Oct 30, 2018
The S&P 500 is looking to open higher again this morning following some crazy late-day trading yesterday. It may sound hard to believe, but today’s positive open will be the 11th time in 22 trading days this month that equities opened the day higher. Even though this has been one of the worst Octobers on record and the worst month in years, stocks have had positive opens on half of the trading days this month. The problem, as we all know by now, is what happens once that opening bell rings; there have only been six trading days where stocks have finished the day higher than they open.
For the full recap of all the major overnight developments around the globe, check out the full Morning Lineup.
When it comes to financial markets, the last few weeks provide a great example of how quickly gains can vanish. The chart below is from page two of our Morning Lineup, and it shows the relative strength of the S&P 500 vs the US Treasury Long Bond Future over the last year. When the line is rising it indicates outperformance from equities and vice versa.
It was only a month ago that the performance of equities was leaving treasuries in the dust, but in the span of less than one month, equities have given up more than half of their outperformance relative to Treasuries. Less than a month!
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Oct 29, 2018
US stock futures are higher this morning giving hope to the idea that last week’s sell-off may have run its course. The Nasdaq is leading the way higher as tech stocks outperform on news of IBM’s purchase of Red Hat (RHT) for more than a 50% premium over Friday’s closing price. The $190 cash offer is also $13 above RHT’s all-time high of $177 earlier this year. In international news, politics is dominating the headlines with important election results in Germany and Brazil.
The S&P 500 is set to open over 1% higher this morning, which represents just a continuation of this year’s trend where virtually all of the equity market’s strength has taken place outside of regular trading hours. As highlighted in this week’s Bespoke Report, normally during pullbacks we’ll see a number of big gaps down at the open of trading due to negative news events that occurred either after the prior day’s close or ahead of the open that morning. During this sell-off, though, there has actually been a lack of specific news events that investors can point to and say “that’s the reason everything is down.” These types of sell-offs that can’t be tied to any one specific event are the scariest ones because it suggests that the market knows something that we (as in, we, investors) don’t know.
As shown, below, had you bought SPY at the close every trading day this year and sold it at the next open, you’d still be up 9.14% this year (and another 1% today!). Had you only bought SPY at the open every trading day and sold it at the close, you’d be down 7.77%! Over the last month or so as the market has collapsed, the intraday selling has been extreme, to say the least. Earlier this week we noted that 70% of the time that the market has been open over the last three weeks, it has been down, which is not seen very often. The key test for the market today will be whether it can finally hang on to early strength for a change.
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Oct 26, 2018
It seems like longer ago now, but it was just on Monday that everyone was focused on the big 4% rally in China and how that could have marked the bottom indicating some stability for the global financial markets. As we noted at the time, big up moves typically occur in weak overall market environments, and sure enough, the next day, Chinese equities gave up more than half of Monday’s gain and global markets continued to sink
Yesterday, it was our turn to rally, but before the closing trades had even settled and before anyone even had the chance to ask if that move marked a low, Amazon (AMZN), Alphabet (GOOGL), and some other high profile tech stocks issued poor earnings reports sending the QQQs sharply lower. As things currently stand now, QQQ is set to open lower than Wednesday’s close, erasing all of Thursday’s gains! Just plain brutal.
With AMZN trading down over 9%, it is set to have a massive negative impact on the Nasdaq 100 this morning. Of the QQQ’s indicated decline of 3.66% at the open, 28% of the entire drop is due to AMZN. As shown in the table below, never in the stock’s history has it had such a large one-day negative impact on the performance of the Nasdaq 100. When you add in the fact that Alphabet (GOOGL) is trading down over 5%, these two stocks are accounting for about 40% of the Nasdaq 100’s entire decline today.
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Oct 25, 2018
Dow futures are indicating a positive open of over 200 points this morning, and while that sounds great at the service, it would only bring us back to levels we were at fifteen minutes before the close yesterday! To get back to levels we were at yesterday at 3 PM, we would need to rally an additional 200 points.
One welcome change this morning versus the last three weeks is that the S&P 500 is set to trade up versus its’ prior day’s close in early trading. As shown in the chart below, that hasn’t happened much over the last three weeks. As we highlighted in a B.I.G. Tips report last night, over the last three weeks, the S&P 500 has been down versus the prior day’s close over 70% of the time. That doesn’t happen very often!
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Oct 24, 2018
For all the talk about yesterday’s rebound off the early lows, we think it’s important to keep some perspective that equities still finished the day in the red, marking the fifth straight down day for the S&P 500 and the 12th negative day in the last 14. Things are looking a little better today, though, as futures have rebounded off their overnight lows. Both the S&P 500 and Nasdaq are indicated modestly higher, while the Dow, being helped by a strong earnings report from Boeing (BA) is looking to open up half of one percent.
With respect to the rebound, the biggest gainers were the ones that fell the most from the September high until yesterday’s open. The chart below breaks the S&P 1500 into deciles based on the performance of individual stocks from the closing high on 9/20 through the open yesterday and then shows the average performance of the stocks in each decile from yesterday’s open to close.
Decile one is made up of the best performers heading into yesterday’s open, and they saw the smallest gains from the open to close yesterday (+0.08%). At the other end of the chart, the worst performers from the peak up until yesterday’s opening bell did the best yesterday, rising an average of 1.43%. In between, average performance numbers for each decile steadily improved as you moved from left (relative outperformers from 9/20 through yesterday) to right (relative underperformers).
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Oct 23, 2018
Not a pretty morning for equity markets around the world. Stocks are lower around the globe this morning, and poorly received earnings reports from 3M (MMM) and Caterpillar (CAT) have only made matters worse for US equities heading into the opening bell. CAT is on pace for its worst earnings reaction day in over three years, while MMM is on pace for its worst earnings reaction day since at least 2001. Combined these two stocks are set to account for 175 of the Dow’s 400 point decline.
When it comes to narratives to explain today’s weakness in US equities, before the poorly received reports from MMM and CAT, the negative reversal in China from Monday’s big gain was cited as a catalyst, and we found that a bit puzzling. After all, weren’t US equities down yesterday?
There’s a number of factors behind the weakness in US stocks, but they are all contributing to the same outcome – slower global growth. Just today, the Bloomberg World Index which tracks equities on a global scale, traded to a new 52-week low and is down over 13% from its high earlier this year. At the same time that the rest of the world seems to be slowing, though, the market is concerned with the FOMC, which has actually turned up the hawkish tone in recent weeks and increasingly appears to be on auto-pilot with rates to the upside. Slowing growth and tighter monetary policy is never a good mix.
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