Sep 30, 2021
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“If you don’t have a competitive advantage, don’t compete.” – Jack Welch
Futures are higher this morning heading into the opening bell, but they’re off their highs of the overnight session, and if you are sensing a pattern of overnight strength in futures with weakening towards the opening bell, you’re not imagining it. Today marks the last trading day of the quarter and bulls will be happy to see the month come to an end.
Between now and the closing bell, though, there’s a good deal of economic data on the calendar including jobless claims, GDP, Personal Consumption, and Chicago PMI. Jobless claims came in higher than expected on both an initial and continuing basis while revised GDP and Personal Consumption both modestly topped forecasts.
One piece of positive non-economic news concerns COVID trends in the United States where case counts, hospitalizations, and deaths continue to roll over.
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 an especially rough week so far for the Nasdaq 100, and the index of large-cap tech-like stocks is down nearly 4% in just the first three trading days of the week. At the other end of the market cap spectrum, small caps have held up considerably better as the Russell 2000 is down just 1%. Below we show the relative strength of the Nasdaq 100 (QQQ) versus the Russell 2000 (IWM) since the start of 2020 where a rising line indicates outperformance of QQQ. Towards the right side of the chart, you can see the recent weakness in the Nasdaq 100 showing up in the chart as its relative strength versus small caps peaked in late August. You’ll notice that we saw a similar pattern play out last year where the Nasdaq 100’s relative strength peaked at the start of September before beginning a six-month slide relative to small caps. That period of underperformance for QQQ last year followed an insane period of outperformance earlier in the year. This year also saw a period of strong (but not as strong as in 2020) outperformance on the part of QQQ relative to small caps throughout the late spring and early summer, so small caps are certainly due for some catch-up, but one key difference between this year and last is that the fiscal and monetary backdrop is currently much less accommodative now than it was in late 2020.
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Sep 29, 2021
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“Individuals who cannot master their emotions are ill-suited to profit from the investment process.” – Benjamin Graham
It was looking like a bounceback Wednesday for equities earlier, but futures have been drifting lower over the last couple of hours. As things currently stand, futures are indicating a positive open, but the magnitude of the gains have been more than cut in half. There’s not a lot of data on the calendar today as the only report scheduled for release is Pending Home Sales at 10 AM. The yield on the 10-year was below 1.5% earlier but has also drifted back above that level as equity futures have pulled back.
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.
Given the weakness to start this week, it may sound hard to believe but the S&P 500 closed yesterday essentially where it closed last Tuesday. In other words, there’s been a lot of noise in day-to-day moves over the last five trading days, but the equity market has nothing to show for it in either direction. At the sector level, though, returns have been anything but flat. As shown in the snapshot below from our Trend Analyzer, all eleven sector ETFs have seen moves up or down of at least 0.69% over the last week, and all but two have moved up or down at least 1%.
Those figures don’t even fully describe the magnitude of sector moves over the last week. At the bottom end of the performance spectrum, interest rate-sensitive sectors like Utilities and Real Estate are both down over 3% while Health Care and Technology are each down more than 1%. At the other end of the spectrum, five out of eleven sectors are actually up more than 1% over the last week, including Energy which has surged more than 11% and Financials which is up over 4%. Along with those two sectors, other cyclically oriented sectors like Materials, Industrials, and Consumer Discretionary are all up over 1%. Performance over the last week has really been a function of which sectors an investor has been over or underweight
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Sep 28, 2021
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“My formula for success is rise early, work late, and strike oil.” – J. Paul Getty
It’s looking like a weak morning for risk assets as the yield on the 10-year US Treasury continues to rip higher and pulls equity prices lower. Fed Chair Powell and Treasury Secretary Yellen will be testifying in DC today, and in Powell’s prepared remarks, which have already been released, the Chair noted that inflation is likely to remain elevated in coming months before moderating down the road. Outside of the Powell and Yellen testimony, negotiations over the debt ceiling, which don’t seem to be going anywhere at the moment, will be a key area of focus.
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.
Futures are lower across the board, but it’s the Nasdaq where selling pressure has been the most intense. The Nasdaq 100 tracking ETF (QQQ) is currently on pace to open down just over 1.5% which would represent the 13th downside gap of 1% or more for QQQ since the start of the year and the second one in September. The table below lists each prior occurrence this year and shows the magnitude of the downside gap along with QQQ’s performance from the open to close.
