Bespoke’s Morning Lineup – 10/29/24 – Unhappy Anniversary
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“Prudent investors are now buying stocks in huge quantities and will profit handsomely when this hysteria is over.” – John J. Raskob, 10/29/1929
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
S&P 500 and Nasdaq futures are little changed on either side of unchanged this morning ahead of the 10 AM releases of JOLTS and Consumer Confidence. After the close, we’ll also get several earnings reports including Alphabet (GOOGL), AMD, and Visa (V). This morning, we’ve already gotten reports from companies like McDonald’s (MCD), Pfizer (PFE), and Royal Caribbean (RCL) to name a few.
In Asia, it was a mostly positive night as China was the only major benchmark down on the day, but there were reports that the country is considering issuing $1.4 trillion in new debt over the next few years to stimulate the economy. In Europe, the tone is also modestly positive even as Germany lowered its growth forecast to 2024 from 0.0% down to a decline of 0.2%.
Markets are right near all-time highs as we close out October, but 95 years ago today, the picture looked a lot different as the Dow Jones Industrial Average fell over 12% on Black Tuesday in what was, according to The New York Times, the “most disastrous trading day in the stock market’s history.” Thankfully, no one reading this remembers the day, but selling was so extreme that “prices crumbled under the pressure of liquidation of securities which had to be sold at any price.” The peak of the roaring 20s bull market occurred a little over a month earlier, but the selling on Black Tuesday was the worst to date; fortunes were wiped out in hours. White knuckles lined the bars of bars across the Financial District as wiped-out traders, both mentally and in some cases financially, looked to dull the pain of the crash.
In response to the selling, market officials mobilized and took measures to restore market stability. Margin requirements were cut to 25% from as high as 60 to 70%, and the Federal Reserve Board held an all-day session from 10 AM to 4 PM with most not even leaving “the board room for luncheon.” Despite the weakness, The New York Times noted that the day ended on a ‘cheerful’ note for two reasons. “The first was a late day rally towards the close on tremendous buying by those who believe that prices have sunk too low. The other was that the liquidation has been so violent, as well as widespread, that many bankers, brokers and industrial leaders expressed the belief last night that it has now run its course.”
John J. Raskob, a “leading industrial and political leader” and the man responsible for building the Empire State Building in 1930 in just one year, put a stake in the ground after the close on the 29th declaring that “The present decline in the stock markets of this country has carried prices, in many instances, to levels ridiculously low, with the result that nearly all of the standard railroad stocks are cheap and the industrial list is filled with stocks selling at real bargain prices.” He added that “Prudent investors are now buying stocks in huge quantities and will profit handsomely when this hysteria is over…the pendulum has swung too far.” Think David Tepper going on CNBC to say he was “buying everything” or Jamie Dimon buying 500,000 shares of JP Morgan for his personal account.
While Wall Street’s army of high-powered financiers may have bought the dip, another potentially more important group was throwing in the towel. The headline on page three of The Times summed it up with the headline “Women Traders Going back to Bridge Games; Say They Are Through With Stocks Forever”. The writer described one situation where “a stout woman with chins asked a harassed manager for a quotation, heard it and then remarked: ‘You might at least be a gentleman.’ She went away crying.” In Rhode Island, a man dropped dead in his broker’s office as each tick of the tape took another bite out of his net worth. In Kansas City, a man at the Kansas City Club told his friends, “Tell the boys I can’t pay them what I owe them,” and proceeded to shoot himself. The Main Street ducks had stopped quacking.
With the ducks no longer eating Wall Street’s cooking, whatever bounce materialized in the market was short-lived. While the Dow managed a 25%+ gain over the following six months, the ultimate bottom wouldn’t be for nearly three more years and 80%+ later in the summer of 1932.
The three-year period from late 1929 through the 1932 lows comprised the dark ages of the US equity market, and for the entire decade of the 1930s, the Dow’s annualized performance not including dividends was a decline of 4.9% (including dividends, the return would have been closer to breakeven). As shown in the chart below, the 1930s was easily the weakest of any decade, but there have been several decades where returns were nothing to get excited about. In the 2000s, the Dow’s annualized performance was negative 1.0%, and in three other decades (1940s, 1960s, and 1970s), annualized returns were less than 3%. The bulk of the market’s gains occurred during the 1950s, 1980s, 1990s, 2010s, and current decade (so far). Overall, for the entire period from the end of 1929 through now, the Dow’s annualized performance was a gain of 5.6%.
