Federal Reserve Chair Jerome Powell testifies before Congress in the week ahead, and markets will hang on what he says regarding how the Russia-Ukraine conflict could affect Fed policy.
Russia’s invasion of Ukraine will continue to be a major focus, as wary investors watch fresh inflation data and the rising price of oil in the week ahead.
Stocks in the past week sold off in volatile trading, as oil rose more than 20% and a whole host of other commodities rose on supply worries. Investors sought safety in bonds, driving prices higher and the 10-year Treasury yield to 1.72% Friday. The dollar rallied, pushing the dollar index up 2% on the week.
“We just don’t know what can happen over the weekend. It looks like the Russians are amping themselves up and they’re getting more aggressive,” said Jim Caron, Morgan Stanley Investment Management head of macro strategies for global fixed income.
“If nothing happens over the weekend, or if there’s some peace talks coming, then the 10-year note yield could go up 10 to 15 basis points. It could have that swing,” said Caron. Yields move opposite price. (1 basis point equals 0.01%.)
The Federal Reserve will also be top of mind, as investors focus on its pending interest rate hike on March 16. But Fed officials will not be making public addresses in the quiet period leading up to their meeting.
The economic calendar is relatively light in the coming week, with the exception of Thursday’s report of February’s consumer price index.
According to Dow Jones, economists expect headline inflation to rise to 7.8% year-over-year, from 7.5% in January, the highest since 1982. Headline inflation includes food and energy prices.
“The risk is to the upside. It will be a shocker if we get an 8% handle,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Investors will also focus on how the market itself is trading. The S&P 500 fell 1.3% to 4,328 in the past week, while the Nasdaq lost 2.8% to 13,313.
“The major averages are all in a downtrend here. They seem to rally and then run out of steam,” said Paul Hickey, co-founder of Bespoke. “Until you get some kind of break of that, you want to be a little cautious. It’s definitely concerning, all this stuff.”
Hickey said that the market is behaving similarly as it did in other conflicts.
“In the short run, there’s a lot of uncertainty,” said Hickey “I think the playbook is similar. You tend to see a lot of sloshing around - big swings up and down — and then eventually things start to stabilize a few months later...The question is where does this one go?”
Boiling oil
Following a week of gains, oil jumped sharply again Friday, with West Texas Intermediate rising above $115 for the first time since 2008. WTI rose 7.4% Friday and was up 26% for the week, to settle at $115.68. Russia’s battle for control of Europe’s largest nuclear power plant early Friday spooked investors.
The Russian invasion of Ukraine has stirred up more fear of inflation, and economists are already raising their inflation forecasts, due to rising oil prices. The whole commodities complex has shifted higher, since Russia is such a key producer of wheat, palladium, aluminum and other commodities.
Rising oil prices can be a worry since they can generate one of the biggest hits to inflation and do so quickly.
Russia is unique in that it is a very large commodity exporter and has the ability to impact many markets. It is one of the world’s largest exporters of crude and natural gas, with its primary customer Europe. It is the largest exporter of both palladium and wheat.
The jump in oil has already been hitting U.S. consumers at the pump. Gasoline prices were $3.83 per gallon of unleaded Friday, up 11 cents in just a day and 26 cents in a week, according to AAA.
“The national average could get to $4 a gallon next week,” said John Kilduff, partner with Again Capital.
In the oil market, Kilduff said there was brisk buying Friday. “There’s still room to grind higher, as we continue to price in the loss of Russian crude oil,” he said.
The U.S. and its allies did not sanction Russian energy, but the sanctions did inhibit buyers, banks and shippers who fear running afoul of sanctions on the Russian financial system.
“It’s pretty clear nobody wanted to be short going into the weekend,” said Kilduff. “There’s still room to grind higher as we continue to price in the loss of Russian crude oil.”
Oil traders are also watching to see if Iran is able to strike a deal that would allow it sell its oil on the market, in exchange for an end to its nuclear programs. It could then bring 1 million barrels back on to the market, but analysts say there will still be a shortfall.
Will Ukraine and Russia Impact The Usually Bullish March?
Good riddance to February. It was another negative month for stocks, but the clear headline was Russia invading Ukraine and the potential impacts that would have on the global economy and stock market.
First things first, this means the first two months of 2022 have been in the red for the S&P 500 Index. “Seeing the first two months of a new year in the red isn’t a great feeling, but the good news is lately it hasn’t been a major warning sign,” explained LPL Financial Chief Market Strategist Ryan Detrick. “The first two months of 2016 and 2020 were both negative, but stocks were able to claw back and finish higher those years.”
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It is important to remember that this is a midterm year and early in midterm years, stocks tend to have some trouble. That has played out once again in 2022, but don’t forget later in these years tend to see a very strong rally.
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Another angle on this is looking at how stocks do each quarter, but broken up by the four-year presidential cycle. Again, investors need to know that this quarter and the next two are some of the weakest out of the entire four-year cycle.
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Although midterm years tend to see overall weakness until late, be aware that March is one of the best months of the year.
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Lastly, looking purely at March based on seasonality shows that this is a solid month. In a midterm year, it is the fourth best month and the past 20 years it is fifth best. Since 1950, it is more in the middle at the sixth strongest. Of course, it would have been better, but the 12.5% drop in March 2020 is skewing things.
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Clearly headlines will move stocks in the near-term, but we continue to expect the overall economic growth in the U.S. to remain quite strong and likely push stocks back up to our fair value target of 5,000 on the S&P 500 by year-end.
Banks (KRE) Swing Wildly
While Financials are the best performing sector so far in today's session, leading into today it was the worst-performing sector over the past week thanks in large part to a 3.7% decline on Tuesday; the sector's worst single day since June 2020. Looking more specifically at bank stocks, using the SPDR S&P Regional Banking ETF (KRE) as a proxy, yesterday saw an even more dramatic decline of 5.47% marking the largest decline since November 2020. That drop also ranks in the bottom 1% of all daily changes on record since the ETF began trading in 2006. The over 3.5% rebound today, meanwhile, ranks in the top 5% of all days on record as yesterday's decline was not quite enough to drop the industry below its 200-DMA; a support level that has now held multiple times in the past year.
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As previously mentioned, it is rare for KRE to fall over 5% in a single day. Excluding yesterday, there were 68 other times this happened but only a dozen of those occurred with at least 3 months between the prior instance. In the table below, we show the performance of KRE after each of those periods.
While it is far from the case today, typically, the next day has often seen KRE fall further after a 5% drop. Instead, today it is seeing the second-best next-day performance of these instances. As for where things go from here though, returns have been weaker than the norm one week and one month following these past occurrences. KRE has then tended to outperform all other periods three, six, and twelve months out.
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S&P 500 Posts Full-Year Gain 47.1% of Time When January & February Are Both Down
The combination of a down January and a down February has come about 18 times, including this year, going back to 1950. Rest of the year and full-year performance has taken a rather sizable hit following the previous 17 occurrences. March through December S&P 500 average performance drops to 3.78% compared to 8.20% in all years. Full-year performance is even worse with S&P 500 average turning to a loss of -3.67% compared to an average gain of 9.48% in all years. All hope for 2022 is not lost as eight of the 17 past down January and down February years did go on to log gains over the last 10 months and full year while seven enjoyed double-digit gains from March to December.
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Are Corporate Credit Markets Starting to Crack?
Within the fixed income markets, the corporate credit markets can, at times, act like a canary in the economic coalmine. The return distribution for credit investors is asymmetrical, which means the potential for losses can be magnitudes larger than the potential for gains. So, credit markets tend to react quickly when economic conditions or corporate credit conditions start to deteriorate. And while fixed income markets broadly are down on the year, corporate credit markets (both investment grade and non-investment grade) are among the worst performing markets in the U.S. this year. Should investors take this as a sign that corporate credit markets are showing signs of stress? We don’t think so.
“U.S. corporate credit markets have underperformed this year but not because of increased credit risks, in our view,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “That we’re seeing broad based negative returns across most fixed income asset classes is largely due to higher Treasury yields and not deteriorating credit fundamentals.”
A Credit Default Swap Index (CDX) is a benchmark index that tracks a basket of U.S. corporate credit issuers and tends to act like an insurance policy in the case of an issuer’s default. In essence, credit default swaps strip out most of the interest rate risk of an issuesecurity and measures just the credit risk. As seen in the LPL Chart of the Day, credit default swap indexes have increased this year but remain well within normal ranges.
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As inflationary pressures have broadened this year, Treasury yields, across the curve, have increased due to expectations of Federal Reserve (Fed) interest rate hikes. That’s been the main driver of broad-based bond losses and we don’t think it should raise concerns about credit fundamentals. Moreover, we’re seeing the costs to insure the higher rated cohorts (the investment grade issuers) increase at a faster pace than the more default prone, non-investment grade cohort, confirming for us that the increase in cost is due to higher Treasury yields and not a deterioration in corporate credit conditions.
From a fundamental perspective, corporate balance sheets are still in good shape. Leverage ratios have increased recently, but net debt ratios (debt minus cash on the balance sheets) remain within historical norms. Also, due to the record amount of issuance over the last few years, companies were able to refinance debt at very low interest rates and push back when that debt was set to mature. As such, interest expenses have come down and now many corporations don’t need to access the capital markets anytime soon. We do continue to watch how these companies manage capital allocation decisions. Increases in M&A activity, share buybacks, and outsized dividends are all risks to bondholders and things that may lead to deteriorating credit fundamentals.
High Levels of Volatility
It's been a volatile start to 2022 so far. With an average intraday trading range of two percentage points, the S&P 500's average intraday range in the first 41 trading days of the year has been the widest since 2009, and the only other year besides 2009 where the average range was wider was 2008.
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High levels of intraday volatility tend to coincide with periods of elevated uncertainty among investors and typically occur during periods when the market is lower. When the average daily range of the S&P 500 has been more than 1.5 percentage points during the first 41 trading days of the year, the average YTD performance of the S&P 500 was a decline of 5.7% (median: -4.3%). This significantly trails the average gain of 1.3% (median: 2.0%) of all years since 1983. So far this year, the S&P 500 has had the second-worst start since 1983 trailing just 2009, when the S&P 500 tanked 25.3% in the first 41 trading days.
Regarding forward returns after these volatile starts, returns vary. Although performance over the following one and three months tended to be better than average and more consistent to the upside, over the following six months and for the rest of the year, performance was more mixed.
