Stocks Falling into Afternoon on US Policy-Induced Stagflation Fears, Earnings Outlook Worries, European/Emerging Markets/US High-Yield Debt Angst, Transport/Commodity Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Substantially Lower
  

• Sector Performance: Almost Every Sector Declining
  

• Volume:  Above Average

• Market Leading Stocks: Underperforming
  

Equity Investor Angst:

• Volatility(VIX) 27.7 +5.4%
• DJIA Intraday % Swing 1.02%
  
• Bloomberg Global Risk On/Risk Off Index 42.2 -5.1%

• Euro/Yen Carry Return Index 147.23 -.3%

• Emerging Markets Currency Volatility(VXY) 11.6 +.3%

• CBOE S&P 500 Implied Correlation Index 50.2 +5.8% 

• ISE Sentiment Index 80.0 -4.0 points
  

• Total Put/Call 1.21 +12.0%

• NYSE Arms 1.16 +61.1%

Credit Investor Angst:

• North American Investment Grade CDS Index 90.48 +2.2%
  

• US Energy High-Yield OAS 407.35 +3.51%
• Bloomberg TRACE # Distressed Bonds Traded 347.0 -6.0
  

• European Financial Sector CDS Index 121.84 +3.4%

• Italian/German 10Y Yld Spread 228.0 basis points unch.
  

• Asia Ex-Japan Investment Grade CDS Index 127.29 +3.0%
  

• Emerging Market CDS Index 315.68 +.24%
  

• China Corp. High-Yield Bond USD ETF(KHYB) 26.80 -.11%

• 2-Year Swap Spread 38.25 basis points -3.25 basis points
  

• TED Spread 41.25 basis points +29.5 basis points
  

• 3-Month EUR/USD Cross-Currency Basis Swap -18.75 basis points +1.25 basis points
  
• MBS  5/10 Treasury Spread  155.0 +6.0 basis points
  
• iShares CMBS ETF 46.92 +.46%
• Avg. Auto ABS OAS .67 -1.0 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 48.21 -.09%
• 3-Month T-Bill Yield 3.13% -2.0 basis points
  

• Yield Curve -42.5 basis points (2s/10s) -.75 basis point
  

• China Iron Ore Spot 99.15 USD/Metric Tonne -1.1%
• Dutch TTF Nat Gas(European benchmark) 188.0 euros/megawatt-hour -12.4%

• Citi US Economic Surprise Index 2.3 -.2 point

• Citi Eurozone Economic Surprise Index -10.80 -2.4 points
  

• Citi Emerging Markets Economic Surprise Index -1.8 +6.2 points
  
• S&P 500 Blended Forward 12 Months Mean EPS Estimate 237.62 -.01:  Growth Rate +16.2% +.3 percentage point, P/E 16.2 -.3
  
• Bloomberg US Financial Conditions Index -.77 -24.0 basis points
  
• US Atlanta Fed GDPNow Forecast +.52% unch.
  

• Cleveland Fed Inflation Nowcast Core PCE YoY +4.68% unch.: CPI YoY +8.21% unch.
  
• 10-Year TIPS Spread 2.38 -7.0 basis points
  
• Highest target rate probability for November 2nd FOMC meeting: 62.1%(+5.9 percentage points) chance of 3.75%-4.0%. Highest target rate probability for December 14th meeting: 42.7%(-3.6 percentage points) chance of 4.25%-4.5%.
  

US Covid-19:

• 126 new infections/100K people(last 7 days total). 7.2%(-.0 percentage point) of 1/14/22 peak(1,740) -0/100K people from prior report.
  
