It was subtle to be sure. Around midday on Monday, sentiment, which has been poor, may have run into seasonality, which is generally good this time of year.
Sure, last week was rather ugly, but as we had discussed that here and elsewhere, the third to last or fiftieth week of the year tends to be a "down" week. Not an awful week, last week was worse than most "week number fifty's" but down nonetheless, at least over a 10-year window, which is my "go to" for studying relevant seasonality. By that same metric, this week tends to run higher more often than not, for an average increase of less than 1%. Same for next week, which is when the actual "Santa Claus Rally'' officially (although the very concept is quite unofficial) kicks off.
Long story short, equity markets turned for the better around lunchtime on Monday as bond traders finally sold both the long and short ends of the U.S. Treasury curve. The session, in its entirety, was still a "risk-offish" kind of day. All three major large-cap indexes and all eight major indexes regardless of cap size, gave up at least 1.1% for the day.
Performance was highly segregated by sector grouping. Only two S&P sector-select SPDR ETFs closed in the green on Monday. Those two were the Utilities (
XLU) and Staples (
XLP) , as the four defensive sectors finished in places one through four, and the five sectors considered to be "cyclicals" finished in the seventh through eleventh spots. The two "growthy" type sectors were sandwiched in the middle.
Interestingly, I heard a couple of traders appearing in the media blame the "light volume" for the volatility, which is absolute hogwash. Of course, aggregate trading volume was lighter on Monday following the multiple expirations event this past Friday. That's not comparable. The fact is that composite trading volume for both NYSE-listed and Nasdaq-listed securities landed slightly higher this Monday than last Monday. That is indeed... quite comparable. In addition, aggregate trading volume attributable to constituent names to the S&P 500 on Monday hit 14% above the 50-day trading volume simple moving average for that index, while this same metric for constituent members of the Nasdaq Composite did fall 11% short of their 50-day trading volume simple moving average.
In other words, from a "volume traded" perspective, Monday was a day like any other day, and not suffering overtly from a lack of participation. Breadth was on the ugly side. Losers beat winners at the NYSE by a rough nine to two, and up at Times Square by less than three to one. Advancing volume comprised just 18.9% of the NYSE composite and 31.5% of the Nasdaq composite. New lows obliterated new highs at both exchanges -- 241-13 at the NYSE and 423-29 at the Nasdaq.
Trading
Followers may have noted that I had tweeted out on Monday morning that I realized that I had to that point, only been a buyer, and had not sold anything. Outside of options, that held true throughout the day, as I added to existing longs in Bank of America (
BAC) , Planet Labs (
PL) , Palantir (
PLTR) ,
as advertised, and initiated a long position in JPMorgan Chase (
JPM) . The only sales made throughout the day, for me, were to attach covered calls to some long positions (including PLTR) and to get out of some puts (not related to existing equity positions) entered last week, and expiring this week that had quickly become profitable.
Readers will note that the Nasdaq Composite, at Monday's lows, did kiss, but not pierce the trend line that
we discussed 24 hours ago, even as the 21-day exponential moving average (EMA) crossed below the 50-day simple moving average (SMA).
More importantly, as readers will see below, the S&P 500 broke contact with the 50-day SMA, and failed to re-engage with that line by day's end. This may have provoked some portfolio-induced selling throughout the first half of the session, as the index opened below that red line on a gap.
Key, I think, is that there was no severe second wave of selling on Monday afternoon, as portfolio managers must have been able to keep risk managers at bay. The 200-day SMA, by the way, is a more powerful force than is the (still important) 50-day SMA in compelling behavior across the portfolio management landscape.
Of course, as equity markets have struggled to hold onto key levels, the Russell 2000 is now almost 13% off of the early November highs for the most closely followed small-cap equity index. Traders and investors must be cognizant of the fact that the broader marketplace does appear to have put in a "double top," which tends to be a pattern of reversal. The double top is more clearly recognizable for the S&P 500 and the Dow Industrials (narrow, but does tend to track the S&P 500) than elsewhere.
What Now?
A lot of that depends on how President Biden appears on Tuesday (14:30 ET), as he will have to address both the spread of the Omicron variant of the SARS-CoV-2 virus and the failure of Senate Democrats to get his economic agenda past the goal line.
In only a few days' time, the still rather newly discovered Omicron variant has become the dominant strain of the virus in this country. On Monday, the CDC stated that for the week ended Dec. 18, Omicron had accounted for an estimated 73% of all sequenced, confirmed Covid cases in the U.S., and more than 90% in some parts of the country. Mind you, this does not mean that the Delta variant is dying out, just not spreading as quickly. New York State has reported a record number of new Covid infections for a fourth consecutive day.
