A Crack in One Pillar of the Rally

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What’s in Today’s Report:

  • A Crack in One Pillar of the Rally
  • Weekly Market Preview:  Will Inflation Data Push Yields Higher (And Stocks Lower?)
  • Weekly Economic Cheat Sheet:  CPI on Wednesday.

Futures are moderately lower despite stimulus progress over the weekend, as markets digest Friday’s big rally.

The Senate passed the $1.9 trillion stimulus bill and the House will debate it on Tuesday.  Biden could sign the bill by the end of the week, meeting market expectations and unleashing more stimulus into the economy as we begin the 2nd quarter.

Economically, Chinese trade numbers signaled an ongoing global recovery as exports exploded 60.6% y/y vs. (E) 40%.

The 10 year Treasury yield is up four basis points on the stimulus news and is again testing 1.60% (this is the main reason futures are lower this morning).

Today there are no economic reports and no Fed speakers, but yields will once again dictate trading in stocks.  Markets rallied on Friday because the 10 year Treasury yield failed to meaningfully breakthrough 1.60%.  But, if that happens today, look for stocks to drop in response, as rising yields remain the biggest headwind on stocks in the near term.

Tom Essaye Quoted in Cryptonews on March 4, 2021

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As for the reasons behind these drops, former Merrill Lynch trader Tom Essaye told Bloomberg that there was “a rollover in a lot of the momentum plays in the market — not just Bitcoin, but Tesla and tech stocks…” and the interest is coming out of these plays now. Click here to read the full article.

Tom Essaye Quoted in Courthouse News Service on March 5, 2021

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According to Tom Essaye of the Sevens Report, the core issue with bond yields has been economic growth. “Due to economic re-openings, stimulus, and vaccine optimism, global investors are pricing in a huge jump…” he wrote in a Thursday investor’s note. Click here to read the full article.

Tom Essaye Quoted in Axios on March 3, 2021

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“While the S&P 500 may be facing structural headwinds due to tech weakness, much of the rest of the market…” Tom Essaye, founder of Sevens Research, said in his daily Sevens Report. Click here to read the full article.

Tom Essaye Quoted in Unseen Opportunity on March 3, 2021

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“While the S&P 500 may be facing structural head-winds due to tech weakness, much of the rest of the market…” explained Tom Essaye, Sevens Report founder, in a note. Click here to read the full article.

Tom Essaye Quoted in Bloomberg on March 3, 2021

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“We’ve seen a rollover in a lot of the momentum plays in the market — not just Bitcoin, but Tesla…” Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter, said by phone. Click here to read the full article.

Tom Essaye Quoted in CNBC on March 2, 2021

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“While the S&P 500 may be facing structural head-winds due to tech weakness, much of the rest of the market…” Tom Essaye, founder of Sevens Report, said in a note. Click here to read the full article.

Tom Essaye Interviewed with TD Ameritrade Network on March 2, 2021

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Tom Essaye interviewed with Ben Lichtenstein from TD Ameritrade Networl to talk several stocks moving intraday Tuesday. He breaks down a few takeaways from Target earnings, discusses Tripadvisor launching a new, live sentiment dashboard, and pot stocks’ outlook in 2021. Click here to read the full article.

Is There a Commodity Supercycle in the Works?

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What’s in Today’s Report:

  • Is There a Commodity Supercycle in the Works?
  • Value vs. Growth Update

U.S. equity futures are rallying with most global markets this morning as economic data mostly topped estimates overnight while there is a renewed sense of stimulus optimism as the $1.9T relief bill moves to the Senate today. President Biden also said that vaccine supplies will be sufficient to vaccinate all U.S. adults by the end of May, earlier than previously thought, which is offering further support to risk assets this morning.

Final Composite PMI data from February was largely upbeat with the Eurozone figure jumping to 48.8 vs. (E) 48.1, which helped offset a slight monthly dip in the Chinese headline.

Today is lining up to be a fairly busy day from a catalyst standpoint as there are two notable economic reports to watch: ADP Employment Report (E: 165K) and ISM Services Index (E: 58.7), both of which have the potential to move markets.

There are multiple Fed speakers to watch today: Harker (10:00 a.m. ET), Bostic (12:00 p.m. ET), Evans (1:00 p.m. ET), and Kaplan (6:05 p.m. ET), while markets will also be following any developments regarding the stimulus bill as it moves to the Senate today.

As long as economic data does not indicate a significant slowdown in the pace of the recovery, Fed speak remains very dovish, the legislative process with the stimulus bill remains smooth, and potentially most importantly, the bond market continues to trade in an orderly fashion, then stocks should be able to hold this week’s rebound. However if there are negative surprises regarding any of those market influences Monday’s sizeable gains could be given back in a hurry.

The Global Response to Rising Yields

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What’s in Today’s Report:

  • Monitoring the Response to Rising Yields
  • ISM Manufacturing Index Takeaways

Stock futures are trading with mild losses this morning as yesterday’s gains are digested amid cautious comments out of China overnight and mixed economic data in the EU.

Guo Shuqing, a top Chinese banking regulator, said overnight that the divergence between asset rallies (he referred to them as bubbles) and economic growth in the U.S. and EU will result in corrections “sooner or later” which weighed on Asian stocks.

German Retail Sales missed expectations however a key European inflation gauge, the HICP, was in line with estimates, leaving dovish policy expectations for the ECB largely intact.

Looking into today’s session, there is just one economic data point: Motor Vehicle Sales (E: 16.4M) which should not move markets.

That will leave market focus on today’s two Fed speakers: Brainard (1:00 p.m. ET) and Daly (2:00 p.m. ET) as the market looks for further confirmation that the Fed remains unanimously committed to extremely accommodative policy for the foreseeable future.

Outside of economic data and Fed chatter, the bond market remains a major factor for equity market trading right now as if there is another disorderly spike in Treasury yields, it is safe to expect more volatility in the broader stock market, specifically big name tech companies.