Intraday performance of QQQ following downside gaps of 1%+ illustrate the buy the dip mentality of the market so far in 2021. On the 12 prior days where QQQ gapped down more than 1%, the ETF saw an average gain of 0.30% (median: +0.55%) from the open to close with gains two-thirds of the time. Will today’s trading continue the trend so far of 2021 where dip buyers step in? We’ll know the answer to that in a little over seven hours.
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Sep 27, 2021
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“The uncreative mind can spot wrong answers, but it takes a very creative mind to spot wrong questions.“ – Antony Jay
Equities were looking higher to start the week, but that’s not the case anymore as Dow futures are now flat, the S&P 500 is indicated lower by about 0.30% while the Nasdaq is looking at a decline of nearly 1%. Small caps, meanwhile, are indicated slightly higher for now.
Washington will be a key area of focus this week as lawmakers attempt to hammer out an infrastructure bill and an agreement to keep the government funded and raise the debt ceiling. Whatever the outcome of all these negotiations, one thing we can count on is that it will not be smooth.
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.
September and October are notoriously volatile times of the year, so it shouldn’t come as a surprise that the equity market’s historical short-term performance to close out September and start October has been weak. Over the last ten years, the S&P 500’s median performance in the week following the close on 9/27 has been a decline of 0.20% which ranks in the 24th percentile relative to all other one-week periods throughout the year. While short-term performance has been on the weak side, returns one and three months out have been considerably better. Over the last ten years, the S&P 500’s median one-month performance from the close on 9/27 has been a gain of 2.41% which ranks in the 84th percentile. Performance over the following three months has been even more impressive as the S&P 500 has seen a median gain of 6.82% ranking in the 99th percentile. You can’t get much better than that.
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Sep 24, 2021
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“Indecision may or may not be my problem.” – Jimmy Buffett
After a couple of good days where it appeared as though the market was putting some of the September headwinds behind it, it looks as though equities will close out the week on a down note causing a rally sandwich on a loaf of weakness. If the S&P 500 closes at current levels indicated by the futures market, we’ll finish down for the week and back below the 50-DMA. The Russell 2000, however, is still on pace for a positive week provided current levels hold. Thursday’s rally back above the 50-DMA for the S&P 500 was a moral victory for technicians, but if it doesn’t hold today, it will mark the second straight week that the index closed below its 50-DMA.
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.
As for where the major averages stand heading into today, the Russell 2000’s sideways consolidation range remains intact and barring further weakness during the trading session, its 50-day moving average should continue to hold. The Nasdaq 100 and S&P 500 are another story, though, as both of these indices are on pace to open below those levels today. Technicians consider failed attempts to retake the 50-DMA to be a sign of underlying weakness, so that will be a trend to watch going forward.
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Sep 23, 2021
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“And, you know, it tells a story of inflation expectations moving up.” – Jay Powell
If you’re feeling a little bit like Phil Connors from the movie Groundhog Day this morning, you’re not alone. For the third straight morning, futures on the Dow are trading higher by a bit over 200 points. Unlike Groundhog Day, though, the last two days ended in completely different ways. Whereas Tuesday’s early morning rally was Ned Ryerson-ed and reversed by the end of the day, yesterday, equities were able to build on the early gains before pulling back during Chair Powell’s press conference. Only time will tell what today’s session will have in store.
It’s a busy day for economic data this morning with the Chicago Fed National Activity Index, Jobless Claims, Leading Indicators, Flash PMIs, and the KC Fed Manufacturing 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.
Readings on inflation, and just as importantly, inflation expectations, have been some of the most closely scrutinized economic data points lately. One way to track what consumers are thinking about inflation is through their actions online and more specifically, their internet searches. Below we show Google Trends search history for the term ‘inflation” over the last five years. Earlier this year, as stimulus funds stoked consumer demand even as supply chains remained in flux, ‘inflation’ searches started to rapidly rise. They hit a five-year high in mid-February and didn’t stop there. By early May, searches for the term inflation were at the highest levels since at least 2004. Unfortunately, there was no Google in the 1970s! From the peak reading in early May, search interest for inflation started to slow but remained elevated throughout the peak summer months. More recently, though, search interest has kept declining, and while still high relative to pre-2021 history, there were periods prior to 2021 where search interest for the term was actually higher. If this more recent trend of declining search interest continues, it would further support the Fed’s forecast for recent inflation pressures to be ‘transitory’ in nature.
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