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“Yet we still live in a troubled and perilous world. There is no longer a single threat. There are many. They differ in intensity and in danger. They require different attitudes and different answers.”– Lyndon B Johnson

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Investors are waking up to a bit of – dare we say it – goldilocks this morning as commodity prices and treasury yields are both lower and economic data out of Europe has been positive.  Service sector PMIs for the Eurozone and each of the largest economies in the region have come in better than expected while some inflation-related reports have come in lower than estimates. Import Prices in Germany for the month of November dropped more than expected (-4.5% vs -1.6%) and French CPI for December unexpectedly declined.  In response, futures are modestly higher heading into what is likely to be an eventful day with ISM Manufacturing and JOLTS at 10 AM, and the FOMC Minutes at 2 PM.

It wasn’t a particularly great year for financial assets anywhere across the spectrum in 2022.  The only area to buck the trend was Energy.  To start off 2023, though, Energy has been among the weakest areas as WTI opened the year with a decline of 3.9% on Tuesday (and is down an additional 3%+ this morning).  With that decline, the Energy sector tumbled 3.5% (and is down another 1.5% in the pre-market).

The chart for WTI doesn’t look particularly encouraging.  After making a lower high last June, the sector has been in a relatively consistent downtrend for more than six months, and a key trend since that peak has been multiple occurrences where the sector tried to rally back above its 50-DMA but failed.  The last week has been the most recent example. After failing to take out its 50-DMA yesterday, WTI’s plunge yesterday was its largest decline to kick off a new year since 2007.

Even as oil prices have plunged from their 2022 highs, Energy stocks have held up impressively well.  It was only back in mid-November that the Energy sector made a new high for the year while oil prices were well off their highs.  Despite the outperformance, the sector’s technical picture has deteriorated.  November’s peak was technically a higher high, but it’s starting to look more like a double-top.  The fact that after trading below its 50-DMA in early December, the Energy sector has had multiple failed attempts to trade back above that level is a concern for longs.  Like crude oil, Tuesday’s 3.6% decline was the weakest opening-day performance for the sector to start a year since 2007.

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See what’s driving market performance around the world in today’s Morning Lineup.  Bespoke’s Morning Lineup is the best way to start your trading day.  Read it now by starting a two-week trial to Bespoke Premium.  CLICK HERE to learn more and start your trial.

“The beginning is always today.” – Mary Shelley

Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members.  Start a two-week trial to Bespoke Premium now to access the full report.

It’s a new year but it’s looking like the same old market as positive futures drift off their highs into the opening bell.  With treasury yields sharply lower, crude oil and natural gas also lower, and foreign equity markets firmly higher to kick off the year, it’s a positive backdrop for equity bulls to start the year.  After a quiet week data-wise to close out the year, things will pick up this week with Construction Spending, ISM, and an Employment report all headlining the calendar on this shortened week.

People tend to put a lot of emphasis on first impressions, so what looks like a positive start to the year for stocks should be a welcome sign.  With the S&P 500 (as proxied by SPY) poised to gap up 0.45% at the open this morning, it would be the best start to a trading year since 2020 when SPY gapped up 0.52%.  If stocks manage to take out that level at the open, it would be the strongest start to a year since 2017 (0.68%).  The last time SPY gapped up 1%+ to start a year was in 2013 (1.9%), and that followed a nearly equally strong start to the year in 2012 when SPY gapped up 1.8%.

So, how important are these first impressions in terms of the remainder of the year?  For all years since 1994, when SPY had a larger than average opening gap to start the year, its median performance from the open on the first trading day of the year through year-end was a gain of 13.93% with positive returns 82% of the time.  That’s nothing to sneeze at, but it’s actually right in line with the historical average for all years since 1994.  On the other hand, in the four years when SPY gapped down to start the year (1996, 2014, 2016, and 2019), its median performance for the remainder of the year was 18.3% with positive returns all four times.

Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals.  We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!

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