Financial market participants reacted on Tuesday with a measured level of euphoria to news that Russia was at least talking "the talk". Some Russian troops were supposedly moving away from the Ukrainian border after completing military exercises, while others would stay in place, and at least some of these "exercises" are known to be scheduled through at least February 20th.
On Tuesday in Moscow, Russian President Vladimir Putin and German Chancellor Olaf Scholz both agreed after three hours of discussion that the path of diplomacy was still open. The Chancellor said, "The fact that we're now hearing that some troops are being withdrawn is a good sign, and we hope that more will follow." Putin stated his interest in holding negotiations on intermediate nuclear missile forces and various confidence building measures such as the expansion of the NATO military alliance.
Stocks rallied, as growth and cyclicals led defensives, the US Treasury yield curve steepened, WTI Crude, and gold sold off. All seemed good, or at least better.
Enter President Biden in Washington. The president seemed unimpressed as such withdrawal of at least some Russian forces was so far, unverifiable. Speaking from the White House, the president stressed that Russia still had about 150K troops along the Ukrainian border and those troops remained "very much in a threatening position." The more the president spoke, the clearer it became that he was open to diplomacy, but needed to see action behind the spoken words. There had to be visible withdrawal.
Flash forward. Early Wednesday morning. U.S. equity index futures have been like a ping pong ball, being tapped back and forth across the "unchanged line". European equities opened higher, then sold off sharply, then found some support. NATO Secretary General Jens Stoltenberg had addressed the media, stating that, "We did not see any steps from Russia to reduce tensions. On the contrary, the number of troops on the border with Ukraine is being increased." The Kremlin denied this assertion almost immediately. That's where we stand, as you rip yourself away from the comforts of the night.
The game was indeed "on" for U.S. stocks on Tuesday. The Russell 2000 led the way, up 2.76%, followed by the Nasdaq siblings, up 2.53% and 2.47% (Composite & 100, respectively). The S&P 500 tacked on 1.58%, while the Dow Jones Transportation Average was able to add 0.62% despite a 12% beatdown suffered by Avis (CAR) .
Though there were many key developments across our beloved markets on Tuesday, I think two stand out. First, as mentioned above, yield spreads expanded, and the slope of said Treasury curve steepened. The 10Yr/2Yr yield spread did this...
... while the 10Yr / 3Mo yield spread did this...
Secondly, the S&P 500 retook its 200 day simple moving average (SMA), which could be key in getting portfolio managers (and algorithmic traders) behind the move higher.
Note that the Nasdaq Composite has much further to go, and will first have to contend with its 21 day EMA (Exponential Moving Average).
Nine of 11 S&P sector SPDR ETFs closed in the green, as Technology (XLK) led the way north. Semiconductors led that sector as the Philadelphia Semiconductor Index gained 5.47% for the session. Tower Semiconductor (TSEM) closed up 42% on Intel (INTC) takeover news, but some large-caps also did very well. Nvidia (NVDA) ran 9.18% ahead of tonight's earnings, while Micron (MU) , Lam Research (LRCX) , and Advanced Micro Devices (AMD) all scored daily gains of more than 6%.
Winners beat losers at the NYSE by greater than 3 to 1, and at the Nasdaq by a rough 4 to 1. Advancing volume took 80% of composite trade for NYSE listed names and an incredible 86.1% of the action for Nasdaq listed stocks. The only signs of caution were posted at the aggregate trading volume level, and it was not across the board. While Tuesday volume decreased from Monday for NYSE listed and S&P 500 constituent names, aggregate trading volume increased for Nasdaq listed and Nasdaq Composite subordinate stocks.
What does that tell us? At least for now, at this moment as anything can happen when they issue ball ammunition to large amounts of troops, is that there was an elevated level of conviction in the tech and small-cap trade on Tuesday relative to conviction across the broader marketplace.
Almost forgotten as the investing public priced in a reduced probability for war in eastern Europe, was the January data for producer prices in the U.S., released by the Bureau of Labor Statistics on Tuesday morning.
Much to the surprise of so many economists, including this one, who had penciled in at least the start of a notable abatement on a year over year comparison for pricing at the producer/wholesale level. Headline PPI printed at growth of 1% month over month, twice the 0.5% consensus, and up from 0.4% in December. This pushed the year over year print up to 9.7% growth, which was down slightly from revised 9.8% growth in December. This was also well above the 9.1% that many had in mind.
Stripping out food and energy, month over month Core PPI hit the tape at growth of 0.8%, topping expectations for 0.5%, and up from December's 0.6% print. January Core PPI did show an 8.3% year over year increase, which was a minor deceleration from December's 8.5%, but was well above the 7.9% consensus view.
