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“I took a negative and I turned it into a positive.” – Garo Yepremian

Morning stock market summary

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52 years ago today, the Miami Dolphins were on the verge of a perfect season and icing a win in Super Bowl VII. They were up 14-0 over the Washington Redskins, and it was fourth and four on the Washington 25-yard line with just about two minutes left in the game. Dolphin kicker Garo Yepremian came out to kick a 42-yard field goal which would have taken the score to a fitting 17-0 capping off Miami’s season with a 17-0 record.

It should have been a pretty easy field goal, but Washington’s defensive end Bill Brundige blocked the kick. Yepremian recovered it, but rather than fall on it, he made the boneheaded decision to pick it up and make a play. When he tried to pass it, the ball slipped out and into the hands of Washington’s cornerback Mike Bass who ran it back for a touchdown. Instead of 17-0, the score was 14-7, sending a scare down the Miami bench.  With just two minutes left, Miami still had the lead and with a 14-7 was still likely to win. After the fact, they were even able to laugh about it. At the moment, though, it was anything but a joke and illustrated that even a “perfect season” can have its ugly moments.

The markets are experiencing a Yepremian scare right now. Since early December, nothing has seemingly gone right for equities where breadth has weakened, the dollar and yields have surged, and now even oil is on the rise. Like everything else, this too shall pass. At some point, we’ll be able to look back without a lot of concern regarding the last six weeks. The only question is when. Weeks? Months? Even longer?

For the very short-term, yesterday’s intraday rebound followed through to Asian markets overnight as Chinese stocks rallied over 2% after government officials pledged that measures would be taken to stabilize the market. Other countries in the region were also higher, although Japan was an outlier as the Nikkei fell over 1.5% (it was closed on Monday). In Europe, the STOXX 600 bounced 0.5%, and every country in the region except for the UK is trading higher.

Ahead of the US open, equity futures are higher this morning but off their highs as yields have reversed higher with the 10-year pushing close to 4.8%. Small business optimism continued its post-election surge rising to 105.1 which was the highest reading since late 2018 and was three full points ahead of consensus expectations. The report du jour, though, is the December PPI. That report will dictate the market’s direction today, but even that will only be an appetizer for tomorrow’s CPI.

The December PPI just hit the tape and at both the headline and core readings, the reported data came in well below forecasts, and the immediate reaction in markets has been for yields to fall and pre-market equity futures to build on their gains.

Semiconductors are a key area we’ll be watching for signs of where the market is going. While the broader market has only recently started to succumb to weakness, semiconductors started to roll over way back in July and fell 25% from early July to early August. After recovering half of those losses late in the summer, the Philadelphia Semiconductor Index (SOX) has been essentially trading in a sideways range for the last four months. As shown in the chart below, that range has resulted in a convergence between the 50 and 200-day moving averages.

What makes the recent convergence even more unique is that yesterday broke a streak of 14 trading days where the percentage spread between the level of these two moving averages was less than 0.50%. The chart below shows prior periods when the spread between the SOX’s 50 and 200-day moving average was less than 0.5%, and the just-ended streak was the second longest on record. The only streak lasting longer ended at 20 days in July 2005, and two other streaks lasted 13 trading days (one in March 2005 and another in January 2016).