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“Shut your eyes and see.” – James Joyce
Futures are trading higher heading into the opening bell…for now. It used to be that a positive tone in the futures market would suggest a positive tone to the upcoming trading day, but lately, futures are indicative of the market’s present tone and nothing else. Close your eyes or step away from the desk for a minute and the picture may look completely different when you get back. Along with futures in the green, bitcoin is trading up 3% and back near or above $39K (depending on when you look), crude oil is down slightly, and the 10-year yield is back up to 1.98%.
The only economic data point on the calendar was weekly mortgage applications which showed a decline of 13.1% compared to last week’s drop of 5.4%. Mortgage applications can be volatile, but last week’s drop was the steepest since April 2020 at the heart of the COVID lockdowns.
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 the S&P 500 was going to bounce one of these days, current levels provide a logical starting point as the S&P 500 closed yesterday just above 4,300 which is a level that has acted as support in the past eight months. How long that support holds in the current environment remains to be seen.
While YTD performance has essentially been a bloodbath for most stocks in the S&P 500 this year, stocks in the Energy sector have been living in an alternate reality. With an average YTD gain of 20.2%, stocks in the Energy sector are leading every other sector’s average YTD change by at least 20 percentage points! Stocks in the Financials sector have managed an average YTD gain of 0.2% this year, but every other sector’s average YTD change is negative. Sectors that have been the biggest laggards include Technology, Consumer Discretionary, and Real Estate where the average YTD change of each one’s components has been a decline of over 10%. Even in a traditionally defensive sector like Utilities, its components have already declined an average of 5.7% YTD.
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Feb 22, 2022
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“Do you believe in miracles?” – Al Michaels
Today marks the 42nd anniversary of the ‘Miracle on Ice’ when the US men’s Olympic ice hockey team stunned the world with an upset over Russia and Al Michaels uttered the now-famous question “Do you believe in miracles?” The investment community is hoping for its own miracle in Ukraine this morning as geopolitical concerns regarding a potential Russian invasion roil markets. Futures have been lower ever since they opened for trading and Putin’s speech yesterday that recognized separatist Ukrainian regions. Things could be worse, though, as futures currently trade well off their overnight lows as conditions remain fluid.
It’s a busy morning for data as we’ve already had a decent amount of earnings reports, including Home Depot (HD), which is trading down over 2.5%. On the economic calendar, later this morning we’ll get flash readings on Manufacturing and Non-Manufacturing PMIs from Markit along with Consumer Confidence and the Richmond Fed
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.
Taking a look at where the major indices stand heading into the week, the picture isn’t pretty. Starting off with the Russell 2000 (IWM), which has been the weakest of the major indices, it is actually the least in danger of making an imminent lower low relative to January, even as it is down more than any of the other three. The Nasdaq 100 (QQQ) will likely open below its closing low from January this morning, and whether it takes out its intraday low remains to be seen. Lastly, the S&P 500 (SPY) will likely manage to open above its closing January low this morning, and we’ll see how things play out from there. One question you may be asking yourself this morning is why the futures aren’t trading even lower this morning. To help answer that question look no further than the charts below. As shown, stocks have already been selling off sharply heading into this weekend’s events, and while we wouldn’t go as far as to say that a Russian move into Ukraine is fully priced in, markets have been anticipating this for the last several weeks.
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Feb 18, 2022
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“In preparing for battle I have always found that plans are useless, but planning is indispensable.” – Dwight D. Eisenhower
It’s Friday again, and heading into the weekend, investors are preoccupied with the same issues they were last Friday, namely Russia and the Fed. While a week has passed, there still hasn’t been much more clarity on either front. Regarding the Fed, the question remains whether they will go with a 25 or 50 bps hike at the March meeting, and market expectations have actually shown a decline in expectations for a 50 bps hike down from close to 100% late last week to just about 36% now. On the Russia front, the only real differences are that the 2/16 ‘invasion date’ came and went without much activity, but now rather than having investors on edge heading into a two-day weekend, this Friday, we’re heading into a three-day weekend which only increases the level of uncertainty.
Closing out the week, the only economic indicators on the calendar are Existing Home Sales and Leading Indicators which will both be released at 10 AM. Futures, which were indicated higher have now reversed into the red on headlines that separatists in Donbas are evacuating women and children into Russia as tensions escalate.
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.
Even when futures were trading higher, it did little to improve the technical picture for the S&P 500. Besides the fact that the downtrend from the January high remains firmly in place, yesterday’s decline took SPY back below its 200-day moving average, so until that changes, bulls will have little incentive to take a stand.
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Feb 17, 2022
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“If you have more than 120 or 130 IQ points, you can afford to give the rest away. You don’t need extraordinary intelligence to succeed as an investor.” – Warren Buffett
Futures are in the red again this morning but just modestly, and while they’re off their lows of the overnight session, they’ve just recently started heading lower again. Russia continues to take up a lot of the headlines, but unfortunately, there’s little in the way of resolution on the horizon. Just released headlines quoting US officials suggest that Russia is moving towards an imminent invasion, and US Secretary of State Anthony Blinken will head to the UN today to address the Security Council. No one besides Putin really knows when and how the situation will resolve itself.
Earnings season came to an ‘unoffical’ close today with Walmart’s (WMT) better than expected report, and given the multiple tape bombs that were dropped throughout the reporting period, investors will be happy to see this earnings season wind down. It was a busy morning for economic data as well, and while most of this week’s data has been better than expected, this morning’s results were mixed. To hear out instant take on all of the reports listen to it here.
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’ll discuss it in more detail later today, but after seeing the latest investor sentiment readings from the American Association of Individual Investors (AAII), we couldn’t not mention them. As of the latest survey, bullish sentiment dropped from an already low reading below 25% to less than 20% this week. As shown in the chart below, the only other times that bullish sentiment was as low as it is now were in January and May 2016. Just about every survey of sentiment these days, whether it covers the economy or financial markets, shows elevated levels of pessimism. We realize there’s no shortage of concerns out there and you can take your pick as to which one is the biggest problem, but one has to ask whether these levels of pessimism are starting to get a bit extreme.
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Feb 16, 2022
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“Swim upstream. Go the other way. Ignore the conventional wisdom.” – Sam Walton
Retail Sales were just released and came in much stronger than expected at the headline level (3.8% vs 2.0%). Backing out Autos and Gas, the numbers were even stronger relative to expectations. Last month’s report was revised lower than originally reported but not by enough to offset this month’s strength. Other data released this morning includes Import and Export Prices, and both of those were also stronger than expected. Still on the calendar today, we have Industrial Production (9:15), Capacity Utilization (9:15), Business Inventories (10:00), and Homebuilder Sentiment (10:00). Then at 2 PM we’ll see a release of the Minutes from the January meeting.
Futures have seen a bit of a bounce in reaction to news but are still indicated to open modestly in the red.
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 was just the third time in 2022 that the S&P 500 tracking ETF (SPY) traded in positive territory from the opening to the closing bell, and over the last 50 trading days, there have been just eight times where the S&P 500 traded higher all day. As recently as 2/1, though, the trailing number of times over the last 50 trading days that the SPY traded higher all day was at just six which was the lowest reading since March 2018. What’s even more notable is that back in early December, just as Powell was retiring the term transitory, the 50-day reading of the number of trading days that SPY traded in positive territory for the entire trading day reached a record high of 20. In other words, there’s been quite a reversal in the last three months where the market has frequently opened higher and stayed there to more a of choppy environment where the market has jumped between gains and losses throughout the trading day.
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