Jan 18, 2022
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“A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” – Winston Churchill
Despite an extra day off, the equity market is not looking like it’s going to get off to a good start to the trading week with futures on the major averages all lower. After outperforming the S&P 500 last week, the Nasdaq is leading the charge lower this morning with a decline of over 1%. The culprit this morning, as it seems to be every day, is interest rates as the yield on the 10-year tops 1.8% and the 2-year yield moved back over 1%.
On the earnings front, reports so far this morning have been mixed, but the most high-profile report so far has been Goldman (GS) which actually missed EPS forecasts and is trading down over 5%. It’s not looking like a positive start to the shortened week, but at least it’s Tuesday already.
Lastly, in just announced news, Microsoft (MSFT) is planning to acquire Activision Blizzard (ATVI) for $95 per share in cash. On the economic side, the Empire Manufacturing report for January came in much weaker than expected falling to -0.70 versus December’s reading of 31.9. That was the largest m/m decline since the early days of the pandemic in April 2020. This report comes on the same day the markets are now pricing in a 100% chance of a 25 bps rate hike in March and even a slight chance for 50 bps!
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 100 tracking ETF (QQQ) is set to open down over 1% this morning which would be the fourth downside gap of at least 1% over the last 50 trading days. The way the Nasdaq has been trading lately, we were actually surprised that the number of downside gaps wasn’t higher. In any event, the rolling number of downside 1%+ gaps for QQQ is now at the highest levels since last July, but still just a fraction of the pace we saw during the COVID crash. Over the last five years, there have been 77 prior downside gaps of 1%, and on those days, the median change from the open to close for QQQ has been a gain of 0.30% with positive returns 57% of the time. However, when those downside gaps occurred on the first trading day of the week (Monday or Tuesday), the median change from the open to close was actually a decline of 0.08% with gains just half of the time.
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Jan 14, 2022
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“When you expect things to happen – strangely enough – they do happen.” – J.P. Morgan
If you were hoping for a quick bounceback following yesterday’s decline, think again. While futures were higher overnight, all of those prior gains have evaporated. Tech is leading the way lower once again, but Financials aren’t providing any support as investors have generally been selling JP Morgan (JPM), Wells Fargo (WFC), Citigroup (C), and Blackrock (BLK) following their reports. The only one of those four that’s higher this morning is WFC, while JPM and C are both down over 4%. As noted in our Earnings Season Preview yesterday, the major financials typically react negatively to their Q4 reports, so far this earnings season doesn’t appear to be an exception.
It may be Friday, but it’s a relatively busy day for economic data to close out the week with Retail Sales, Import and Export Prices, Industrial Production, Capacity Utilization, Business Inventories, and Michigan Confidence all on the calendar. Retail Sales just hit the tape and came in much weaker than expected.
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 a gut punch for the technology sector. Take semiconductors, for example. Boosted by a strong earnings report from Taiwan Semiconductor (TSM), the Philadelphia Semiconductor Index (SOX) traded more than 2% higher in early trading but then reversed lower finishing right near its low of the day and down more than 2% from Wednesday’s close. That marked the first time the index was up 2%+ intraday but finished the day down more than 2% from its prior day close since April 2020.
In the entire history of the SOX dating back to the mid-1990s, there have only been 42 prior occurrences where it was up 2%+ intraday but finished the day down 2%+, and only three of those occurred in the post-Global Financial Crisis period. As shown in the chart below, the majority of the prior occurrences came during the unwind of the dot-com bubble from March 2000 through October 2002. What makes yesterday’s reversal unique is that even after the decline, the SOX is still just 6.3% below its 52-week high. The average distance from their respective 52-week highs of the other 42 occurrences was over 40%, and there wasn’t a single time where the SOX was as close to a 52-week high as it is now. The only other occurrence where the SOX was even within 10% of a 52-week high was on 3/14/00.
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Jan 13, 2022
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“Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.” – Warren Buffett
Futures were mixed ahead of the December PPI and weekly jobless claims this morning, and the results were mixed. Regarding jobless claims, initial claims came in higher than expected 233K versus estimates for right around 200K. Continuing claims, however, were much lower than expected coming in at a level of 1.559 million versus forecasts for around 1.7 mln. PPI missed at the headline level, rising just 0.2% compared to forecasts for an increase of 0.4%. That was the smallest m/m increase since November 2020. Core PPI, however, was right inline with forecasts at 0.5%.