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Job Gains Surprise to the Upside But Fed Will Still Likely Hike by 25 Basis Points Next Meeting
The U.S. economy added 678,000 jobs in February and this strong report exceeded consensus forecast of 423,000. The unemployment rate fell to 3.8 percent from 4 percent in January, edging closer to pre pandemic levels. In February 2020, the unemployment rate was 3.5 percent.
The survey period for this report closed before Russia invaded Ukraine so no geopolitical impacts are in these data.
February jobs gains were broad based but mainly in the services sector as pandemic effects wane. Restaurants alone added 124,000 and the return to schooling pushed education jobs up by 112,000. Professional and business services added 95,000 jobs.
The participation rate is 62.3 percent, still 1.1 percentage points below February 2020. Participation rates are still lower than before the pandemic as individuals with young children may struggle to find childcare. The composition of the labor force is also changing as some baby boomers are taking early retirements.
In February, 13 percent worked remotely because of the pandemic, down from 15.4 percent last month. This percentage will likely continue to decline as more offices across the country loosen restrictions.
Another encouraging sign is the decline in people unable to work because of COVID-19-related business declines, either from closed or lost business. In February, 4.2 million reported inability to work because of business disruptions, down from 6 million last month.
“The February jobs numbers are encouraging but overall, this does not change expectations for how the FOMC will set interest rates at the next meeting. The big conundrum for policy makers right now is how to relieve inflation fatigue yet still protect the economy from geopolitical stress,” said LPL Financial Chief Economist Jeffrey Roach.
Wage growth is slowing. February average hourly earnings were unchanged from January and up 5.1 percent from a year ago. Looking ahead, wages may begin to moderate as the labor market loosens. Participation rates should continue to increase to pre-pandemic levels by the end of this year.
As shown in the LPL Chart of the Day, February posted one of the strongest reports in the last 12 months. The reopening process is supporting the services sector and hiring in services industries like leisure and hospitality strongly contributed to the headline gain in employment. This latest release from the Bureau of Labor Statistics will not likely change the minds of the FOMC in the upcoming meeting. Chairman Powell already revealed his preference for a 25 basis point hike in rates and this is the most likely action.
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- ($BLNK $ZIM $CRWD $DKS $DOCU $JD $RIVN $NIU $CIEN $VET $AMR $ORCL $SQSP $ASAN $OTLY $WOOF $ULTA $ITRN $EXPR $BMBL $MDB $SFIX $THO $MQ $EGRX $AG $IMXI $KOPN $CPB $ESTE $MTNB $UNFI $BBW $NINE $ALTO $CLVT $DM $WPM $SB $PLCE $HPK)
Monday 3.7.22 Before Market Open:
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Tuesday 3.8.22 Before Market Open:
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Wednesday 3.9.22 Before Market Open:
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Thursday 3.10.22 Before Market Open:
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Blink Charging Co. $22.43
Blink Charging Co. (BLNK) is confirmed to report earnings at approximately 4:00 PM ET on Thursday, March 10, 2022. The consensus estimate is for a loss of $0.39 per share on revenue of $5.43 million and the Earnings Whisper ® number is ($0.43) per share. Investor sentiment going into the company's earnings release has 57% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 62.50% with revenue increasing by 121.36%. Short interest has increased by 16.7% since the company's last earnings release while the stock has drifted lower by 44.5% from its open following the earnings release to be 51.1% below its 200 day moving average of $45.89. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, February 9, 2022 there was some notable buying of 9,113 contracts of the $30.00 call and 8,903 contracts of the $30.00 put expiring on Friday, March 18, 2022. Option traders are pricing in a 16.2% move on earnings and the stock has averaged a 10.0% move in recent quarters.
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ZIM Integrated Shipping Services Ltd. $71.88
ZIM Integrated Shipping Services Ltd. (ZIM) is confirmed to report earnings at approximately 7:00 AM ET on Wednesday, March 9, 2022. The consensus earnings estimate is $13.65 per share on revenue of $3.24 billion and the Earnings Whisper ® number is $14.23 per share. Investor sentiment going into the company's earnings release has 81% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 291.12% with revenue increasing by 138.09%. Short interest has increased by 28.0% since the company's last earnings release while the stock has drifted higher by 35.4% from its open following the earnings release to be 39.5% above its 200 day moving average of $51.52. Overall earnings estimates have been revised higher since the company's last earnings release. On Wednesday, February 2, 2022 there was some notable buying of 1,286 contracts of the $60.00 put expiring on Friday, March 18, 2022. Option traders are pricing in a 12.0% move on earnings and the stock has averaged a 5.6% move in recent quarters.
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CrowdStrike, Inc. $179.03
CrowdStrike, Inc. (CRWD) is confirmed to report earnings at approximately 4:05 PM ET on Wednesday, March 9, 2022. The consensus earnings estimate is $0.21 per share on revenue of $410.86 million and the Earnings Whisper ® number is $0.23 per share. Investor sentiment going into the company's earnings release has 71% expecting an earnings beat The company's guidance was for earnings of $0.19 to $0.21 per share on revenue of $406.50 million to $412.30 million. Consensus estimates are for year-over-year earnings growth of 200.00% with revenue increasing by 55.08%. Short interest has increased by 17.8% since the company's last earnings release while the stock has drifted lower by 13.9% from its open following the earnings release to be 22.6% below its 200 day moving average of $231.38. Overall earnings estimates have been revised higher since the company's last earnings release. On Monday, February 28, 2022 there was some notable buying of 2,946 contracts of the $220.00 call expiring on Friday, March 11, 2022. Option traders are pricing in a 13.0% move on earnings and the stock has averaged a 6.8% move in recent quarters.
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DICK'S Sporting Goods, Inc. $109.71
DICK'S Sporting Goods, Inc. (DKS) is confirmed to report earnings at approximately 7:30 AM ET on Tuesday, March 8, 2022. The consensus earnings estimate is $3.54 per share on revenue of $3.28 billion and the Earnings Whisper ® number is $3.60 per share. Investor sentiment going into the company's earnings release has 51% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 45.68% with revenue increasing by 4.95%. Short interest has increased by 34.6% since the company's last earnings release while the stock has drifted lower by 17.5% from its open following the earnings release to be 2.8% below its 200 day moving average of $112.91. Overall earnings estimates have been revised higher since the company's last earnings release. On Wednesday, February 16, 2022 there was some notable buying of 5,395 contracts of the $115.00 call expiring on Friday, March 18, 2022. Option traders are pricing in a 13.4% move on earnings and the stock has averaged a 9.4% move in recent quarters.
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DocuSign $101.38
DocuSign (DOCU) is confirmed to report earnings at approximately 4:05 PM ET on Thursday, March 10, 2022. The consensus earnings estimate is $0.47 per share on revenue of $561.47 million and the Earnings Whisper ® number is $0.52 per share. Investor sentiment going into the company's earnings release has 48% expecting an earnings beat The company's guidance was for revenue of $557.00 million to $563.00 million. Consensus estimates are for year-over-year earnings growth of 51.61% with revenue increasing by 30.30%. Short interest has increased by 48.3% since the company's last earnings release while the stock has drifted lower by 34.5% from its open following the earnings release to be 55.0% below its 200 day moving average of $225.33. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, February 25, 2022 there was some notable buying of 10,045 contracts of the $85.00 call expiring on Friday, May 20, 2022. Option traders are pricing in a 20.4% move on earnings and the stock has averaged a 15.0% move in recent quarters.
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JD.com, Inc. $63.59
JD.com, Inc. (JD) is confirmed to report earnings at approximately 4:00 AM ET on Thursday, March 10, 2022. The consensus earnings estimate is $0.25 per share on revenue of $43.81 billion and the Earnings Whisper ® number is $0.28 per share. Investor sentiment going into the company's earnings release has 78% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 177.78% with revenue increasing by 27.43%. Short interest has increased by 22.5% since the company's last earnings release while the stock has drifted lower by 27.7% from its open following the earnings release to be 15.4% below its 200 day moving average of $75.12. Overall earnings estimates have been revised higher since the company's last earnings release. On Thursday, March 3, 2022 there was some notable buying of 15,266 contracts of the $105.00 call expiring on Friday, May 20, 2022. Option traders are pricing in a 10.4% move on earnings and the stock has averaged a 4.4% move in recent quarters.
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Rivian Automotive, Inc. $47.39
Rivian Automotive, Inc. (RIVN) is confirmed to report earnings at approximately 4:10 PM ET on Thursday, March 10, 2022. The consensus estimate is for a loss of $1.58 per share on revenue of $61.67 million and the Earnings Whisper ® number is ($1.65) per share. Investor sentiment going into the company's earnings release has 31% expecting an earnings beat. The stock has drifted lower by 52.6% from its open following the earnings release. Overall earnings estimates have been revised lower since the company's last earnings release. On Thursday, March 3, 2022 there was some notable buying of 2,900 contracts of the $50.00 put expiring on Friday, March 11, 2022. Option traders are pricing in a 18.6% move on earnings and the stock has averaged a 10.3% move in recent quarters.
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Niu Technologies $10.44
Niu Technologies (NIU) is confirmed to report earnings at approximately 2:00 AM ET on Monday, March 7, 2022. Investor sentiment going into the company's earnings release has 62% expecting an earnings beat The company's guidance was for revenue of $131.57 million to $142.54 million. Short interest has increased by 2.7% since the company's last earnings release while the stock has drifted lower by 52.1% from its open following the earnings release to be 55.0% below its 200 day moving average of $23.20. Overall earnings estimates have been revised lower since the company's last earnings release. Option traders are pricing in a 24.7% move on earnings and the stock has averaged a 7.0% move in recent quarters.
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Ciena Corporation $65.94
Ciena Corporation (CIEN) is confirmed to report earnings at approximately 7:00 AM ET on Monday, March 7, 2022. The consensus earnings estimate is $0.45 per share on revenue of $894.85 million and the Earnings Whisper ® number is $0.43 per share. Investor sentiment going into the company's earnings release has 50% expecting an earnings beat The company's guidance was for revenue of $870.00 million to $910.00 million. Consensus estimates are for earnings to decline year-over-year by 11.76% with revenue increasing by 18.19%. Short interest has increased by 45.6% since the company's last earnings release while the stock has drifted lower by 5.7% from its open following the earnings release to be 9.6% above its 200 day moving average of $60.14. On Tuesday, February 15, 2022 there was some notable buying of 516 contracts of the $75.00 call expiring on Friday, March 18, 2022. Option traders are pricing in a 12.7% move on earnings and the stock has averaged a 9.3% move in recent quarters.
