Morning Lineup – Nearing Extremes
Futures are still indicating a positive open, but the degree of gains has been shrinking all morning ahead of a heavy dose of economic data. Trade tensions are once again in the headlines, and today’s economic data is unlikely to move things much in either direction as there were no major surprises. The revision to GDP was slightly stronger than expected, Core PCE and the GDP Price Index were weaker than expected, Jobless Claims were pretty much right in line, and Wholesale Inventories rose more than expected.
Make sure to check out today’s Morning Lineup for our analysis of the stealth rally we have seen in EM over the last few days along with our contrarian take on how the relevance of these non-stop trade headlines may be reaching a peak.
Even with the S&P 500 closing off its intraday lows yesterday, the market is approaching some levels that can be considered extreme in the short-run. For starters, the S&P 500 finished the day yesterday 1.998 standard deviations below its 50-DMA. For the sake of reference, we consider anything more than one standard deviation below the 50-DMA oversold, while two standard deviations is considered an extreme. We did see more extreme oversold levels last year in Q4 but that was a hardly the run of the mill decline.
In terms of the S&P 500’s individual components, the number of oversold stocks is starting to pile up. As of yesterday’s close, 10.4% of the stocks in the index were overbought (more than one standard deviation above their 50-DMA) while just under half (49.2%) were oversold. At a net reading of -38.8%, there haven’t been this many oversold stocks in the S&P 500 since January 3rd when over 70% of the stocks in the S&P 500 were oversold.
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Morning Lineup – China on the Offensive
US futures have been weakening all morning continuing a trend that has for the most part been in place all night. Besides the usual back and forth rhetoric between the US and China over trade (this time China threatening to limit exports of rare earth metals to the US), weak data out of Europe, falling Treasury yields, and cratering oil prices aren’t helping sentiment as we head into the opening bell.
Make sure to check out today’s Morning Lineup for a recap of overnight earnings news, weak confidence data out of South Korea, the surge in German jobless claims, and other market-moving economic data out of Europe.
Yesterday marked the first time this year that the S&P 500 was up over 0.5% at some point intraday and then sold off to finish the day down by over 0.75%. This is notable for two reasons. First, it just goes to show how strong the equity market has been so far this year. For nearly the first five full months of the year intraday sell-offs of any discernible magnitude had been nearly non-existent during normal trading hours. Just as important, it suggests that the corrective phase the market has been in since early 2018 remains alive and well.
The chart below shows the S&P 500’s performance over the last five years and in it we have included red dots to show every day during this period that the S&P 500 was up 0.5% at some point intraday only to give it all back and more, finishing the day down at least 0.75%. All of the days fitting these criteria have been clustered into two periods. Of the now 19 occurrences since the start of 2014, the first ten were all clustered around a 15 month period spanning December 2014 through February 2016. Then from March 2016 right up through the last day of February 2018 there wasn’t a single occurrence. Since that drought ended, though, we’ve now seen nine occurrences over a similar 15-month span.
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Morning Lineup – Easing in to a New Week
Welcome back from the long weekend. It’s looking like a modestly positive start to the trading week as US futures have been drifting higher as we head into the open, and after every Monday so far in May has been a weak one, bulls can be thankful that this week starts off with a Tuesday instead!
Looking ahead to today, Consumer Confidence for May will be released at 10 AM and the Dallas Fed Manufacturing report will come out a half hour later.
Make sure to check out today’s Morning Lineup for recap this weekend’s EU elections and the latest confidence readings for the region.
After failing to convincingly break out to new highs in April, the latest pullback for the S&P 500 brought the index right down to an important support level, which held for the time being. As shown in the chart below, last week’s pullback is now the second time that the index has tested that support in the last two weeks. This is an important level to watch in the days ahead, as the more often support gets tested the weaker it becomes.