What this does, is reinforce the hawkish projections being made for the trajectory of monetary policy. The hope had been that a clear sign of weakening producer prices in January might signal softer consumer pricing in February, or at least some sign of peaking or past peak pricing. The Bureau of Labor Statistics will release February CPI on March 10th, and the FOMC will go into their two day policy meeting on March 15th, culminating with their policy statement and revised economic projections the next day. That is why so many economists had focused on, and were likely disappointed in this report.
Maybe not for a while. Senate Republicans refused to attend a Senate Banking Committee level vote that would have advanced all five of President Biden's nominations toward a broad full confirmation on the Senate floor. The five nominees are Jerome Powell who has been renominated to the post of Fed Chair, current Fed governor Lael Brainard who has been nominated to succeed Richard Clarida as Fed Vice Chair, former Fed Governor Sarah Bloom Raskin, who has been nominated for a seat on the Board of Governors and for the post of Vice Chair for bank supervision, as well as academic economists Lisa Cook and Philip Jefferson who have both been nominated to fill currently vacant openings at the Board of Governors.
Republicans appear to basically have a problem with Raskin and need some questions answered regarding her time on the Board of Reserve Trust, a Colorado payments firm. During her time there, the firm apparently gained access to Federal Reserve payments systems usually used by traditional banks to transfer funds quickly. Republicans are also concerned over her past statements on using financial regulation to promote the transition away from fossil fuels as an energy source. Raskin, for her part, has claimed that she followed all ethical requirements while at Reserve Trust, and would not restrict oil and gas companies seeking financing.
The current problem for the Democrats, is they do not at this moment have Senate control. When all are present, yes, the Democratic caucus seats 50 senators, and the Republicans 50. Vice President Kamala Harris is then the tie breaking vote assuming neither side suffered any defections. Since Senator Ray Lujan of New Mexico suffered a stroke, and is expected to be out for another four to six weeks, Republicans essentially hold a 50-49 advantage on the Senate floor. Like I said... could be a while.
How about AI, cloud based, lending software (that's a mouthful) company Upstart Holdings (UPST) ? Yes, if you were on Twitter last night, you saw me short the stock. Yes, I am flat the name. That was just a trade, and it worked. This company though? The ball is rolling in the right direction. The stock at zero dark thirty, is trading at a 25% premium to its closing price on Tuesday... which was down 72.8% from its October high.
The firm posted adjusted EPS of $0.89, which crushed expectations. The firm also generated revenue of $304.85M over the three month period, also easily beating consensus and good for year over year growth of 251.6%. Beyond that, Upstart guided current quarter revenue toward a range spanning $295M to $305M, well above the $258M that Wall Street had in mind. The company also expects to see adjusted EBITDA of $56M to $58M versus consensus of $51M.
In addition, Upstart's Board of Directors has approved a share repurchase authorization to repurchase up to $400M worth of common stock.
Is it safe to jump in on the long side here? Define here. Last night's close? Sure. Support on high trading volume had been established between $95 and up to $110/$115. The shares are trading with a $137 handle overnight. That puts the last sale well above the 50 day SMA. If the shares continue to rise, I probably sit in my hands for a bit.
Should the shares selloff from here, one... I'll be a little ticked off that I covered my short, but hey, profits are profits. Two, I think I wet the beak on a test of that 50 day line. I "like" UPST. I want to get long this name and do it intelligently. Let's see how that goes.
Economics (All Times Eastern)
08:30 - Retail Sales (Jan): Expecting 1.9% m/m, Last -1.9% m/m.
08:30 - Core Retail Sales (Jan): Expecting 0.9% m/m, Last -2.3% m/m.
08:30 - Export Prices (Jan): Expecting 1.1% m/m, Last -1.8% m/m.
08:30 - Import Prices (Jan): Expecting 1.3% m/m, Last -0.2% m/m.
09:15 - Industrial Production (Jan): Expecting 0.4% m/m, Last -0.1% m/m.
09:15 - Capacity Utilization (Jan): Expecting 76.5%, Last 76.7%.
10:00 - Business Inventories (Dec): Expecting 2.0% m/m, Last 1.3% m/m.
10:00 - NAHB Housing Market Index (Feb): Expecting 83, Last 83.
10:30 - Oil Inventories (Weekly): Last -4.756M.
10:30 - Gasoline Stocks (Weekly): Last -1.844M.
13:00 - Twenty Year Bond Auction: $23B.
The Fed (All Times Eastern)14:00 - FOMC Minutes .
Today's Earnings Highlights (Consensus EPS Expectations)
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