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Vermilion Energy Inc. $19.70
Vermilion Energy Inc. (VET) is confirmed to report earnings at approximately 2:00 AM ET on Monday, March 7, 2022. The consensus earnings estimate is $0.53 per share on revenue of $392.86 million and the Earnings Whisper ® number is $0.70 per share. Investor sentiment going into the company's earnings release has 64% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 352.38% with revenue increasing by 61.91%. Short interest has increased by 10.7% since the company's last earnings release while the stock has drifted higher by 69.8% from its open following the earnings release to be 86.8% above its 200 day moving average of $10.55. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, March 4, 2022 there was some notable buying of 1,681 contracts of the $17.50 put expiring on Friday, September 16, 2022. Option traders are pricing in a 16.1% move on earnings and the stock has averaged a 10.0% move in recent quarters.
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Federal Reserve Chair Jerome Powell testifies before Congress in the week ahead, and markets will hang on what he says regarding how the Russia-Ukraine conflict could affect Fed policy.
Russia’s invasion of Ukraine will continue to be a major focus, as wary investors watch fresh inflation data and the rising price of oil in the week ahead.
Stocks in the past week sold off in volatile trading, as oil rose more than 20% and a whole host of other commodities rose on supply worries. Investors sought safety in bonds, driving prices higher and the 10-year Treasury yield to 1.72% Friday. The dollar rallied, pushing the dollar index up 2% on the week.
“We just don’t know what can happen over the weekend. It looks like the Russians are amping themselves up and they’re getting more aggressive,” said Jim Caron, Morgan Stanley Investment Management head of macro strategies for global fixed income.
“If nothing happens over the weekend, or if there’s some peace talks coming, then the 10-year note yield could go up 10 to 15 basis points. It could have that swing,” said Caron. Yields move opposite price. (1 basis point equals 0.01%.)
The Federal Reserve will also be top of mind, as investors focus on its pending interest rate hike on March 16. But Fed officials will not be making public addresses in the quiet period leading up to their meeting.
The economic calendar is relatively light in the coming week, with the exception of Thursday’s report of February’s consumer price index.
According to Dow Jones, economists expect headline inflation to rise to 7.8% year-over-year, from 7.5% in January, the highest since 1982. Headline inflation includes food and energy prices.
“The risk is to the upside. It will be a shocker if we get an 8% handle,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Investors will also focus on how the market itself is trading. The S&P 500 fell 1.3% to 4,328 in the past week, while the Nasdaq lost 2.8% to 13,313.
“The major averages are all in a downtrend here. They seem to rally and then run out of steam,” said Paul Hickey, co-founder of Bespoke. “Until you get some kind of break of that, you want to be a little cautious. It’s definitely concerning, all this stuff.”
Hickey said that the market is behaving similarly as it did in other conflicts.
“In the short run, there’s a lot of uncertainty,” said Hickey “I think the playbook is similar. You tend to see a lot of sloshing around - big swings up and down — and then eventually things start to stabilize a few months later...The question is where does this one go?”
Boiling oil
Following a week of gains, oil jumped sharply again Friday, with West Texas Intermediate rising above $115 for the first time since 2008. WTI rose 7.4% Friday and was up 26% for the week, to settle at $115.68. Russia’s battle for control of Europe’s largest nuclear power plant early Friday spooked investors.
The Russian invasion of Ukraine has stirred up more fear of inflation, and economists are already raising their inflation forecasts, due to rising oil prices. The whole commodities complex has shifted higher, since Russia is such a key producer of wheat, palladium, aluminum and other commodities.
Rising oil prices can be a worry since they can generate one of the biggest hits to inflation and do so quickly.
Russia is unique in that it is a very large commodity exporter and has the ability to impact many markets. It is one of the world’s largest exporters of crude and natural gas, with its primary customer Europe. It is the largest exporter of both palladium and wheat.
The jump in oil has already been hitting U.S. consumers at the pump. Gasoline prices were $3.83 per gallon of unleaded Friday, up 11 cents in just a day and 26 cents in a week, according to AAA.
“The national average could get to $4 a gallon next week,” said John Kilduff, partner with Again Capital.
In the oil market, Kilduff said there was brisk buying Friday. “There’s still room to grind higher, as we continue to price in the loss of Russian crude oil,” he said.
The U.S. and its allies did not sanction Russian energy, but the sanctions did inhibit buyers, banks and shippers who fear running afoul of sanctions on the Russian financial system.
“It’s pretty clear nobody wanted to be short going into the weekend,” said Kilduff. “There’s still room to grind higher as we continue to price in the loss of Russian crude oil.”
Oil traders are also watching to see if Iran is able to strike a deal that would allow it sell its oil on the market, in exchange for an end to its nuclear programs. It could then bring 1 million barrels back on to the market, but analysts say there will still be a shortfall.
Will Ukraine and Russia Impact The Usually Bullish March?
Good riddance to February. It was another negative month for stocks, but the clear headline was Russia invading Ukraine and the potential impacts that would have on the global economy and stock market.
First things first, this means the first two months of 2022 have been in the red for the S&P 500 Index. “Seeing the first two months of a new year in the red isn’t a great feeling, but the good news is lately it hasn’t been a major warning sign,” explained LPL Financial Chief Market Strategist Ryan Detrick. “The first two months of 2016 and 2020 were both negative, but stocks were able to claw back and finish higher those years.”
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It is important to remember that this is a midterm year and early in midterm years, stocks tend to have some trouble. That has played out once again in 2022, but don’t forget later in these years tend to see a very strong rally.
(CLICK HERE FOR THE CHART!)
Another angle on this is looking at how stocks do each quarter, but broken up by the four-year presidential cycle. Again, investors need to know that this quarter and the next two are some of the weakest out of the entire four-year cycle.
(CLICK HERE FOR THE CHART!)
Although midterm years tend to see overall weakness until late, be aware that March is one of the best months of the year.
(CLICK HERE FOR THE CHART!)
Lastly, looking purely at March based on seasonality shows that this is a solid month. In a midterm year, it is the fourth best month and the past 20 years it is fifth best. Since 1950, it is more in the middle at the sixth strongest. Of course, it would have been better, but the 12.5% drop in March 2020 is skewing things.
(CLICK HERE FOR THE CHART!)
Clearly headlines will move stocks in the near-term, but we continue to expect the overall economic growth in the U.S. to remain quite strong and likely push stocks back up to our fair value target of 5,000 on the S&P 500 by year-end.
Banks (KRE) Swing Wildly
While Financials are the best performing sector so far in today's session, leading into today it was the worst-performing sector over the past week thanks in large part to a 3.7% decline on Tuesday; the sector's worst single day since June 2020. Looking more specifically at bank stocks, using the SPDR S&P Regional Banking ETF (KRE) as a proxy, yesterday saw an even more dramatic decline of 5.47% marking the largest decline since November 2020. That drop also ranks in the bottom 1% of all daily changes on record since the ETF began trading in 2006. The over 3.5% rebound today, meanwhile, ranks in the top 5% of all days on record as yesterday's decline was not quite enough to drop the industry below its 200-DMA; a support level that has now held multiple times in the past year.
(CLICK HERE FOR THE CHART!)
(CLICK HERE FOR THE CHART!)
As previously mentioned, it is rare for KRE to fall over 5% in a single day. Excluding yesterday, there were 68 other times this happened but only a dozen of those occurred with at least 3 months between the prior instance. In the table below, we show the performance of KRE after each of those periods.
While it is far from the case today, typically, the next day has often seen KRE fall further after a 5% drop. Instead, today it is seeing the second-best next-day performance of these instances. As for where things go from here though, returns have been weaker than the norm one week and one month following these past occurrences. KRE has then tended to outperform all other periods three, six, and twelve months out.
(CLICK HERE FOR THE CHART!)
S&P 500 Posts Full-Year Gain 47.1% of Time When January & February Are Both Down
The combination of a down January and a down February has come about 18 times, including this year, going back to 1950. Rest of the year and full-year performance has taken a rather sizable hit following the previous 17 occurrences. March through December S&P 500 average performance drops to 3.78% compared to 8.20% in all years. Full-year performance is even worse with S&P 500 average turning to a loss of -3.67% compared to an average gain of 9.48% in all years. All hope for 2022 is not lost as eight of the 17 past down January and down February years did go on to log gains over the last 10 months and full year while seven enjoyed double-digit gains from March to December.
(CLICK HERE FOR THE CHART!)
Are Corporate Credit Markets Starting to Crack?
Within the fixed income markets, the corporate credit markets can, at times, act like a canary in the economic coalmine. The return distribution for credit investors is asymmetrical, which means the potential for losses can be magnitudes larger than the potential for gains. So, credit markets tend to react quickly when economic conditions or corporate credit conditions start to deteriorate. And while fixed income markets broadly are down on the year, corporate credit markets (both investment grade and non-investment grade) are among the worst performing markets in the U.S. this year. Should investors take this as a sign that corporate credit markets are showing signs of stress? We don’t think so.
“U.S. corporate credit markets have underperformed this year but not because of increased credit risks, in our view,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “That we’re seeing broad based negative returns across most fixed income asset classes is largely due to higher Treasury yields and not deteriorating credit fundamentals.”
A Credit Default Swap Index (CDX) is a benchmark index that tracks a basket of U.S. corporate credit issuers and tends to act like an insurance policy in the case of an issuer’s default. In essence, credit default swaps strip out most of the interest rate risk of an issuesecurity and measures just the credit risk. As seen in the LPL Chart of the Day, credit default swap indexes have increased this year but remain well within normal ranges.
(CLICK HERE FOR THE CHART!)
As inflationary pressures have broadened this year, Treasury yields, across the curve, have increased due to expectations of Federal Reserve (Fed) interest rate hikes. That’s been the main driver of broad-based bond losses and we don’t think it should raise concerns about credit fundamentals. Moreover, we’re seeing the costs to insure the higher rated cohorts (the investment grade issuers) increase at a faster pace than the more default prone, non-investment grade cohort, confirming for us that the increase in cost is due to higher Treasury yields and not a deterioration in corporate credit conditions.
