That was impressive.
Concerns around the short- to medium-term future of technology that came about in response to Microsoft's (MSFT) lackluster guidance on Tuesday night forced a lower opening for US equity markets on Wednesday morning. There would be technical issues with the opening auction at the New York Stock Exchange that exacerbated what apparently had been momentarily weak sentiment.
Stocks would bottom about an hour after that bell had stopped ringing, and then quite methodically rally off those lows. The rally would not apex until there was less than an hour remaining in the regular trading session. As I had written that I would, I did take some risk off in Microsoft. After all, I did have profits to protect. By day's end, it had become apparent that this sale had been unnecessary.
The S&P 500 closed down just 0.02% (less than one point) on Wednesday after closing down 0.07% (two whole points) on Tuesday. As the chart shows below, the S&P 500 has closed at nearly the same level now for three days in a row...
When one looks through last Wednesday's and Thursday's selloffs and last Friday's recovery, the S&P 500 has closed within 0.48% of the much-ballyhooed 4,000 level on six of the past nine trading days while making contact or coming darned close to making contact with its 200-day simple moving average (SMA) on eight of those days. To say that the broader market for large-cap equities has found its level would be an understatement.
Of course, this also increases the risk, two ways. For I do not see much chance for this index to sit here forever, simply casting itself in one direction or the other every morning and then just reeling itself in over six hours. Stepping back for a higher altitude kind of view for the above chart, we still see a bearish running triangle...
Bearish in just where the last five points are placed. That said, the daily moving average convergence divergence (MACD) looks good as relative strength builds and the 200-day SMA or 4,000 level (depending on how one reads the chart) continues to build support.
The S&P 500 over the past year and change is still mired in a descending, broadening wedge, which is a pattern of reversal. We are now looking at five consecutive lower highs and six consecutive lower lows. The index sits near the top of the pattern's upper trend line at this time, ready for that "promised" breakout reversal. Should the bullish breakout not materialize at this time, and for the descending wedge to continue, the S&P 500 would need to trade below the 3,491 low of this past October. For the descending wedge to maintain its broadening posture, that low would have to print down around 3,300. To borrow from both Arsenio Hall and Grant Williams... these are "things that make you go hmmm."
Price Discovery
Market breadth remained close to noncommittal on Wednesday, as it has been all week. The Dow Transports gave up 1.1% while the KBW Bank Index rallied 1.59%. Outside of those two indexes, the action was quite lacking. The Dow Industrials, S&P 500, S&P 400, S&P 600, Nasdaq Composite, Nasdaq 100, Russell 2000 and Philadelphia Semiconductor Index all closed somewhere between +0.28% and -0.27% for the session. Of the 11 sector SPDR ETFs, 10 closed between +0.78%, which was the Financials (XLF) , and -0.56%. Only the Utilities (XLU) , at -1.35%, moved more than one percentage point for the day.
For the second consecutive day, there was not much of a margin between winners and losers. Winners did beat losers by a rough 8 to 7 at both of New York's equity exchanges. Advancing volume took a 59.7% share of composite trade listed on the New York Stock Exchange and a 50.7% share of composite Nasdaq-listed trade. Aggregate trading volume increased day over day for NYSE-listed securities and across the S&P 500. However, aggregate trading volume contracted day over day for Nasdaq-listed securities and for a second consecutive day across the Nasdaq Composite.
It feels to this old trader that this market really wants to roar but is absolutely unsure of which way it wants to go. Will equities pop because the Fed almost certainly will need to curtail plans to take short-term rates higher for longer? Or maybe this early 2023 strength is exactly that -- a forward-looking market pricing in less aggression by the Federal Open Market Committee. That could develop into a "sell the news" event next Wednesday should the FOMC do a "Bank of Canada" move.
Or maybe the market is trying to decide if the US economy is going into or already has gone into a state of economic contraction and now must decide on just how intense that contraction will get. We all know what Treasuries are telling us...
The spread between the yields of the US Ten-Year Note and the US Three-Month T-Bill is saying "lower for longer." That is, lower long-term rates due to reduced economic activity.
