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“I shall never surrender or retreat.” – Sam Houston
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Equity markets are poised to open lower this morning, and the tone has been weakening all morning as futures are right near their lows of the morning. Treasury yields and crude oil are higher, but the moves aren’t really enough to justify the magnitude of the decline in equity futures. Boeing (BA), which is down 3% in the pre-market, helps explain the weakness in Dow futures, but that doesn’t explain the weakness in S&P 500 and Nasdaq futures, which are actually down even more than the Dow.
There’s a lot of economic data to go through this morning. It started with Personal Income and Spending as well as PCE which were just released and will be followed by New Home Sales and Michigan Confidence at 10 AM. In terms of the early data, it wasn’t market-friendly. Personal Income was weaker than expected (0.6% vs 1.0%) while Personal Spending was higher than expected (1.8% vs 1.4%), so consumers are earning less and spending more. Maybe that’s due to higher-than-expected inflation where the headline PCE came in at 0.6% vs 0.5% m/m. Core was even worse relative to expectations coming in at a level of 0.6% versus 0.4% estimates m/m. As you’d expect, equity futures have sold off in reaction to the news while interest rates are higher. with the two-year on pace to close at a new high yield for the cycle.
When looking through the various sector price charts, there were several significant reversals just as they tested (or briefly broke below) some key moving averages. As shown in the charts below, Communication Services, Energy, Consumer Staples, Health Care, and Consumer Discretionary all reversed higher to varying degrees after trading down around their 200-day moving averages (DMA). In addition to those five sectors, Financials, Industrials, and Real Estate all managed to stage similar reversals as their 50-DMAs came into play.
Given this morning’s early weakness and the disappointing economic data, it may look like it was all for nothing. However, if markets can find a way to erase this morning’s weakness and close out the week on a positive note, that lack of surrender will be a difficult trend to ignore.
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