Even in the two worst decades of stock market history, the Dow had just as many positive years as negative years, and in every other decade there have been more up years than down years, During the 1950s, 1980s, 2010s, and this decade (so far), 80% of years have been positive, and in the 1990s, the only down year was 1990 (-4.3%). Stocks go up over time, but the climb has been far from a straight line throughout history.
Waiting to Exhale for the Transports
Tomorrow marks the 95th anniversary of Black Tuesday when the Dow fell over 12% in a single day as the US economy transitioned from the Roaring 20s to the Great Depression. The Dow closed at 230.07 on 10/29/1929, but today it’s trading 185 times higher. As we say so often, when it comes to the stock market, you can have no better friend than time.
The Dow most recently closed at a record high on 10/18, and in the ten days since then, it has seen a modest pullback of less than 2%. The Dow Transports index, however, has followed a much different path. While it is also close to its all-time high (less than 5%), as shown in the chart below, its record high was nearly three years ago on 11/2/21. Since the Transports last closed at a high, the Dow Industrials rallied nearly 18% and notched 53 record closing highs along the way. We hope there weren’t any Dow theorists out there holding their breath waiting for the Transports to confirm all those new highs for Industrials!
The fact that the Dow Industrials has had 53 record highs since the last closing high in the Transports is extremely uncommon. The chart below shows the number of closing highs in the Dow Industrials between closing highs in the Transports. In other words, it shows a rolling total of new highs in the Dow Industrials and resets each time the Dow Transports close at a record high.
Since the peak right before Black Tuesday in 1929, only two other periods saw more closing highs in the Dow Industrials between closing highs in the Transports. The highest number of highs occurred between the mid-1950s to mid-1960s. Back then, the Dow Industrials was the first to take out its 1929 high in late 1954, but it wasn’t for nearly 10 more years and 192 new highs in the Industrials that the Transports took out its high. After that, from the late summer of 1989 through early 1993, the Dow Industrials closed at 54 record closing highs between highs in the Transports. That means that unless the Transports rally 4.5% before the Industrials can gain 2%, the current period will at least tie the period of the early 1990s for the most closing highs in the Industrials between new highs in the Transports.
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Bespoke’s Morning Lineup – 10/28/24 – Homestretch
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“Well it’s kind of the last great American adventure, you know what I mean? Human beings need a little danger, a little uncertainty, a little adventure in their lives and our society frowns upon that.” – Phil Lesh
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Equity futures are higher this morning as we head into the homestretch of the election season but in some ways the year as well. By the end of this week, the calendar will say November, and there will be less than two months left in 2024. Between now and then, though, this week will be jam-packed with earnings (one-third of the S&P 500) and several major economic reports, including Q3 GDP, October Non-Farm Payrolls, and the ISM Manufacturing report.
Crude oil is sharply lower this morning after Israel retaliated against Iran this weekend and did not target energy assets in the country. Crude has been under selling pressure for a few months now. Earlier this month, it tried to rally back above the 200-DMA but was firmly rejected. Then, last week, it closed Friday slightly back above the 50-DMA, but that didn’t hold for very long.
Lower crude oil prices will likely start to show up in prices at the pump in the coming days, and depending on how much weaker it gets, we could see the national average price of a gallon of gas fall below $3, a level it hasn’t traded at in more than three years!
The weakness in oil prices doesn’t do much good for energy stocks, and while it’s the worst-performing sector so far this year, the technical picture for crude oil wasn’t looking as bad as it does for crude oil…yet. As shown in the chart below, the Energy sector broke its downtrend in early October, and while the sector has pulled back 5% from its recent high, it had managed to hold its 50 and 200-day moving averages and has remained above its former downtrend. However, if you look at this morning’s biggest losers, they’re all from the Energy sector, and at least at the open this morning, the Energy sector will trade below those key support levels.
Not All Crypto is Created Equal
In the crypto space, Bitcoin and Ethereum are considered two of the most credible with market caps of $1.3 trillion and $300 billion, respectively. While there is a tendency for many investors/speculators to lump the two together as highly correlated to each other, that has been far from the case over the last several months. Until mid-summer, Bitcoin and Ethereum followed similar paths, but since then, the paths of the two have diverged. The chart below shows the YTD performance of both cryptos and as recently as July 15th, both were up an identical 50% YTD. Since then, though, Ethereum has given up most of its YTD gains while Bitcoin has added modestly to its rally.
Given the divergence between the two, the ratio of bitcoin to Ethereum has widened to just under 27 which is a level not seen in more than three years. As shown in the chart below, this is still half of where the ratio was in early 2021 (it was even higher than that in 2000), but in the short term, Bitcoin has become the “Mag 1” of the crypto space.
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