Just for a moment. Maybe more. It was either the sweetest music ever heard... or maybe just what desperate investors wanted/needed to hear.
Markets moved back into a "risk-on" mode of action on Wednesday amid a regular trading session whose results present as nearly a mirror image of the day prior. Equity indexes rebounded robustly. Treasury securities sold off as the yield curve steepened. The U.S. dollar, gold and Bitcoin all seemed to move sideways, or at least pause.
It was different for WTI Crude, though. Same for natural gas, and wheat, as well as a number of other agricultural commodities. Guess that's what happens when a major fossil fuel exporter invades the breadbasket of a continent and nearly the entire world then shuns the invader in response.
As for that sweet music. The coolest sounds came from parts of the equity market most reliant upon economic growth, oddly enough -- just a day after the Atlanta Fed's GDPNow model had taken their Q1 snapshot down to 0.0% from 0.6% (q/q, SAAR).
The Dow Jones Industrials, S&P MidCap 400, S&P SmallCap 600 and Russell 2000 all tacked on gains of at least 2.51% for the day. Gains for the grander, broader large-cap indexes were interesting, but less aggressive. The S&P 500, Nasdaq Composite, and Nasdaq 100 all added 1.88% or less for the session.
Backing up the growth-reliant concept, cyclical sectors took five of the top six slots on the S&P sector-select SPDR ETF daily standings, with all five gaining at least 2%. The Financials ( ( XLF) ), and Energy ( ( XLE) ) led the way, with Materials ( ( XLB) ) coming in a close third place. Not that defensive sectors did poorly. No SPDR sector ETF gained less than 0.86% on Wednesday.
So, What Gives?
Remember, markets are driven by keyword-reading algorithms moving at ridiculous speeds. Where a human trader might see a war in Europe that could expand, and that might hurt sentiment, these algos don't experience sentiment.
1) What these algorithms read is that China may move toward backing away from a "Zero-Covid" policy that has at times shut down parts of that economy that still acts as a source of manufacturing and base of transport for so many developed economies.
2) What algorithms read is that Ukraine and Russia both seem willing to meet for a second time and talk peace, and though that meeting was supposed to take place on Wednesday, it does look like it will happen on Thursday.
3) The algos also read that companies such as Microsoft (MSFT) and Alphabet (GOOGL) have announced plans to bring staff back to the office, as the Omicron surge of Covid-19 appears to fade, and as the Fed's Beige Book reads out anecdotally as if the economy, in general, grew modestly through the period ending Feb. 18 despite so many pandemic associated labor shortages and disruptions.
Music, Maestro...
Markets also took in Federal Reserve Chair Jerome Powell's Wednesday testimony before the House Financial Services Committee. Powell stated: "I'm inclined to propose and support a 25 basis point rate hike. The bottom line is that we will proceed, but we will proceed carefully as we learn more about the implications of the Ukraine war for the economy." Sounds quite pragmatic. Also confirmed for traders that at least for right now, a 50 basis point lift-off for the fed funds rate was off the table.
Powell added: "Inflation is indisputably too high. We are using our tools to bring inflation back down to levels of price stability and we will accomplish that task." Then, though traders and investors may have rolled their collective eyes, Powell hit a home run for keyword-reading algorithms when he spoke next... "I think it's more likely than not that we can achieve what we call a soft landing."
Powell appears before the Senate Banking Committee this morning.
Wildcard
Let's talk about crude oil (and much of the entire commodity complex).
OPEC+ decided on Wednesday to stay the course and add 400K barrels worth of production per day for the next month despite the rise in market pricing. Many OPEC+ members have had trouble just reaching quota in recent months. Russia has been considered the leader of the "plus" group, while Saudi Arabia the leader of the actual cartel. Saudi Arabia has officially appeared reluctant to turn its back on Russia as this alliance formed in 2016, even as the rest of the world has, and global oil companies pull up stakes in the region.
It is unclear without the help of these "western" corporations, just how well Russia will continue to produce both oil and natural gas. There is of course a price, we don't know where it is in 2022, but there is a price for these fossil fuel-based commodities where economic growth slows in response to reduced demand. Are we there yet? I don't think so.
WTI Crude is trading even higher through the wee hours on Thursday morning than it went out on Wednesday. My energy holdings, with a focus on U.S.-based production remain Chevron ( CVX) , Hess ( HES) , APA Corp. ( APA) , which is the parent of Apache Oil, and Civitas Resources ( CIVI) . This trade in aggregate, along with my defense (not defensive) names have supported my book very well through the Tech sector's troubles.