From a fundamental perspective, corporate balance sheets are still in good shape. Leverage ratios have increased recently, but net debt ratios (debt minus cash on the balance sheets) remain within historical norms. Also, due to the record amount of issuance over the last few years, companies were able to refinance debt at very low interest rates and push back when that debt was set to mature. As such, interest expenses have come down and now many corporations don’t need to access the capital markets anytime soon. We do continue to watch how these companies manage capital allocation decisions. Increases in M&A activity, share buybacks, and outsized dividends are all risks to bondholders and things that may lead to deteriorating credit fundamentals.
High Levels of Volatility
It's been a volatile start to 2022 so far. With an average intraday trading range of two percentage points, the S&P 500's average intraday range in the first 41 trading days of the year has been the widest since 2009, and the only other year besides 2009 where the average range was wider was 2008.
(CLICK HERE FOR THE CHART!)
High levels of intraday volatility tend to coincide with periods of elevated uncertainty among investors and typically occur during periods when the market is lower. When the average daily range of the S&P 500 has been more than 1.5 percentage points during the first 41 trading days of the year, the average YTD performance of the S&P 500 was a decline of 5.7% (median: -4.3%). This significantly trails the average gain of 1.3% (median: 2.0%) of all years since 1983. So far this year, the S&P 500 has had the second-worst start since 1983 trailing just 2009, when the S&P 500 tanked 25.3% in the first 41 trading days.
Regarding forward returns after these volatile starts, returns vary. Although performance over the following one and three months tended to be better than average and more consistent to the upside, over the following six months and for the rest of the year, performance was more mixed.
(CLICK HERE FOR THE CHART!)
Job Gains Surprise to the Upside But Fed Will Still Likely Hike by 25 Basis Points Next Meeting
The U.S. economy added 678,000 jobs in February and this strong report exceeded consensus forecast of 423,000. The unemployment rate fell to 3.8 percent from 4 percent in January, edging closer to pre pandemic levels. In February 2020, the unemployment rate was 3.5 percent.
The survey period for this report closed before Russia invaded Ukraine so no geopolitical impacts are in these data.
February jobs gains were broad based but mainly in the services sector as pandemic effects wane. Restaurants alone added 124,000 and the return to schooling pushed education jobs up by 112,000. Professional and business services added 95,000 jobs.
The participation rate is 62.3 percent, still 1.1 percentage points below February 2020. Participation rates are still lower than before the pandemic as individuals with young children may struggle to find childcare. The composition of the labor force is also changing as some baby boomers are taking early retirements.
In February, 13 percent worked remotely because of the pandemic, down from 15.4 percent last month. This percentage will likely continue to decline as more offices across the country loosen restrictions.
Another encouraging sign is the decline in people unable to work because of COVID-19-related business declines, either from closed or lost business. In February, 4.2 million reported inability to work because of business disruptions, down from 6 million last month.
“The February jobs numbers are encouraging but overall, this does not change expectations for how the FOMC will set interest rates at the next meeting. The big conundrum for policy makers right now is how to relieve inflation fatigue yet still protect the economy from geopolitical stress,” said LPL Financial Chief Economist Jeffrey Roach.
Wage growth is slowing. February average hourly earnings were unchanged from January and up 5.1 percent from a year ago. Looking ahead, wages may begin to moderate as the labor market loosens. Participation rates should continue to increase to pre-pandemic levels by the end of this year.
As shown in the LPL Chart of the Day, February posted one of the strongest reports in the last 12 months. The reopening process is supporting the services sector and hiring in services industries like leisure and hospitality strongly contributed to the headline gain in employment. This latest release from the Bureau of Labor Statistics will not likely change the minds of the FOMC in the upcoming meeting. Chairman Powell already revealed his preference for a 25 basis point hike in rates and this is the most likely action.
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Monday 3.7.22 Before Market Open:
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Monday 3.7.22 After Market Close:
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Tuesday 3.8.22 Before Market Open:
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Tuesday 3.8.22 After Market Close:
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Wednesday 3.9.22 Before Market Open:
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Wednesday 3.9.22 After Market Close:
(CLICK HERE FOR WEDNESDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
Thursday 3.10.22 Before Market Open:
(CLICK HERE FOR THURSDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Thursday 3.10.22 After Market Close:
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Friday 3.11.22 Before Market Open:
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Friday 3.11.22 After Market Close:
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(NONE.)
(T.B.A. THIS WEEKEND.)
(T.B.A. THIS WEEKEND.) (T.B.A. THIS WEEKEND.).
(CLICK HERE FOR THE CHART!)
| STOCK | PRICE | VOLUME (AVG) | CALLS% - PUTS% | MOST ACTIVE |
|---|---|---|---|---|
| VYGR* | 5.48 | 18.9K (547) | 92 - 8 | Oct 5c (8.7K) |
| CEI** | 1.73 | 320.1K (53.3K) | 70 + 30 | Oct 2c (78.1K) |
| FAMI** | 0.36 | N/A | N/A | N/A |
| PROG | 1.36 | 35.2K (15.1K) | 96 - 4 | Oct 1.5c (9K) |
| REI | 3.91 | 16.8K (5K) | 64 - 36 | Nov 5c (5.3K) |
| ENDP | 4.04 | 15.6K (5.4K) | 33 - 67 | Apr 2p (6.1K) |
| UAMY | 0.90 | 13.2K (1.7K) | 99 - 1 | Oct 1c 10.3K |
| TGB | 1.95 | 11.1K (1.3K) | 99 - 1 | Nov 2c (10.1K) |
| ABEV | 2.73 | 8.9K (3.2K) | 98 - 2 | Apr 3c (4.2K) |
| INVZ | 4.75 | 7.9K (2.9K) | 93 - 7 | Jan22 7.5c (3.5K) |
| GTE | 0.90 | 6.3K (2.8K) | 96 - 4 | Oct 0.5c (2.2K) |
| TTI | 3.42 | 5.4K (784) | 100 - 0 | Dec 5c (2.2K) |
| AMPY | 3.45 | 4K (1.3K) | 86 - 14 | Nov 5c (1.8K) |
| WTI | 4.30 | 4K (1.9K) | 92 - 8 | Oct 4c (1.4K) |
| KOS | 3.19 | 3.3K (918) | 97 - 3 | Jan22 5c (1.3K) |
| SEEL | 2.27 | 3.2K (1.6K) | 99 - 1 | Oct 2.5c (2.5K) |
| AGRX | 0.68 | 2.4K (288) | 100 - 0 | Dec 2.5c (1.3K) |
Federal Reserve Chair Jerome Powell testifies before Congress in the week ahead, and markets will hang on what he says regarding how the Russia-Ukraine conflict could affect Fed policy.
Russia’s invasion of Ukraine will continue to be a major focus, as wary investors watch fresh inflation data and the rising price of oil in the week ahead.
Stocks in the past week sold off in volatile trading, as oil rose more than 20% and a whole host of other commodities rose on supply worries. Investors sought safety in bonds, driving prices higher and the 10-year Treasury yield to 1.72% Friday. The dollar rallied, pushing the dollar index up 2% on the week.
“We just don’t know what can happen over the weekend. It looks like the Russians are amping themselves up and they’re getting more aggressive,” said Jim Caron, Morgan Stanley Investment Management head of macro strategies for global fixed income.
“If nothing happens over the weekend, or if there’s some peace talks coming, then the 10-year note yield could go up 10 to 15 basis points. It could have that swing,” said Caron. Yields move opposite price. (1 basis point equals 0.01%.)
The Federal Reserve will also be top of mind, as investors focus on its pending interest rate hike on March 16. But Fed officials will not be making public addresses in the quiet period leading up to their meeting.
The economic calendar is relatively light in the coming week, with the exception of Thursday’s report of February’s consumer price index.
According to Dow Jones, economists expect headline inflation to rise to 7.8% year-over-year, from 7.5% in January, the highest since 1982. Headline inflation includes food and energy prices.
“The risk is to the upside. It will be a shocker if we get an 8% handle,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Investors will also focus on how the market itself is trading. The S&P 500 fell 1.3% to 4,328 in the past week, while the Nasdaq lost 2.8% to 13,313.
“The major averages are all in a downtrend here. They seem to rally and then run out of steam,” said Paul Hickey, co-founder of Bespoke. “Until you get some kind of break of that, you want to be a little cautious. It’s definitely concerning, all this stuff.”
Hickey said that the market is behaving similarly as it did in other conflicts.
“In the short run, there’s a lot of uncertainty,” said Hickey “I think the playbook is similar. You tend to see a lot of sloshing around - big swings up and down — and then eventually things start to stabilize a few months later...The question is where does this one go?”
Boiling oil
Following a week of gains, oil jumped sharply again Friday, with West Texas Intermediate rising above $115 for the first time since 2008. WTI rose 7.4% Friday and was up 26% for the week, to settle at $115.68. Russia’s battle for control of Europe’s largest nuclear power plant early Friday spooked investors.
The Russian invasion of Ukraine has stirred up more fear of inflation, and economists are already raising their inflation forecasts, due to rising oil prices. The whole commodities complex has shifted higher, since Russia is such a key producer of wheat, palladium, aluminum and other commodities.
Rising oil prices can be a worry since they can generate one of the biggest hits to inflation and do so quickly.
Russia is unique in that it is a very large commodity exporter and has the ability to impact many markets. It is one of the world’s largest exporters of crude and natural gas, with its primary customer Europe. It is the largest exporter of both palladium and wheat.
The jump in oil has already been hitting U.S. consumers at the pump. Gasoline prices were $3.83 per gallon of unleaded Friday, up 11 cents in just a day and 26 cents in a week, according to AAA.
“The national average could get to $4 a gallon next week,” said John Kilduff, partner with Again Capital.
In the oil market, Kilduff said there was brisk buying Friday. “There’s still room to grind higher, as we continue to price in the loss of Russian crude oil,” he said.
The U.S. and its allies did not sanction Russian energy, but the sanctions did inhibit buyers, banks and shippers who fear running afoul of sanctions on the Russian financial system.
“It’s pretty clear nobody wanted to be short going into the weekend,” said Kilduff. “There’s still room to grind higher as we continue to price in the loss of Russian crude oil.”
Oil traders are also watching to see if Iran is able to strike a deal that would allow it sell its oil on the market, in exchange for an end to its nuclear programs. It could then bring 1 million barrels back on to the market, but analysts say there will still be a shortfall.
Will Ukraine and Russia Impact The Usually Bullish March?
