Jan 20, 2022
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“If you absolutely can’t tolerate critics, then don’t do anything new or interesting.” – Jeff Bezos
The set-up in pre-market futures looks similar today to what it looked like yesterday, but hopefully, the outcome isn’t. After trading up as much as 1% in early trading yesterday, the Nasdaq quickly gave up all of its gains and more throughout the trading day and finished down more than 1% by the closing bell. Economic data just released includes jobless claims and the Philly Fed. Regarding claims, both initial and continuing claims came in significantly higher than forecast, while the Philly Fed actually surprised to the upside even after the big miss from the Empire Manufacturing report earlier this week.
Recent weakness in the market is starting to show up in sentiment surveys, though. In this week’s survey from AAII, for example, just 21% of respondents reported as bullish while 46.7% were bearish. In terms of bulls, that’s the lowest reading since July 2020, and for bears it was the highest reading since September 2020.
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 made it official yesterday and reached the 10% threshold for a correction. In the post-global financial crisis (GFC) period, the current period ranks as the 14th correction for the Nasdaq with the most recent before the current one spanning mid-February through early March 2021. Overall, post-GFC Nasdaq corrections have seen an average total decline of 15.2% over a span of 53 days. The median during this period is a bit milder at 12.0% over the span of just 36 days. Going all the way back to 1970, the ‘average’ Nasdaq correction has seen a total decline of 19.5% putting them just shy of bear market territory (median: -16.6%) over a span of 75 days (median: 60 days). At just 10.2%, therefore, the current correction is still more modest than average, but at 61 days its been longer than average for the post-GFC period.
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Jan 19, 2022
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“A good first impression can work wonders.” – J.K. Rowling
Futures are attempting a bounce after yesterday’s wallop, and positive reactions to earnings from Bank of America (BAC) and Morgan Stanley are contributing to the positive tone. The only economic reports for the morning were Housing Starts and Building Permits, and both came in significantly higher than expected and at their second-highest levels since the financial crisis. The only readings that were strong for each series were in Q1 of 2021.
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.
First impressions are always important, but they’re not always accurate, and that’s the hope of bulls following the first days of earnings season. Banks kicked off the Q4 earnings season late last week, and two of the largest to report were Goldman Sachs (GS) and JP Morgan Chase (JPM). The stocks of both banks had abysmal reactions to their reports.
Following Friday’s report from JPM, the stock declined 6.15% which ranks as the worst earnings reaction day performance for the stock in at least 20 years beating out the 6.06% decline the stock experienced in January 2009 during the thick of the financial crisis. The reaction in GS to its earnings report on Tuesday wasn’t much better with the stock falling just under 7%. That was large enough to rank as the second-worst earnings day reaction for the stock behind only the 11.56% decline in April 2009 just as markets were coming out of the financial crisis.
As disheartening as a bad first impression can be, one potential bright side is that it can have the effect of resetting the bar low, and in early trading, both Bank of America (BAC) and Morgan Stanley (MS) are trading up close to 3% in reaction to their reports. Whether those gains can hold through the opening and closing bell, though, is another story.
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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.
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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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