Blood on The Saddle
There was blood on the saddle and blood all around
And a great big puddle of blood on the ground
- Everett Cheetham, recorded by Tex Ritter, 1973
The Tuesday equity market beatdown was both broad-based, and quite severe. What changed? What went wrong? Evolution into devolution... and focus. Market participants, with more than enough help from keyword reading, momentum seeking, high-speed algorithms executing trades in an electronic world, indeed increased focus...
... upon reducing risk ahead of several headline level, large-cap tech stocks. Microsoft (MSFT) and Alphabet (GOOGL) reported on Tuesday night, with Apple (AAPL) , Amazon (AMZN) , and Meta Platforms (FB) still set to report this week.
... upon further escalation of the war in eastern Europe between the two primaries, as well as circumstances now extending beyond the borders of Ukraine and Russia.
... upon the expansion of Covid-related lockdowns in China, and the subsequent impacts upon global GDP, shortages of manufactured goods and raw materials, and upon worsening conditions at Chinese port cities.
... upon a stunning revision of the Atlanta Fed's GDPNow model for QD1 GDP growth from +1.3% to +0.4% (q/q, SAAR) in response to the Census Bureau's annual revision to US retail sales (not nearly as strong as we thought). The Atlanta Fed will post their final snapshot for the first quarter today (Wednesday, April 27th) ahead of the BEA's Thursday release of its advance (first of three) estimate of Q1 US economic growth.
... on the general and quite awful combination of rampant consumer level inflation exacerbated by deteriorating conditions across eastern Europe and Asia, a dramatically slowing domestic (and global) economy, and the crash course that the economy appears to be set on with an overtly hawkish FOMC posture concerning forward looking monetary policy.
Other than that? Nothing. These are basically the same concerns that have faced financial markets since equities peaked in late March. Except, almost without fail, each and every one of these conditions appears to be moving in an undesirable direction. Oh, joy.
There was at least some strength to be found across the financial marketplace on Tuesday. WTI Crude (+3%) surged back above $100 per barrel, now trading above $102. This was despite a US Dollar Index that screamed all the way above the 102 mark, which is the highest level for the greenback against that basket of reserve currencies since March 2020. This placed one SPDR sector-select ETF... Energy (XLE) into the green for the day, albeit just barely after having been considerably higher earlier (That hammer candlestick worked like a charm, btw).
There was also some strength in Treasury markets, as the yield curve actually steepened a bit. The US Ten Year Note saw its yield track down to 2.76% (-7 bps) on Tuesday, while US Two Year paper paid 2.52% (-12 bps) by day's end.
Beyond that, the "ugly stick" was out and about, and the stick was active. The Nasdaq Composite surrendered 3.95% for the session, undercutting its March 14th low, taking that index specifically down 12% month to date, making April 2022 (as it currently stands) the Nasdaq Composite's worst month since 2008. The Nasdaq 100 gave up 3.87%, the Russell 2000 gave up 3.26%, the Dow Transports lost 3.18%, the S&P Small-Cap 600 took a 3.01% beating, the S&P Midcap 400 suffered a decrease of 2.89%, the S&P 500 lost 2.89%, while the Dow Industrials "outperformed" at -2.38%.
Of course if only one SPDR sector-select ETF closed in the green, then 10 must have closed lower for the day. In fact, all 10 closed at least 1% lower led by Consumer Discretionaries (XLY) . That fund lost 5.06% led downward by the autos. The Dow Jones US Automobile Index took a beating of 11.08% on Tuesday, led by large-caps Tesla (TSLA) , and Lucid (LCID) . Those two names were off by 12.18% and 8.74%, respectively. Btw, I was very active in Tesla on Tuesday (kind of traded the name like a rookie) and went out with a rather large long position.
Beyond Tesla, it was large-cap tech that led the ugliness. The Technology sector SPDR (XLK) spit up 3.73% as the Philadelphia Semiconductor Index lost 4.38% and the Dow Jones US Software Index also gave up 3.73% (kooky). The Communication Services sector SPDR (XLC) ceded 3.28%, as the Dow Jones US Internet Index shed 3.55%.
Losers beat winners at both the NYSE and at the Nasdaq Market Site by a rough 5 to 1. Advancing volume took an 11.2% share of the composite for NYSE-listed names, and a 23.2% share for Nasdaq domiciled stocks. However, trading volume was quirky. Aggregate trading volume increased significantly for both Nasdaq listed stocks and for Nasdaq Composite constituent names, after having dropped for the "up" day on Monday. Now, aggregate trading volume for NYSE listed names as well as S&P 500 constituent stocks dropped somewhat on Tuesday from Monday.
