/ May 22
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Thursday:
S&P Global Services PMI Flash (50 exp.)
Existing Home Sales (4.1M exp.)
Initial Jobless Claims (230K exp.)
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Friday:
New Home Sales (0.69M exp.) -
Thursday:
Ralph Lauren
Advance Auto Parts
Deckers Outdoor
Intuit
Workday
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Friday:
N/A
Daily Briefing
*The stock market hit a wall yesterday, and it didn't have so much to do with the disappointing earnings report and outlook from Target (TGT, -5.2%) as it did with the concerning movement in Treasury yields;
*The 10-yr note yield settled the cash session at 4.60%, up 12 basis points, while the 30-yr bond yield settled the day at 5.09%, up 13 basis points; the selling interest in the Treasury market was precipitated initially by inflation angst after the UK printed a hotter-than-expected CPI number for April and deficit angst; Press reports highlighted an agreement to raise the SALT deduction cap to $40,000 (from $10,000) and noted that conservative House GOP members were dropping their demands for larger cuts to Medicaid;
*SPY started selling off at around mid-day, dropping -1.69% for the day; in our opinion, the price action is not surprising, given that traders were probably looking for an excuse to take profits from the recent run up; they found their excuse in a familiar theme — bond market angst; the support / pivot area stands at $569 (S1), where we would expect more serious dip-buyers to emerge;
*The MACD signal looks like it has started turning; a sell crossover is very likely at this point, with the advance losing steam;
*Institutional traders didn’t exactly buy the dip yesterday; among the top 20 stocks in the S&P 500, the buying index stood at 45% on average, just at the limit of a “Neutral” reading, but far from what we would consider bullish (>55%);
*The debate within the GOP continues as of this writing; there has been a suggestion, though, that the House may press ahead with a full vote on the reconciliation bill;
*Bonds are becoming the most hated asset class again, with treasury yields taking another turn for the worse in the afternoon;
*There was a $16 billion 20-yr bond auction that saw some relatively soft dollar demand, evidenced by a 2.46 bid-to-cover ratio that fell short of the prior 12-auction average of 2.58. The high yield of 5.047% at the auction tailed the when-issued yield of 5.035% by more than a basis point;
*The major indices, which had been vacillating with relatively modest changes, saw selling interest pick up and bids fall by the wayside after the auction; the spike in yields triggered renewed growth concerns that hit the small-cap Russell 2000 (-2.8%) the hardest (most economically sensitive factor) and that ultimately contributed to losses in 10 of the 11 S&P 500 sectors;
*Communications (XLC, -0.7%) was the outperformer of the day, getting support from Alphabet's (GOOG, +2.9%) outperformance following its I/O event;
*Transports (XTN, -3.59%) was the hardest sector hit, along with Real Estate (XLRE, -2.63%) and Healthcare (XLV, -2.35%); the latter two serve as bond proxies to a certain extent and transportation stocks are highly sensitive to general economic activity;
*Market internals showed decliners outpacing advancers by a nearly 9-to-1 margin at the NYSE and by a 4-to-1 margin at the Nasdaq; Dow component UnitedHealth Group (UNH, -5.8%) was among the decliners, pressured by an HSBC downgrade to Reduce from Hold and a report in The Guardian that chronicled allegations of the company paying nursing homes to reduce transfers between hospitals; UnitedHealth denounced the report, saying the DOJ investigated the allegations and declined to pursue the matter due to its finding of significant factual inaccuracies in the allegations;
*Still, that didn't help the managed care company's stock, which joined many others today on the losing end of things; the major indices closed just off their worst levels of the session;
*General market sentiment took a hit, but remains far from “neutral” conditions; the number of stocks “overbought” has declined from +2 standard deviation levels;
*The only economic data out this morning was the MBA Mortgage Applications Index; it was down -5.1% week-over-week, with refinance applications and purchase applications both down -5.0% as demand weakened with rising mortgage rates;
*TLT declined -1.71% and touched extreme oversold conditions; we’ve previously reported on the extreme short positioning now recorded on this ETF; Dark Pools were barely neutral yesterday, with a buying index at 45%; GEX turned deeply negative in the short and medium term, but remains positive longer term; technically, our S1 support level was breached, but if losses would reverse from this point, it would align with a “triple bottom” pattern;