Almost unbelievable. Just nights after US actions ended what has been a rather negative week, after Russian forces appear to have become even more aggressive against Ukrainian civilian and military targets, while waging war on Poland’s doorstep, and after Russia is believed to have appealed to Beijing for military assistance, European stocks opened higher across the board, as did US stock index futures on Sunday night.
Of course, there are still many reasons for caution. The spread of the SARS-CoV-2 coronavirus is worsening in China as Beijing is forced to shut down sections of key cities such as Shenzhen and Shanghai. This “zero tolerance” strategy may slow the spread, but certainly runs counter to easing supply chain issues that have plagued global economies for well over a year now.
Besides the increasingly brutal war in Eastern Europe and the Covid shutdowns in China, in the United States, the FOMC decides monetary policy this Wednesday afternoon. Chicago futures now forecast a 98% chance that in addition to beginning to drain excess cash from the balance sheet, the committee will decide to raise the target range for the federal funds rate from 0% to 0.25% to 0.25% to 0.5%. Then, the Bank of England’s Monetary Policy Committee meets on Thursday.
Shards of hope?
Why the apparent strength overnight? Why the steepening of the yield curve? Maybe a story “The Guardian” published on Sunday has something to do with it. The Guardian reported that Ukrainian presidential adviser Mykhailo Podolyak said the (ceasefire) talks (with Russia) had become more “constructive”. Podolyak said: “We will not back down in principle on any position. Russia understands that now. Russia is already starting to talk constructively. I think we will get results literally within days.” Meanwhile, Reuters reported that Russian state-owned media quoted Russian delegate Leonid Slutsky as saying: “According to my personal expectations, this progress could turn into a common position of the two delegations in the next few days. , into documents to be signed”.
Is this softening of the hard edge shown earlier by the Russian side some kind of ruse? Or is there something to it? It is known that on Saturday, French President Emmanuel Macron and German Chancellor Olaf Scholz, who participated in a call with Russian President Vladimir Putin, left discouraged.
That said… We also know that Russia seemed to back down early last week between demands for full Ukrainian surrender and demands for a ceasefire, with Ukrainian recognition of the Crimean peninsula as part of Russia, Ukrainian recognition of Donetsk and Luhansk eastern regions of the country as independent, and a Ukrainian constitutional amendment promising not to try to join “Western” alliances such as NATO or the European Union. In response, Ukraine had publicly considered pledging to remain neutral (not apply for NATO or EU membership), but not to cede territory.
Enter China. Or not.
A lot comes down to what China is doing here. Beijing was slow to condemn Russia’s aggression against a neighbor where the civilian population had obviously been targeted after the Russian army proved ineffective and disorganized against the Ukrainian army. Russia, effectively cut off from most of the civilized world, at least economically, and perhaps in desperation, is reaching out to Beijing for military aid.
On that note, White House National Security Advisor Jake Sullivan is scheduled to meet with a senior Chinese government official on Monday (today). Sullivan has been clear, at least on social media…that “there will absolutely be consequences” if China helps Russia evade sanctions. On the one hand, would China like to be a thorn in the West given the Western stance on Taiwan’s relationship with China? May be. Then again, given China’s place in the global economy, after Covid must be on more shaky ground, would Beijing risk becoming the global pariah that is Russia today? This question, while key, is impossible to answer from New York in the middle of the night. Time will tell us. Maybe not too long.
On the surface, one might find only a continuation of a “bearish” trend, as the S&P 500 closed Friday near the lows of the daily and weekly ranges. The S&P 500 closed Friday down 2.88% for the week, down 11.79% year-to-date and down 12.7% from its high in early January. The Nasdaq Composite has closed 3.53% lower in the past five sessions, down 17.9% for 2022 and 20.78% below its November 2021 high. , the Russell 2000 closed down 1.06% last week, now holds down 11.83% year-to-date and spent the weekend down 19.49% below its November summit.
Of S&P’s 11 sector SPDR ETFs, only Energy (XLE) turned green (+2.15%) for the week. Seven of the sector’s 11 SPDRs fell more than 2% for the week, while three fell more than 3%. Consumer Staples (XLP) lost 5.84% over the past five business days.
Interestingly, the week gave way to investor negativity and optimism. Take a look at the S&P 500…
What readers will see is that as low as last week, until a new low is reached, after this index hit a new successive low in February, it hasn’t yet. done in March. In fact, in March, so far, the index (if it holds) has hit two successive lows. Before we get carried away on our own, the index has yet to make a 2022 high. This needs to happen to break the “down” trend. That said, this game is not over.
As long as the lowest low, which occurred intraday during a high volume reversal, holds, the effort to reach the low (and turn) the index is not dead. The fact that trading volume in general has been significantly higher since February 24, when the S&P 500 has truly traded sideways…means (opinion) that there is real disagreement on the direction of the market in ‘here at least in the medium term among professional decisions. manufacturers.
Just beware that even with futures higher overnight, and even if the market rallies at the open, the 50-day SMA for the S&P 500 stands at 4476, while the SMA of 200 days stands at 4467. This makes the likelihood of a “death cross” early in the week very high regardless of Monday’s market direction. Death crosses are considered bearish indicators. They don’t always work that way, but be fully aware that there could be a market-wide algorithmic reaction, especially if coupled at the time with “ugly” news. Or an overly aggressive press conference.
One would think that rising oil and gas prices and the possibility of these prices remaining high in the future would squeeze margins in almost every corner of the global economy. Yet, as FactSet reports, the consensus for calendar year 2022, S&P 500 earnings fell from 8.6% growth to 9.1% growth over the past week, while S&P 500 2022 revenue growth expectations fell from 8.4% to 8.9% growth.
Meanwhile, the market discounted the S&P 500 in terms of valuation from 19 times forward earnings to 18.5 times at the end of the week. Just so you know, the five-year average of the S&P 500 is 18.6 times. It’s the first time since the cows went home (at least) that the S&P 500 has been priced at a valuation below its own five-year average.
Just some additional info, again from FactSet… Fourth quarter earnings (for the S&P 500) ended with 31.2% earnings growth on 16.1% revenue growth, delivering a profit margin net of 12.4%. Currently, the consensus for the S&P 500 for the first quarter is for 4.8% earnings growth on 10.7% revenue growth. JP Morgan (JPM), Wells Fargo (WFC) and Citigroup (C) all report on April 13 or 14. By the way, Wall Street sees first quarter year-over-year earnings contraction for four sectors… Commodities, Communication Services (XLC), Consumer Discretionary (XLY) and those of finance (XLF).
Perhaps no stock has more impact on overall index performance than Apple (AAPL). In full transparency, I’m sticking with that name for a long time, but investors need to understand the apparent danger. We all know Apple had a great quarter at the end of January. Impressive beats on the top and bottom lines, a record high line and equally impressive tips. That said, stocks have only seen lower highs since the start of the new year, forming what could be interpreted as a descending triangle, which is a bearish pattern…
… Or is it a falling wedge, which is bullish? I know I’ve shown this to you before, but there has been no resolution, and the trajectory of the entire market in the short to medium term is most likely in play. You’re not going to find the answer in the usual stock-specific indicators. They are all neutral. The answer is either below the $152 level (for a continuation of the trend) or above $169 (for a high above the March 3 high). To tick at $152, AAPL must trade below its own 200-day SMA ($153.27). AAPL has not traded below its own 200-day SMA since early June. Beware that further, a 61.8% Fibonacci retracement of the stock’s run from October to early January would land AAPL just above $155. Since Fibonacci levels are area weapons and not sniper rifles, here we are.
Knowing all of this, also know that Apple smartphone supplier Foxconn has halted operations at its Shenzhen facility as part of that city’s bid to slow the spread of Covid. Apple’s main production center is in Zhengzhou, and increased production there could offset a loss of production in Shenzhen. That said, it won’t be easy. An entire market awaits you.
Economy (all Eastern times)
No publication of significant national macroeconomic data points is planned.
The Fed (all Eastern times)
Fed blackout period.
Highlights of Today’s Earnings (PSE Consensus Expectations)
Before the Open: (LAC) (-.12)
After the close: (COUP) (.05), (MTN) (5.62)
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