The Bank of Canada
On Wednesday morning the Bank of Canada increased its overnight benchmark rate by 25 basis points to 4.5%. This was expected. What was not expected was the guidance provided. From the official statement: "If economic developments evolve broadly in line with the MPR outlook, (the) Governing Council expects to hold the policy rate at its current level."
The overnight rate in Canada has gone from 0.25% to 4.5% in less than a year's time. Governor Tiff Macklem acknowledged this in his address on Wednesday morning while also stating that the full effects of the central bank's year of aggressive rate hikes "is still to come," thus making it necessary to pause and watch. The FOMC would be wise to put its collective arrogance aside and pay heed.
Speaking of the Fed...
Word is that President Biden is considering Federal Reserve Vice Chair Lael Brainard for the position of NEC (National Economic Council) director upon the exit of Brian Deese from that position. Deese has expressed a desire to step down after more than two years on the job. Should Brainard be selected and accept that new role, this would create a vacancy at the Fed Board of Governors and specifically in the role of vice chair.
With a Democratic Party caucus of 51 votes in the US Senate, the selection and confirmation of successor(s) should not be politically difficult. Brianard is thought of as a progressive economist and as more dovish in nature than many of her central banking colleagues.
Macro Day
The day ahead, or to be more specific, the 08:30 ET hour here on Thursday, is jam-packed with a plethora of economic data points set for release. The headline maker probably will be the Bureau of Economic Analysis' first estimate for fourth-quarter GDP. Consensus view is for growth of 2.6% quarter over year (seasonally adjusted annual rate), with a range of expectations that spans all the way from growth of 1.2% to growth of 3.5%.
The Atlanta Fed's GDPNow model is now final for Q4 and its real-time snapshot of reported macroeconomic data shows growth at 3.5%, so something has to give. Atlanta will post its first Nowcast for the first quarter of 2023 on Friday (tomorrow) morning. It might have helped in terms of accuracy had Atlanta been able to factor in this morning's report on December Durable Goods Orders (also released by the BEA) and this morning's advance report on the Goods Trade Balance for December (released by the Census Bureau).
Flush With Cash
Sarge name Chevron (CVX) is set to report on Friday. For Chevron's fourth quarter, earnings are seen at $4.30 per share on revenue of $54.5 billion. These numbers would amount to earnings growth of almost 70% on revenue growth of more than 13%.
On Wednesday evening, Chevron declared a $1.51 quarterly dividend (+6.3%) payable March 10 to shareholders of record Feb. 16. The board also authorized the repurchase of Chevron's common shares in an aggregate amount of $75 billion effective April 1. This authorization does not have an expiration date and replaces the previous authorization ($25 billion), which terminates on March 31.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 203K, Last 190K.
08:30 - Continuing Claims (Weekly): Last 1.647M.
08:30 - Durable Goods (Dec): Expecting 2.6% m/m, Last -2.1% m/m.
08:30 - ex-Transportation (Dec): Expecting -0.1% m/m, Last 0.2% m/m.
08:30 - ex-Defense (Dec): Expecting 2.4% m/m, Last -2.6% m/m.
08:30 - Core Capital Goods (Dec): Expecting -0.2% m/m, Last 0.2% m/m.
08:30 - GDP Growth (Q4-adv): Expecting 2.6% q/q, Last 3.2% q/q SAAR.
08:30 - Goods Trade Balance (Dec-adv): Last $-83.35B.
08:30 - Wholesale Inventories (Dec-adv): Expecting 0.5% m/m, Last 1.0% m/m.
10:00 - New Home Sales (Dec): Expecting 613K, Last 640K SAAR.
10:30 - Natural Gas Inventories (Weekly): Last -82B cf.
11:00 - Kansas City Fed Manufacturing Index (Jan): Expecting -14, Last -13.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (AAL) (1.07), (ADM) (1.66), (CMCSA) (.79), (DOW) (.57), (MA) (2.58), (NOC) (6.57), (ROK) (1.87), (SHW) (1.86), (VLO) (7.22)
After the Close: (INTC) (.20), (KLAC) (7.03), (LHX) (3.28), (V) (2.01)
