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What Drove the Q1 Rally

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What’s in Today’s Report:

  • What Drove the Q1 Rally?
  • Weekly Market Preview:  Does A Soft Landing Become More Likely?
  • Weekly Economic Cheat Sheet:  ISM Manufacturing today, Jobs Report Friday.

Futures are little changed as oil prices are higher following a surprise OPEC+ production cut, while investors digest the recent rally.

OPEC+ announced a surprise production cut of 1.16 million bpd and oil rallied as much as 8% on the news, although it has backed off those highs (up about 5% currently).

Economically, the EU and UK manufacturing PMIs were generally in line with expectations and aren’t moving markets (47.3 for the EU and 47.9 for the UK).

Today focus will be on the ISM Manufacturing PMI (E: 47.5) and oil prices, and a continued steep rise in either (so a hotter than expected PMI or oil moving sharply higher from current levels) will be a headwind on stocks.

 

Sevens Report Quarterly Letter Delivered Today

Our Q1 ’23 Quarterly Letter will be released today.

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You can view our Q4 ’22 Quarterly Letter here

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Tom Essaye Quoted in Barron’s on March 24th, 2023

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Stocks Gain as Volatile Week Ends

“Bottom line, banks have reemerged as the primary influence on markets in the back half of the week and if the weakness in the sector continues today, stocks will have a very hard time extending yesterday’s modest bounce,” says Tom Essaye, the founder of Sevens Report Research. Click here to read the full article.

Sevens Report Co-Editor, Tyler Richey, Quoted in MarketWatch on March 23rd, 2023

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Oil futures settle lower, with U.S. prices back below $70 a barrel

“The banks are the main driver of oil, and really all risk assets today, as fading confidence in the financial system is reigniting fears that another crisis may be looming after we saw some of the biggest bank failures since 2008 in early March,” said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Sevens Report Co-Editor, Tyler Richey, Quoted in MarketWatch on March 23rd, 2023

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Oil futures end lower on recession worries

“However, the banks are the main driver of oil, and really all risk assets, as fading confidence in the financial system is reigniting fears that another crisis may be looming, after we saw some of the biggest bank failures since 2008 in early March,” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch. Click here to read the full article.

The Bull Case vs. the Bear Case

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What’s in Today’s Report:

  • The Bull Case vs. the Bear Case
  • Weekly Oil Update and EIA Analysis

Futures are modestly higher and are extending Wednesdays’ gains following better than expected inflation data overnight.

Spanish CPI, which was the first inflation indicator to warn of the stall in disinflation, rose just 3.3% y/y, less than the 3.8% expectation and much lower than the 6% y/y reading last month. That’s offering some initial hope that disinflation has restarted.

Today focus will be on economic data, with Jobless Claims (E: 195K) the key report, although we also get the Final Q4 GDP (E: 2.7%).  There are also two Fed speakers today, including Collins (12:45 p.m. ET) and Barkin (12:45 p.m. ET) and markets will look for additional confirmation that the Fed has finally pivoted.

The True Indicator of Banking Stress

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What’s in Today’s Report:

  • The True Indicator of Banking Stress
  • Case Shiller Home Price Index and Consumer Confidence: Charts

Stock futures are trading solidly higher with overseas markets following some positive bank headlines out of Europe and strong price action in Asian tech shares.

BABA announced a corporate restructuring plan that sent shares higher by 14% overnight, boosting sentiment across Asian equity markets and buoying U.S. equity futures with tech leading the way higher.

In Europe, it was reported that UBS has brought back former CEO Sergio Ermotti to oversee the CS takeover which is further easing some of the angst surrounding the recent turmoil in the banking sector.

Looking into today’s session, there is one more housing data release to watch: Pending Home Sales (E: 1.0%) before Fed Vice Chair Barr continues with his Congressional testimony regarding recent bank failures at 10:00 a.m. ET. There is also a 7-Yr Treasury Note auction at 1:00 p.m. ET.

Bottom line, equity markets appear to be stabilizing but the tape does remain thin and tentative with the “pain trade” to the upside. One materially negative headline out of the banking sector or regarding Fed policy, however, could reignite the volatility of recent weeks.

Does Dow Theory Outperform? (Yes)

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What’s in Today’s Report:

  • A Good Question on Dow Theory Returns Over the Years

Stock futures are little changed this morning while bond yields are moving higher with the 2-Yr Note yield notably trading above 4% as banking fears continue to ease although markets still remain on edge.

There were no market moving economic reports overnight and news wires were generally quiet.

Looking into today’s session, there are several economic reports due to be released in the U.S. including: International Trade in Goods (E: -$90.0B), Case-Shiller Home Price Index (E: 3.7%), FHFA House Price Index (E: -0.2%), and Consumer Confidence (E: 101.0).

Shortly after the open, the Fed’s Barr will testify before the Senate beginning at 10:00 a.m. ET regarding the recent banking turmoil and state of the financial industry. Any negative comments or developments during the testimony that weighs on bank shares will very likely drag down the broader market.

Looking to the afternoon, there is a 5-Yr Treasury Note auction at 1:00 p.m. ET that could impact the broader bond market and move stocks.

Sevens Report Co-Editor, Tyler Richey, Quoted in MarketWatch on March 20th, 2023

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Oil futures shake off early declines to finish higher

U.S. oil prices had broken down out of the 2023 trading range to reach multi-year lows last week, with contagion fears stemming from the first bank failures since the Great Financial Crisis triggered massive volatility and significant risk-off money flows early last week, said Tyler Richey, co-editor at Sevens Report Research. Click here to read the full article.

Fed Takeaways

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What’s in Today’s Report:

  • Is the More-Dovish-Than-Expected Fed Decision a Bullish Gamechanger? No. Here’s Why
  • Fed Decision Takeaways
  • EIA Data Takeaways and Oil Update

U.S. equity futures are rebounding modestly this morning but the price action is tentative as yesterday’s volatile reaction to the Fed decision and Yellen’s push back on “blanket” deposit guarantees are digested.

Looking overseas, the Swiss National Bank moved forward with a 50 bp rate hike overnight which showed policy makers’ increased confidence in the global banking system and continued commitment to reign in inflation pressures.

Looking into today’s session, there are a few economic reports to watch including: Jobless Claims (E: 195K) and New Home Sales (E: 645K).

There are no Fed officials scheduled to speak today but there is a 10-Yr TIPS auction at 1:00 p.m. ET which could offer some insight to the market’s view of long term inflation trends.

Bottom line, the late day selloff in equities yesterday was once again led by bank stocks after Treasury Secretary Yellen pushed back on the idea of expanded deposit insurance levels and today, that means bank stocks will again be in focus. If banks are able to stabilize, stocks broadly should be able to as well, but if we see more selling pressure, expect more volatility over the course of the day.

Tom Essaye Quoted in Yahoo on March 14th, 2023

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How the Bank Failures Could Impact You Even If It Wasn’t Your Money

Sevens Report analyst Tom Essaye told Forbes the selloff following Silicon Valley Bank’s collapse and a similar collapse by crypto bank Silvergate last week was “undoubtedly an unwelcome reminder” of the 2008 financial crisis. And noted that SVB tried but failed to stay to afloat after the bank was forced to sell a bond portfolio at a $1.8 billion loss because higher interest rates pushed bond prices “far below” where they were when purchased. Click here to read the full article.