In reaction to the news, futures have seen a slight lift with all three major averages getting a bit of a lift on the news while treasury yields are little changed.
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 year is only eight trading days old, but already it has been a tough one for growth stocks as the Nasdaq 100 is down more than three times as much YTD as the S&P 500 (-2.54% vs -0.84%). Despite the underperformance, though, you may be surprised by the fact that on the eight trading days so far this year, the Nasdaq 100 has actually outperformed the S&P 500 (5 days) more often than it has underperformed (3 days). As shown in the charts below showing the daily performance of both indices, the only three days that the Nasdaq 100 has underperformed the S&P 500 were on 1/4, 1/5, and 1/7. The reason for the YTD underperformance, however, is that on those three days the Nasdaq 100 underperformed, it significantly lagged.
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Jan 12, 2022
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“It is a way to take people’s wealth from them without having to openly raise taxes. Inflation is the most universal tax of all.” – Thomas Sowell
The big data release of the day is December’s reading on CPI, and the results came in slightly higher than expected with headline CPI rising 0.5% m/m versus forecasts for an increase of 0.4% while core CPI increased 0.6% compared to forecasts for an increase of 0.5%. On a y/y basis, headline CPI increased 7.0%, and as shown in the chart below, that’s the highest rate of change since 1982.
Despite the higher than expected readings, though, investors must have been expecting worse as futures have legged higher, led by the Nasdaq, in reaction to the report.
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 as it was expected to be high, the rate of increases in consumer prices for the month of December is still a chart to behold. With the y/y change hitting 7.0%, it is the highest rate of change in CPI on a y/y basis since 1982.
Not only are consumer prices up significantly over the last year, but the pace at which we have reached these levels is nearly unprecedented. A year ago at this time, CPI was only rising at a y/y rate of 1.4%. That rate of increase has now accelerated by a full 5.6 percentage points. Going all the way back to 1951, the only other times that the rate of change in Y/Y CPI increased at a similar or higher rate were in 1951 and 1974.
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Jan 11, 2022
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“We will use our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched.” – Jerome Powell
It’s a generally quiet day for data today, so investor attention will be focused on the Senate as Fed Chair Powell sits in front of the Senate Banking Committee for his renomination hearing this morning. With four rate hikes in 2022 now more likely than unlikely, investors will be intently focused on any comments from Powell related to rates and the pace of balance sheet run-off once lift-off begins.
Futures are essentially flat with a positive bias heading into the opening bell this morning as Europe rallies and gold and crude oil are trading higher.
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 was a moral victory for bulls yesterday as the Nasdaq 100 erased an intraday decline of more than 2.5% to finish the day modestly in positive territory. As good as the reversal felt yesterday, it is important to keep in mind that even with the reversal, QQQ, finished the day below the low end of its Q4 trading range and also lower than the prior high from early September. Once a solid level of support breaks to the downside, it can often act as upside resistance, so it will be important to watch how those levels hold in the days ahead on any rally attempts.
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Jan 10, 2022
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“Extinction is the rule. Survival is the exception.” – Carl Sagan
There’s a modestly positive bias to futures this morning, but the release of the December jobs report could shake things up considerably. Like last month’s report, the data was mixed. Non-Farm Payrolls came in considerably below forecasts at 199K versus expectations for a reading closer to 500K. At the same time, the Unemployment Rate actually dropped below 4% for the first time in the post-COVID era. Average Hourly Earnings grew 0.6% m/m which was better than expectations for growth of 0.4% while average weekly hours were slightly lower than estimated. Despite the stronger than expected wage growth, on a y/y basis, earnings rose 4.7%, but that’s still more than two full percentage points below the y/y rate of CPI.
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 only a week into the year, but already the trend has been markedly different from last year. 2021 may have been one of the more bullish years for equities, but 2022 is taking a different path. As shown in the snapshot from our Trend Analyzer below, all of the major index ETFs we track are down YTD. While the Dow (DIA) is only down marginally, the Nasdaq 100 (QQQ) is down over 4% while small caps are down close to 3%. In the case of the Nasdaq 100, that index is now more than two full standard deviations below its 200-DMA.
Focusing on the Nasdaq 100 in particular, last week’s decline marked the third downside test of support in the last several weeks. While the last two tests were successful, this morning could turn out to be a different story as the Nasdaq 100 is already indicated to open down by another 1.3% which, if it holds into the close, would be the lowest close since October.
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