Equities had rallied with an almost insensitivity to price on Friday, apparently in response to decelerating wage growth as well as the ISM surveys that showed both the manufacturing and services sides of the U.S. economy already in a state of decay. This data had also softened the US Dollar Index and put a bid under the spectrum of U.S. Treasury securities from the belly of the curve on out to the long end.
Markets were off to a fast start on Monday. Was there going to a nice "follow through" session to cap Friday's run?
You may recall that 24 hours ago, I did write to you here that I was skeptical of that Friday run, though it did appear to confirm a positive change of trend for U.S. equities. Just too much uncertainty concerning the ability of the U.S. economy to stay out of recession in addition to a growing likelihood that in this environment U.S. corporations may not be able to grow earnings at all.
Then there is the 800-pound gorilla in the room. The central bank. The Federal Reserve and their either overt intention to force this recession or quite simply, their inability to cogently interpret economic conditions in anything approaching real-time.
Speaking to the Atlanta Rotary Club, Atlanta Fed Pres. Raphael Bostic spoke on a variety of topics. Bostic sees a likelihood that the services component inflation will end up being stickier than would be preferable. He does not see a recession as being imminent, as his base case for 2023 GDP is growth of 1% and if there were to be an economic contraction that it would be shallow and short.
Markets for U.S. Treasury securities, the 10-Year/3-Month yield spread specifically, basically called "Baloney" on Bostic's speech, or at least his optimistic outlook on the U.S. economy:
Bostic sees the Fed Funds Rate rising to 5% to 5.25%, and expects rates to remain high through 2024. He indicates that it's fair to say the Fed is willing to overshoot and when asked how long he sees rates remaining above 5%, he said, "Three words: a long time."
Bostic is not a voting member of the FOMC this year, but he is often thought of as a sentient voice. If his intent was to put the rally under way back in the box, then mission accomplished. If this is really how he thinks or how the broader FOMC thinks, then uh-oh.
Manic Monday
Just before Bostic's kiss of death, the S&P 500 had been up 1.4% for the session, and the Nasdaq Composite up 2.3%. That was on top of Friday's respective runs of 2.28% and 2.56%. By the time that the closing bells had finished ringing at 11 Wall and up at Times Square, the S&P 500 had surrendered all of that lead, ending the day down 0.08%, while the Nasdaq Composite clung to a gain of 0.63%. While the U.S. Dollar Index bottomed and medium-to longer-dated Treasury yields did move higher, the afternoon gains across those spaces paled in comparison to the afternoon ground surrendered by equities.
Breadth for the day was fairly decent, as it has been of late, despite the fact that six of the 11 S&P sector-select ETFs gave up ground on Monday, led lower by Health Care ( XLV) . Technology ( XLK) led to the upside as the Philadelphia Semiconductor Index gained 1.92% and the Dow Jones U.S. Software Index rallied for 1.65%.
Across tech, Snowflake ( SNOW) , Unity Software ( U) , Salesforce ( CRM) , Nvidia ( NVDA) , and ASML Holding ( ASML) all had monster days as speculation arose that there was at least some short-covering involved in the day's performance across the sector.
Winners beat losers by roughly 3 to 2 at the Nasdaq and by less than 2 to 1 at the NYSE. Advancing volume took a 61.4% share of NYSE composite trade as well as a 66.9% share of that metric for Nasdaq listings.
Though breadth was supportive, there was a problem with the volume. Trading volume expanded day over day for NYSE-listed securities in aggregate, but decreased slightly on a day-over-day basis for Nasdaq-listed names. In addition, trading volume increased day over day across the S&P 500, which was down for the session, but was down day over day across the Nasdaq Composite, which closed up for the day.
The S&P 500
The S&P 500 was rejected on Monday at 3950, which was a bit short of projected trendline resistance close to 3990, which is reinforced by a descending 200-day simple moving average (SMA). Could there be another run at that level? It's possible.
Potentially key was the fact that the S&P 500 failed to hold the 50-day SMA (3905) on Monday. A hold above that level would have made net long portfolio managers feel better about their aggregate exposure.
A positive for the bulls would be the fact that the 21-day exponential moving average (EMA) did hold, and for now that keeps the swing-trading crowd onside. The daily Moving Average Convergence Divergence (MACD) is still set up constructively, while relative strength is barely emitting any signal at all.
Speaking of signals...
Stockholm Syndrome
Just a reminder that Fed Chair Jerome Powell speaks at 09:00 ET this morning from Sweden. His speech is expected to focus more on central bank independence than on specific monetary policy, but one never knows what might be said or how high-speed, keyword-reading algorithms will react to what is said.
Bottom line, buckle your chin straps.
So Lonely
Well. Not anymore.
Having earlier told CNBC that, "In a creative business like ours, nothing can replace the ability to connect, observe, and create with peers that comes from being physically together, nor the opportunity to grow professionally by learning from leaders and mentors," Walt Disney ( DIS) CEO Bob Iger fired off a memo to employees that was reported on by Bloomberg News.
Iger's memo states: "Employees currently working in a hybrid fashion will be asked to spend four days a week on-site, targeting Monday through Thursday as in-person workdays." Iger did add that employees could adjust hours in order to avoid heavy traffic when they come back to work.
Oil Services
Back on December 28, I drew up for you a chart of Sarge name Halliburton ( HAL) , which had struggled to break out of a simple cup-with-handle and had seen a period of consolidation develop as an extension of that handle. It appears that over the past two days of trading, Halliburton is making some headway toward that breakout that had failed to materialize in a timely manner:
I am long HAL. My levels have not changed since I last wrote on the stock. Working off of a $40 pivot, I maintain my $48 price target as well as my $33 panic point (which would be a break of the 200-day line).
Halliburton rival, Schlumberger ( SLB) , or now simply SLB, is following a similar, though slightly less mature track. Traders will see SLB closing almost precisely at pivot on Monday afternoon.
I am not long SLB, but technically, a take and hold of $56 could take the shares to $65, in my opinion. The daily MACD appears to be set up well for both names as relative strength is better than neutral for both.
SLB is set to report late next week, while Halliburton is expected to report early the week after.
Economics (All Times Eastern)
06:00 - NFIB Small Biz Optimism Index (Dec): Expecting 91.3, Last 91.9.
08:55 - Redbook (Weekly): Last 10.2% y/y.
10:00 - Wholesale Inventories (Nov-rev): Flashed 1.0% m/m.
16:30 - API Oil Inventories (Weekly): Last +3.298M.
The Fed (All Times Eastern)
09:00 - Speaker: Federal Reserve Chair Jerome Powell.
