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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Jan 26, 2022
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“The path to innovation begins with curiosity.” – Robert Iger
It’s not often that one of the top stories on the lead into a mainstream show like “The Today Show” is a Fed Meeting (don’t ask us how we know), but that was the case this morning as market volatility has made its way into the mainstream zeitgeist. Futures are sharply higher this morning with S&P 500 futures trading up 1.5% and the Nasdaq up by over 2%. After dropping sharply immediately after it reported results last night, shares of Microsoft (MSFT) reversed course and are now up over 5%.
The economic calendar is light today with Wholesale Inventories at 8:30 and New Home Sales at 10 AM, but the Fed will take center stage this afternoon with its 2 PM announcement and 2:30 Powell presser.
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’s been a volatile start to 2022 so far as the Nasdaq is currently on the pace for its 11th 1%+ daily move in 17 trading days so far this month. At a rate of just under 65%, this would rank as the most volatile month for the S&P 500 since March 2021 but is nowhere near the levels of volatility that were experienced during the COVID crash. While this month hasn’t been nearly as volatile as early 2020, looking back all the way to the start of 2010, there have only been a handful of other months where the percentage of daily 1% moves for the Nasdaq in a given month was higher.
Looking further back, though, investors have been relatively spoiled by the lack of volatility. During the Financial Crisis and before that, leading up to the peak of the dot-com bubble, the Nasdaq routinely experienced 1% daily moves during many months.
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Jan 25, 2022
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“The only place success comes before work is in the dictionary.” – Vince Lombardi
The rally was fun while it lasted, and after yesterday’s impressive turnaround, futures on the major averages are all pointing to declines of more than 1% in early trading. After surges in volatility like the one we have seen in the last few days if you were expecting a quick return to calm, think again. Volatility is here to stay in the near future, especially with earnings season heating up, the FOMC meeting Wednesday, and oh yeah, major geopolitical tensions around the world.
Today’s economic calendar is on the light side with Consumer Confidence and the Richmond Fed report at 10 AM. Both reports are expected to show a slight pullback relative to last month’s readings.
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 volatility saw a surge in trading volume relative to levels of the last year. Volume in the S&P 500 tracking ETF (SPY) topped 252 million shares which was the highest level of daily volume since March 2020 right in the thick of the COVID crash. Going further back, though, there have been plenty of other periods where daily volume in SPY was much larger than yesterday’s level.
When adjusting for SPY’s price, though, yesterday saw a near-record volume in terms of value traded. Based on the closing price yesterday, roughly $111 billion was traded in SPY yesterday. The only day where a higher value was traded was back in late February 2020 when the daily dollar volume topped $114 billion.
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Jan 24, 2022
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“Control your own destiny or someone else will.” – Jack Welch
Futures were briefly in the green at the open last night, but that positive tone didn’t last long. Futures are not only in the red, but the pace of the decline has been picking up steam with S&P 500 futures down 1% and the Nasdaq down about 1.5%. There were a number of times in the last year when it felt like the market could do nothing but go up. Now you know how it feels the other way around.
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.
How steep of a drop for the Nasdaq has it been over the last several days? The chart below measures the Nasdaq’s spread versus its 50-day moving average (measured in standard deviations) on a daily basis going back to 2009. As of Friday’s close, the Nasdaq was 3.3 standard deviations below its 50-day moving average which represents the most oversold level since the second half of March 2020 during COVID crash, and since the end of the Financial Crisis in 2009, there have only been a handful of other times that the spread was wider than it is now. We covered more on this topic in today’s Chart of the Day, which will be emailed out shortly.
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Jan 21, 2022
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“The shortage of skilled workers is now so serious that it is dramatically slowing down our economy,” – Christian Duerr, Leader of Free Democratic Party in German Parliament
The quote above illustrates that shortages of labor are not just an issue facing the US economy as aging populations, an acceleration in retirements and closed borders due to COVID shrink the available pool of labor in many countries. While not necessarily a concern in the present moment, these trends are long-term challenges facing advanced economies as birth rates around the world decline.
In markets today, unlike the last two days where futures traded higher only to reverse lower throughout the trading day, they aren’t even pretending to rally as all three major indices are firmly in the red. Equity markets are currently trading at extreme short-term oversold levels, but it’s going to be hard to convince investors to take a stand on the market heading into the weekend.
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.
This year’s sell-off in the Nasdaq is really starting to rank up there in terms of the worst starts to a year for the index in its history. With a decline of 9.5% YTD, it is one of only six years where the index has been down more than 5% in the first 20 days of the year and the third sharpest YTD decline ever. The only two years that experienced a sharper YTD decline were 2008 (-11.8%) and 2016 (-10.7%).
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