Daily Sector Snapshot — 9/14/22
Chart of the Day: Irrational Exuberance Plummets
Big Gap Down Takes Out the 50-Day
Headed into Tuesday, the S&P 500 had been on a solid post-Labor Day rally, however, the hotter-than-expected CPI reading sent stocks reeling. After gapping down below its 50-day moving average, the S&P 500 (SPY) finished the day with a decline of over 4%. Additionally, another technical development of note as a result of yesterday’s move was that the breakout above the past few weeks’ downtrend line appears to have only been a pump fake.
While moves above or below the 50-DMA are a fairly common technical development, those similar to Tuesday are a bit rarer than might be expected at first glance. Prior to yesterday, the S&P 500 ETF (SPY) had only opened below its 50-DMA thanks to a gap down of at least 2% four other times since the ETF began trading in 1993: April 8, 1996, April 27, 2000, June 24, 2016, and February 24th, 2020. Looking across each of these instances, the 2020 occurrence was the only one that was followed by a prolonged period with the SPY staying below its 50-day. By comparison, the 1996 and 2000 instances saw the S&P continue to fluctuate around its 50-day in the months ahead. In fact, the April 2000 occurrence actually saw the S&P 500 rise back above its 50-day by the end of that same day. Meanwhile, the 2016 instance saw SPY quickly regain its losses as it traded above its 50-DMA for much of the next few months. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Morning Lineup – 9/14/22 – Holding For Now
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“He who fears being conquered is sure of defeat.” – Napoleon Bonaparte
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Futures were modestly higher relative to yesterday’s decline for a little while this morning, but those gains have evaporated almost as fast as yesterday’s decline erased the prior four days of gains. Yesterday was pretty much a bloodbath in the equity market as not a single stock in the S&P 1500 was up 5%, and only 18 stocks in the entire index of 1500 stocks were even up on the session. Strangely enough, though, only 12 stocks in the index declined 10%+. For a day when the index was down over 4%, that’s a surprisingly low number. we’ve seen more stocks down by 10%+ on days when the broader market was only down 1%.
After yesterday’s hotter-than-expected CPI report, the August PPI was right in line at the headline level with a 0.1% m/m decline and an 8.7% y/y increase. Stripping out food end energy, the m/m reading was 0.4% compared to expectations for a gain of just 0.3%. The y/y reading was also higher than expected at 7.3% versus forecasts for an increase of 7.0%. This report certainly wasn’t as bad as the CPI report, but levels remain stubbornly high.
At the open yesterday, the S&P 500 erased the prior two days of gains, and by the close, it had basically erased the gains of the two days before that. How’s that for efficiency? As bad as the sell-off was, the one thing bulls have working in their favor is that the uptrend line off the June lows has held for now. If that trendline – currently around 3,920 – doesn’t hold today, it won’t be much of a positive backdrop for a time of year that has historically already been among the weakest times of the year.
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Daily Sector Snapshot — 9/13/22
B.I.G. Tips – Nasdaq 4%+ Declines
Bespoke Stock Scores — 9/13/22
Chart of the Day: Breadth Doesn’t Get Much Hotter
COTD Bullet Points:
- The past week (before Tuesday) has seen outright impressive breadth from the S&P 500 as the 5-day advance/decline line has risen to one of the highest levels of the past decade.
Chart of the Day:
Although equities are pulling back sharply in the wake of the CPI release, leading into today the S&P 500 had taken a straight shot higher since coming back from the Labor Day holiday with the index moving higher each day save for last Tuesday. Even more impressively, it wasn’t just a handful of FANG-type mega caps driving the index higher. Breadth has been impressively strong. Typically, we track short-term breadth using the 10-day advance/decline (A/D) line which we update daily in our Sector Snapshot. While that line was basically neutral heading into today, the 5-day A/D line was at the extreme side of historically positive readings. Reaching a reading of 52.8% as of Monday’s close, the reading ranked in the 99.7th percentile of all days since 1990 when our data begins. As for some other most recent examples of breadth reaching such extended levels, there have been two occurrences in the past year: one near the end of 2021 and one this past May.
