NYSE MAC Desk
Mid-Day Market Update

DOW 34,035 (-145), S&P 500 4,317 (-33), Russell 2000 1,945 (-40), NYSE FANG+ 6,302 (-75), ICE Brent Crude $89.75/barrel (-$0.21), Gold $1,794/oz (-35), Bitcoin ~36.2k (-800)

• Volatility continues with S&P futures trading in >3% range
• Digesting Fed commentary
• Yield curve flattening, USD rallying
• Shifting to earnings
• 6 of 11 S&P 500 sectors higher: Communication Services/Utilities outperform, REITS/Industrials underperform
• Check out NYSE Research's "NYSE DMMs: Meeting the Volatility Challenge", a deep dive on market quality benefits provided by DMMs during the recent volatility.

MAC Desk Commentary:
Yesterday the early >2% rally in the S&P 500 evaporated into the close following the FOMC policy decision. The central bank signaled that it would begin raising rates at its March meeting and continued to lay the groundwork to begin shrinking the balance sheet later this year .There had been some hope that Chair Powell would push back against the evolving hawkish narrative. However, he highlighted the tight labor market and persistent inflation which pushed yields higher as markets began to price in 4/5 rate increases through the end of the year (see below for more details). The weakness carried through overnight as Asian markets were under significant pressure and S&P futures traded off over 2%. However, those losses had been completely recouped by the time US markets opened. The S&P 500 opened up about 1% and extended those gains after the open but once again failed at the 200d (~4,430) and we have moving consistently lower since mid-morning. As we head to print the S&P is down 33pts to 4,317 (-0.8%), the Dow is down 140pts to 34,035 (-0.4%)  while the Russell 2k is down 40pts to 1,935 (-2.1%). The volatility continues to be extreme with S&P futures trading in over a 3% range for the fourth consecutive day this week.
 
There is clearly a lot of uncertainty and the buy the dip reflex that has worked so well over the last year is being tested. At this point It is a futile effort to try and explain each gyration of the market with a headline. There was quite a bit of economic data released this morning. Initial claims were in line with estimates while continuing claims jumped to 1.675ml from 1.635ml last week.  Durable goods orders missed expectations though there were positive revisions to last month’s numbers while capital goods orders were also slightly disappointing. The first look at Q4 GDP came in well ahead of estimates increasing 6.9% Q/Q (5.3% cons.) but this has been discounted as it is backward looking, front-end loaded before Omicron and largely driven by inventory builds. There is plenty of impactful economic data over the horizon starting with PCE tomorrow, the ISM surveys next week and next Friday’s employment report.
 
The Fed meeting is now officially behind us, but we will need to contend with trial balloons floated by members of the committee in the coming days. In addition, next week we also have the policy decisions from both the BOE and the ECB. Rates moved sharply higher yesterday with a significant flattening of the curve. That flattening has accelerated today with long end of the curve reversing pretty much all of yesterday’s move higher while the front-end of the curve is around unchanged. The spread on the 2/10 has fallen about 15bps since yesterday’s decision to 0.61% hitting its lowest level since November of 2020. The other big move yesterday was the surge in the US dollar index which has accelerated today. The USD is breaking to new highs up $0.84 to $97.25. This is weighing on commodities and emerging markets. The ICE MSCI Emerging Markets futures are breaking below the December lows today. If this currency move continues this could be another headwind for corporate earnings.
 
Speaking of earnings…... At this point we’ve heard from ~28% of companies in the S&P 500 with 79% beating estimates by a little over 3%. This is about in line with pre-pandemic historical norms but is a clear deceleration from the 10% average beat in Q4 and >15% in the previous four quarters. Thus far there has been a much wider variance amongst reports. Guidance has also been cautious as companies continue to point to supply chain issues and cost pressures. The demand side of the equation has remained strong but multiple companies have highlighted some impact from Omicron. By the end of next week will have heard from over 50% of the companies in the S&P 500.  
 