According to Burbio, which I found at Bloomberg News, there are 646 school closings across the country this week, up from 356 last week. School closings are a big deal as they force two-earner households to leave one earner unproductive, and place single-parent households in a particular bind. This negatively impacts labor force participation as well as economic activity. Thankfully, hospitalizations have not come close to approaching levels seen during those darkest days of April 2020.
As I have often stated, the virus is still in charge until it is not. I don't think anyone expects the president to announce anything Draconian today, but he will announce to allocation or reallocation of resources based on need, the insertion of medically qualified troops into environments where the need for personnel is greatest, and he will warn, once again, those who remain unvaccinated.
Beyond That
The president will also have to address the state of his "Build Back Better" agenda. Actually, he doesn't take questions, so he does not really have to say anything, but one would think that the White House staff understands that this needs to be addressed. Senate majority leader Chuck Schumer of New York insists that he will bring the bill up for a vote on the Senate floor as soon as early January despite the overt rejection of key Senate Democrat Joe Manchin of West Virginia.
As Wall Street rushed to reduce 2022 GDP projections, Senate Democrats hastily put together a Tuesday night (tonight) virtual caucus to try to salvage what in this bill is for them still salvageable. Senator Manchin appeared on a radio show in his home state and mentioned where he differs with mainstream Democrats on the finer points of the bill. Manchin supports work requirements for certain benefits and cut-offs for eligibility for said benefits based on income. Manchin also stated that he would support the bill at $1.75T (much lower than certain estimates project) if it would overhaul the U.S. tax code, which puts him at odds with the only other moderate Democrat in the Senate, Kyrsten Sinema of Arizona, who has openly opposed increased corporate and individual income taxes.
It would appear to this outsider that the left could probably pass much of the president's agenda if the entire "Build Back Better" agenda were sliced and diced into smaller packages. The longer it takes them to figure that out, the less chance they will have of passing anything as next November comes quickly, when the executive and legislative branches of government might not be run by the same party and said executive not very popular. Seems like a mirror image of what we saw just four years ago.
Market Impact
Perhaps the failure of "Build Back Better" has been most noticeably and negatively impacted in the area of addressing climate change. The hardest hit parts of the equity market on Monday were the areas perceived as being "greener" than others. The Dow Jones U.S. Renewable Energy Equipment Index (part of the technology sector) surrendered 7.2% on Monday, as the Dow Jones U.S. Automobiles Index (part of the Discretionaries) gave up 3.34% led lower by the purely electric names.
While Ford Motor (
F) and General Motors (
GM) were hit hard, -1.77% and -2.03% respectively, the rest of the automobile space was hit much harder. Lordstown Motors (
RIDE) led the purely electric vehicle manufacturing space lower at -8.15%, followed by Rivian (
RIVN) -7.9%, Nikola (
NKLA) -7.31%, Canoo (
GOEV) -5.48%, Lucid (
LCID) -5.05%, Tesla (
TSLA) -3.5%, and Fisker (
FSR) -2.76%.
Oh Yeah.. Earnings
Equity index futures are trading higher this morning, as they were last night. At least part of that is attributable to the likes of Micron (
MU) and Nike (
NKE) , both of which reported top and bottom-line beats for their fiscal first and second quarters, respectively. Both stocks popped overnight.
Neither reported much in the way of sales growth, but that was not priced in. Corporate execution was fine, however, and Micron even guided current quarter sales and adjusted profitability above consensus. Interestingly, on Monday afternoon, ahead of the Micron numbers, Rosenblatt's Hans Mosesmann (5 stars at TipRanks) named Micron, Advanced Micro Devices (
AMD) and Marvell Technology (
MRVL) his top semiconductor picks for 2022.
It would appear that on Monday, both AMD and key competitor Nvidia (
NVDA) lost and then regained contact with their respective 50-day SMAs, while both Micron and Marvell successfully defended their 21-day EMAs. The semis in general, survived a series of individual tests on Monday. Might be worthy of finding a spot in the back of that mind of yours.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Last 16.0% y/y.
13:00 - Twenty Year Bond Auction: $20B.
16:30 - API Oil Inventories (Weekly): Last -815K.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (
FDS) (3.00), (
GIS) (1.05)
After the Close: (
BB) (-0.07)
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