Good riddance to February. It was another negative month for stocks, but the clear headline was Russia invading Ukraine and the potential impacts that would have on the global economy and stock market.
First things first, this means the first two months of 2022 have been in the red for the S&P 500 Index. “Seeing the first two months of a new year in the red isn’t a great feeling, but the good news is lately it hasn’t been a major warning sign,” explained LPL Financial Chief Market Strategist Ryan Detrick. “The first two months of 2016 and 2020 were both negative, but stocks were able to claw back and finish higher those years.”
(CLICK HERE FOR THE CHART!)
It is important to remember that this is a midterm year and early in midterm years, stocks tend to have some trouble. That has played out once again in 2022, but don’t forget later in these years tend to see a very strong rally.
(CLICK HERE FOR THE CHART!)
Another angle on this is looking at how stocks do each quarter, but broken up by the four-year presidential cycle. Again, investors need to know that this quarter and the next two are some of the weakest out of the entire four-year cycle.
(CLICK HERE FOR THE CHART!)
Although midterm years tend to see overall weakness until late, be aware that March is one of the best months of the year.
(CLICK HERE FOR THE CHART!)
Lastly, looking purely at March based on seasonality shows that this is a solid month. In a midterm year, it is the fourth best month and the past 20 years it is fifth best. Since 1950, it is more in the middle at the sixth strongest. Of course, it would have been better, but the 12.5% drop in March 2020 is skewing things.
(CLICK HERE FOR THE CHART!)
Clearly headlines will move stocks in the near-term, but we continue to expect the overall economic growth in the U.S. to remain quite strong and likely push stocks back up to our fair value target of 5,000 on the S&P 500 by year-end.
Banks (KRE) Swing Wildly
While Financials are the best performing sector so far in today's session, leading into today it was the worst-performing sector over the past week thanks in large part to a 3.7% decline on Tuesday; the sector's worst single day since June 2020. Looking more specifically at bank stocks, using the SPDR S&P Regional Banking ETF (KRE) as a proxy, yesterday saw an even more dramatic decline of 5.47% marking the largest decline since November 2020. That drop also ranks in the bottom 1% of all daily changes on record since the ETF began trading in 2006. The over 3.5% rebound today, meanwhile, ranks in the top 5% of all days on record as yesterday's decline was not quite enough to drop the industry below its 200-DMA; a support level that has now held multiple times in the past year.
(CLICK HERE FOR THE CHART!)
(CLICK HERE FOR THE CHART!)
As previously mentioned, it is rare for KRE to fall over 5% in a single day. Excluding yesterday, there were 68 other times this happened but only a dozen of those occurred with at least 3 months between the prior instance. In the table below, we show the performance of KRE after each of those periods.
While it is far from the case today, typically, the next day has often seen KRE fall further after a 5% drop. Instead, today it is seeing the second-best next-day performance of these instances. As for where things go from here though, returns have been weaker than the norm one week and one month following these past occurrences. KRE has then tended to outperform all other periods three, six, and twelve months out.
(CLICK HERE FOR THE CHART!)
S&P 500 Posts Full-Year Gain 47.1% of Time When January & February Are Both Down
The combination of a down January and a down February has come about 18 times, including this year, going back to 1950. Rest of the year and full-year performance has taken a rather sizable hit following the previous 17 occurrences. March through December S&P 500 average performance drops to 3.78% compared to 8.20% in all years. Full-year performance is even worse with S&P 500 average turning to a loss of -3.67% compared to an average gain of 9.48% in all years. All hope for 2022 is not lost as eight of the 17 past down January and down February years did go on to log gains over the last 10 months and full year while seven enjoyed double-digit gains from March to December.
(CLICK HERE FOR THE CHART!)
Are Corporate Credit Markets Starting to Crack?
Within the fixed income markets, the corporate credit markets can, at times, act like a canary in the economic coalmine. The return distribution for credit investors is asymmetrical, which means the potential for losses can be magnitudes larger than the potential for gains. So, credit markets tend to react quickly when economic conditions or corporate credit conditions start to deteriorate. And while fixed income markets broadly are down on the year, corporate credit markets (both investment grade and non-investment grade) are among the worst performing markets in the U.S. this year. Should investors take this as a sign that corporate credit markets are showing signs of stress? We don’t think so.
“U.S. corporate credit markets have underperformed this year but not because of increased credit risks, in our view,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “That we’re seeing broad based negative returns across most fixed income asset classes is largely due to higher Treasury yields and not deteriorating credit fundamentals.”
A Credit Default Swap Index (CDX) is a benchmark index that tracks a basket of U.S. corporate credit issuers and tends to act like an insurance policy in the case of an issuer’s default. In essence, credit default swaps strip out most of the interest rate risk of an issuesecurity and measures just the credit risk. As seen in the LPL Chart of the Day, credit default swap indexes have increased this year but remain well within normal ranges.
(CLICK HERE FOR THE CHART!)
As inflationary pressures have broadened this year, Treasury yields, across the curve, have increased due to expectations of Federal Reserve (Fed) interest rate hikes. That’s been the main driver of broad-based bond losses and we don’t think it should raise concerns about credit fundamentals. Moreover, we’re seeing the costs to insure the higher rated cohorts (the investment grade issuers) increase at a faster pace than the more default prone, non-investment grade cohort, confirming for us that the increase in cost is due to higher Treasury yields and not a deterioration in corporate credit conditions.
From a fundamental perspective, corporate balance sheets are still in good shape. Leverage ratios have increased recently, but net debt ratios (debt minus cash on the balance sheets) remain within historical norms. Also, due to the record amount of issuance over the last few years, companies were able to refinance debt at very low interest rates and push back when that debt was set to mature. As such, interest expenses have come down and now many corporations don’t need to access the capital markets anytime soon. We do continue to watch how these companies manage capital allocation decisions. Increases in M&A activity, share buybacks, and outsized dividends are all risks to bondholders and things that may lead to deteriorating credit fundamentals.
High Levels of Volatility
It's been a volatile start to 2022 so far. With an average intraday trading range of two percentage points, the S&P 500's average intraday range in the first 41 trading days of the year has been the widest since 2009, and the only other year besides 2009 where the average range was wider was 2008.
(CLICK HERE FOR THE CHART!)
High levels of intraday volatility tend to coincide with periods of elevated uncertainty among investors and typically occur during periods when the market is lower. When the average daily range of the S&P 500 has been more than 1.5 percentage points during the first 41 trading days of the year, the average YTD performance of the S&P 500 was a decline of 5.7% (median: -4.3%). This significantly trails the average gain of 1.3% (median: 2.0%) of all years since 1983. So far this year, the S&P 500 has had the second-worst start since 1983 trailing just 2009, when the S&P 500 tanked 25.3% in the first 41 trading days.
Regarding forward returns after these volatile starts, returns vary. Although performance over the following one and three months tended to be better than average and more consistent to the upside, over the following six months and for the rest of the year, performance was more mixed.
(CLICK HERE FOR THE CHART!)
Job Gains Surprise to the Upside But Fed Will Still Likely Hike by 25 Basis Points Next Meeting
The U.S. economy added 678,000 jobs in February and this strong report exceeded consensus forecast of 423,000. The unemployment rate fell to 3.8 percent from 4 percent in January, edging closer to pre pandemic levels. In February 2020, the unemployment rate was 3.5 percent.
The survey period for this report closed before Russia invaded Ukraine so no geopolitical impacts are in these data.
February jobs gains were broad based but mainly in the services sector as pandemic effects wane. Restaurants alone added 124,000 and the return to schooling pushed education jobs up by 112,000. Professional and business services added 95,000 jobs.
The participation rate is 62.3 percent, still 1.1 percentage points below February 2020. Participation rates are still lower than before the pandemic as individuals with young children may struggle to find childcare. The composition of the labor force is also changing as some baby boomers are taking early retirements.
In February, 13 percent worked remotely because of the pandemic, down from 15.4 percent last month. This percentage will likely continue to decline as more offices across the country loosen restrictions.
Another encouraging sign is the decline in people unable to work because of COVID-19-related business declines, either from closed or lost business. In February, 4.2 million reported inability to work because of business disruptions, down from 6 million last month.
“The February jobs numbers are encouraging but overall, this does not change expectations for how the FOMC will set interest rates at the next meeting. The big conundrum for policy makers right now is how to relieve inflation fatigue yet still protect the economy from geopolitical stress,” said LPL Financial Chief Economist Jeffrey Roach.
Wage growth is slowing. February average hourly earnings were unchanged from January and up 5.1 percent from a year ago. Looking ahead, wages may begin to moderate as the labor market loosens. Participation rates should continue to increase to pre-pandemic levels by the end of this year.
As shown in the LPL Chart of the Day, February posted one of the strongest reports in the last 12 months. The reopening process is supporting the services sector and hiring in services industries like leisure and hospitality strongly contributed to the headline gain in employment. This latest release from the Bureau of Labor Statistics will not likely change the minds of the FOMC in the upcoming meeting. Chairman Powell already revealed his preference for a 25 basis point hike in rates and this is the most likely action.
(CLICK HERE FOR THE CHART!)
- ($BLNK $ZIM $CRWD $DKS $DOCU $JD $RIVN $NIU $CIEN $VET $AMR $ORCL $SQSP $ASAN $OTLY $WOOF $ULTA $ITRN $EXPR $BMBL $MDB $SFIX $THO $MQ $EGRX $AG $IMXI $KOPN $CPB $ESTE $MTNB $UNFI $BBW $NINE $ALTO $CLVT $DM $WPM $SB $PLCE $HPK)
Monday 3.7.22 Before Market Open:
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Monday 3.7.22 After Market Close:
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Tuesday 3.8.22 Before Market Open:
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Tuesday 3.8.22 After Market Close:
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Wednesday 3.9.22 Before Market Open:
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Wednesday 3.9.22 After Market Close:
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Thursday 3.10.22 Before Market Open:
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Thursday 3.10.22 After Market Close:
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Friday 3.11.22 Before Market Open:
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Friday 3.11.22 After Market Close:
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(NONE.)