• New Covid-19 patient hospital admissions per 100K population -79.7%(-.0 percentage point) from peak 7-day avg. of 1/9/22 - 1/15/22
  

Overseas Futures:

• Nikkei 225 Futures: Indicating -323 open in Japan 
• China A50 Futures: Indicating -22 open in China

• DAX Futures: Indicating +3 open in Germany

Portfolio:

• Slightly Higher:  On gains in my index hedges and emerging market shorts
  

• Disclosed Trades:  Added to my (IWM)/(QQQ) hedges
  

• Market Exposure:  Moved to Market Neutral
  

Morning Market Internals

NYSE Composite Index:

• Volume Running +18.8% Above 100-Day Average 
• 9 Sectors Declining, 2 Sectors Rising
• 18.5% of Issues Advancing, 78.6% Declining
• 5 New 52-Week Highs, 290 New Lows
• 25.8%(-8.3%) of Issues Above 200-day Moving Average
• Average 14-Day RSI 38.0% 
• Bloomberg Global Risk-On/Risk-Off Index 42.3 -4.7%
  
• Russell 1000: Growth/Value 15,320.76 -.20%
  
• Vix 27.3 +4.1%
• Total Put/Call 1.23 +13.9%
• TRIN/Arms .91 +26.4% 

Friday Watch

Night Trading 

• Asian equity indices are -1.0% to -.5% on average.

• Asia Ex-Japan Investment Grade CDS Index 123.0 -2.75 basis points. 

• China Sovereign CDS 72.0 +.75 basis point.
  

• Bloomberg Emerging Markets Currency Index 48.2 -.18%.  
• Bloomberg Global Risk-On/Risk Off Index 45.0 +1.2%. 
• Bloomberg US Financial Conditions Index -.55 -1.0 basis point
  
• Volatility Index(VIX) futures 27.7 +1.1%
• Euro Stoxx 50 futures n/a.

• S&P 500 futures -.63%.

• NASDAQ 100 futures -.74%  

Morning Preview Links

Earnings of Note 
Company/Estimate 

 

Before the Open: 

• None of note
  

After the Close:

• None of note
  

Economic Releases

10:00 am EST

• Univ. of Mich. Consumer Sentiment for Sept. is estimated to rise to 60.0 versus 58.2 in Aug.
• Univ. of Mich. 1 Yr Inflation Expectation is estimated to fall to +4.6% versus +4.8% in Aug.
  

4:00 pm EST

• Net Long-Term TIC Flows for July.
  

Upcoming Splits

• None of note
  

Other Potential Market Movers

• The China retail sales report could also impact global trading today.

US Equity Market Hours

• 9:30 am - 4:00 pm EST
  

BOTTOM LINE: Asian indices are lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly modestly lower and to maintain losses into the afternoon. The Portfolio is 25% net long heading into the day.

Stocks Reversing Lower into Final Hour on US Policy-Induced Stagflation Fears, Earnings Outlook Worries, US High-Yld Debt Angst, Tech/Commodity Sector Weakness

Broad Equity Market Tone:

• Advance/Decline Line: Lower
  

• Sector Performance: Most Sectors Declining
  

• Volume:  Around Average

• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• Volatility(VIX) 26.0 -.8%
• DJIA Intraday % Swing 1.07%
  
• Bloomberg Global Risk On/Risk Off Index 44.8 +1.7%

• Euro/Yen Carry Return Index 147.59 +.37%

• Emerging Markets Currency Volatility(VXY) 11.5 +1.4%

• CBOE S&P 500 Implied Correlation Index 47.7 -.44% 

• ISE Sentiment Index 81.0 -8.0 points
  

• Total Put/Call 1.04 -3.7%

• NYSE Arms .70 -25.5%

Credit Investor Angst:

• North American Investment Grade CDS Index 87.4 +2.3%
  

• US Energy High-Yield OAS 391.65 -.25%
• Bloomberg TRACE # Distressed Bonds Traded 353.0 -8.0
  

• European Financial Sector CDS Index 117.81 -1.7%

• Italian/German 10Y Yld Spread 228.0 basis points -1.0 basis point
  

• Asia Ex-Japan Investment Grade CDS Index 123.60 -2.0%
  

• Emerging Market CDS Index 311.21 +1.2%
  

• China Corp. High-Yield Bond USD ETF(KHYB) 26.80 +.28%

• 2-Year Swap Spread 41.0 basis points +.5 basis point
  

• TED Spread 11.75 basis points +5.75 basis points
  

• 3-Month EUR/USD Cross-Currency Basis Swap -20.0 basis points +4.5 basis points
  
• MBS  5/10 Treasury Spread  149.0 +2.0 basis points
  
• iShares CMBS ETF 46.89 unch.
• Avg. Auto ABS OAS .68 -1.0 basis point
  

Economic Gauges:

• Bloomberg Emerging Markets Currency Index 48.24 -.35%
• 3-Month T-Bill Yield 3.15% -4.0 basis points
  

• Yield Curve -41.75 basis points (2s/10s) -5.0 basis points
  

• China Iron Ore Spot 100.3 USD/Metric Tonne -2.3%
• Dutch TTF Nat Gas(European benchmark) 214.0 euros/megawatt-hour -1.7%

• Citi US Economic Surprise Index 2.5 -3.3 points

• Citi Eurozone Economic Surprise Index -13.2 -2.0 points
  

• Citi Emerging Markets Economic Surprise Index -8.0 +2.2 points
  
• S&P 500 Blended Forward 12 Months Mean EPS Estimate 237.63 +.05:  Growth Rate +15.9% unch., P/E 16.5 -.1
  
• Bloomberg US Financial Conditions Index -.47 -20.0 basis points
  
• US Atlanta Fed GDPNow Forecast +.52% -78.0 basis points
  

• Cleveland Fed Inflation Nowcast Core PCE YoY +4.68% unch.: CPI YoY +8.21% unch.
  
• 10-Year TIPS Spread 2.45 -2.0 basis points
  
• Highest target rate probability for November 2nd FOMC meeting: 59.1%(+5.2 percentage points) chance of 3.75%-4.0%. Highest target rate probability for December 14th meeting: 46.5%(+7.5 percentage points) chance of 4.25%-4.5%.
  

US Covid-19:

• 126 new infections/100K people(last 7 days total). 7.2%(-.8 percentage point) of 1/14/22 peak(1,740) -14/100K people from prior report.
  
• New Covid-19 patient hospital admissions per 100K population -79.7%(-.6 percentage point) from peak 7-day avg. of 1/9/22 - 1/15/22
  

Overseas Futures:

• Nikkei 225 Futures: Indicating -360 open in Japan 
• China A50 Futures: Indicating -60 open in China

• DAX Futures: Indicating -11 open in Germany

Portfolio:

• Slightly Higher:  On gains in my index hedges and emerging market shorts
  

• Disclosed Trades:  Added to my (IWM)/(QQQ) hedges
  

• Market Exposure:  Moved to Market Neutral
  

Bear Radar

Style Underperformer:

• Large-Cap Growth -1.0%
  

Sector Underperformers:

• 1) Oil Service -2.2% 2) Energy -2.1% 3) Software -2.1%

Stocks Falling on Unusual Volume: 

• CMP, CMTG, WSM, WU, SMG, PBT, ZS, WEC, CARG, SPR, VNT, MDB, AKRO, PSX, EQT, SHLS, GOGO, NOW, GTLB, WST, DK, CRDO, VLO, MNTK, WEX, MLKN, TASK, PRCT, ALB, VTYX, PBF, INBX, BPT, TPIC, GTHX, IDYA, GRPN, CPRX, ARNC, SPB, ADBE, CFVI, RYTM and SHPH
  

Stocks With Unusual Put Option Activity:

• 1) EWW 2) ATUS 3) IEF 4) ADBE 5) IGV
  

Stocks With Most Negative News Mentions:

• 1) IRNT 2) RYTM 3) IDYA 4) ARNC 5) SCS
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume

Bull Radar

Style Outperformer:

• Small-Cap Value -.1%

Sector Outperformers:

• 1) Gambling +2.8% 2) Healthcare Providers +1.8% 3) Banks +1.5%

Stocks Rising on Unusual Volume:

• STOR, EVGO, WYNN, CHPT, ROKU, HUM, PLCE, POSH, NFLX, QS, DKNG and BLNK
  

Stocks With Unusual Call Option Activity:

• 1) YETI 2) ADBE 3) SCO 4) COTY 5) ICLN

Stocks With Most Positive News Mentions:

• 1) ATXG 2) MQ 3) SKIN 4) SOFI 5) DHR
  

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume