Updated Market Outlook (Factoring in Rising Yields)

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What’s in Today’s Report:

  • Updated Market Outlook (Factoring in Rising Yields)
  • Weekly Market Preview:  All About Powell and Treasury Yields
  • Weekly Economic Cheat Sheet:  Key Inflation Report and Jobless Claims

Futures are moderately lower as Treasury yields resumed their rise early Monday morning.

The 10 year Treasury yield rose as high as 1.39% earlier this morning and that’s weighing on futures as the rise in yields continues from last week.

Economic data was sparse overnight as the only notable number was the German Ifo Business Expectations survey which beat estimates (94.2 vs. (E) 91.8).

There was no notable news regarding stimulus or vaccines over the weekend, and the market still expects the JNJ vaccine to be approved this Friday (2/26) and for the stimulus bill to pass the House around the same time (with Biden signing the bill sometime in mid-March/early April).

Today there are no notable economic reports nor any Fed speakers (Powell speaks tomorrow), so the focus today will be on Treasury yields.  If they continue to rise, I’d expect modest to moderate pressure on stocks ahead of Powell’s testimony tomorrow (where markets will want some comfort that the Fed isn’t worried about yields).

Tom Essaye Quoted in Barron’s on February 18, 2021

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“The number of potential catalysts for a sudden, disorderly rise in yields that hits stocks has risen…” wrote Tom Essaye, founder of Sevens Report Research in a note. Click here to read the full article.

Global Bond Yields Are Rising Too (And That’s Important)

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What’s in Today’s Report:

  • Global Bond Yields Are Rising Too (And That’s Important)

Futures are modestly lower following a quiet night of news as global bond yields remained buoyant.

Bond yields were slightly higher earlier this morning and  they are holding this weeks’ gains, and absent any other notable news that weighed on global stocks and futures.

There was no notable economic data other than the Australian Labour Force Survey which met expectations.

Today economic will be in focus and if the data comes in better than expectations, look for the 10 year yield to rise further (and that could put a headwind on stocks and tech especially).  The key reports today are: Jobless Claims (E: 757K), Philadelphia Fed Manufacturing Index (E: 20.0) and Housing Starts (E: 1.650M). We also get two Fed speakers, Brainard (8:00 a.m. ET) and Bostic (10:00 a.m. ET) but we don’t expect them to move markets.

Economic Breaker Panel: February Update

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What’s in Today’s Report:

  • Economic Breaker Panel: February Update
  • Empire State Manufacturing Index

Stock futures are slightly lower this morning following a mostly quiet night of news as investors continue to cautiously eye this week’s sharp rise in bond yields.

The 10-Yr Note yield notably topped 1.33% overnight, pressuring S&P futures to session lows but yields have pulled back and stock futures have stabilized in pre-market trading.

Looking into today’s session, there are multiple economic reports to watch this morning including: Retail Sales (E: 1.0%), Industrial Production (E: 0.5%), PPI (E: 0.4%), and the Housing Market Index (E: 83).

As we move into the afternoon, focus will be on the 20-Yr Treasury Bond Auction at 1:00 p.m. ET as the results could move yields and in turn impact equity markets.

Then, the FOMC Meeting Minutes will be released at 2:00 p.m. ET, and finally Robert Kaplan is scheduled to speak at 6:05 p.m. ET.

With the slew of potential catalysts on the calendar today, bond yields will be the key factor to watch as if we see another sharp rise in the 10-year it will act as an increasing headwind for stocks.

What Could Go Wrong?

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What’s in Today’s Report:

  • Another Look at What Could Go Wrong
  • Weekly Economic Cheat Sheet: February Data in Focus

U.S. equity futures are trading solidly higher with international markets this morning thanks to positive COVID-19 headlines and mostly encouraging economic data overnight.

New coronavirus cases in the U.S. fell below 100K/day for the first time in months over the weekend while Biden is expected to speak about the new stimulus package today.

Economically, the Q4 Eurozone GDP Flash and details of the German ZEW Survey both topped estimates overnight which is helping support risk-on money flows this morning.

Looking into today’s session, there is one economic report ahead of the bell: Empire State Manufacturing Index (E: 5.7), and just one Fed official scheduled to speak in the afternoon: Daly (3:00 p.m. ET).

