The Closer: End of Week Charts — 10/20/17

Looking for deeper insight on global markets and economics?  In tonight’s Closer sent to Bespoke clients, we recap weekly price action in major asset classes, update economic surprise index data for major economies, chart the weekly Commitment of Traders report from the CFTC, and provide our normal nightly update on ETF performance, volume and price movers, and the Bespoke Market Timing Model. This week, we’ve added a section that helps break down momentum in developed market foreign exchange crosses.

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See tonight’s Closer by starting a two-week free trial to Bespoke Institutional now!

The Hits Keep on Coming For the S&P 500

Here are some mind-blowing figures for you.  In the 15 trading days since the start of October, the S&P 500 is on pace to close at a record high for the 10th time.  Further, if the S&P 500 finishes up on the day Friday, it will be the 19th time that the index has closed at a record high since the start of September; a period covering 35 trading days.  Keep in mind when reading these figures that all of these record highs have come at a time of year when stocks are typically at their weakest.

With all of these new highs piling up, 2017 is making a run for the record books in terms of the most record closing highs for a given year.  Already, 2017 is tied for the fifth most closing highs on record (dating back to 1929), and provided we don’t see any major pullbacks, with two months left in the year, there’s the potential for more.  For example, if the rest of the year goes along at the same pace as the first ten months (a big if given that new highs tend to come in bunches), 2017 is on pace to see 61 record closing highs for the S&P 500.  That would rank as the third most for any given year behind only 1995 (77) and 1964 (65).  Not only were both of those years good for bulls, but the years that followed them were also positive with a gain of 9.1% in 1965 and 20.3% in 1996.  With 47 trading days left in 2017, surpassing the record of 77 back in 1995 would be an extremely tall task, but a move into the third spot is certainly possible.

Bespoke’s S&P 500 Sector Weightings Report — October 2017

S&P 500 sector weightings are important to monitor.  Over the years when weightings have gotten extremely lopsided for one or two sectors, it hasn’t ended well.  Below is a table showing S&P 500 sector weightings from the mid-1990s through 2012.  In the early 1990s before the Dot Com bubble, the US economy was much more evenly weighted between manufacturing sectors and service sectors.  Sector weightings were bunched together between 6% and 14% across the board.  In 1990, Tech was tied for the smallest sector of the market at 6.3%, while Industrials was the largest at 14.7%.  The spread between the largest and smallest sectors back then was just over 8 percentage points.

The Dot Com bubble completely blew up the balanced economy, and looking back you can clearly see how lopsided things had become.  Once the Tech bubble burst, it was the Financial sector that began its charge towards dominance.  The Financial sector’s sole purpose is to service the economy, so in our view you never want to see the Financial sector make up the largest portion of the economy.  That was the case from 2002 to 2007, though, and we all know how that ended.

If you would like to see the most up-to-date numbers for S&P 500 sector weightings, simply start a two-week free trial to our Bespoke Premium or Bespoke Institutional service.  Click back to this post once you’re signed up to see the numbers.

Bespoke Morning Lineup – Pre-Market News and Analysis

Highlights

Bespoke’s Morning Lineup is the top pre-market report on Wall Street.  We cover everything you need to know to get your trading day started, including international market moves and events, post-market and pre-market earnings news, upgrades and downgrades, dividends and splits, economic indicators and estimates, big stock movers, market internals and much more.  It’s all presented in the original and concise format that Bespoke is known for so you can digest lots of information quickly and efficiently.

If you’re not yet a subscriber and would like to see the report, please start a two-week free trial to Bespoke Premium now.

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The Closer — Cross Asset Correlations & Leading Indicators — 10/19/17

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Looking for deeper insight on global markets and economics?  In tonight’s Closer sent to Bespoke Institutional clients, we review recent cross-asset correlations and discuss leading indicators at both the state and national level.

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Bespoke’s Sector Snapshot — 10/19/17

We’ve just released our weekly Sector Snapshot report (see a sample here) for Bespoke Premium and Bespoke Institutional members.  Please log-in here to view the report if you’re already a member.  If you’re not yet a subscriber and would like to see the report, please start a two-week free trial to Bespoke Premium now.

Below is one of the many charts included in this week’s Sector Snapshot, which is our trading range chart for S&P 500 sectors.  The black vertical “N” line represents each sector’s 50-day moving average, and as shown, 8 of 10 sectors are currently above their 50-days.  Consumer Staples remains below its 50-day and has moved into oversold territory, while Telecom has moved back into neutral territory.