Lack of Conviction?
As far as breadth is concerned, winners beat losers at the NYSE by roughly 3 to 1 on Wednesday and by about 2 to 1 at the Nasdaq. Advancing volume took an 80.4% share of NYSE composite trading volume and a 67.5% share of trading in Nasdaq-listed names. However, aggregate trading volume decreased 9.8% on Wednesday from Tuesday for NYSE-listed names, and by 15.2% for Nasdaq-listed stocks. Aggregate trading volume was also significantly lower, but not truly low, for both S&P 500 and Nasdaq Composite constituents names, though for both groupings, volume still topped index-specific 50-day trading volume simple moving averages.
Readers will note that both the charts for the S&P 500 and Nasdaq Composite, above, have a very similar look to them and both have failed to this point to retake their respective 21-day exponential moving averages (EMAs), although both are still knocking at that door. In fact, neither index has taken and then held this green line for more than a single session since December.
News That Probably Matters
-- FTSE Russell and MSCI are removing Russian equities from all of their indexes according to Reuters. FTSE Russell said that the decision will be effective from March 7, while MSCI will implement this decision as of the close on March 9.
-- Apparently four Russian fighter jets violated Swedish airspace east of the Baltic island of Gotland on Wednesday, drawing a response from the Swedish air force one day after a Russian military helicopter violated Japanese air space, drawing a military response there.
-- Dry conditions have reduced a significant portion of western Canada's grain output. Stockpiles of Canadian wheat were apparently down 38% at year-end 2021 versus the prior year. With buyers looking to replace Ukrainian production, Dean Dias of Cereals Canada told Bloomberg News, "Most of the grain we have in Canada is spoken for already. We are already in short supply."
-- The Pentagon has delayed an already scheduled intercontinental ballistic missile test, in an attempt to reduce the possibility that the test would be misinterpreted by Moscow after Russian President Vladimir Putin had placed his nuclear forces on a higher state of alert.
-- Apple ( AAPL) formally announced that the company's next product release event is set for March 8, which is this coming Tuesday. The rumor mill is rife with everything from a 5G iPhone SE, and a new iPad Air model to an overhaul of the Mac lineup using Apple silicon.
Trading
-- Love, love, love the decision made by Ford Motor ( F) to divide the firm into two distinct units, separating the burgeoning electric vehicle business from the legacy internal combustion business and into "Ford Model e" and "Ford Blue" respectively, but rejecting an outright spinoff of the electric business into an entirely separate company. I held my fire on Wednesday, but will add either on momentum as the shares retake their 21-day EMA ($18.23), or on the dip should the shares make another run at their 200-day simple moving average (SMA) ($16.66). The point is that I am down to small on this long position (out of most at $24+), and do intend to rebuild this position back to core size.
-- Snowflake ( SNOW) caught a serious beating after hours on Wednesday night, after reporting better-than-expected top and bottom-line results. Guidance was, though still exceptional, seen as decelerating somewhat. It's not the sales, nor the fact that the firm is still losing money (opinion). It's the fact that these shares are so highly valued and this is a rough environment for these kinds of stocks. I took on a long position at $194 on Wednesday night for trading purposes. This is not an endorsement or even an investment. As Doug Kass sometimes says: "It's a rental." Speaking of Doug Kass, Dougie reminded me this morning that Salesforce ( CRM) holds a 6.1% stake in Snowflake, being that I wrote about Salesforce on Wednesday. I am passing on that "heads up" to you, my readers.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 224K, Last 232K.
08:30 - Continuing Claims (Weekly): Last 1.476M.
08:30 - Unit Labor Costs(Q4-rev): Flashed 0.3% q/q
.
08:30 - Non-Farm Productivity (Q4-rev): Flashed 6.6% q/q
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09:45 - Markit Services PMI (Feb-F): Flashed 56.7
10:00 - ISM Non-Manufacturing Index (Feb): Expecting 61.1, Last 59.9.
10:00 - Factory Orders (Jan): Expecting 0.7% m/m, Last -0.4% m/m.
10:30 - Natural Gas Inventories (Weekly): Last -129B cf.
The Fed (All Times Eastern)
10:00 - Speaker: Federal Reserve Chair Jerome Powell.
18:00 - Speaker: New York Fed Pres. John Williams.
Today's Earnings Highlights (Consensus EPS Expectations)
(COST, MRVL, MSFT, GOOGL, AAPL and F are holdings in the Action Alerts PLUS member club . Want to be alerted before AAP buys or sells these stocks? Learn more now. )
