Sep 23, 2024
Before last week, when the S&P 500 last made a record high in July, breadth was incredibly narrow as only two sectors – Technology and Communication Services (driven mostly by ‘tech-like’ stocks) – had outperformed the S&P 500 on a YTD basis. In the latest leg of the rally, breadth has broadened, and as of last Friday, the number of sectors outperforming the S&P 500 on the year has doubled from two to four. While Technology and Communication Services remain on the outperformer list, Utilities and Financials have also joined. Utilities is not only a new entry on the outperformer list but it has also moved to second overall, trailing only Technology (27.4% vs 25.6%).
The chart below compares the paths that Technology and Utilities have taken on a YTD basis along with the performance of the S&P 500. While the two sectors have similar returns, they have mostly achieved those gains at alternating points in the year. In the first two months of 2024, Technology came out of the gate strong while Utilities started the year with modest declines. As March rolled around, Tech’s momentum stalled while Utilities picked up. In early summer, we saw a similar trend to the start of the year play out until early July when the two sectors’ roles started to reverse again.
The opposite paths of the two sectors stick out much more when we look at their relative strength versus the S&P 500 this year. For each sector, a rising line indicates outperformance versus the S&P 500 while a falling line indicates underperformance. For almost all of this year, the two series have been mirror images of each other. So even as they sit at number one and two in terms of YTD performance, their paths couldn’t have been much more different. What makes the different paths even more notable is that, as last week’s deal between Microsoft (MSFT) and Constellation (CEG) illustrates, both sectors have been riding the same wave to the top of the sector leaderboard.
Sep 23, 2024
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“Show me a man with a million dollars, and I’ll show you a million guys trying to take it away from him.” – Mickey Rooney
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
We’re heading into the home stretch of September, and with the S&P 500 up nearly 1% on the month, bulls couldn’t ask for much better especially when you consider how things looked on the 6th. This morning, there’s not a lot going on and futures are trading little changed with S&P 500 futures down slightly and the Nasdaq up slightly. Treasury yields aren’t showing much direction either with the short-end of the curve unchanged while the 10-year yield is up just two basis points. The only economic data on the calendar is the Chicago Fed National Activity Index at 8:30 and flash September PMI readings for the Manufacturing and Services sectors at 9:45.
Getting back to September’s performance, last Thursday’s record closing high for the S&P 500 was notable not only for the fact that it was the first record closing high for the index since mid-July but also because it’s relatively uncommon for the S&P 500 to hit a record high in September. As shown in the chart below, since 1945, there have been fewer record highs in September (5.9%) than any other month. As shown in the chart below, the frequency of record highs tends to drift lower throughout the year with a ‘blip’ in July where just over 10% of all record highs have been recorded. November, however, stands out for having the highest frequency of highs at 11.8%, or twice the rate of September.
So, does a new record closing high in September bode well for the rest of the year? The chart below shows the S&P 500’s historical Q4 performance since 1945, and the blue bars indicate years when there was a record high in September. In the 21 prior years when there was a record high in September, the median rest-of-year performance was +4.7% with gains just over 90% of the time. That median gain is nothing to sneeze at, but it’s slightly less than the median for all years since 1945 (5.3%) although not quite as consistent to the upside (80%).
Sep 20, 2024
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Sep 20, 2024
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“Winners train, losers complain. Give me twelve players that want to win, and they will find a way to win.” – Red Auerbach
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
It’s been a strong week for equities, so the modestly negative tone in futures to start the last day of the trading week isn’t going to concern anyone. There’s also zero on the economic or earnings calendar this morning either, so we’re not quite sure what traders will latch onto to push prices in one way or the other, but they always seem to find something!
Overnight in Asia, traders closed out the week on a positive note as the Nikkei was up over 1.5%, Hong Kong finished 1.4% higher, and even China was up over 1%. The key event in the region was the BoJ keeping rates unchanged with a ‘hawkish hold’. In Europe, the tone isn’t as positive as the STOXX 600 is modestly lower as German PPI came in higher than expected while UK Retail Sales rose more than expected.
The Russell 2000 did not hit an all-time or even 52-week high yesterday, but it did manage to take out its late August high. The chart is forming what looks like a “W-formation” with the first half comprising the massive rally from earlier this summer when the index traded at the most overbought level on record for a major US index. We honestly have no idea what a W-formation means, but if the Russell 2000 manages to break out above the summer highs, it would be a positive development from a technical perspective.
The latest rally in the Russell 2000 has also been impressive given that yesterday was the seventh straight day of gains for the index which is the longest winning streak for the index in three and a half years. Seven-day winning streaks are by no means uncommon or extreme in the Russell 2000’s history. As shown in the chart below, since 1980 there have been 110 other winning streaks of at least seven trading days, and the longest was more than three times longer at 22 in March 1988. What is interesting about the chart below, however, is how common 7-day winning streaks were from 1980 through the dot com bust (86 from 1980 through the end of 2022) and how uncommon they have been since (24 since 2003).
In today’s Morning Lineup, we looked at how the Russell 2000 tends to perform following prior seven-day winning streaks. To see the rest of the analysis, sign up for a trial today!
Sep 19, 2024
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“We did everything adults would do. What went wrong?” – William Golding. Lord of the Flies
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Historically, when the Fed started a rate-cutting cycle, equity market performance on the day of the first cut was very positive with an average one-day gain of 1.30%. Even that positive bias, however, wasn’t enough to counter the negative pull of the market on Fed days during current chair Powell’s tenure since 2018. As shown in the chart below, on Fed days under Powell, there has been a clear negative bias for equities in the final hour of trading, which was again on display yesterday. Even after rallying as much as 0.8% after the statement’s release communicating a 50 bps rate cut, stocks drifted lower and finished with a decline of 0.24% right near the day’s lows.
The negative pull of Powell’s law of gravity may have pulled stocks lower yesterday, but this morning, the S&P 500 is indicated to open sharply higher with the S&P 500 ETF trading up over 1.5% in early trading. If these gains hold through the opening bell, it would be the 16th time since 1994 that SPY has gapped up over 1% on the day after a Fed meeting (scheduled or unscheduled). In the chart below of SPY, we show each of those prior occurrences using blue (when there was no change in rates on the Fed day) and red dots (when there was a cut in rates). Of the 15 prior gaps higher, just four followed a day when the FOMC cut rates. Three of those were after the 2007 peak and through the Financial Crisis while the fourth was in early March 2020 during the early days of the Covid Crisis.
