Feb 22, 2021
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“The stock market is filled with individuals who know the price of everything, but the value of nothing.” – Phillip Fisher
It’s looking like it’s going to be one of those Mondays this morning. Treasuries are trading higher this morning while equities are looking to open moderately lower. Bitcoin, meanwhile, is down over 8% after Elon Musk said over the weekend that prices ‘seem high’. That’s enough these days.
In economic news, the only two datapoints on the calendar this morning are Leading Indicators at 10 AM and Dallas Fed at 10:30 AM. Earnings season is unofficially over, but there’s still a number of key reports to contend with after the close and over the next few days. Make sure to track them all in our Earnings Calendar.
Be sure to check out today’s Morning Lineup for updates on the latest market news and events, earnings reports from around the world, economic data from around the world, an update on the latest national and international COVID trends, and much more.
As the pre-pandemic days start to fall further in the past, one-year charts of various financial assets are starting to look a lot more different. Take the yield on the 10-year US Treasury. Along with the fact that yields are rising, the higher levels of rates from before the pandemic are falling out of the one-year window. Through that combination of events, today’s yield of 1.3721% would mark a 52-week high on a closing basis. It’s been a while since we’ve been able to say that! As if the chart doesn’t look interesting enough now, wait until late March when the down leg falls completely out of the picture.
Feb 19, 2021
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“Lately it occurs to me, what a long, strange trip it’s been.” – “Truckin'”, Grateful Dead
Strange may be the understatement of the century when it comes to the last twelve months. One year ago today, the S&P 500 closed at an all-time high as COVID was ravaging China and quietly spreading around the world. What made the S&P 500’s new high even more impressive was the fact that just two days earlier, Apple (AAPL) issued a profit warning due to the fact that factory closures in China would constrain supply. Still, the market bounced back and rallied, It would only be a couple of days later over the weekend that reports of an outbreak in Italy brought it home that COVID wasn’t just a China problem. The following Monday, global equities plummetted, and within basically a month, the S&P 500 lost a third of its value. While the path of the equity market since the March lows has been pretty steady to the upside, everything else has been, to say the least, a strange trip. We’re all hoping for a quick return to normalcy, but if the last year has taught us anything, things often only seem to get stranger by the day.
In market news today, futures are higher while gold and crude oil have pulled back. In economic data, Markit PMI data around the world has generally topped expectations in the manufacturing sector but hasn’t been quite as positive in the more important services sector. Later this morning, we’ll get the same updates for the US economy.
Be sure to check out today’s Morning Lineup for updates on the latest market news and events, earnings reports from around the world, flash PMI data, an update on the latest national and international COVID trends, and much more.
As we look back on the one-year anniversary of the S&P 500’s pre-COVID high, it’s pretty amazing to think that the S&P 500’s YTD performance this year (4.5%) is nearly identical to the YTD performance on this same day in 2020 (4.6%). If that sense of deja vu makes you nervous, we would note that the similarities are only skin deep. Underneath the surface, the equity market’s rally this year doesn’t look a whole lot like last year.
The chart below shows the performance of S&P 500 sectors on a YTD basis as of the close on 2/18 last year versus this year. Last year (blue bars), the sectors leading the rally included Technology and yield sensitive sectors like Utilities and Real Estate. On the downside, Energy and Materials were the only two sectors down on the year. This year, Energy is leading the way higher with a gain of just under 20%, while Financials and Communications Services are both up over 8%. In fact, looking at the three leading (and lagging) sectors this year none of the top (or bottom) three performing sectors were the top (or bottom) three performing sectors at this point last year. Conversely, none of the top (or bottom) three performing sectors at this point last year were the top (or bottom) three performing sectors at this point this year. As the saying goes, you’ve got to play the hand your dealt.
