Bespoke’s Morning Lineup – 9/15/22 – Lehman Day
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“The key to risk management is never putting yourself in a position where you cannot live to fight another day.” – Dick Fuld
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To some, September 15th means that summer ends in a week, but others remember September 15th as the day Lehman died. Regardless of what comes to your mind first, it’s a lousy day. Equity futures are lower, treasury yields are higher, and crude oil is lower heading into what is going to be a busy day for data. Things kicked off at 8:30 with jobless claims, retail sales, import prices, Empire Manufacturing, and the Philly Fed. Jobless Claims were better than expected as were Retail Sales. Import Prices were less weak than expected, and finally, both the Empire and Philly Fed reports were negative, although the Empire was slightly better than expected while the Philly report was weaker. Perhaps most notable was that in both regional Fed reports, the Prices Paid components were at the lowest levels since December 2020. At 9:15, we’ll get updates on Industrial Production and Capacity Utilization, and then finally at 10:00 we’ll finish the day of data with Business Inventories.
Asian markets were mixed overnight while Europe is mostly higher. Japan’s Finance Minister warned markets that any intervention in the currency markets would be ‘swift’ and not announced in advance. In Europe, an ECB policymaker said he sees price pressures spreading out in the economy and warned that the central bank might be forced to raise rates more than expected.
September has historically been a lousy month for stocks, and the second half of the month has been notoriously weak. Over the last 40 years, the S&P 500’s median performance has been a decline of 0.49% with positive returns just 40% of the time. Making matters even worse, the years where the S&P 500 was down in the second half of the month saw a much larger magnitude of decline (-1.92%) than the years when it was up (1.07%). The last ten years have been even more painful. From 2012 to 2021, the second half of September has only been up three times and the median decline has been 0.81%.
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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
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.
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.