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Pain in CPI
With investors expecting consumer prices to fall month-over-month heading into the day, this morning’s higher-than-expected headline and core CPI reports caused an instantaneous reversal in market sentiment heading into the opening bell. While equity index futures were indicating a gain of around 75 basis points heading into the print, after the release, indications were for a decline of 2%. When the opening bell finally rang, the S&P 500 gapped down 2.27% as indicated by the tracking ETF – SPY.
Going back to 1998, today marked just the sixth time that SPY gapped down in excess of 2% on the day of a CPI release. As shown in the top of the table below, on four of the five prior 2%+ gaps down on CPI days, SPY not only gapped down by over 2%, but it continued lower throughout the trading day. While that doesn’t necessarily bode well for today, we would note that on many of those prior occurrences, there were other overriding factors impacting the market. From the Russian debt default and collapse of Long-Term Capital Management (LTCM) in 1998 to the Financial Crisis in 2008, the US debt downgrade in 2011, and then COVID in 2020, on most of these other days, investors had other issues besides inflation to worry about. The only time that there wasn’t another major issue impacting the market was on 5/14/99 when headline CPI exceeded forecasts by 0.3 ppts and core CPI exceeded consensus estimates by 0.2 ppts.
At the bottom of the table, we have listed every other time since 1998 that core CPI exceeded consensus forecasts by 0.3 ppts or more. Today’s report is just the fourth time that core CPI has topped estimates by such a wide margin, but what stands out most is that every other prior occurrence since 1998 came after COVID. We noted numerous times in the past how COVID has created so many distortions in the economy that the job of forecasting it has become exceedingly difficult, and the fact that every ‘beat’ of this magnitude in core CPI has occurred since COVID only reinforces this point. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Morning Lineup – 9/13/22 – Dun Dun
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“As soon as you become complacent your show gets canceled.” – Dick Wolf
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32 years ago today, a new show called “Law & Order” debuted on NBC. “Law & Order” opened to little fanfare, but it has gone on to become one of the most successful and long-running franchises on TV. At the peak of linear TV, there probably wasn’t a time of day that the show or one of its numerous spin-offs was not airing somewhere on cable TV, and the famous “dun dun” sound effect has become one of the most recognizable sounds on TV.
When “Law & Order” first aired, the reviews weren’t positive. The Hollywood Reporter called the show “a program that fails to properly function.” Based on the initial reviews, it’s hard to imagine that the original episode in 1990 would spawn multiple spin-offs and thousands of hours of content. But like all successful investments, it takes a creative and forward-looking mind to see how something that may look ordinary today can turn into something very valuable down the line. On to the markets…
Inflation is the big indicator to watch today, and consensus expectations had the headline number penciled in at a m/m decline of 0.1% with the core reading rising 0.3%. The actual numbers were stronger than expected with the headline rising 0.1% while the core reading was double expectations. Markets were positioned for a weaker print, so the strong number completely reversed (and then some) the positive tone in equity futures. It’s hard to remember a time when an 8:30 number caused such a sharp and near-instantaneous reversal in futures. After official numbers like these, it’s impossible to say that inflation isn’t a problem anymore, but at the same time, it doesn’t change the fact that the pile of secondary indicators showing softening inflation pressures from peaks just a few months ago has really started to pile up.
Just like inflation, breadth has gone from one extreme to the other but in a much tighter timeframe. Coming off the June lows, we saw extremely positive breadth in the S&P 500. Then, towards the tail end of the late summer sell-off, breadth turned extremely negative. The last four trading days, however, have seen breadth reverse again with four straight days of net positive readings in excess of +250 and two positive ‘all or nothing days’ (days where S&P 500 net daily breadth reading comes above +400 or below -400). Long story short. It’s been a broad rally.
With two all-or-nothing days in the last week, we wanted to update our chart of occurrences by year. With 26 so far this year, 2022 is on pace for 37 all-or-nothing days this year, and if that pace comes in, it will rank as the third-highest total since the end of the Financial Crisis and the 7th highest total for all years since 1990. Although the period before 2000 doesn’t even really count, since all-or-nothing days were so rare back then.
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