May 17 2022: Pre-market analysis of financial conditions

By: Jeffrey Cohen, Investment Advisor Representative
US Advanced Computing Infrastructure, Inc.
​May 17, 2022

The US Equities markets are set to open GREEN or up this morning. What do we see?

US retail sales data was ok, with month on month (MoM) sales up 1%. I could not tell whether these were real sales, so this could just be inflation at work. Car sales drove the increase, which is not good for general Main Street as these tend to be lumpy purchases. We saw dramatic inflation last night into this morning in food (wholesale food prices) and gasoline and oil are very high right now.

Walmart is set to open down 6% to 136.72.  Ouch, this is a big fall. It either means that investors want to be in specialty retail (e.g., mall shops) or that the discount shopper is in trouble.

China looks to be having continued trouble with COVID, and there could be political concerns. Not sure we have salvation coming out of China for our US economy, or US equities, anytime soon.

Nothing dramatic in the morning's news otherwise. Lots of street violence and shootings, which is bad but not necessarily relevant for equities. Ukraine is making gains against Russia, and Russia took Ukrainian soldiers prisoner. Looks to be a balanced day in the war. 

Bonds were interesting. We saw strength yesterday in corporate bonds at ~1.7 advance/decline in the investment grade category. High Yield and Convertables were ~ 1:1 advance to decline. New lows are still 25x new highs, but at least we saw strength. In US Treasuries, we see lower yields across the board. Long rates are not rising...the market is not ready to pick up rates. This is bullish.

The VIX, or fear gauge, is down again. We had a period from April 25 to May 12 where the vix went above 30, and stayed there almost the whole time. Today it is back to 26, which is bullish for equities.

Finally, one thing to remember. Friday is the day when many options expire. It is possible that what we are seeing is that many traders and money managers had BIG bets on the downside that expire on Friday, and they are selling or closing those positions. This morning's rally could be a removal of bearish or put bets.

In closing, we looked at our canary in a coalmine industry sectors, and in almost every case almost every stock was trading higher in pre-market. This is not typical, nor is it accidental. People were making large, broad, bullish bets before the market opened. The market is now open, and let's see if that intention (or signaling) has been maintained.

Good luck to all GLTA!
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