Feb 18, 2021
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“High expectations are the key to everything.” – Sam Walton
With Walmart’s (WMT) earnings crossing the tape this morning, we have finally reached the unofficial end to earnings season. Despite high investor expectations, it was generally a positive period for the equity market, although initial stock reactions to earnings reports haven’t been particularly positive. The key to the tepid initial reactions of stocks reporting, as Sam Walton once said, is high expectations. When investors and analysts are expecting good news, it sets the bar high. The key to the market’s ability to post positive returns during earnings season was the fact that the economy has been hanging in just fine, COVID trends are moving in a more favorable direction, and the FOMC continues to prime the pump.
WMT’s reported weaker than expected headline EPS this morning, and the stock is trading down over 4% on the news. While 4% may not sound like much for the typical stock reporting earnings, for WMT, it represents a pretty significant move. Historically, the stock has only moved up or down 2.6% on the day it reports earnings, and going back to 2001 there have only been two other times where the stock saw a larger downside gap – 2/20/18 (-7.4%) and 8/17/07 (-4.6%).
Futures are indicating a lower open today as the trend has been lower all night. A ton of economic data was just released, though, so we’ll see how the market digests them. Below, we provide a summary of how these reports came out relative to expectations. Overall, it was a mixed bag, and the initial reaction from futures has been muted.
Housing Starts – 1,580K vs 1,660K estimate
Building Permits – 1,851K vs 1,679K estimate
Initial Claims – 861K vs 770K estimate
Continuing Claims – 4,494K vs 4,450K estimate
Import Prices – 1.4% vs 1.0% estimate
Philly Fed – 23.1 vs 20.0 estimate
Be sure to check out today’s Morning Lineup for updates on the latest market news and events, earnings reports from around the world, economic data out Asia and Europe, an update on the latest national and international COVID trends, and much more.
Concerns over rising interest rates crept into the market yesterday as the 10-year yield briefly topped 1.30% hitting its highest level since last March. Heading into the opening bell, the 10-year yield is currently sitting right at 1.30%, but that is still well below levels seen a year ago right before the pre-COVID peak in rates and also 20 basis points below the dividend yield on the S&P 500. Which would you rather have? All else equal, higher rates are worse for equity prices than lower rates, but when you’re coming from record low levels of rates due to a complete shutdown of the US economy, some increase in rates can certainly be tolerated.
Feb 17, 2021
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“Big market price changes happen when lots of people are forced to reevaluate their prejudices, not necessarily when the world actually changes – Colm O’Shea
Futures are little changed this morning, but that could change over the next 90 minutes as there’s a big slug of economic data on the calendar. Its starts with PPI and Retail Sales, which were just released. Both of these reports were gargantuan. Headline PPI came in at 1.3%, which was more than three times consensus expectations and the largest m/m increase in over ten years. Retail Sales were also much stronger than expectations. While economists were expecting the headline reading to rebound to 1.1% after three weaker than expected readings, the actual reading came in at 5.3%. Consumers were clearly ready to spend to start the year. When it comes to economic data, that’s not all either. At 9:15 eastern, we’ll get the latest updates on Industrial Production and Capacity Utilization, followed by Homebuilder sentiment at 10 AM.
Be sure to check out today’s Morning Lineup for updates on the latest market news and events, earnings reports from around the world, economic data out Asia and Europe, an update on the latest national and international COVID trends, and much more.
It may have just seemed like a late summer day at the time, but September 2, 2020 was a notable day for the market as it represented the beginning of the longest period of consolidation for the current bull market so far. After a solid and steady rally off the March lows, the S&P 500 traded in a sideways pattern for the next several weeks and didn’t make a new high for more than two months. While the market ultimately resumed its winning ways, as we all know now, the character of the rally changed considerably. The chart below shows the performance of S&P 500 stocks from the close on 2/19/20 through 9/2/20. The x-axis of the chart is sorted by market cap with the largest stocks as of 2/19/20 all the way to the left, and as you move to the right, market caps get progressively smaller.
During the 6.5 month stretch from 2/19/20 through 9/2 it was the mega-cap stocks that led the rally. While the ‘average’ stock was down 2.5% during that span, the five largest stocks in the S&P 500 (red bars) were among the best performers averaging a gain of 40.1% and ranking an average of 48 out of 500 in terms of performance.
