Jul 16, 2021
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“The first principle is that you must not fool yourself, and you are the easier person to fool.” – Richard Feynman
Futures are higher this morning ahead of Retail Sales, Business Inventories, and a preliminary read on Michigan Confidence. On the Retail Sales front, both the headline and ex Autos readings came in significantly ahead of forecasts.
Summer Fridays are typically slow, but one area of excitement will be the Nasdaq 100 where the index needs to close about 35 points higher today in order to extend its current weekly winning streak to nine. Based on where futures are currently trading, the index should be in the green for the week to start the trading day, but where it finishes will be more important. Whether the streak ends at eight or extends to nine, though, it would still be the longest weekly winning streak for the index since the first half of 2019.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, economic data out of Asia and Europe, the latest US and international COVID trends including our vaccination trackers, and much more.
The picture for the three major indices shows vastly different pictures depending on which index you look at. Starting with the Russell 2000, it has been a major laggard and yesterday was on pace to close more than 1.5% lower for the third consecutive day, but a late-day bounce erased more than two-thirds of the decline. As weak as the Russell has been lately, the longer-term chart is far from breaking down as it remains stuck in a range after surging in late 2020 and into early 2021.
For large-cap stocks, the picture looks much different. Both the Nasdaq 100 and S&P 500 hit record highs earlier this week but have been wobbling in the last few days. While the Russell 2000 trades in oversold territory, the large-cap indices remain overbought so they could be susceptible to some more consolidation in the days and weeks ahead.
Jul 15, 2021
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“Giving debt relief to people that really need it, that’s what foreclosure is.” – J.P. Morgan
Futures were lower heading into the open in Asia and have continued lower ever since. They’re currently near their lows of the morning as the 10-year yield reverses its increase from earlier in the week and oil prices trade lower. In economic data, we just got a ton of economic data. Jobless Claims were mixed with initial claims coming in slightly higher while continuing claims were lower than expected. Import Prices rose slightly less than expected while in the Manufacturing sector, the Philly Fed report missed expectations while the Empire Manufacturing report blew the doors off expectations. With the headline number coming in at 43.0, Empire topped expectations by a full 25 points. Going back to 2002, this month’s report was the second strongest relative to expectations on record. The only one stronger was last June. Futures popped a bit on this news with the Nasdaq moving positive while the S&P 500 and Dow remain in the red.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, economic data out of China, the latest US and international COVID trends including our vaccination trackers, and much more.
Despite what have been some generally positive earnings reports, we’ve seen a number of disappointing reactions to earnings from the banks. Two examples are Bank of America (BAC) and Citigroup (C). Given their recent history, the fact that both stocks declined in reaction to earnings shouldn’t come as too much of a surprise. As shown in the tables below, C has now traded lower on the day of its earnings report for six straight quarters while BAC has dropped for seven straight. In the case of C, this is the longest streak of negative reactions to earnings since 2005 while for BAC, it’s the longest since at least 2001 and perhaps ever.
Jul 14, 2021
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“I continue to believe that the American people have a love-hate relationship with inflation. They hate inflation but love everything that causes it.” – William E. Simon
After yesterday’s doozy of a report on consumer price inflation, today the market is bracing for the latest read on prices in the producer sector. In addition to that, Treasury Secretary Jerome Powell will be addressing Congress later this morning.
Futures are higher heading into the report as Apple (AAPL) is leading the gains after it reportedly instructed suppliers to increase production by 20% this year. On the earnings front, the focus remains on financials where the market reaction to the reports has been mixed.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, the latest US and international COVID trends including our vaccination trackers, and much more.
After a brief decline immediately after the release of Tuesday’s June CPI, equity futures shook off the initial weakness and rallied solidly into the green. It wasn’t until the results of a 30-year bond auction at 1 PM that the equity market gave up the gains finishing in the red. The fact that equities and long-term treasuries were able to rally in the aftermath of the much stronger than expected CPI report and before the results of the auction was impressive, though. After all, at 5.4%, headline CPI rose at the fastest rate since July 2008 (5.6%) and before that 1991.
What’s also notable about the recent inflation pattern is that the y/y pace hasn’t declined in eight months now (longest streak since 2011), so the uptick in CPI has been persistent as the base effects from last year’s decline in CPI were in favor of larger increases. Looking back at 2020, the low point in CPI was May, and in June 2020 CPI rose by 0.5%, so while CPI was still well off its pre-COVID peak last June, this month’s report was the first y/y reading that wasn’t looking back at a period of declining CPI. To sum up, before this month’s report, all of the y/y readings were against relatively easy comps, but for June and going forward, the y/y readings will be looking back at periods where inflation was already back on the rise, so a continuation of these historically high readings against ‘tougher comps’ would likely quickly raise investor concerns.