The takeaway there? Oh, the professionals were indeed engaged on Tuesday, and the selloff was both broad and severe. That said, there was probably a risk manager induced reduction in risk across Tech, while names considered more value oriented or defensive in nature suffered from some momentum based trade, but there was not the same institutionally enforced risk-off behavior there.
European natural gas prices soared on Wednesday (this) morning as Russia's Gazprom suspended supplies from moving to both Poland and Bulgaria after these two nations had failed to make payments in Russian rubles that were due on Tuesday. European Commission President Ursula von der Leyen said that Europe is "mapping out (a) coordinated EU response. We will also continue working with international partners to secure alternative flows. And I will continue working with European and world leaders to ensure the security of energy supply to Europe."
On top of turning off PGNiG (Poland) and Bulgargaz (Bulgaria), Gazprom warned... "Bulgaria and Poland are transit states, In the event of unauthorized withdrawal of Russian gas from transit volumes to third countries, supplies for transit will be reduced by this volume."
In addition, Bloomberg News reports that on recent days, Rosneft struggled to find enough buyers to fill a fleet of tankers. Apparently, last week... Rosneft had invited companies to bid for about 38M barrels of "Urals" and smaller volumes of Siberian Light, Espo, and Sokol. Rosneft also asked that the bidding be conducted in rubles. Apparently, Rosneft has either had or is having trouble selling the oil, suggesting that EU sanctions that will go to another level in May, are starting to work. Bear in mind that Rosneft is Moscow's largest taxpayer, by far, reportedly contributing about 20% of budget revenue. If Rosneft is forced to cut back production?
The US Senate confirmed Federal Reserve Board Governor Lael Brianard for the post of Fed Vice Chair 52-43 as a number of Republican senators crossed the aisle on her behalf. However, the upper chamber of the US legislature is more divided on the nomination of Lisa Cook to the Board. That's where the confirmations will stop for now... leaving the nomination of Philip Jefferson to the Board and the renomination of Jerome Powell as Fed Chair, who both enjoy bipartisan support, in temporary limbo.
The hold up is Covid-related. Cook needs all 50 senators that caucus with the Democrats plus the Vice President's tie-breaking vote to get through the process, and at this point, VP Kamala Harris as well as two Democratic party senators are in quarantine, having tested positive for infection by the SARS-CoV-2 coronavirus.
Microsoft beat EPS, beat revenues, beat up and down a number of metrics, provided a better than expected forecast.
Alphabet missed on EPS, missed on revenues, missed on advertising growth, authorized $70B in additional share repurchases.
Chipotle Mexican Grill (CMG) beat EPS, beat revenues, sees FY comp sales growth of 10% to 12%, and between 235 and 250 new store openings.
Texas Instruments (TXN) beat EPS, beat revenues, forecasts current quarter EPS and Revenues to be well below Wall Street consensus due to Covid-19 restrictions in China. Foreboding for the other semis? Probably. I remain long a few of those.
I already told you that I went to bed long more Tesla than I am comfortable with. Win or lose (the shares are trading higher early), the size of that position will be remedied this morning. Tried to get long MSFT, CMG, and GOOGL after Tuesday's closing bell. Did get long MSFT. That one is a winner, have already taken off half. Did not get my price in CMG. Darn. Should have been more agile. Pulled my bid in GOOGL just in time. (I mean that one was close).
Remember... Futures are pointing toward an "up" opening on Wednesday. Key to remember that this is a traders' market more than an investors' market. That's how it will be until we have a change in trend and confirming follow through. To act ahead of those signals might work, but in my opinion... would be akin to gambling.
Economics (All Times Eastern)
08:30 - Goods Trade Balance (Mar-adv): Last $-106.59B.
08:30 - Wholesale Inventories (Mar-adv): Expecting 1.2% m/m, Last 2.5% m/m.
10:00 - Pending Home Sales Mar): Expecting -1.2% m/m, Last -4.1% m/m.
10:30 - Oil Inventories (Weekly): Last -8.02M.
10:30 - Gasoline Stocks (Weekly): Last -761K.
The Fed (All Times Eastern)
Fed Blackout Period.