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“Never give up, for that is just the place and time that the tide will turn.” – Harriet Beecher Stowe

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Happy Fed Day!  After opening lower and rallying throughout the trading day yesterday, futures are more contained this morning but indicated to open slightly higher on the day as traders await the latest policy decision from the FOMC. It may sound hard to believe with the S&P 500 closing at a record high yesterday, but given last week’s hotter-than-expected inflation data, the market seems to be more worried about some hawkish commentary from Powell. Therefore, if there is no change in his commentary from prior speeches in the last several weeks, that could pave the way for some further gains.

Overnight in Asia, Japanese markets were closed for the Vernal Equinox, but that didn’t stop the Yen from continuing its post-BoJ slide versus the dollar. Other indices in the region were mostly positive with China up 0.6% and back above its 200-DMA while Korea rallied over 1%.  In central bank news, BoJ governor Ueda said that easy monetary policy will remain in place for the bank to reach its inflation target, while in China, the PBoC kept its one and five-year loan rates unchanged.

In Europe this morning, it’s been a mixed back with Germany trading up about 0.30% while France is down 0.5% with most other major countries somewhere in between.  There was some good news on the inflation front as both German (PPI) and UK (CPI) data came in below forecasts, and this comes after comments yesterday from ECB Governor Kazaks who said he was comfortable with where the market was on rate cuts this year (three).

The S&P 500’s advance-decline (A/D) wasn’t particularly extreme yesterday, but relative to the last several weeks of subdued readings, it stood out. As shown below, at +269 yesterday’s A/D line was the largest single-day reading in just over a month (2/15).  While strong daily breadth readings have been hard to come by lately, significantly weak daily breadth readings have been uncommon in recent weeks.  Last Thursday’s daily reading of -281 was also the lowest single-day reading in over a month (since 2/13). As shown in the chart below, while these two daily readings were extreme relative to the last month, they hardly stand out from a long-term perspective.  In fact, over the last five years, the S&P 500’s average daily breadth reading was +/-212, so readings in the 200s have hardly been extreme.

The fact that breadth has been subdued on both the upside and downside means that overall market breadth has remained on a solid footing. As shown in the chart below, just like the S&P 500, its cumulative A/D line also made a new high as of yesterday’s close.

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“Destiny is not a matter of chance, it is a matter of choice; it is not a thing to be waited for, it is a thing to be achieved.” – William Jennings Bryan

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

It’s not a pretty morning for risk assets as two of the areas of the financial universe that had been the subject of the most investor enthusiasm – AI and crypto – are getting hacked this morning.  In the AI space, after Jensen Huang’s keynote speech yesterday, investors are taking a sell-the-news reaction. Despite countless companies issuing press releases that they were “working”, “collaborating”, or “partnering” with Nvidia (NVDA), the stock is down just over 2% in the pre-market.  The sell-the-news reaction also applies to Super Micro Computer (SMCI) which just announced that it was selling 2 million shares of stock. Based on yesterday’s closing price, that works out to $2 billion or just under 4% of the company’s market cap.  In crypto, bitcoin is trading down over 6.4% in what would be its worst day in just over a year. Bitcoin is currently trading at just over $63,000, but overnight on one exchange (BitMex), it crashed down to $8,900 due to a large number of sell orders totaling $55.5 million. For an asset class that is worth over $1 trillion, a $55 million sell order causing a crash of that magnitude certainly doesn’t suggest a lot of liquidity.

On the economic calendar, Building Permits and Housing Starts were just released and both reports exceeded forecasts.  Along with that, January’s reports were also revised higher.  These better-than-expected housing numbers also follow yesterday’s better-than-expected homebuilder sentiment report.

For Williams Jennings Bryan, his destiny was clearly not to become President of the United States.  Along with Henry Clay, Bryan is one of only two people to unsuccessfully run for President of the United States on the ticket of a major political party three different times (1986, 1900, and 1908). Do you know the other person?  Benjamin Franklin (who it wasn’t) once said that “energy and persistence conquer all things” but for Bryan, his political career ended with “three strikes and you’re out”.

Like Bryan, the emerging markets ETF (EEM) is currently making its third attempt since the start of 2023 for a breakout above $42. There’s still time, but the last couple of days have seen the ETF’s momentum start to slow putting its ‘destiny’ of a move into the high 40s in question.

Whether or not EEM breaks above resistance will be dictated in large part by the performance of Chinese stocks which account for more than a quarter of the ETF’s holdings. Chinese stocks have been in a steady downtrend for most of the last year. For much of that period, the 50-day moving average acted as consistent resistance, but after breaking above that level after the Lunar New Year holiday, the Shanghai Composite made a beeline right for the 200-DMA.  It successfully closed above that level on Monday for the first time since last August, but the ‘breakout’ didn’t last long.  Last night, the Shanghai Composite fell over 0.75% and back below its 200-DMA. Unfortunately, the Shanghai Composite’s one-day above its 200-DMA wasn’t even long enough to qualify as a streak.

At 143 trading days, the Shanghai Composite’s streak of closes below its 200-DMA was the longest since November 2022 and the tenth time since China entered the World Trade Organization (WTO) in late 2001 that it closed below the 200-DMA for six months or more.  While the break above the 200-DMA may sound like a positive technical development, historically it hasn’t been. In the year that followed those nine prior streaks, the Shanghai Composite’s median performance was a gain of 4.0% with gains 56% of the time.

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