Blink Charging Co. $22.43
Blink Charging Co. (BLNK) is confirmed to report earnings at approximately 4:00 PM ET on Thursday, March 10, 2022. The consensus estimate is for a loss of $0.39 per share on revenue of $5.43 million and the Earnings Whisper ® number is ($0.43) per share. Investor sentiment going into the company's earnings release has 57% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 62.50% with revenue increasing by 121.36%. Short interest has increased by 16.7% since the company's last earnings release while the stock has drifted lower by 44.5% from its open following the earnings release to be 51.1% below its 200 day moving average of $45.89. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, February 9, 2022 there was some notable buying of 9,113 contracts of the $30.00 call and 8,903 contracts of the $30.00 put expiring on Friday, March 18, 2022. Option traders are pricing in a 16.2% move on earnings and the stock has averaged a 10.0% move in recent quarters.
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ZIM Integrated Shipping Services Ltd. $71.88
ZIM Integrated Shipping Services Ltd. (ZIM) is confirmed to report earnings at approximately 7:00 AM ET on Wednesday, March 9, 2022. The consensus earnings estimate is $13.65 per share on revenue of $3.24 billion and the Earnings Whisper ® number is $14.23 per share. Investor sentiment going into the company's earnings release has 81% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 291.12% with revenue increasing by 138.09%. Short interest has increased by 28.0% since the company's last earnings release while the stock has drifted higher by 35.4% from its open following the earnings release to be 39.5% above its 200 day moving average of $51.52. Overall earnings estimates have been revised higher since the company's last earnings release. On Wednesday, February 2, 2022 there was some notable buying of 1,286 contracts of the $60.00 put expiring on Friday, March 18, 2022. Option traders are pricing in a 12.0% move on earnings and the stock has averaged a 5.6% move in recent quarters.
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CrowdStrike, Inc. $179.03
CrowdStrike, Inc. (CRWD) is confirmed to report earnings at approximately 4:05 PM ET on Wednesday, March 9, 2022. The consensus earnings estimate is $0.21 per share on revenue of $410.86 million and the Earnings Whisper ® number is $0.23 per share. Investor sentiment going into the company's earnings release has 71% expecting an earnings beat The company's guidance was for earnings of $0.19 to $0.21 per share on revenue of $406.50 million to $412.30 million. Consensus estimates are for year-over-year earnings growth of 200.00% with revenue increasing by 55.08%. Short interest has increased by 17.8% since the company's last earnings release while the stock has drifted lower by 13.9% from its open following the earnings release to be 22.6% below its 200 day moving average of $231.38. Overall earnings estimates have been revised higher since the company's last earnings release. On Monday, February 28, 2022 there was some notable buying of 2,946 contracts of the $220.00 call expiring on Friday, March 11, 2022. Option traders are pricing in a 13.0% move on earnings and the stock has averaged a 6.8% move in recent quarters.
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DICK'S Sporting Goods, Inc. $109.71
DICK'S Sporting Goods, Inc. (DKS) is confirmed to report earnings at approximately 7:30 AM ET on Tuesday, March 8, 2022. The consensus earnings estimate is $3.54 per share on revenue of $3.28 billion and the Earnings Whisper ® number is $3.60 per share. Investor sentiment going into the company's earnings release has 51% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 45.68% with revenue increasing by 4.95%. Short interest has increased by 34.6% since the company's last earnings release while the stock has drifted lower by 17.5% from its open following the earnings release to be 2.8% below its 200 day moving average of $112.91. Overall earnings estimates have been revised higher since the company's last earnings release. On Wednesday, February 16, 2022 there was some notable buying of 5,395 contracts of the $115.00 call expiring on Friday, March 18, 2022. Option traders are pricing in a 13.4% move on earnings and the stock has averaged a 9.4% move in recent quarters.
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DocuSign $101.38
DocuSign (DOCU) is confirmed to report earnings at approximately 4:05 PM ET on Thursday, March 10, 2022. The consensus earnings estimate is $0.47 per share on revenue of $561.47 million and the Earnings Whisper ® number is $0.52 per share. Investor sentiment going into the company's earnings release has 48% expecting an earnings beat The company's guidance was for revenue of $557.00 million to $563.00 million. Consensus estimates are for year-over-year earnings growth of 51.61% with revenue increasing by 30.30%. Short interest has increased by 48.3% since the company's last earnings release while the stock has drifted lower by 34.5% from its open following the earnings release to be 55.0% below its 200 day moving average of $225.33. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, February 25, 2022 there was some notable buying of 10,045 contracts of the $85.00 call expiring on Friday, May 20, 2022. Option traders are pricing in a 20.4% move on earnings and the stock has averaged a 15.0% move in recent quarters.
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JD.com, Inc. $63.59
JD.com, Inc. (JD) is confirmed to report earnings at approximately 4:00 AM ET on Thursday, March 10, 2022. The consensus earnings estimate is $0.25 per share on revenue of $43.81 billion and the Earnings Whisper ® number is $0.28 per share. Investor sentiment going into the company's earnings release has 78% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 177.78% with revenue increasing by 27.43%. Short interest has increased by 22.5% since the company's last earnings release while the stock has drifted lower by 27.7% from its open following the earnings release to be 15.4% below its 200 day moving average of $75.12. Overall earnings estimates have been revised higher since the company's last earnings release. On Thursday, March 3, 2022 there was some notable buying of 15,266 contracts of the $105.00 call expiring on Friday, May 20, 2022. Option traders are pricing in a 10.4% move on earnings and the stock has averaged a 4.4% move in recent quarters.
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Rivian Automotive, Inc. $47.39
Rivian Automotive, Inc. (RIVN) is confirmed to report earnings at approximately 4:10 PM ET on Thursday, March 10, 2022. The consensus estimate is for a loss of $1.58 per share on revenue of $61.67 million and the Earnings Whisper ® number is ($1.65) per share. Investor sentiment going into the company's earnings release has 31% expecting an earnings beat. The stock has drifted lower by 52.6% from its open following the earnings release. Overall earnings estimates have been revised lower since the company's last earnings release. On Thursday, March 3, 2022 there was some notable buying of 2,900 contracts of the $50.00 put expiring on Friday, March 11, 2022. Option traders are pricing in a 18.6% move on earnings and the stock has averaged a 10.3% move in recent quarters.
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Niu Technologies $10.44
Niu Technologies (NIU) is confirmed to report earnings at approximately 2:00 AM ET on Monday, March 7, 2022. Investor sentiment going into the company's earnings release has 62% expecting an earnings beat The company's guidance was for revenue of $131.57 million to $142.54 million. Short interest has increased by 2.7% since the company's last earnings release while the stock has drifted lower by 52.1% from its open following the earnings release to be 55.0% below its 200 day moving average of $23.20. Overall earnings estimates have been revised lower since the company's last earnings release. Option traders are pricing in a 24.7% move on earnings and the stock has averaged a 7.0% move in recent quarters.
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Ciena Corporation $65.94
Ciena Corporation (CIEN) is confirmed to report earnings at approximately 7:00 AM ET on Monday, March 7, 2022. The consensus earnings estimate is $0.45 per share on revenue of $894.85 million and the Earnings Whisper ® number is $0.43 per share. Investor sentiment going into the company's earnings release has 50% expecting an earnings beat The company's guidance was for revenue of $870.00 million to $910.00 million. Consensus estimates are for earnings to decline year-over-year by 11.76% with revenue increasing by 18.19%. Short interest has increased by 45.6% since the company's last earnings release while the stock has drifted lower by 5.7% from its open following the earnings release to be 9.6% above its 200 day moving average of $60.14. On Tuesday, February 15, 2022 there was some notable buying of 516 contracts of the $75.00 call expiring on Friday, March 18, 2022. Option traders are pricing in a 12.7% move on earnings and the stock has averaged a 9.3% move in recent quarters.
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Vermilion Energy Inc. $19.70
Vermilion Energy Inc. (VET) is confirmed to report earnings at approximately 2:00 AM ET on Monday, March 7, 2022. The consensus earnings estimate is $0.53 per share on revenue of $392.86 million and the Earnings Whisper ® number is $0.70 per share. Investor sentiment going into the company's earnings release has 64% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 352.38% with revenue increasing by 61.91%. Short interest has increased by 10.7% since the company's last earnings release while the stock has drifted higher by 69.8% from its open following the earnings release to be 86.8% above its 200 day moving average of $10.55. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, March 4, 2022 there was some notable buying of 1,681 contracts of the $17.50 put expiring on Friday, September 16, 2022. Option traders are pricing in a 16.1% move on earnings and the stock has averaged a 10.0% move in recent quarters.
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from Animal Oppression and Human Violence: Domesecration, Capitalism, and Global Conflict by David A Nibert[***note: domesecration = domestication]
freedom from the filth that large herds following the troops involved; no disease breeding offal from slaughtering near camps; no need for forage, water, guards, butchers; and the probability that the meat would be better tasting than that of worn-out trek oxen or animals driven hard and pastured on whatever grasses were available in the day-to-day pursuit of the troops. [Argentine Meat and the British Meat Market]The British solution to the shortage of domesecrated animals and the logistical difficulties in feeding soldiers in South Africa was to use refrigerated “meat” from Australia, New Zealand, and Argentina. The vast oppression and death that underlay the expansion of ranching operations in other parts of the world also enabled violent conflicts such as the one in South Africa, which included the deaths of 28,000 women and children in British concentration camps.
The decision to colonize in Southern Africa means nothing else than that the native tribes must withdraw from the lands on which they have pastured their cattle and so let the white man pasture his cattle on these self-same lands. If the moral rights of this standpoint are questioned, the answer is that for people of the cultural standard of the South African natives, the loss of their free natural barbarism and the development of a class of workers in the service of and dependent on whites is above all a law of survival of the highest order.In a 1904 rebellion, the Herero resisted domination and expropriation of their land; Germany responded by killing some 63,000 Herero, roughly three-quarters of the population. The German colonizers’ killing of the Herero is regarded by many as the first act of human genocide in the twentieth century. The Herero’s cows and other animals were seized, their land was divided into large ranches, and a brutal system of forced labor was imposed on the human survivors. Germany made it unlawful for indigenous peoples in the territory to own land or animals, and they were compelled “to labour at whatever job their colonial masters allotted to them.”