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Morning Lineup – 90 Up, 184 To Go
This just hasn’t been a month for months or Prime Ministers with the name May. This May, stock markets around the world are on pace for their worst month of the year, and this morning UK Prime Minister Theresa May has finally given in and announced her resignation effective June 7th. Thankfully, June is right around the corner. While it’s been a pretty bad May, US equities are doing their best this morning to finish off the week on a positive note as Dow futures are indicating a positive open of +90 points (down from earlier highs) which would mean that it only needs another 184 points to get back to even for the week. While it’s a full day of trading, with the holiday weekend coming up, you can bet that a lot of trading desks will start to clear out early today.
Make sure to check out today’s Morning Lineup for a recap of all the important overnight and morning events from around the world. Included in today’s report is our take on Theresa May’s resignation, as well as an analysis of the short-term trading action in European equities.
You don’t need us to tell you that investors have been rotating into defensive sectors lately, but we have a great illustration of it for you. The chart below shows the relative strength of the S&P 500 Technology sector and compares it to the relative strength of defensive sectors like Utilities, Consumer Staples, and Health Care. In the chart, rising lines indicate periods where the sector outperformed the S&P 500 and vice versa.
For much of 2019, Technology was leading the market higher, while all three defensive sectors lagged. In late April, though, it was like a switch went off as trade war fears intensified. Investors quickly started rotating out of Technology and into the defensives, which have surged relative to the market.
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Morning Lineup – More Bad Trade Headlines
The back and forth action of the market lately in response to trade headlines related to China is really getting tiresome. Today, the narrative is negative as futures have been trending lower all night and into this morning. While we’ve seen a small bounce since 6:00 AM NY time (when things started to head south yesterday) we’re still deep in hole relative to yesterday’s close. Jobless Claims were just released and came in slightly lower than expected (211K vs 215K).
Be sure to check out today’s report for a recap of all the US and major European earnings reports overnight, the latest releases of flash PMIs for May, and some European data that was actually positive. How about that!
We mentioned that the constant whipping around of the markets has become tiresome. To illustrate just how much US equities have been getting tossed around lately based on overnight headlines, the chart below shows the 20-trading day average of the opening gap for the S&P 500 ETF (SPY). Including today’s weakness, over the last 20 trading days, SPY has averaged an opening gap to the downside of 0.36%. As shown in the chart, this hasn’t happened too often in the period since the financial crisis. In fact, the last time it occurred was in August 2015 (China issues again) and before that 2011 (US debt downgrade)!
While the S&P 500’s opening print has tended to be extremely weak over the last four weeks, investors have spent most of the trading day buying the weakness. As shown in the chart below, the S&P 500’s average change from the open to close has been a gain of 0.22%. That hasn’t been enough to erase the opening losses, but it has managed to keep the market’s declines in check.
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Morning Lineup – May be Not
Ever since 6 AM this morning, US equity futures have been drifting lower, turning earlier gains into moderate losses. A number of catalysts are behind the weakness. For starters, US-China trade talks show no signs of improvement. Over in the UK, Thersa May’s latest plan for a Brexit deal is falling apart, and her job looks increasingly at risk. Here at home, there are also a number of negative data points. Qualcomm (QCOM) is sharply lower after a US judge ruled that the company’s business practices violate antitrust violations. Also, Lowe’s, VF Corp (VFC), and Nordstrom’s are all seeing big declines after reporting disappointing earnings.
We’ve just published today’s Morning Lineup featuring all the news and market indicators you need to know ahead of the trading day.
With the drama surrounding Brexit close to entering its fourth year now, it’s worth taking a look at the performance of UK equities since the initial vote back in June 2003. The chart below shows the performance of the FTSE-100 in dollar adjusted terms since the close on 6/23/16 – the day of the Brexit vote. Over that nearly three-year period, UK investors who have been long the FTSE are down just under 1% in price terms. While a decline of 1% is considerably better than the 16% decline we saw initially after the vote, essentially UK equities have been dead money for three years.
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