Hoo-ray!! The S&P 500 gained 0.62% on Thursday, closing just below 4,294. All the broadest of large-cap equity indexes had to do was close above 4,292.4 so that all of those who have never committed capital and have never run a P&L but cover those who do could proclaim that "we" have entered into a new "bull" market (keyword: bull) now that this index was up 20% from its October low and that "we" had exited the S&P's longest bear market since 1948.
The year 1948 was also the last year that the American League franchise in Cleveland now known as the Guardians won the World Series. That year they beat the Boston Braves, which had not yet moved to Milwaukee, which is where they moved from to Atlanta -- so, it has been a while. We've gone over this before. I do not think that bull and bear markets can be defined by moves 20% higher (bull) or by moves 10% lower (bear) in this electronic, programmable, algorithmically driven marketplace.
Those guidelines for defining market conditions were set back when trading was priced not in decimals but in Spanish pieces of eight and price discovery was not timed in microseconds where speed matters far more than price, but in minutes by brokers and traders who swarmed into mosh-pits and had to make audible bids and offers in order to participate in an ongoing two-sided auction market. Price definitely mattered more than speed until around 2007 or so.
Do the parameters for corrections and bull as well as bear markets need to change? I am not sure that these conditions are as numerically definable or even as important to define as they once were. Bull markets and bear markets live in the massed sentiment of participants. It may not be good enough for the financial media, but if most of those folks managing money either for themselves or for someone else think that the bulls or bears are in charge, then they are.
Are the bulls in charge right now? It would be hard to argue against. The S&P 500 and Nasdaq Composite have broken out past longer-term resistance. That event came last week for the S&P 500 and almost a month ago for the Nasdaq Composite. We have covered these events closely here. Resistance has not yet been re-tested as support. What do we always say? Opinions are fine. Yours and mine. That said, trade the environment provided. Cash levels should be considerably lower than they were in late 2022.
There never should be a "set it and forget it" kind of attitude. In an algorithmically run marketplace, price discovery is far more cutthroat (not to mention, quick) than when a bunch of stickball players from Brooklyn and Queens banging into each other on a trading floor ever were. On that note, the Federal Open Market Committee (FOMC) will make a decision this coming Wednesday. Ahead of that event, the Treasury goes to market with $32 billion of 10-Year paper on Monday and the Bureau of Labor Statistics will drop its May Consumer Price Index (CPI) data on Tuesday. May Retail Sales and May Industrial Production will hit the tape after the Fed next week. Atlanta will then revise its GDPNow model for the second quarter that day.
What does that all mean? I told you last week that traders would need to trade technically this week due to the lack of available earnings and macroeconomic data point releases and they certainly have. Prices count this week as much as they do any other week. That said, holding onto this "bull" market through next week would be far more meaningful than seeing the close of a fifth consecutive winning week for the S&P 500 tonight, or a seventh consecutive winning week for the Nasdaq Composite tonight.
No doubt that this has been a tradable event that should have helped a lot of folks out. There has been a catch-up trade. When does that music stop? After the uncomfortable shorts have been covered and after the cash that was happy to score a risk-less 4%-plus over three months or so moves into the risk asset marketplace. That's when.
Burr Under the Saddle
Just as the back-to-back rate hikes by the Bank of Canada and Reserve Bank of Australia came after those central banks had either skipped or paused their regime of rate hikes in response to continuously warm inflation earlier this week, the market almost seemed to find solace in the eurozone officially sliding into economic recession.
The European Central Bank (ECB) has increased its main refinancing rate at seven consecutive policy meetings, taking that rate from the zero bound to 3.75% over that time as the common area central bank has been fighting inflation along with the rest of the planet's central bankers. On Thursday, Eurostat reported that primarily due to weakness in Germany, Ireland and Finland, the Euro-Area GDP had contracted by an annualized 0.4% for the first quarter of 2023.
