Oct 27, 2021
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“Are you green and growing or ripe and rotting?” – Ray Kroc
With the second and third largest companies in the U.S. reporting earnings after the close yesterday along with dozens and dozens of others, you would have expected to see a larger move in the futures market this morning, but as things stand now, prices are little changed with a slight bias to the upside. Treasury yields are lower with the 10-year back below 1.60% again. The real action in the markets this morning is in the crypto-space, and it’s to the downside as both bitcoin and ether are down over 5% with other smaller assets in the space down even more.
The economic calendar is light today with Wholesale Inventories and Durable Goods hitting the wires at 8:30 and DoE energy inventory data coming out at 10:30.
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.
With all the earnings reports this week, especially the ones from the largest companies out there, investors were worried about the potential for volatility, but so far, the bulls have won out as the major indices are higher on the week so far (although we do have three full sessions of trading left in the week). Of the ‘big five’ companies reporting this week, Facebook (FB)’s report was met with a disappointing reaction, and last night after the close we heard from Alphabet (GOOGL) and Microsoft (MSFT). In pre-market trading, GOOGL is trading down less than 1% while MSFT trades higher by just over 1.5%. That leaves Amazon.com (AMZN) and Apple (AAPL) for after the close on Thursday, but so far two of the three that have reported have experienced negative reactions to earnings.
As far as the major US averages are concerned, they’re all higher on the week but to varying degrees. The Russell 2000 has been the weakest of the three indices shown below as it was also the only one to trade lower yesterday. The Nasdaq 100 (QQQ) has been the top performer on the week with a gain of over 1%, but it still has yet to take out its record high from early September. Last but not least, the S&P 500 finished off its intraday highs yesterday, but still managed to close at its second record high of the week.
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Oct 26, 2021
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“Some people don’t like change, but you need to embrace change if the alternative is disaster.” – Elon Musk
After yesterday’s gain, ten out of eleven sectors have posted positive returns over the last week and are above their 50-day moving averages. With the rally, a number of sectors have now also moved into overbought territory with two – Consumer Discretionary and Financials – now at what we classify as ‘extreme’ overbought levels (more than two standard deviations above their 50-day moving average).
The Consumer Discretionary sector has really surged over the last seven trading sessions after breaking out above resistance earlier this month. It must be optimism on the part of investors over a strong holiday season for the retailers. Right?
Well, not exactly. Normally, when the Consumer Discretionary sector sees a large gain, the reflex response is to pull up a chart of Amazon.com (AMZN) which accounts for about a fifth of the index. But looking at the performance of AMZN over the last several months, it has not contributed anything to the sector’s performance.
The main driver of the Consumer Discretionary sector during this most recent run has actually been Tesla (TSLA). Yes, TSLA is actually classified as a Consumer Discretionary sector stock, and given its recent surge to the trillion-dollar market cap level, it has become an increasingly large share of the sector. In fact, we’re getting to the point where out of a sector of more than 60 stocks, AMZN and TSLA account for close to 40%.
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Oct 25, 2021
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“We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power.” – Alan Greenspan
US equities are on pace to kick off the week with a modestly positive open, while WTI crude oil nears $85, treasury yields rise, and bitcoin has rebounded from a weekend decline. It’s a quiet day for economic data today, but the pace of earnings will really ramp up after the close with Facebook (FB) and continue that way for the rest of the week.
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.
Equity futures remain subdued to kick off the week, but October has already been an extremely positive month. Through Friday’s close, the S&P 500 was up over 5.5% this month. Heading into the final week of October, that represents the best MTD performance for the index since 2015 (+8.08%) and just the 10th time in the post-WWII period that it has been up 5%+ heading into the final week of the month.
In the table below, we list each of the prior years where the S&P 500 was up 5%+ heading into the last week of October and show how it performed in the final week of the month. Of the nine prior occurrences, the index was up four times and down five times for a median decline of 0.07%. For comparison, in all other Octobers where the S&P 500 was up less than 5% heading into the last week of the month, the median performance was a gain of 0.64% with gains 62.7% of the time.
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Oct 22, 2021
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“If you wish to increase your success rate, double your failure rate.” – Thomas Watson
Futures are mixed this morning following some weak earnings in the technology space. Both the S&P 500 and Dow futures are in the green, while the Nasdaq is indicated to open lower following disappointing earnings from Intel (INTC) and Snap (SNAP) after the close yesterday. If the S&P 500 manages to close out the day in positive territory it will mark the eighth straight day of gains for that index. The only economic data on the calendar this morning are preliminary Markit Manufacturing and Services PMI readings for October.
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.
You read the title of this post correctly. Traditionally, investors are used to seeing steady moves higher in the market followed by sharp and swift pullbacks. Since the S&P 500’s peak in early September, though, we have seen the opposite pattern play out. In the most recent 5% pullback, the period from the peak to trough on 10/4 covered 21 trading days. Since the recent low on 10/4, though, it only took 13 trading days to erase all of the prior losses from the 9/2 peak. Talk about a quick rebound!
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Oct 21, 2021
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“The problem is that a lot of big companies, process becomes a substitute for thinking. You’re encouraged to behave like a little gear in a complex machine. Frankly, it allows you to keep people who aren’t that smart, who aren’t that creative.” – Elon Musk
After a six-day rally of over 4%, the S&P 500 is indicated to open lower this morning along with the other major averages. The big drag on sentiment this morning is the 10-year yield which has spiked by about 4 bps in the last two hours taking yields to the highest level since May. Along with a busy slate of earnings, there are a number of economic indicators on the calendar that have the potential to swing things in the hours ahead. Jobless claims and the Philly Fed will be released at 8:30 AM while Leading Indicators and Existing Home Sales will 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.
With bitcoin hitting a new high this week, we wanted to update the comparison between ‘digital gold’ (bitcoin) and physical gold over the last year. Like bitcoin’s actual price, the ratio of bitcoin to gold also hit a new high this week topping the prior record high of 36.2 from April and finishing off yesterday at 37 ounces of gold to one bitcoin. That represents more than a six-fold increase in just the last year!
While bitcoin has been on a tear relative to gold, priced in terms of ether, it has underperformed over the last year. Last October, one bitcoin was worth more than 30 ether, but over the next six months that ratio rapidly compressed falling to as low as 12.3 this May. Ever since then, bitcoin and ether have been moving closer in tandem with each other as the ratio has been contained to a range between 12 and 18.
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Oct 20, 2021
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“Stone Age. Bronze Age. Iron Age. We define entire epics of humanity by the technology they use.” – Reed Hastings
There’s little movement in international equity markets and US equity futures currently, and the 10-year yield is flat at 1.63%. There’s no economic data to speak of today, but the Beige Book will be released at 2PM eastern. The S&P 500 has been up for five straight days now (its longest winning streak since late August) so a rest wouldn’t be too bad of a thing.
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.
While it initially rallied after the report was released, shares of Netflix (NFLX) quickly reversed in after-hours trading and are now looking at a loss of about 2% in the pre-market. While subscriber growth numbers came in better than expected, growth in North America looked a little more sluggish raising questions (again) that the streaming service has reached the saturation point in the United States.
Similar to the illustrations we provided of the large banks last week, the chart below shows the performance of NFLX since the start of 2020 with red dots indicating the closing price on the company’s earnings reaction day. What’s looking like a decline of around 2% for NFLX today would mark the seventh time in the last eight quarters where NFLX declined in reaction to earnings, and in each case, it has been a similar story; either sub growth was weaker than expected or investors anticipated that North American sub growth going forward would slow. Despite the short-term pessimism around each quarter’s report, since the start of 2020, NFLX has risen about 97% which is more than double the 44% gain of the S&P 500.
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