For more than forty years Algerian cattle and sheep have been crowded alive on vessels, losing weight and dying on their way to Marseilles. . . . Of course this system, or lack of one, has been expensive. Live animals take up more room than dressed carcasses under refrigeration. And this runs up freight charges. The French are trying to set up in the most promising livestock producing colonies enough slaughterhouses and refrigerating plants to encourage increased production. . . . Algeria alone could take care of all France’s demand for frozen beef, mutton and pork.The market-driven production and sale of cows resulted in increased conflict over land and water between pastoralists and subsistence farmers. Environmental damage increased as many pastoralists overgrazed animals around base wells; others expanded into the Sahel, including areas that had not recovered from earlier periods of grazing. With their growing dependence on the market for cash and necessities, pastoralists were badly affected by market fluctuations. The market surplus of domesecrated anmals during droughts reduced the cash available to purchase grain, which rose in cost during times of reduced rainfall. During such periods, many domesecrated animals suffered and died from a lack of food and water, and pastoralists faced famine. Over time, the Tuareg were replaced by “highly capitalized ranches, where jobs were only offered to a few of the former nomadic pastoralists.”
The Maasai wars of the mid-nineteenth century affected the history of a wide area of the north-eastern interior of East Africa throughout the second half of the century. This was because the long series of civil wars ultimately weakened the Maasai whose control of the Uasin Gishu plateau had been a major factor in the distribution of power in the region..
The wars were caused basically by conflicts arising from the competition to control cattle and pasture land, both of which were considered important to the Maasai cattle culture or pastoral way of life. [“The East African Coast and Hinterlands: 1845-80”]In 1904 and again in 1911, the British found questionable Maasai leaders who signed treaties giving away the rights to much of the Maasai’s lands, consigning the Maasai to reserves in southern Kenya. As Britain expanded its control in the region, conflict developed between the Turkana and the colonizers, especially ranchers. Turkana losses were terrible; between 1897 and the early 1920s, hundreds of thousands of captive animals were expropriated and about five thousand humans, 14 percent of the Turkana population, lost their lives.
When Delamere and other Kenya pioneers needed recreation or cash, they either went on safari or went to Nairobi. Ivory, lion skins and clients were profitable, and a safari was merely an extension of their normal life on farm or ranch. They would no more be without a gun than without their boots, and it was a natural step from shoot- ing lion to protect one’s cattle to hunting lion with well-paying clients. [Safari: A chronicle of Adventure]Many ranchers cashed in on the interest of tourists from Europe and the United States in recreational hunting. Friedrich Siedentopf established the East African Hunting Bureau to promote safari hunting of lions, buffalo, rhinoceros, and elephant. While countless animals died at the hands of recreational hunters, others were the victims of European and U.S. “specimen” hunters. One of these hunters wrote a book in 1850 detailing his exploits—totaling nearly five hundred pages. He recounts, for example, how he killed a lion at a watering hole.
I had not an instant to lose; he stood with his right side exposed to me in a very slanting position, and, taking him rather low, I fired; the ball took effect, and the lion sank to the shot. All was still as death for many seconds, when he uttered a deep growl, and slowly gaining his feet, limped toward the cover, where he halted, roaring mournfully, as if dying. . . . [I] rode to the spot where I had last heard him roar, when I had the immense satisfaction of beholding the magnificent old lion stretched out before me..
The ball had entered his belly a little in front of his flank, and traversed the length and breath of the body, crippling him in the opposite shoulder. No description could give a correct idea of the surpassing beauty of this most magnificent animal, as he lay still and warm before me. I lighted a fire and gazed with delight upon his lovely black mane, his massive arms, his sharp yellow nails, his hard and terrible head, his immense and powerful teeth, his perfect beauty and symmetry throughout; and I felt that I had won the noblest prize that this wide world could yield to a sportsman. . . . We bore the lion to camp. On my way from the water I shot with a single ball an extremely old black bull rhinoceros [Five Years’ Adventures in the Far Interior of South Africa, with Notices of the Native Tribes and Savage Animals]Other such enthusiasts captured free-living animals alive for the purpose of exhibition, as “exotic” animals brought considerable prestige to the zoos of London, Paris, and Berlin. That prestige emanated from the power amassed through conquest. John Berger notes:
The prestige was not so different from that which had accrued to the private royal menageries. These menageries, along with gold plate, architecture, orchestras, players, furnishings, dwarfs, acrobats, uniforms, horses, art and food, had been demonstrations of an emperor’s or king’s power and wealth. Likewise, in the nineteenth century, public zoos were an endorsement of modern colonial power. The capturing of animals was a symbolic representation of the conquest of all distant and exotic lands.The pursuit of elephants was the most profitable of the African hunting enterprises, because of the value placed on their ivory tusks. Between the savage scramble for ivory and the loss of habitat as European ranching operations expanded throughout the savannas, the population of elephants in Africa plummeted. The violence and loss of life of indigenous animals and peoples in Africa, which was facilitated by the expansion of European ranching operations, was both built on and deeply entangled with the suffering and violence experienced by the ranched cows and sheep. As in the Americas, while many individuals experienced death directly at the hands of their oppressors or after being dispatched to slaughterhouses, millions died more slowly and torturously from diseases resulting from their highly concentrated living conditions, such as rinderpest and diseases transmitted by tsetse flies. Countless others died from lack of food and water brought on by droughts and warfare.
Federal Reserve Chair Jerome Powell testifies before Congress in the week ahead, and markets will hang on what he says regarding how the Russia-Ukraine conflict could affect Fed policy.
Russia’s invasion of Ukraine will continue to be a major focus, as wary investors watch fresh inflation data and the rising price of oil in the week ahead.
Stocks in the past week sold off in volatile trading, as oil rose more than 20% and a whole host of other commodities rose on supply worries. Investors sought safety in bonds, driving prices higher and the 10-year Treasury yield to 1.72% Friday. The dollar rallied, pushing the dollar index up 2% on the week.
“We just don’t know what can happen over the weekend. It looks like the Russians are amping themselves up and they’re getting more aggressive,” said Jim Caron, Morgan Stanley Investment Management head of macro strategies for global fixed income.
“If nothing happens over the weekend, or if there’s some peace talks coming, then the 10-year note yield could go up 10 to 15 basis points. It could have that swing,” said Caron. Yields move opposite price. (1 basis point equals 0.01%.)
The Federal Reserve will also be top of mind, as investors focus on its pending interest rate hike on March 16. But Fed officials will not be making public addresses in the quiet period leading up to their meeting.
The economic calendar is relatively light in the coming week, with the exception of Thursday’s report of February’s consumer price index.
According to Dow Jones, economists expect headline inflation to rise to 7.8% year-over-year, from 7.5% in January, the highest since 1982. Headline inflation includes food and energy prices.
“The risk is to the upside. It will be a shocker if we get an 8% handle,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Investors will also focus on how the market itself is trading. The S&P 500 fell 1.3% to 4,328 in the past week, while the Nasdaq lost 2.8% to 13,313.
“The major averages are all in a downtrend here. They seem to rally and then run out of steam,” said Paul Hickey, co-founder of Bespoke. “Until you get some kind of break of that, you want to be a little cautious. It’s definitely concerning, all this stuff.”
Hickey said that the market is behaving similarly as it did in other conflicts.
“In the short run, there’s a lot of uncertainty,” said Hickey “I think the playbook is similar. You tend to see a lot of sloshing around - big swings up and down — and then eventually things start to stabilize a few months later...The question is where does this one go?”
Boiling oil
Following a week of gains, oil jumped sharply again Friday, with West Texas Intermediate rising above $115 for the first time since 2008. WTI rose 7.4% Friday and was up 26% for the week, to settle at $115.68. Russia’s battle for control of Europe’s largest nuclear power plant early Friday spooked investors.
The Russian invasion of Ukraine has stirred up more fear of inflation, and economists are already raising their inflation forecasts, due to rising oil prices. The whole commodities complex has shifted higher, since Russia is such a key producer of wheat, palladium, aluminum and other commodities.
Rising oil prices can be a worry since they can generate one of the biggest hits to inflation and do so quickly.
Russia is unique in that it is a very large commodity exporter and has the ability to impact many markets. It is one of the world’s largest exporters of crude and natural gas, with its primary customer Europe. It is the largest exporter of both palladium and wheat.
The jump in oil has already been hitting U.S. consumers at the pump. Gasoline prices were $3.83 per gallon of unleaded Friday, up 11 cents in just a day and 26 cents in a week, according to AAA.
“The national average could get to $4 a gallon next week,” said John Kilduff, partner with Again Capital.
In the oil market, Kilduff said there was brisk buying Friday. “There’s still room to grind higher, as we continue to price in the loss of Russian crude oil,” he said.
The U.S. and its allies did not sanction Russian energy, but the sanctions did inhibit buyers, banks and shippers who fear running afoul of sanctions on the Russian financial system.
“It’s pretty clear nobody wanted to be short going into the weekend,” said Kilduff. “There’s still room to grind higher as we continue to price in the loss of Russian crude oil.”
Oil traders are also watching to see if Iran is able to strike a deal that would allow it sell its oil on the market, in exchange for an end to its nuclear programs. It could then bring 1 million barrels back on to the market, but analysts say there will still be a shortfall.
Will Ukraine and Russia Impact The Usually Bullish March?
Good riddance to February. It was another negative month for stocks, but the clear headline was Russia invading Ukraine and the potential impacts that would have on the global economy and stock market.
First things first, this means the first two months of 2022 have been in the red for the S&P 500 Index. “Seeing the first two months of a new year in the red isn’t a great feeling, but the good news is lately it hasn’t been a major warning sign,” explained LPL Financial Chief Market Strategist Ryan Detrick. “The first two months of 2016 and 2020 were both negative, but stocks were able to claw back and finish higher those years.”
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It is important to remember that this is a midterm year and early in midterm years, stocks tend to have some trouble. That has played out once again in 2022, but don’t forget later in these years tend to see a very strong rally.
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Another angle on this is looking at how stocks do each quarter, but broken up by the four-year presidential cycle. Again, investors need to know that this quarter and the next two are some of the weakest out of the entire four-year cycle.
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Although midterm years tend to see overall weakness until late, be aware that March is one of the best months of the year.
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Lastly, looking purely at March based on seasonality shows that this is a solid month. In a midterm year, it is the fourth best month and the past 20 years it is fifth best. Since 1950, it is more in the middle at the sixth strongest. Of course, it would have been better, but the 12.5% drop in March 2020 is skewing things.
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Clearly headlines will move stocks in the near-term, but we continue to expect the overall economic growth in the U.S. to remain quite strong and likely push stocks back up to our fair value target of 5,000 on the S&P 500 by year-end.
