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“Victory is not simply defeating the enemy, but also preserving and protecting the values we hold dear.” – George B McClellan

Morning stock market summary

Below is some introductory commentary of today’s Morning Lineup.  Start a two-week trial to Bespoke Premium to get full access.  

Unlike seemingly most Fridays this year where investors were hesitant into the weekend, last week bucked the trend as the S&P 500 rallied more than 1.5%.  The downside of the positive close to the week is that there’s less fuel for a relief rally to start the week, and that’s exactly what we’re seeing this morning as futures trade modestly lower.  It’s a quiet start to the week in terms of economic data, but there will be a ton of events to watch this week as the economic calendar is packed, including a very important CPI report on Tuesday.  Earnings season will also unofficially wind down as Walmart reports later this week, and on the geo-political stage, President Biden will meet with Chinese President Xi in San Francisco on Wednesday.

While there isn’t much in the way of actual economic data today, one important report will be the NY Fed’s Survey of Consumer Expectations, specifically its reading on inflation expectations.  In last Friday’s Michigan Sentiment report, inflation expectations showed a meaningful increase.  While that could just be a one-off quirk of that survey, any confirmation of that trend in today’s report would spark concerns in the Treasury market.  The results of that survey will be released at 11 AM.

With the S&P 500 and Nasdaq up over 1% last week, it looked like a good week for stocks, but that’s not a complete picture.  Smaller stocks were crushed with the Russell 2000 down over 3% and micro-caps down closer to 4%.  At the sector level, performance was also mixed.  While the Technology sector rallied 4.5% and Communication Services gained over 1%, sectors like Energy, Utilities, and Real Estate all fell over 2%.  In terms of where various sectors finished the week relative to their trading ranges, there was also a lot of disparity with Technology at ‘Extreme’ overbought levels, while Energy and Health Care finished the week at Oversold levels.

In a nutshell, last week was a week where what had been working all year continued to work, and what hadn’t been working didn’t.  The scatter chart below compares sector performance on a YTD basis (horizontal axis) with performance over the last five days.  As shown, there is a clear trend where sectors that were positive on a YTD basis finished the week higher and vice versa.  Of the eleven sectors, the only two where last week’s performance wasn’t in the same direction as their YTD performance were Consumer Staples and Materials.

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