Since 9/2, though, performance has changed considerably. While the ‘average’ stock is up 20.2% during this period, the same five stocks that led the market from 2/19 through 9/2 are barely higher, averaging a gain of 3.1% and ranking an average of 353 out of 500 in terms of performance.
Another way to illustrate the changing characteristics of performance since 9/2/20 based on market cap, the chart below shows the rolling 50-stock average performance based on market cap from 2/19/20 through 9/2/20 (red line) while the blue line shows the performance of these same stocks from 9/2 through 2/16. In each line, the left-most point shows the average performance of the 50 largest stocks in the S&P 500 (a/o 2/19/20) while the next point represents the average of stocks 2 through 51 and then all the way down the line.
Looking at the period from 2/19 through 9/2 (red line), the fifty largest stocks in the S&P 500 were among the best performing group of 50 stocks in the S&P 500 while the smallest stocks were among the worst performers. Since then (blue line), we’ve seen the complete opposite pattern play out as the 50 largest stocks in the S&P 500 have been the worst performers relative to every other rolling 50-stock group while the 50 smallest stocks have practically been the best performers.
At the time, September 2nd didn’t seem like an especially remarkable day in the market, but it represented a long-term shift in the performance of mega-caps relative to the rest of the market.
Feb 16, 2021
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“Finance is not merely about making money. It’s about achieving our deep goals and protecting the fruits of our labor. It’s about stewardship and, therefore, about achieving the good society.” – Robert J. Shiller
While you were on vacation over the long weekend, global risk assets continued to rally around the world. The most notable of these advances may have been bitcoin, which rallied right through this morning and briefly touched $50K before pulling back a bit in the time since. While it may have been nothing more than a coincidence, we couldn’t help but notice seeing headlines from St. Louis Fed President Bullard saying that the FOMC isn’t even thinking about thinking about raising interest rates interspersed with headlines regarding Bitcoin’s topping of $50K. In economic news this morning, the only data point was the Empire Manufacturing report which came in at twice the consensus forecast (12.1 vs 6.0), so the manufacturing sector appears to remain strong.
Be sure to check out today’s Morning Lineup for updates on the latest market news and events, earnings reports from around the world, economic data out of the UK, an update on the latest national and international COVID trends, and much more.
It was another strong week for global equities last week. While small caps led the way in the US, every US index ETF that we track in our Trend Analyzer tool posted positive returns. Micro-Caps, as measured by IWC surged 3.85%, but large and mega-cap ETFs were all up less than 1.5%. While the gains are fun if you’re long, market rallies inevitably cause short-term overbought conditions, and that’s exactly the environment we find ourselves heading into the holiday-shortened week. Every index ETF we track is currently at least at overbought conditions and seven are at ‘extreme’ levels. These types of overbought conditions ultimately need to be worked off through either a correction in time or price, and that’s why seven of the ETFs have timing scores that rank as ‘Poor’ while the rest are all neutral.
Feb 12, 2021
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“Wherever we look upon this earth, the opportunities take shape within the problems.” – Nelson A. Rockefeller
It’s another quiet morning in the equity markets as futures are little changed ahead of the three-day weekend. There’s also little on the data calendar today besides Michigan Confidence at 10 AM. The key data point to watch in this release will be inflation expectations to see how sentiment towards prices is trending among consumers.
Be sure to check out today’s Morning Lineup for updates on the latest market news and events, earnings reports from around the world, economic data out of the UK, an update on the latest national and international COVID trends, and much more.
This market rally that started at the beginning of February has been a global tide lifting all boats. As shown in the chart below, the Bloomberg World Index has seen all green in its daily candlesticks and through Thursday was up nine days in a row taking the index to new highs.
At nine days and counting, the current winning streak for the Bloomberg World Index is the longest since early 2018 and one of only a few that have lasted this long since 2004.
