Please click the image below to view our March 2022 market calendar.  This calendar includes the S&P 500’s average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.  Start a two-week free trial to one of Bespoke’s three research levels.

Tonight, President Biden will present to Congress and the nation his first official State of the Union address (SOTU). In terms of timing, this will be the latest into a new year that a SOTU has been held in at least 50 years.  Therefore, when looking at market performance leading up to and after the address, we’ll be dealing with different than normal seasonal factors for this SOTU. Still, the S&P 500’s performance in the month leading up to the current SOTU address ranks as the fourth worst since 1945, outperforming only 2016, 2008, and 1982. Whereas the average performance in the month prior to the SOTU is a gain of 2.2%, this year, the S&P 500 is down by about 6.6% in the month leading up to Biden’s first SOTU address (chart below).

In the last 50 years, there have only been four other years where the S&P 500 traded down 5%+ in the month leading up to a SOTU address. In those four other years, the S&P 500’s performance in the month after the SOTU was a loss of 1.5%, but the median was a gain of 0.7%, indicating that results varied widely.  For perspective, the average one-month return for all periods in the last 50 years is a gain of 1.1% (median: 1.8%). Regarding treasuries, in the four years where the S&P 500 was down 5%+ leading up to the SOTU, the 10-year yield’s performance was all over the map both before and after the address.

Below is a table that summarizes the performance of the S&P 500 and the 10-year yield in the month before and after the SOTU address. For the S&P 500, performance in the week after the SOTU has generally been positive, but one major exception was 2020 when the S&P 500 declined more than 27% as COVID crashed the markets and economy.  Regarding the 10-year, it’s performance is relatively trendless, although its yield tends to rise modestly the day after the address as investors ponder how all the ‘goodies’ that the President mentions in the speech will be paid for.

Although the past month’s performance has been weak relative to the other periods, there is little correlation between performance the month before and after the SOTU address. Although there is a slight positive relationship, only 3% of the variance in the y-variable is explained by movements in the x-variable. Essentially, this is not a tradeable event.

Ukraine and the pandemic will likely be the main focusses of tonight’s address, and investors will eye the President’s comments about each situation for a read on the President’s view on each situation. Positive comments about these situations may not necessarily be positive for the market, as easing in these areas would imply an increased probability of more aggressive Fed rate hikes. In any event, though, investors should not be making trading decisions based on previous market movements leading up to and after the SOTU, as every year bears unique political circumstances. Click here to view Bespoke’s premium membership options.

The receding of COVID case counts and higher oil prices had a beneficial impact on manufacturers in the eleventh district in February.  The Dallas Fed’s Manufacturing Outlook Survey was forecast to see Business Activity rise only slightly from 2 in January to 2.8 after three straight months of declines.  Instead, the index surged 12 points to 14 which is the biggest one-month gain since June 2020 and the highest reading since October.

As we have seen with other regional Fed manufacturing surveys this month, breadth across components has been somewhat mixed in spite of the move in the headline index.  While there are a handful of categories in the upper end of their historical ranges, others like Company Outlook and Inventories have been more middling. Additionally, six categories decelerated month over month.

One area that experienced a decline was in regards to output.  Production and Capacity Utilization both fell in February.  For the former, that was the third decline in a row leaving it at the lowest level since January of last year. Capacity Utilization is also at the lowest level in a year and a month, but this month’s decline was far smaller than the prior month’s 9.4 point drop.

While production has pulled back, Order Growth Rate held firm as New Orders hit the highest level since July.  Meanwhile, order backlogs continue to fall from historic levels with this month marking the lowest reading since last January as shipments recovered some of the declines from the past few months.

Employment was perhaps the most interesting area of the report.  While the region’s firms continue to report net hiring, the Employment index plummeted 9.3 points for the largest single-month decline since March 2020. That deceleration in new employees happened alongside a deceleration in Hours Worked and Wages & Benefits as well. While current conditions for the Wages and Benefits index was lower, expectations have been blown out of the water.  That index not only set a new record high, but it did so on the largest one-month gain to date.  In other words, hiring slowed slightly in February, but there are widespread plans to increase wages in the future. While it is hard to pinpoint the exact reason for that increase, one potential explanation can be firms trying to raise wages to entice new workers.  Click here to view Bespoke’s premium membership options.