May 17, 2021
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“Sometimes buying early on the way down looks like being wrong, but it isn’t.” – Seth Klarman
It’s been a weak morning for equities as futures trade near their lows of the morning. Economic data out of China generally missed expectations, and that has set the negative tone heading into the new workweek as speculative assets like crypto and lumber futures are under pressure.
Read today’s Morning Lineup for a recap of all the major market news and events including a recap of overnight economic data, as well as the latest US and international COVID trends including our vaccination trackers, and much more.
It’s been quite a run for value stocks. Over the last six months, the S&P 500 Value index has rallied more than 22% while its growth counterpart has only rallied half of that amount (11.7%) during that same span. With a performance gap between the two of 11 percentage points, the spread is near historically high levels, and it was even wider earlier last week.
The chart below shows the rolling six-month performance gap between the S&P 500 Value and Growth indices going back to the mid-1990s. At last week’s high of 17.5 percentage points, the spread between the two indices is the widest in just under 20 years (June 2001). It got close to current levels in the months coming out of the financial crisis but peaked just shy of last week’s high. While the spread is currently extreme now, keep in mind that it was at record extremes in the other direction last September, so value stocks are basically just catching up to growth.
May 14, 2021
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“End? No, the journey doesn’t end here.” – J.R.R. Tolkien
If you thought that with this week’s inflation data now behind us that we could coast into the weekend, think again. There’s a ton of data on the calendar this morning, including Retail Sales, Industrial Production, and Michigan Confidence. Futures are building on yesterday’s gains after quiet sessions in Asia and Europe, but that could change following the data releases.
Read today’s Morning Lineup for a recap of all the major market news and events including a recap of overnight earnings reports and economic data, as well as the latest US and international COVID trends including our vaccination trackers, and much more.
It’s been a rocky week for the market, but the overall trend has been lower this week. Over the last five trading days, all eleven S&P 500 sectors are in the red with Consumer Discretionary (-4.66%), Technology (-3.48%), and Communication Services (-2.69%) all trading down at least 2.5%. Sectors that have held up the best include Consumer Staples (-0.06%), Materials (-0.16%), Health Care (-0.32%), and Utilities (-0.38%) which are all down less than half of one percent. Despite the broad-based declines over the last week, not a single sector is oversold, only two are below their 50-DMA, and five are still overbought.
May 13, 2021
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“Learn to take losses. The most important thing in making money is not letting your losses get out of hand.” – Marty Schwartz
After yesterday’s shockingly high headline readings in CPI, it was a tentative picture in markets ahead of the April PPI. While consensus expectations called for a m/m increase of 0.3% at the headline level and an increase of 0.4% on a core basis, the actual numbers once again came in higher than expected although not to the same degree as Wednesday’s CPI (0.6% headline, 0.7% core). Like the movies, the sequel is never as exciting as the original. PPI wasn’t the only report on the calendar this morning, though. Jobless claims came in a bit lower than expected on an initial basis and a bit higher on a continuing basis.
Futures were indicated flat to higher into the report with the Nasdaq leading the way, but they are also off overnight highs as well. Commodities are trading heavy this morning, while bitcoin is plunging following a tweet by Elon Musk that Tesla would no longer accept payment in bitcoin until it was mined in more environmentally friendly ways.
Read today’s Morning Lineup for a recap of all the major market news and events including a recap of overnight earnings reports and economic data, a look at some key commodities, as well as the latest US and international COVID trends including our vaccination trackers, and much more.
Over the last three trading days, the Nasdaq is down over 5%, and while that is a steep decline for such a short period of time, it’s hardly unprecedented in the Nasdaq’s history. What is unique about the current decline is just how steep the losses have been in the US Treasury market. While higher rates are bad for growth stocks, normally, when you see a decline so large in the equity market, bonds provide a cushion. Along with the 5%+ decline in the Nasdaq, long-term US Treasuries are also down over 2%. Going back to 1987, there have only been eight other three-day periods where the Nasdaq was down over 5% and long-term US Treasuries dropped more than 2% (highlighted in the chart below).
