Not again.
Markets were already skating on thin ice this week. Sure, seasonality is on the side of the bulls. So far not much else has been, as the November 13 reversal of trend has been confirmed by volume. Not the easiest of reversals to read in real time, nor confirm mind you, but in its own opaque way... confirmed.
Global investors have watched the mess in China that is Beijing's move away from the zero-Covid policies, which had suppressed the Chinese and global economies and had put the whammy on global supply chains for almost three years. The real-time fear is that as new infections of the SARS-CoV-2 coronavirus rage across the Chinese mainland, a new, and more dangerous variant, not just another sub-variant of Omicron, but something overtly different, might evolve. This could very well suppress economic activity both regionally and globally. Funny how re-openings work after forced shutdowns fail in one way or another.
On Wednesday, two commercial jetliners landed in Milan, Italy from China. Italian authorities tested the passengers of these flights for Covid. Thirty-eight percent of the 92 passengers on one flight and 52% of the 120 passengers on the other tested positive. Remember that back in 2020, Milan was the first major city outside of China to become, for a while, the global epicenter of the original surge of the virus. Italian and global authorities are desperate not to let what happened in 2020 happen again.
Italy will now be testing all passengers arriving in that nation from China and has urged the European Union, of which Italy is a part, to impose a bloc-wide testing requirement. Japan, India, and Taiwan quickly imposed testing requirements on incoming Chinese arrivals as well, with an announcement expected from South Korea in the short-term.
This had put the markets on edge. What set off an algorithmic chain reaction was news that in the U.S., the CDC would require that from January 5, travelers coming directly from China, Hong Kong, and Macau or who had been in those regions within 10 days prior to their departure for U.S. territory will have to show a negative PCR or antigen Covid test or proof of recovery from a recent infection.
So, It Was...
Equities fell for a second straight day, and for a third day in four. The Nasdaq Composite was hit for 1.4%, and the S&P 500 for 1.2%.. However, it was the smaller caps that were hit the hardest. The S&P Midcap 400 gave up 1.69%, while the Russell 2000 and the S&P SmallCap 600 surrendered 1.57% and 1.89%, respectively. All as U.S. Treasuries were hit as well for another day of losses. U.S. 10-Year paper paid more than 3.88% at Wednesday's lows.
On the equity side, all 11 S&P sector-select SPDR ETFs shaded red for the session on Wednesday, led lower by the same Energy ( XLE) sector, which had been the sole survivor on Tuesday. Seven of the 11 gave up more than one full percentage point for the day.
This is where it gets interesting. Losers beat winners at the NYSE by roughly 7 to 2, and at the Nasdaq by about 2 to 1. Advancing volume took just a 17.8% share of composite NYSE-listed trade and a 34.9% share of that same metric for Nasdaq listings. Aggregate trading volume increased by the slightest of margins for names listed at both of New York's major equity exchanges. Technically speaking, though just by a smidge, this would qualify as a day of professional distribution.
That said, the message is weak. I really do hate how weak any confirmations have been during this downturn. It becomes difficult to ascertain just what needs to be tossed out and what needs to be hung on to. Trading volume increased just slightly across both the S&P 500 and Nasdaq Composite as well. All trading across all metrics however, has been far lighter over the past three sessions than anything seen since the half day after Thanksgiving. Throwing out that shortened session, one has to go back to the dog days of summer to find trading volume this light.
Cracks in the Pavement
On Wednesday, the National Association of Realtors reported November Pending Home Sales. Pending home sales, mind you, are a leading indicator for existing home sales that run at about a two-month lag in responding to changes in 30-year mortgage rates.
For November, on an unadjusted basis, contract signings were down 39% year over year, while pending sales contracted in all four regions of the U.S. that are broken out monthly. On a month-over-month basis, pending home sales fell 4% in November, for a sixth consecutive month-over-month contraction and a twelfth monthly of contraction in the past thirteen. November existing home sales, which were reported by the same agency last week showed a tenth consecutive monthly contraction as the per-month pace for that metric is running about 35% below the pace of a year ago.