This put together back-to-back quarters of negative economic growth, which unless you are a highly partisan US economist in mid-2022 usually defines "recession." While the Fed has shown itself to be prioritizing its mandate over avoiding what would indeed be a double-dip recession, this economic soft patch across the pond has to be seen as a warning, even with the Atlanta Fed's model showing second-quarter US economic activity accelerating from the first quarter.
On Thursday, the famed "catch-up" trade that was in vogue Tuesday through Wednesday of this week experienced a mild re-reversal as moderate profit taking was seen across the small to mid-cap space and the Nasdaq siblings (Composite and 100) led all mid-major to major equity indexes higher. For a day where the S&P 500 tacked on 26 points and moved into bull market territory, breadth was not very strong at all.
Seven of the 11 S&P sector SPDR ETFs closed in the green, led by the Discretionaries (XLY) that, while up 1.48%, in turn were led by Autos that in turn themselves were led by Tesla (TSLA) . That stock was up 4.58% on Thursday and has now posted 10 consecutive "up" days. Technology (XLK) gained 1.08%, led by the semiconductors that in turn were led by Wolfspeed (WOLF) , Nvidia (NVDA) and Advanced Micro Devices (AMD) . The REITs (XLRE) led to the downside, giving up just 0.61%.
Market-wide breadth, while OK, was really anything but minty-fresh. Ever wake up face to face with your dog? Breadth was kind of like that. You still love your dog. Losers beat winners at the New York Stock Exchange by just a smidge while winners beat losers by just a smidge at the Nasdaq. New highs beat new lows at both exchanges as advancing volume took just a 50.8% share of composite NYSE-listed trade and a considerably more healthy 60.6% of composite Nasdaq-listed trade.
However, aggregate trading volume simply fell off of a cliff on Thursday. Aggregate trade was down 15.7% day over day for NYSE names and down 18.8% day over day for Nasdaq-domiciled names. Trading volume was also down across both the S&P 500 and Nasdaq Composite. Indeed, the Nasdaq Composite had its quietest trading session since May 24. Raging bull-oney.
Thursday was also the day of the squeeze. Carvana (CVNA) popped 56% on the session, closing at $24.23, as Wayfair (W) closed at $52.95 (+7.4%) and Beyond Meat (BYND) screamed 19.7% higher to $12.88. What do these three names have in common? According to the most recent data I have, 69% of Carvana's entire float was held in short positions, while those levels were 45% for Wayfair and 43% for Beyond Meat. Probably less now. The dangerous games some people play. Personal rule: I try to avoid shorting stocks once more than 8% of the float is held in short positions. Keeps me out of trouble.
Lock and Load
Bloomberg News is reporting that the Pentagon could announce a package of more than $2 billion under the Ukraine Security Assistance Initiative that will supply air defense munitions to Ukrainian forces. The primary purchases made under this award will be Hawk missile launchers and missiles and two types of Patriot air defense missiles.
The Hawks, which were the Patriot's predecessor and are no longer used by US forces, are a Raytheon Technologies (RTX) product and will likely come out of inventory. The Patriot missiles, however, are the modern version Pac-3's manufactured by Lockheed Martin (LMT) and the GEM-T, which complements the Pac-3, are manufactured by Raytheon.
On that note, The Wall Street Journal is reporting that China has agreed to pay Cuba several billion dollars in order to establish an electronic eavesdropping station on the Caribbean island nation. Such a station 100 miles from Florida would create an opportunity for Chinese intelligence to pick up communications of all kinds through the southeastern US, where too many key US military bases are located to list.
The Chinese side will likely see this as appropriate as the US sells arms to Taiwan, sails Naval vessels through the Taiwan Strait and stations a small number of troops on that island nation. The US now either has to find a way to prevent this news from becoming reality if it has not already, or absolutely flood transmissions likely to be picked up by adversarial forces with both useless and misleading disinformation. What do they say about history? It often rhymes.
Economics (All Times Eastern)
13:00 - Baker Hughes Total Rig Count (Weekly): Last 696.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 555.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly earnings scheduled.