May 12, 2021
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“Inflation is not all bad. After all, it has allowed every American to live in a more expensive neighborhood without moving.” – Alan Cransto
Inflation has its name in lights this morning as gas prices surge across the country as the Colonial Pipeline outage threatens energy supplies on the East Coast of the United States. April CPI was just released, and while economists’ forecasts called for a m/m increase of 0.2% at the headline level and 0.3% on a core basis, the actual readings came in at 0.8% and 0.9%, respectively. The headline reading was the biggest gain since 2009, while the core reading hasn’t been this high since the early 1980s. On a y/y basis, headline CPI was 4.2% (highest since 2008) and core CPI was 3.0% (highest since 1996). While the high levels were expected, not many were expecting them to be this high.
Read today’s Morning Lineup for a recap of all the major market news and events including a recap of overnight earnings reports and economic data, a look at some key market charts from Asia and Europe, EZ Industrial Production, as well as the latest US and international COVID trends including our vaccination trackers, and much more.
Technology may have received the most attention for this week’s declines, but it has been far from alone. The chart below summarizes the week-to-date performance of the S&P 500 and each of the eleven sectors through Tuesday’s close. Over the last two days, Technology isn’t even the worst performer. That title belongs to Consumer Discretionary which is down 2.86%. Not far behind, Technology is down 2.77%, while Energy is down 2.61%. The only other sector down more than the S&P 500 is Communication Services (-2.43%). On the upside, or more accurately, the less bad side, Materials, Consumer Staples, and Utilities are all down less than 0.20%. It’s interesting to see that the two commodity-related sectors – Energy and Materials both have vastly different returns WTD.
May 11, 2021
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“Earnings don’t move the overall market, it’s the Federal Reserve Board… focus on the central banks, and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.” – Stanley Druckenmiller, 2015.
The prospects for a turnaround Tuesday aren’t looking particularly positive this morning. What was already a weak picture in equity futures has turned even worse as hedge fund manager Stan Druckenmiller just appeared on CNBC with a rather dour outlook on the future prospects of the economy and markets following a just published WSJ op-ed as well. While his media appearances are typically more bearish than bullish, some of his points are certainly valid and have clearly caused a more cautious mood heading into the opening bell. While equity futures are sharply lower, we’ve seen little movement in treasuries or gold. Crude oil and bitcoin are both moderately lower.
Read today’s Morning Lineup for a recap of all the major market news and events including a recap of overnight earnings reports and economic data, including updates on the ZEW economic surveys and NFIB sentiment, as well as the latest US and international COVID trends including our vaccination trackers, and much more.
With today’s weakness in futures, the Nasdaq looks to continue leading to the downside, and the technical picture looks weaker this morning than it did heading into the week. After failing to take out its high from earlier in the year in late April, the Nasdaq has been under heavy selling pressure ever since. In yesterday’s sell-off to start the week, not only did the Nasdaq break below its 50-DMA, but it also broke its short-term uptrend from the March lows.
May 10, 2021
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“Remember that stocks are never too high for you to begin buying or too low to begin selling.” – Jesse Livermore
It’s looking like a mixed start to the week and a bit of a reversal of Friday’s trade as the Nasdaq lags while the S&P 500 and Dow futures are both higher. Commodities are flying again this morning as copper is on pace for its third straight 2%+ daily gain and Energy commodities trade higher on the news of the Colonial Pipeline outage over the weekend.
The economic calendar is empty today, but with the moves we’ve already seen in commodities plus updates on CPI and PPI later in the week, inflation will be a major theme of the week.
Read today’s Morning Lineup for a recap of all the major market news and events including a recap of overnight earnings reports and economic data, updates on the major moves in commodities, as well as the latest US and international COVID trends including our vaccination trackers (which continue to show a significant deceleration in vaccine uptake), and much more.
Based on the first week’s performance, May started off with another run for cyclical stocks. In a week where seven of eleven sectors finished in the green, the biggest winners were Energy, Materials, Financials, and Industrials, which were all up over 3%. All four sectors are also leading on a YTD basis and the most extended relative to their 50-DMAs. With the rallies, though, also comes overbought levels, and in the case of Financials, Materials, and Energy, they all closed out last week at ‘extreme’ overbought levels.
So, who’s lagging? Utilities, Real Estate, Consumer Discretionary, and Technology were the only four sectors down last week, and besides Real Estate, they are also the only sectors that aren’t currently overbought.
