Posts

Why Have Stocks Dropped?

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What’s in Today’s Report:

  • Why Have Stocks Dropped?
  • A Story From the Past to Explain My Caution on the Future Economy
  • Chart: 10-Year Yield Approaches Key Downtrend Line

Futures declined overnight as the 10-year topped 2.80% with a focus on today’s CPI report but yields have since pulled back and futures are trading effectively unchanged.

Economically, the Japanese PPI was hot (9.5% vs. E: 9.3%) and the U.S. NFIB Small Business Optimism Index missed estimates (93.2 vs. E: 95.0), neither of which are helping trader sentiment today.

Geopolitically, Russia was accused of using chemical weapons in Ukraine, which would be a significant escalation if true, but that information has not been substantiated yet.

Looking into today’s session, focus will be on economic data early with CPI (E: 1.1%) due out ahead of the bell. If the core number comes in below estimates, that could offer the market some relief and spark a reversal higher.

Then attention will turn to the Fed as Brainard speaks over the lunch hour (12:10 p.m. ET) and Barkin is scheduled to speak after the close (5:30 p.m. ET). Brainard’s comments will be closely watched as her hawkishness last week caused rates to surge higher and stocks to selloff.

Finally, there is a 10-Yr Treasury Note auction at 1:00 p.m. ET which will offer some fresh insight to demand for Treasuries amid the latest surge in yields. And if the auction is solid, that could also help yields pullback and stocks rebound.

Will Inflation Start to Peak This Week?

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What’s in Today’s Report:

  • Updated Market Outlook
  • Weekly Market Preview:  Will Inflation Start to Peak?
  • Weekly Economic Cheat Sheet:  Key Inflation Data This Week

Futures are modestly lower as Chinese inflation stayed high while the Russia/Ukraine war may be intensifying.

Chinese PPI rose 8.3% vs. (E) 8.1% while CPI gained 1.5% vs. (E) 1.4%, underscoring that inflation has not yet peaked in China.

Geo-politically, Russia is poised for a large assault on eastern Ukraine and analysts are anticipating some of the more intense fighting of the war.

Today there are no economic reports but there are several Fed speakers including Bostic (9:30 a.m. ET), Williams (12:00 p.m. ET) and Evans (12:40 p.m. ET) and we expect them to continue the trend of guiding markets towards a 50 bps hike in May and endorsing the idea of 250 basis points of tightening by year-end (but that shouldn’t move markets as that is already well known).

Are Stock and Bond Markets Starting to Forecast an Economic Slowdown?

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What’s in Today’s Report:

  • Are the Stock and Bond Markets Starting to Forecast An Economic Slowdown?

Futures are slightly higher mostly on momentum from Thursday’s close, following a quiet night of news.

The global trend in central banks turning more hawkish continued overnight as the Reserve Bank of India left rates unchanged (as expected) but warned that inflation was too high.

Geopolitically, a Kremlin spokesman said that Russia hoped to end its “operation” in Ukraine in the coming days or weeks, although analysts are skeptical of the promise.

Today there are no notable economic reports nor any Fed speakers, so between the sparse calendar and the Masters, I’d expect a relatively slow day.  That said, if we get any geo-political headlines from Russia that imply a sooner than expected cease-fire, then stocks can extend Thursday’s rally.

General Technical Take for Equities

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What’s in Today’s Report:

  • What the FOMC Minute Mean for Markets (Hawkish)
  • General Technical Take for Equities
  • EIA Analysis and Oil Market Update

Futures are bouncing slightly following a quiet night as markets digest the declines of the past two days.

Economic data was mixed overnight as German Industrial Production missed estimates while Euro Zone Retail Sales beat expectations, but neither number is moving markets.

Geopolitically there was no new news on Russia/Ukraine as the conflict continues with little signs of any progress towards a cease fire.

Today we get one notable economic report, Jobless Claims (E: 202K) but three Fed speakers:  Bullard (9:00 a.m. ET), Evans (2:00 p.m. ET) and Williams (4:05 p.m.).  We expect each of them to further hammer the point that rates are rising by 50 bps in May, with balance sheet reduction beginning in the same month.  But, as long as they don’t say anything “hawkishly new” then stocks should be able to look past the commentary.

Tom Essaye Quoted in Financial Post on April 5, 2022

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Treasuries Retreat While U.S. Stocks Decline: Markets Wrap

Stocks are vulnerable to disappointment once again given the recent rally, so any deterioration in the Russia/Ukraine situation, spike in oil and hints of stagflation (high inflation/lagging growth) will hit stocks, and a 10% air pocket shouldn’t shock anyone…Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter, said in a note. Click here to read the full article.

Market Multiple Table: April Update

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What’s in Today’s Report:

  • Market Multiple Table: April Update

Futures are modestly lower with European markets while oil rallies and global bond yields move higher amid simmering geopolitical tensions and lingering inflation fears.

Economically, Final Composite PMI data was mostly better than expected in Europe overnight but price measures continued to rise, suggesting inflation has still not peaked.

Today, we will get two economic reports starting with International Trade (E: -$88.8B), but the ISM Services Index (E: 58.5) will be the more important release to watch shortly after the opening bell as a continued rise in the price measures could further stoke inflation/stagflation fears.

Additionally, there are multiple Fed speakers today: Kashkari (10:00 a.m. ET), Brainard (11:05 a.m. ET), Daly (12:30 p.m. ET), and Williams (2:00 p.m. ET). And if their tone is more hawkish than current market expectations, that could send yields to new highs and pressure high growth tech names which would drag the broad market lower.

Tom Essaye Quoted in CNBC on March 31, 2022

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Dow drops to snap four-day winning streak, Nasdaq falls more than 1%

Above 4,600 in the S&P 500, markets have now traded through most fundamental bounds of valuation, and for this rally to continue, we’ll need to see real, actual positive events (not just events that aren’t as bad as feared)…Tom Essaye of The Sevens Report said in a note to clients Wednesday. Click here to read the full article.

Tom Essaye Quoted in Big News Network on March 31, 2022

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Above 4,600 in the S&P 500, markets have now traded through most fundamental bounds of valuation, and for this rally to continue, we’ll need to see real actual positive events…Tom Essaye of the Sevens Report. Click here to read the full article.

 

Tom Essaye Quoted in Forbes on April 1, 2022

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This Recession Indicator Is Flashing Warning Signs As Fed, War And Oil Threaten Economic Recovery

Instead, it’s a signal that the bull market’s time is now limited… said market analyst Tom Essaye of the Sevens Report. Click here to read the full article.

Staying Focused on What Really Causes Bear Markets

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What’s in Today’s Report:

  • Staying Focused on What Really Causes Bear Markets
  • Weekly Market Preview:  Can Oil Further Stabilize?
  • Weekly Economic Cheat Sheet:  Fed Minutes (Wednesday) Are the Key Report

Futures are slightly higher following a generally quiet weekend of news.

Geopolitically,  there are calls for more sanctions on Russia as the international community is now accusing Russia of war crimes following the discovery of a mass grave outside of Kiev. Oil, which is the key proxy for additional sanctions, is only slightly higher, however, implying the market isn’t expecting significant additional sanctions in the near term.

Economic data was sparse as the only notable report was German exports which rose solidly (up 6.4%).

Today there are no notable economic reports and no Fed speakers, so the focus will be on geopolitics, and again any hints of progress towards a ceasefire will help extend the recent rally.