Bottom line, as long as the Empire data, which is importantly a February report, does not disappoint and Biden maintains a very accommodative tone regarding the new stimulus package, stocks should be able to continue higher to start the week today.

Inflation Update

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What’s in Today’s Report:

  • Inflation Update (Why the Soft CPI Is Likely Understating Inflation)

Futures are modestly lower mostly on digestion of the week’s rally, but also on some incrementally negative COVID policy headlines.

Over the past 24 hours headlines of possible COVID related travel bans to Florida and negative COVID testing requirements for interstate air travel weighed on sentiment.  Both would be economically negative (and the later a total disaster for airlines).

Economically, the only notable data was UK GDP and UK Industrial Production, and the results were mixed.  But, neither number is moving markets.

Focus today will be on any incremental COVID policy headlines, and if there’s traction on the any travel bans to states or it looks like people will need negative COVID tests to fly, that will hit stocks.  Away from COVID policy, we get Consumer Sentiment (E: 80.9) and have two Fed speakers: Williams (10:00 a.m. ET) and Daly (3:00 p.m. ET) but unless there’s a major surprise, they shouldn’t move markets.

What Level of Yields Would Be A Bearish Gamechanger?

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What’s in Today’s Report:

  • What Level of Treasury Yields Would Be A Bearish Gamechanger?
  • EIA and Oil Market Update

Futures are modestly higher on continued momentum following a quiet night of news as there was no notable economic data, stimulus or vaccine updates overnight.

Coronavirus trends continue to improve as New York State will begin to allow spectators back into arenas, while Hong Kong is reopening indoor dining.  That improvement combined with vaccine distribution is helping sentiment.

Today focus will be on Jobless Claims (E: 803K) and markets will want to see continued improvement in that number (so a further decline towards 700k).  There are also some notable earnings reports to watch, although they’re unlikely to move the broader market.  So names we’ll be watching include:  PEP ($1.45), AZN ($0.53), DIS (-$0.47).

Market Multiple Levels: S&P 500 Chart

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What’s in Today’s Report:

  • Market Multiple Levels: S&P 500 Chart

Stock futures are trading at record highs this morning as mostly underwhelming economic data overnight bolsters the case for more monetary and fiscal stimulus.

Economically, inflation data out of China and Germany narrowly missed estimates while French Industrial Production was disappointing, all of which supports the case for more stimulus to support the global economic recovery.

This morning, market focus will be on the CPI report (E: 0.3%) before the bell, and then attention will shift to Fed Chair Powell’s virtual speech in the early afternoon (2:00 p.m. ET).

Aside from those two key events, there is a 10-Yr Treasury Note Auction at 1:00 p.m. ET, which again has the potential to impact the yield curve (a big enough spike in the 10-year yield would act as a headwind on stocks).

Finally, earnings season continues with a few notable companies releasing Q4 results today: KO ($0.41), GM ($1.62), UBER (-$0.53).

Bottom line, as long as CPI does not run “hot,” Powell maintains a rather dovish tone, and there are no negative developments regarding the stimulus bill, the path of least resistance will remain higher for stocks in the near term.

Sevens Report Quoted in MarketWatch on February 9, 2021

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“With supply dynamics of the global oil market as clear and steady as they have been in years, trader focus has turned to demand in recent sessions, and with the continued vaccine…” analysts at Sevens Report Research wrote in a Tuesday newsletter. Click here to read the full article.

Market Multiple Table: February Update

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What’s in Today’s Report:

  • Market Multiple Table: February Update

Stock futures are trading modestly lower this morning after a mostly quiet night of news as the recent run to fresh record highs is digested.

Economically, the NFIB Small Business Optimism Index was 95.0 in January vs. (E) 98.0. The headline “miss” is slightly weighing on risk assets in pre-market trading this morning.

Today, there is one economic report to watch: December JOLTS (E: 6.40M) and one Fed official scheduled to speak: Bullard (12:00 p.m. ET), however the market will remain primarily focused on any new developments with the latest stimulus package.

There is also a 3-Yr Treasury Note Auction at 1:00 p.m. ET and given the recent sharp steepening move across the curve, the results could move Treasuries, and in turn, impact equities (further steepening will eventually become a headwind for stocks as the 10 year yield continues to rise).

Finally, there are a few notable earnings releases after the close: TWTR ($0.29), CSCO ($0.75), LYFT (-$0.72).