Pending home sales now join Durable Goods Orders, the CB Leading Indicators, Existing Home Sales, Building Permits, the S&P Global PMI flash for Manufacturing, the S&P Global PMI flash for Services, Industrial Production, Capacity Utilization, The Empire State Manufacturing Index, the Philly Fed Manufacturing Index, and Retail Sales as macroeconomic data-points that have printed not just lower, but in outright contraction over the past two weeks for either November or December. Other than that, the economy is cooking with gas.
Want To Invest in Bitcoin?
I do not, but if one did and did not have a crypto-capable account, one could just buy MicroStrategy ( MSTR) . Again, I would not, but if one did,
MicroStrategy apparently acquired about 2,400 Bitcoin from November 1 through December 21 at an average price of $17.9K. The company then sold 704 Bitcoin on December 22 at an average price of $16.8K, planning to carry back capital losses from that transaction against previous capital gains. MicroStrategy then purchased 810 Bitcoin on December 24 for an average price of $16.8K.
As of December 27, MicroStrategy held roughly 132.5K Bitcoin, purchased at an average price of $30.4K., meaning that at the last sale, MicroStrategy is down 45% on its investment in Bitcoin. The company also issued and sold roughly 218.6K shares at an average price of $213.16 between October 1 and December 27, raising a net $46.4-ish in net proceeds.
You Don't Say...
On Wednesday, S&P downgraded the long-term debt of AMC Entertainment ( AMC) to CC from CCC+ in reaction to the company's proposed debt for equity transaction. S&P also put AMC on a negative outlook going forward.
S&P noted: "We view the announced debt for equity exchange as distressed and tantamount to default. We believe the second-lien noteholders will receive less than originally promised since they are subordinating secured debt for equity. In our view, AMC is pursuing this transaction because its capital structure is unsustainable and has limited options to reduce its debt burden and improve its cash flow."
Hmm, tell us how you really feel.
Hot Streak
The contracts have been coming, almost on a daily basis for Lockheed Martin ( LMT) . Last Tuesday, the company was awarded a $382M modification contract to procure spare parts in support of the F-35 Lightning by the U.S. Navy. The same day, Lockheed was awarded a $226M contract for Sniper Comprehensive Targeting Pod sustainment by the U.S. Air Force. Last Thursday, Lockheed was awarded a $1.05B acquisition contract for parts, materials, production and delivery of 118 F-35 fighters to the U.S. Air Force, U.S. Navy, U.S. Marine Corps, Foreign Military customers and non-U.S. DOD participants.
This past Tuesday, Lockheed received a $222M contract from the U.S. Navy for the production and delivery of 36K sonobuoys. Finally, yesterday (Wednesday), the company was awarded a $527M contract by the Missile Defense Agency to expand the performance of the Aegis Weapon System.
News breaks on Thursday morning that the Sikorsky unit of Lockheed Martin has filed a protest with the GAO (Government Accountability Office) over the U.S. Army's award to Textron's ( TXT) Bell division to build the next-generation Future Long-Range Assault Aircraft (helicopter), which is expected to serve the Army for 40 years. The contract is initially worth up to $1.3B and will ultimately replace 2K Black Hawks (I still miss the Hueys, at least you could stand on those rails when you had to pop.) The engineering and manufacturing development phase could be worth $7B, while we could be talking about $70B over the expected lifetime of the program.
The Bell entry is the V-280 Valor, which is a tiltrotor aircraft, while the Sikorsky entry, which was a collaboration with Boeing ( BA) is the Defiant X, a chopper that features coaxial rotor blades. The Army had stated that a protest was expected, and will not be commenting further. A decision is required by the GAO by April 7.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 224K, Last 216K.
08:30 - Continuing Claims (Weekly): Last 1.672M.
10:30 - Natural Gas Inventories (Weekly): Last -87B cf.
11:00 - Oil Inventories (Weekly): Last -5.894M.
11:00 - Gasoline Stocks (Weekly): Last +2.53M.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
No quarter earnings reports scheduled.