Jul 13, 2021
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Futures were mixed ahead of the June CPI report, but a much higher than expected print has been met initially with selling in equity futures and rising bond yields. So far, the declines haven’t been too large, but as traders digest the internals of the report, we’ll be watching to see how things play out. One driver of the gains this month was used car prices which rose 10.5% m/m and accounted for one-third of the total increase. New car prices also increased by 2.0% m/m which was the largest m/m increase since 1981!
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, the latest US and international COVID trends including our vaccination trackers, and much more.
Like home runs coming off the bat of Pete Alonso in last night’s Home Run Derby, the S&P 500 is racking up record highs at an incredible pace lately. Over the last 12 trading days, there have been 10 record closing highs, bringing the YTD total up to 39. If the year ended today, 2021 would be tied for the 12th most record closing highs in a given year. At the current pace, though, the S&P 500 is on pace to have 74 record highs on a closing basis this year, and that would rank as the second most of all time, behind only 1995. The only other years even close to 1995’s total were 1964 (65) and 2017 (62). One caveat here is that, as the last two weeks have shown, new highs tend to come in bunches, but if the S&P 500 experiences a pullback, the rapid pace will dry up quickly. Wherever the 2021 total winds up, the pace so far this year has been impressive, to say the least.
Jul 12, 2021
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“I believe that space travel will one day become as common as airline travel is today.” – Buzz Aldrin
While Richard Branson blasted himself into space over the weekend, futures are a lot more muted this morning as large-cap US equities are indicated modestly lower to start the week. One pocket of strength has been technology as the Nasdaq is trading moderately higher as a just-announced EU delay of implementing a digital tax has provided a boost.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, a discussion of economic data out of Japan, the latest US and international COVID trends including our vaccination trackers, and much more.
Friday was a good close to the week for small-cap stocks, but it wasn’t enough to erase the damage of the prior days as they were still the worst-performing market cap sector for the week. In the five days ending Friday, mega-cap dominated indices like the Nasdaq 100 and S&P 100 both rallied more than 1.5% and finished the week at either overbought or ‘extreme’ overbought levels. Other large-cap-oriented indices also rallied around 1% last week and also headed into the weekend at overbought levels. At the bottom of the list, all the small-cap focused index ETFs actually fell around 2% while the Micro-Cap ETF (IWC) dropped over 3%. So, while large caps are all overbought heading into the week, mid and small-cap index ETFs are either trading below or barely hanging on to their 50-DMAs.
Jul 9, 2021
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“Know what you own and know why you own it.” – Peter Lynch
Futures continue to rebound off Thursday’s lows as they look to erase most of yesterday’s losses at the open. Based on where they stand now, all of the major averages are set to finish the shortened week modestly in the red and bucking the positive seasonal trend in the process. Small caps are leading the charge this morning with Russell 2000 futures trading up by just over 1%. A positive showing today would snap what has been a four-day streak of 0.90%+ declines. The last time the Russell 2000 experienced a streak that long was in late February 2020 during the COVID crash. Granted, the magnitude of the losses was much larger back then, but it just helps to put the recent negative sentiment towards small caps into perspective.
10-Year US Treasuries are also trading lower this morning and that sets the stage for an end to the eight-day streak of falling 10-year yields. As we noted in the Closer report last night, over the last 20 years, there have been a number of streaks as long as the current one, but none have been longer.
On the regulatory front, the Biden administration just confirmed a number of executive orders aimed at competition in the agricultural, banking, health care, rail, technology, and transportation sectors, but futures are actually higher now than they were leading up to the releases.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, a discussion of economic data and policy actions in China, the latest US and international COVID trends including our vaccination trackers, and much more.
As the Technology sector has outperformed in recent weeks and US Treasury yields have declined, it almost seems as though the cyclical trade has been written off for dead, but a look at sector performance on a YTD basis provides some good perspective. Even after the recent outperformance, the Technology sector is still underperforming the S&P 500 on a YTD basis (14.8% vs 15.0%). At the same time, most of the cyclical sectors that surged in late 2020 and earlier this year are still handily outperforming the S&P 500 this year. The YTD gain in the Energy sector still dwarfs the S&P 500 and every other sector. Likewise, Financials still have a six percentage point lead on the Technology sector. Pullbacks in the Industrials and Materials sectors have moved them into the laggard camp on a YTD basis, but their gains are still solid. Like the period of consolidation that the technology/growth areas of the market experienced from September through earlier this year, one could just as easily take the view that these sectors are simply consolidating their monster gains of the prior months.
