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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Jan 7, 2022
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“Find a job you enjoy doing, and you will never have to work a day in your life.” – Mark Twain
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.
The trading year is only four trading days old, but already we have seen lots of moves, and they’ve primarily been to the downside. Heading into the weekend, we wanted to provide a quick look at where each of the new major indices stand on a longer-term basis.
Starting with small caps, the Russell 2000 (IWM) broke out to new highs in November, but quickly reversed and has since broken below both its 50 and 200-day moving averages (DMA). Since then, the Russell has made several attempts to trade back above those averages, and while it has traded above the 200-DMA multiple times, the 50-DMA has been a more formidable barrier that has yet to break.
The Nasdaq 100 (QQQ) has been the weakest of the three major indices this year with a decline of over 3%, but at this point, it has been able to hold support at the prior highs from September. This more recent decline is the third time QQQ has tested support since the start of December, and while it has held so far, the more often an index tests support or resistance, the weaker it often becomes.
Lastly, the picture for the S&P 500 (SPY) probably looks the best of the three. Not only have the uptrend since the September lows and the 50-DMA held to this point, but the prior highs from mid-November and mid-December have also acted as support. As long as these levels hold, it should provide some comfort to chart watchers.
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Jan 6, 2022
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“Just because the tide is out, doesn’t mean there is less water in the ocean.” – Seth Godin
Markets are attempting to regroup from the fourth worst market reaction to a release of the FOMC Minutes since at least 2007. In what has become a trend of the new year, S&P 500 and Dow futures are both modestly higher while the Nasdaq is lower. Crude oil is pushing $80 and the yield on the 10-year is pushing 1.8%.
In economic data, jobless claims were just released, and while initial claims came in just slightly ahead of forecasts, continuing claims topped 1.7 million which was nearly 100K above forecasts.
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.
Look at the chart below. It may look like an EKG of someone watching the market yesterday with the increased amplitude coinciding with the release of the Fed minutes, but it’s actually the rolling three-day performance spread between the Technology and Financials sector since the start of 2018. With Technology down 3.3% YTD and Financials up 2.6%, the performance spread between Technology and Financials currently stands at -5.9 percentage points which is the widest gap between the two sectors since almost exactly a year ago today on 1/6/21 which also happened to be three trading days into the new year. Guess which year the headline, “Pandemic Tech Bubbles Echo Those of Dotcom Era,” was from? It was last year. Even the headlines now are similar to that point a year ago.
Technology had a rough start to 2021, but by the end of the first quarter, it started to rebound and perform in line with to better than the S&P 500. That doesn’t mean history will repeat itself, but in the last several years, there have been more than a few premature obituaries that were written for the Technology sector.
Maybe more concerning than tech’s underperformance over the last few days has been the fact that two years after the pandemic, not only are we still dealing with it, but market volatility within sectors remains much more elevated than it was pre-pandemic. What we can take some solace in is the fact that even as the bubbliest areas of the market have cratered, the last couple of days notwithstanding, the rest of the market has held up relatively well.
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Jan 5, 2022
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“Never confuse movement with action.” – Ernest Hemingway
After a snowstorm paralyzed the mid-Atlantic region earlier in the week, there’s not a lot of movement on roads in the Northeast this morning, but it is nothing compared to what drivers faced in the Virginia area. Futures are generally stalled out this morning as well with Dow and S&P 500 futures flat on the morning, while Nasdaq futures are firmly in the red, pointing to more weakness ahead for tech and growth stocks.
The major economic data release of the morning was the ADP Private Payrolls report which came in at 807K and was nearly double consensus expectations, and now the focus will shift to FOMC minutes from the December meeting at 2 PM Eastern.
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 two trading days into the year, but already there’s been a lot of action. Within the S&P 500, more than one hundred stocks have moved 5% YTD (72 stocks up 5%+ and 30 down 5%+). At the sector level, the moves have also been monstrous. The Energy sector is up 6.66% (welp) while Financials has rallied 3.88%. For both sectors, the YTD gains already rank as the best two-day starts to a year since at least 1990. On the downside, three sectors have also declined at least 1% with Health Care leading the way lower falling by 2.35%.
With 9.01 percentage points separating the best and worst-performing sectors, the YTD performance gap after two trading days is one of the widest since 1990. The chart below shows the performance gap between the best and worst-performing sectors on a YTD basis after just two trading days. During this span, the average gap has been 5.2 percentage points, but the current gap of just over 9 percentage points is the widest since 2002 when 9.36 percentage points separated the performance of Technology (+8.19%) and Health Care (-1.16%). The widest performance spread between two sectors after just two trading days was in 2001 when 18.7 percentage points separated the 10.2% rally in Telecom Services from the 8.5% decline in Utilities. 2001 was also a year when the Fed announced a surprise rate cut as the dot-com bubble was bursting. Don’t think we have to worry about one of those coming any time soon.
Turning back to the Energy sector, not only is its 6.66% YTD gain the best for that sector since 1990, but it is also the best two day start for any sector since 2002. That’s a lot of Energy!
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