Sectors:
 

Index	Today	WTD	YTD
S&P 500	-0.8%	-1.8%	-9.4%
Dow	-0.4%	-0.7%	-6.3%
Russell 2K	-2.0%	-2.1%	-13.4%
NYSE FANG +	-1.0%	-4.4%	-15.1%

 
 

Sectors	Today	WTD	YTD
S&P 500 / Utilities -SEC	0.7%	-2.6%	-6.3%
S&P 500 / Communication Services -SEC	0.5%	-2.1%	-11.0%
S&P 500 / Consumer Staples -SEC	0.4%	-1.8%	-3.3%
S&P 500 / Health Care -SEC	0.1%	-1.4%	-9.4%
S&P 500 / Energy -SEC	0.0%	4.4%	17.7%
S&P 500 / Materials -SEC	-0.4%	-2.3%	-9.4%
S&P 500 / Information Technology -SEC	-0.8%	-2.1%	-13.2%
S&P 500 / Financials -SEC	-1.3%	-0.3%	-2.6%
S&P 500 / Industrials -SEC	-1.4%	-2.6%	-6.9%
S&P 500 / Real Estate - SEC	-1.6%	-3.3%	-12.5%
S&P 500 / Consumer Discretionary -SEC	-1.9%	-2.8%	-14.7%
AVERAGE	-0.5%	-1.5%	-6.5%

Other Asset Classes:

• Government Yields -
  • 2yr +2.6bps to 1.18%, 5yr +0.2bps to 1.65%,  10yr -4.7bps to 1.80%, 30yr -8bps to 2.085%
• USD index: +$0.82 at $97.22
• Oil prices: ICE Brent -0.9% at $89.20, WTI -1% to $86.44, Nat Gas +6% to $4.28
• Gold: -2% at $1,800; Silver -4.8%  at $22.67, Copper -2.4% at $4.41
• VIX: +0.17 at 32.13
• Bitcoin: -3%  at ~36k

Central Banks/Inflation:

• Fed recap - There weren’t many surprises in yesterday’s Fed announcement. Rates were left unchanged, and the central bank laid the groundwork for the first rate increase at the March meeting to be followed by beginning to reduce the size of the balance sheet later this year. On the latter there were no details released though the central bank did release its “high-level principles” regarding its approach to normalization - Release. In the press conference  Chair Powell highlighted the tight labor market and the risk of inflation persisting. There was some hope that he would push back against the evolving hawkish narrative, but he did not do that which sent yields higher as markets began to price in additional rate increases in 2022 (now between 4 and 5). See last night’s note for full recap. - WSJ, Bloomberg

China:

• Bloomberg is reporting that Chinese authorities are weighing a proposal to break up Evergrande and sell off assets

Economic Data:

• US
  • Initial Claims: 260k vs. 260k cons,. prior revised to 290k from 286k
  • Continuing Claims: 1.675ml prior revised from 1.624ml to 1.635ml
  • Durable goods orders/ex-transports: -0.9%/0.4% vs. -0.5%/0.35% cons., prior revised to 3.2%/1.1% from 2.6%/0.9%
  • Capital goods orders: 0.04% vs. 0.2% cons,. prior -0.02%
  • Q4 GDP (prelim): 6.9% vs. 5.3% cons, prior 2.3%
  • GDP Chain Price: 6.9% vs. 5.3% cons., prior 6.0%
  • Pending home sales: -3.8% vs. 0.8% cons,. prior -2.3%
• Global
  • China Industrial Profits:  34.3% YTD prior  38.0%
  • Australia import/export prices: 5.8%/3.5% prior 6.6%/5.4%
  • Germany GfK Consumer Confidence: -6.7 vs. -8.3 cons., prior -6.9
  • Taiwan GDP: 4.9% vs. 3.4% cons., prior 3.7%

Market stat time…Volume is above average.  Breadth is bearish across the board. Advancing issue: 1244 / Declining issues  2087: - for a ratio of 0.6 to 1.  New 52-Week Highs: 85 / New 52-Week Lows: 46. Let us know what you’re thinking! Send us a note here!