Nov 18, 2021
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“Trying to sell short in this market is like being run over by a train that’s going to derail a mile down the road.” – Julian Robertson
We may be at the tail end of earnings season, but it’s not going out quietly as we’re seeing some significant earnings-related moves this morning. On the downside, both Cisco (CSCO) and Alibaba (BABA) are down over 6% as they both missed sales estimates and lowered guidance. On the upside, even after the run it has had into earnings, Nvidia (NVDA) is up over 8%. In the retail space, a number of stocks including Victoria’s Secret (VSCO), Kohl’s (KSS), and Macy’s (M) are all up by at least 7%.
Today is also a fairly busy one for economic data as well with Jobless Claims and the Philly Fed at 8:30 and then Leading Indicators at 10 AM. Then, at 11 AM we’ll close out the week’s economic calendar (there are no reports scheduled for tomorrow) with the KC Fed r manufacturing report. Jobless Claims were pretty much right inline with expectations coming in at a post-COVID low of 268K while continuing claims were much lower than expected at 2.08 million. The Philly Fed report also came in better than expected coming in at a level of 39.0 which was the best reading since April.
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.
Relative to last Wednesday’s close, major US equity averages have generally had a positive bias but have seen little in the way of moves in either direction. As shown in our Trend Analyzer snapshot of US index ETFs, the only one that has moved up or down 1% during this period is the Micro-Cap index (IWC) with a decline of 1.17%. Despite the decline, though, IWC remains at overbought levels and is still one of the top-performing ETFs YTD. Behind IWC, the next worst performing index ETF in our snapshot is IWM which is down 0.9% over the last week. Like IWC and every other index ETF listed below, IWM remains at overbought levels, so it’s not as though these moves have been significant.
With small caps and large caps at two different ends of the performance spectrum this week, we wanted to highlight each index’s price chart to show how the moves look from a longer-term perspective. IWM has seen a pretty swift reversal in the last week, but it also follows a short-term move that was much steeper to the upside. Large caps like SPY, on the other hand, saw more gradual (relatively) increases leading up to their recent highs and remain right near all-time highs with the S&P 500 actually coming up just short of a record closing high on Tuesday.
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Nov 17, 2021
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“Trying to sell short in this market is like being run over by a train that’s going to derail a mile down the road.” – Julian Robertson
Futures have been weakening as we write this and are now pointing to a negative open ahead of some important housing data at 8:30 AM. Housing Starts came in at 1.52 million annualized which was weaker than expected and the second straight month that the headline reading missed expectations. Building Permits also missed forecasts for the second straight month coming in at a level of 1.630 million versus forecasts for a rate of 1.644 million.
In earnings news, both Lowes (LOW) and Target (TGT) reported earnings this morning, and while both reports were better than expected, concerns over margins at TGT have that stock trading down over 3%.
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.
Ahead of today’s reports on Building Permits and Housing Starts for October, yesterday’s release of homebuilder sentiment for November came in significantly stronger than expected suggesting that the recent uptick in interest rates hasn’t deterred potential homebuyers. Rising rates also haven’t had a negative impact on homebuilder stocks recently either. In yesterday’s trading, the iShares Home Construction ETF (ITB) didn’t quite trade at a new intraday high, but it did manage to hit a new high on a closing basis. Meanwhile, the S&P Homebuilders ETF (XHB) not only hit a new intraday higher yesterday, but it has been trading at new highs on a pretty regular basis in recent days. Unlike ITB, which is more of a pure-play on homebuilders, XHB has more exposure to companies like Home Depot (HD) and Lowes (LOW) that supply homebuilders as well.
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Nov 16, 2021
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“If everybody is doing it one way, there’s a good chance you can find your niche by going exactly in the opposite direction.” – Sam Walton
Home Depot (HD) and Walmart (WMT) are on the tape this morning as earnings season winds down. Both companies reported better than expected results on both the top and bottom lines. WMT even raised guidance citing strong results in its eCommerce unit. In reaction to the reports, both stocks are modestly higher with gains of between 1.0% and 1.5%.
Retailers are dominating the earnings headlines this morning and Retail Sales will dominate the economic data as well. There are a number of other reports on the calendar for today (Import Prices, Capacity Utilization, Industrial Production, Business Inventories, and Homebuilder Sentiment), but Retail Sales will kick the day off and likely be the most important release for investors.
Ahead of all the data, US equity futures are flat to modestly higher on the morning, treasury yields are modestly lower, and crude oil is back above $81. The real action this morning has been in the crypto space as most major currencies are down at least 5%. Bitcoin briefly dropped below $59K and tested its 50-day moving average but has rebounded back above $60K since. Factors being cited for the move include the stronger dollar and another round of regulatory crackdowns in China as the government refers to crypto mining as ‘extremely harmful’.
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 reached the mid-point of Q4 yesterday, and it’s hard to find much to complain about if you are a bull. Besides the fact that SPY is already up nearly 9%, four sectors have rallied by double-digit percentages. Looking at these four sectors, though, they aren’t necessarily ones you would look at as typically rallying in unison with each other.
With inflation being the number one concern of investors these days, the fact that Materials and Energy are near the top of the list in terms of performance shouldn’t come as much of a surprise, but the fact that they are accompanied by Consumer Discretionary and Technology is a bit surprising. Consumer Discretionary is a sector that typically underperforms during inflationary periods, but it’s actually the top-performing sector so far this quarter. Similarly, Technology, which is usually associated with growth stocks that should come under pressure when inflation is a concern as future earnings are discounted at a higher rate, has rallied nearly 12%.
Given some of the enormous market caps of some of the largest stocks in the S&P 500, some of the sector performance figures are skewed a bit. Consumer Discretionary is a perfect example. With Tesla’s (TSLA) market cap topping a trillion dollars recently, the stock’s weight in the sector is above 15%, so the fact that it has rallied more than 30% already this quarter (even after dropping 18% in less than two weeks) is a big reason for the sector’s outperformance. Within the technology sector as well, some of the largest stocks in the index have much more reasonable valuations than many other smaller names within the sector and given their dominant positions, they also have attractive earnings profiles.
On the downside, there is none so far this quarter, but the only two sectors that are up less than 5% so far on the quarter are Communication Services (XLC) and Health Care (XLV).
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Nov 15, 2021
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“The challenge of the retail business is the human condition.” – Howard Schultz
We’re heading into the final days of earnings season this week, and so far the results have been very positive. Whether earnings season ends on a positive note or not will depend on how the market reacts to a slew of high profile earnings reports from the retail sector – most notably Walmart (WMT) and Home Depot (HD) on Tuesday, Lowe’s (LOW) and Target (TGT) on Wednesday, and then Kohl’s (KSS) and Macy’s (M) on Thursday. Consumers still appear to be in a strong financial position but as last week’s sentiment report from the University of Michigan showed, they aren’t feeling particularly optimistic. And as the quote above implies, consumer sentiment is the key to retail sales.
Futures are higher to kick off the week, and it’s a slow day for economic data with Empire Manufacturing the only report on the calendar, and it came in better than expected. The 10-year yield is modestly lower this morning and WTI is down over $1 and back below $80 per barrel.
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.
Speaking of oil, the recent pattern for WTI has been interesting. With the commodity having basically doubled over the last year, it’s hard to say anything negative about its performance, but we would note that the most recent peak in late October coincided right with its trendline of higher highs since the beginning of the year. Since that peak, though, the recent pullback has seen WTI break its short-term uptrend line from the most recent low in August. As it attempted to bounce back in mid-November, the rally stalled out right at that former uptrend line. The key level to watch going forward will be right around $78.50 which would represent a lower low. As long as that level holds in the short-term energy bulls probably don’t have a lot to worry about, but it’s a level that should be kept on the radar.
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Nov 12, 2021
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“Life’s tragedy is that we get old too soon and wise too late.” – Ben Franklin
First, it was General Electric (GE) and now it’s Johnson & Johnson (JNJ) which has announced that it will split up and separate its consumer business from its pharma and medical device unit. The stock is trading up 3% on the news but is still well off its recent highs from August.
The rally in JNJ has provided a lift to Dow futures along with the S&P 500 and Nasdaq, but unless equities can meaningfully build on these early gains during the trading day, all three major averages will finish the week in the red ending a five-week streak of gains.
On the economic calendar today, the only two reports are JOLTS and Michigan Confidence. The JOLTS reading is expected to show a modest decline from last month’s reading, which you may recall came in significantly weaker than expected. Michigan Confidence is expected to show a small bounce, but the key in that report will be where inflation expectations stand.
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 the S&P 500 is lower over the last five trading days heading into today, the majority of sectors have actually experienced gains during that five-day stretch. Leading the way higher, Materials (XLB) has rallied more than 2.5%, followed by Industrials (XLI), Consumer Staples (XLP), and Energy (XLE). On the downside, Consumer Discretionary (XLY) has dropped more than 3% while Communication Services (XLC) is down more than 1%. The only two other sectors that have declined are Health Care (XLV) and Technology (XLK).
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Nov 11, 2021
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“He died unquestioning, uncomplaining, with faith in his heart and hope on his lips, that his country should triumph and its civilization survive.” – Warren G Harding
In observance of Veterans Day, the Federal government and banks are closed today. That means that for today at least, stocks will not be able to fall because of rising yields. Equity futures are modestly higher this morning with the Nasdaq leading the gains. There’s no economic data on the calendar due to the holiday, and even the earnings calendar is relatively quiet.
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 one of those relatively uncommon days where it didn’t matter if you were in stocks or bonds- they both had a rough day. While the S&P 500 was down around 0.80%, long-term treasuries dropped more than twice as much as the iShares 20+ Year US Treasury ETF (TLT) fell 1.83%. Over the last ten years, there have been just 34 other days where SPY and TLT both finished the day down more than 0.75%, and in the charts below we summarize the performance of both ETFs in the day, week, and month following each prior occurrence.
Starting with SPY, the day after the 34 prior occurrences its median gain has been 0.17% with gains 57% of the time which is better than the average one-day performance for all one-day periods over the last ten years. However, as you move out over the next week and month, median performance following these days where both SPY and TLT were down 0.75% or more, returns have actually been negative and well below the long-term average. In fact, both one week and one month later, SPY was higher less than half of the time.
Although SPY has tended to show weaker than average performance over the following week and month, TLT’s median one-week and one-month performance has been better than average. In fact, one month following the 34 prior occurrences, TLT only fell five times.
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