Banks (KRE) Swing Wildly
While Financials are the best performing sector so far in today's session, leading into today it was the worst-performing sector over the past week thanks in large part to a 3.7% decline on Tuesday; the sector's worst single day since June 2020. Looking more specifically at bank stocks, using the SPDR S&P Regional Banking ETF (KRE) as a proxy, yesterday saw an even more dramatic decline of 5.47% marking the largest decline since November 2020. That drop also ranks in the bottom 1% of all daily changes on record since the ETF began trading in 2006. The over 3.5% rebound today, meanwhile, ranks in the top 5% of all days on record as yesterday's decline was not quite enough to drop the industry below its 200-DMA; a support level that has now held multiple times in the past year.
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As previously mentioned, it is rare for KRE to fall over 5% in a single day. Excluding yesterday, there were 68 other times this happened but only a dozen of those occurred with at least 3 months between the prior instance. In the table below, we show the performance of KRE after each of those periods.
While it is far from the case today, typically, the next day has often seen KRE fall further after a 5% drop. Instead, today it is seeing the second-best next-day performance of these instances. As for where things go from here though, returns have been weaker than the norm one week and one month following these past occurrences. KRE has then tended to outperform all other periods three, six, and twelve months out.
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S&P 500 Posts Full-Year Gain 47.1% of Time When January & February Are Both Down
The combination of a down January and a down February has come about 18 times, including this year, going back to 1950. Rest of the year and full-year performance has taken a rather sizable hit following the previous 17 occurrences. March through December S&P 500 average performance drops to 3.78% compared to 8.20% in all years. Full-year performance is even worse with S&P 500 average turning to a loss of -3.67% compared to an average gain of 9.48% in all years. All hope for 2022 is not lost as eight of the 17 past down January and down February years did go on to log gains over the last 10 months and full year while seven enjoyed double-digit gains from March to December.
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Are Corporate Credit Markets Starting to Crack?
Within the fixed income markets, the corporate credit markets can, at times, act like a canary in the economic coalmine. The return distribution for credit investors is asymmetrical, which means the potential for losses can be magnitudes larger than the potential for gains. So, credit markets tend to react quickly when economic conditions or corporate credit conditions start to deteriorate. And while fixed income markets broadly are down on the year, corporate credit markets (both investment grade and non-investment grade) are among the worst performing markets in the U.S. this year. Should investors take this as a sign that corporate credit markets are showing signs of stress? We don’t think so.
“U.S. corporate credit markets have underperformed this year but not because of increased credit risks, in our view,” noted LPL Financial Fixed Income Strategist Lawrence Gillum. “That we’re seeing broad based negative returns across most fixed income asset classes is largely due to higher Treasury yields and not deteriorating credit fundamentals.”
A Credit Default Swap Index (CDX) is a benchmark index that tracks a basket of U.S. corporate credit issuers and tends to act like an insurance policy in the case of an issuer’s default. In essence, credit default swaps strip out most of the interest rate risk of an issuesecurity and measures just the credit risk. As seen in the LPL Chart of the Day, credit default swap indexes have increased this year but remain well within normal ranges.
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As inflationary pressures have broadened this year, Treasury yields, across the curve, have increased due to expectations of Federal Reserve (Fed) interest rate hikes. That’s been the main driver of broad-based bond losses and we don’t think it should raise concerns about credit fundamentals. Moreover, we’re seeing the costs to insure the higher rated cohorts (the investment grade issuers) increase at a faster pace than the more default prone, non-investment grade cohort, confirming for us that the increase in cost is due to higher Treasury yields and not a deterioration in corporate credit conditions.
From a fundamental perspective, corporate balance sheets are still in good shape. Leverage ratios have increased recently, but net debt ratios (debt minus cash on the balance sheets) remain within historical norms. Also, due to the record amount of issuance over the last few years, companies were able to refinance debt at very low interest rates and push back when that debt was set to mature. As such, interest expenses have come down and now many corporations don’t need to access the capital markets anytime soon. We do continue to watch how these companies manage capital allocation decisions. Increases in M&A activity, share buybacks, and outsized dividends are all risks to bondholders and things that may lead to deteriorating credit fundamentals.
High Levels of Volatility
It's been a volatile start to 2022 so far. With an average intraday trading range of two percentage points, the S&P 500's average intraday range in the first 41 trading days of the year has been the widest since 2009, and the only other year besides 2009 where the average range was wider was 2008.
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High levels of intraday volatility tend to coincide with periods of elevated uncertainty among investors and typically occur during periods when the market is lower. When the average daily range of the S&P 500 has been more than 1.5 percentage points during the first 41 trading days of the year, the average YTD performance of the S&P 500 was a decline of 5.7% (median: -4.3%). This significantly trails the average gain of 1.3% (median: 2.0%) of all years since 1983. So far this year, the S&P 500 has had the second-worst start since 1983 trailing just 2009, when the S&P 500 tanked 25.3% in the first 41 trading days.
Regarding forward returns after these volatile starts, returns vary. Although performance over the following one and three months tended to be better than average and more consistent to the upside, over the following six months and for the rest of the year, performance was more mixed.
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Job Gains Surprise to the Upside But Fed Will Still Likely Hike by 25 Basis Points Next Meeting
The U.S. economy added 678,000 jobs in February and this strong report exceeded consensus forecast of 423,000. The unemployment rate fell to 3.8 percent from 4 percent in January, edging closer to pre pandemic levels. In February 2020, the unemployment rate was 3.5 percent.
The survey period for this report closed before Russia invaded Ukraine so no geopolitical impacts are in these data.
February jobs gains were broad based but mainly in the services sector as pandemic effects wane. Restaurants alone added 124,000 and the return to schooling pushed education jobs up by 112,000. Professional and business services added 95,000 jobs.
The participation rate is 62.3 percent, still 1.1 percentage points below February 2020. Participation rates are still lower than before the pandemic as individuals with young children may struggle to find childcare. The composition of the labor force is also changing as some baby boomers are taking early retirements.
In February, 13 percent worked remotely because of the pandemic, down from 15.4 percent last month. This percentage will likely continue to decline as more offices across the country loosen restrictions.
Another encouraging sign is the decline in people unable to work because of COVID-19-related business declines, either from closed or lost business. In February, 4.2 million reported inability to work because of business disruptions, down from 6 million last month.
“The February jobs numbers are encouraging but overall, this does not change expectations for how the FOMC will set interest rates at the next meeting. The big conundrum for policy makers right now is how to relieve inflation fatigue yet still protect the economy from geopolitical stress,” said LPL Financial Chief Economist Jeffrey Roach.
Wage growth is slowing. February average hourly earnings were unchanged from January and up 5.1 percent from a year ago. Looking ahead, wages may begin to moderate as the labor market loosens. Participation rates should continue to increase to pre-pandemic levels by the end of this year.
As shown in the LPL Chart of the Day, February posted one of the strongest reports in the last 12 months. The reopening process is supporting the services sector and hiring in services industries like leisure and hospitality strongly contributed to the headline gain in employment. This latest release from the Bureau of Labor Statistics will not likely change the minds of the FOMC in the upcoming meeting. Chairman Powell already revealed his preference for a 25 basis point hike in rates and this is the most likely action.
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- ($NIU $DKS $WOOF $DM $KOPN $MDB $SFIX $ABM $BMBL $CASY $SUMO $GWRE $ZIM $THO $OTLY $EXPR $CPB $UNFI $CRWD $CVGW $MQ $ACEL $JD $BBW $DESP $ATY $VITL $DOCU $ORCL $ULTA $FUTU)
Monday 3.7.22 Before Market Open:
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Monday 3.7.22 After Market Close:
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Tuesday 3.8.22 Before Market Open:
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Tuesday 3.8.22 After Market Close:
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Wednesday 3.9.22 Before Market Open:
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Wednesday 3.9.22 After Market Close:
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Thursday 3.10.22 Before Market Open:
(CLICK HERE FOR THURSDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Thursday 3.10.22 After Market Close:
(CLICK HERE FOR THURSDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES LINK #1!)
(CLICK HERE FOR THURSDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES LINK #2!)
Friday 3.11.22 Before Market Open:
(CLICK HERE FOR FRIDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES LINK!)
Friday 3.11.22 After Market Close:
([CLICK HERE FOR FRIDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!]())
(NONE.)
(T.B.A. THIS WEEKEND.)
(T.B.A. THIS WEEKEND.) (T.B.A. THIS WEEKEND.).
(CLICK HERE FOR THE CHART!)
| STOCK | PRICE | VOLUME (AVG) | CALLS% - PUTS% | MOST ACTIVE |
|---|---|---|---|---|
| VYGR* | 5.48 | 18.9K (547) | 92 - 8 | Oct 5c (8.7K) |
| CEI** | 1.73 | 320.1K (53.3K) | 70 - 30 | Oct 2c (78.1K) |
| FAMI** | 0.36 | N/A | N/A | N/A |
| PROG | 1.36 | 35.2K (15.1K) | 96 - 4 | Oct 1.5c (9K) |
| REI | 3.91 | 16.8K (5K) | 64 - 36 | Nov 5c (5.3K) |
| ENDP | 4.04 | 5.6K (5.4K) | 33 - 67 | Apr 2p (6.1K) |
| UAMY | 0.90 | 13.2K (1.7K) | 99 - 1 | Oct 10.3K |
| TGB | 1.95 | 11.1K (1.3K) | 99 - 1 | Nov 2c (10.1K) |
| ABEV | 2.73 | 8.9K (3.2K) | 98 - 2 | Apr 3c (4.2K) |
| INVZ | 4.75 | 7.9K (2.9K) | 93 - 7 | Jan22 7.5c (3.5K) |
| GTE | 0.90 | 6.3K (2.8K) | 96 - 4 | Oct 0.5c (2.2K) |
| TTI | 3.42 | 5.4K (784) | 100 - 0 | Dec 5c (2.2K) |
| AMPY | 3.45 | 4K (1.3K) | 86 - 14 | Nov 5c (1.8K) |
| WTI | 4.30 | 4K (1.9K) | 92 - 8 | Oct 4c (1.4K) |
| KOS | 3.19 | 3.3K (918) | 97 - 3 | Jan22 5c (1.3K) |
| SEEL | 2.27 | 3.2K (1.6K) | 99 - 1 | Oct 2.5c (2.5K) |
| AGRX | 0.68 | 2.4K (288) | 100 - 0 | Dec 2.5c (1.3K) |
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