To see our full Sector Snapshot with additional commentary plus six pages of charts that include analysis of valuations, breadth, technicals, and relative strength, start a two-week free trial to our Bespoke Premium package now.  Here’s a breakdown of the products you’ll receive.

Investor Sentiment Dips in Yale Confidence Surveys

The Yale School of Management runs a monthly sentiment survey on both individual and institutional investors.  Four questions are asked of investors, and below we provide charts showing the historical results through September 2017.  The first chart shows the results for Yale’s “One-Year Confidence” reading which asked respondents how confident they are that the stock market will be higher a year from now.

As you can see, this reading amazingly spiked to nearly 100% in mid-2017 for institutional investors, and it got above 90% for individual investors.  Over the last few months, however, bullish sentiment towards the stock market has dropped dramatically, and at this point investors surveyed are less optimistic towards stocks than they were just prior to last November’s Presidential Election.

The second question covers investor confidence in the valuation of the stock market.  High readings mean investors like the valuation of the market, and vice versa for low readings.  As shown, both institutional and individual investors think valuations are as unattractive as they’ve been in the history of the survey dating back to 2001.

The “Buy on Dips” question asks investors how eager they are to buy stocks after the market experiences a big decline.  This reading is in the middle of its historical range right now for both individual and institutional investors, but it has picked up a bit in recent months.

The last question asks investors how confident they are that there WILL NOT be a stock market crash in the next six months.  A high reading means investors aren’t worried about a crash, which would be indicative of excess complacency in the market.  While this sentiment measure has been rising slowly over the last year, it’s not elevated compared to historical readings by any means.

Earlier this week we published a more in-depth analysis of Yale’s sentiment survey including an update to our “Irrational Exuberance” indicator.  Start a free trial to one of our membership levels to see the report.

Housing Starts and Home Builder Stocks Diverge

Throughout the bust and the ensuing recovery in residential housing, the performance of homebuilder stocks has closely tracked the trend in Housing Starts and Building Permits.  Below, we highlight this relationship by comparing the iShares Home Construction ETF (ITB) to the three-month moving average of Housing Starts and Building Permits.  The relationship between the two is so strong that the correlation coefficient between monthly Housing Starts and the closing prices of ITB is 0.89, while the correlation of ITB with Building Permits is even stronger at 0.91.  For the sake of reference, a perfect correlation would be a reading of +1.

While the historical relationship between the two has been strong, we would note that in the last year both Starts and Permits have been drifting lower even as homebuilder stocks have surged.  In 2015, we saw a divergence in the opposite direction where Starts and Permits outpaced the gains in homebuilder stocks.  In that period, the homebuilder stocks eventually caught up, so perhaps we are just seeing the opposite pattern now.  The two haven’t always tracked each other step for step, but the fact that the builders have rallied so much this year even as Starts and Permits have declined should be monitored for any signs of that weakness finding its way into the homebuilder stocks.

Philly Fed Positive For 15th Straight Month

Manufacturing activity in the Philadelphia region continues to chug along as the Philadelphia Fed’s survey of manufacturing activity came in higher than expected for October rising to 27.9 compared to forecasts for a reading of 20.  October’s reading represents the 15th straight month that manufacturing activity showed growth and is the strongest monthly reading since May.  Looking at the chart below, the current period of consistent strength that we have seen has not been too common throughout the history’s survey.

The table below breaks down this month’s report by each of its subcomponents and the results were mixed.  While New Orders, Shipments, Unfilled Orders, and Prices Received all declined, we saw monumental increases in Delivery Time and Number of Employees.  Both of these components are currently at record high levels in the history of the survey dating back to 1980 (see charts below).

the Bespoke 50 — 10/19/17

Every Thursday, Bespoke publishes its “Bespoke 50” list of top growth stocks in the Russell 3,000.  Our “Bespoke 50” portfolio is made up of the 50 stocks that fit a proprietary growth screen that we created a number of years ago.  Since inception in early 2012, the “Bespoke 50” has beaten the S&P 500 by 58.4 percentage points.  Through today, the “Bespoke 50” is up 143.3% since inception versus the S&P 500’s gain of 84.9%.  Always remember, though, that past performance is no guarantee of future returns.

To view our “Bespoke 50” list of top growth stocks, click the “Research for Investors” button below and start a trial to either Bespoke Premium or Bespoke Institutional.

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