May 12, 2023
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Legally speaking, 18 is the age when you are considered an ‘adult’ in the United States. That’s when you are old enough as an American to serve your country, vote, and be tried as an adult for any crimes you may commit. Eighteen may be the age when you are given extra responsibilities, but it doesn’t make you feel like an adult. You won’t be able to legally buy a beer for another three years, and in most states, you can’t even buy a pack of cigarettes without a fake ID. Most 18-year-old Americans still have several years left of school, and they can legally stay on their parent’s health insurance for another eight years. In other words, being 18 makes you an adult in name only.
From a technical perspective, we’re still in a bear market, but like an 18-year-old kid, it doesn’t necessarily feel that way. In fact, there isn’t much ‘feeling’ on the part of bulls or bears these days. As discussed in this week’s report, with seven months having passed since the October low, it doesn’t feel like a bear market, but with the S&P 500 up less than 20% from those lows, it hardly has the feeling of a bull market either. The S&P 500 is essentially right around the same levels it was at 12 months ago, nine months ago, six months ago, or three months ago!
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May 5, 2023
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Don’t be confused by panicked price action in regional banks: the deposit crisis is subsiding. One example can be found in the reduced balances for emergency lending programs at the Fed. Those have fallen by $100bn since the March 22nd peak, a sign that stress is abating, and after the failure of FRC in the latest weekly data, 74% of the balances are now loans to the FDIC rather than funding for banks that have yet to fail.
Data on bank balance sheets tells the same story. Domestically chartered banks saw deposits up WoW by a total of $21bn. What’s even more encouraging is core loan growth. Total lending across consumer, commercial & industrial, and real estate loans rose by $29.4bn in the week of April 26th. That’s a major acceleration and was led by smaller banks in a sign that the liquidity stress of deposit swings are hitting credit creation less than feared.
Of course, that doesn’t change the fact that the KBW Regional Bank index was down 8% this week…and that’s after a 4.7% rally on Friday. For their part, large cap stocks suffered through four straight losses before a 1.9% surge in response to strong payrolls data Friday. This marks the fifth-straight week that the S&P 500 has reversed direction from the prior week. Of course, banks weren’t the only reversal: front-month WTI collapsed 7.3% in thin liquidity around dinner time Thursday night before a sharp 12% rally from that low through the close on Friday. Add in the Fed, which has raised the bar for further hikes, and we have what looks like three different storms passing this week and clearing the skies for stocks.
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Apr 28, 2023
This week’s Bespoke Report is an updated version of our “Pros and Cons” edition for Q2 2023.
With this report, you’re able to get a complete picture of the bull and bear case for US stocks right now. It’s heavy on graphics and light on text, but we let the charts and tables do the talking!
On page three of the report, you’ll see a full list of the pros and cons that we lay out. Slides for each topic are then provided on page four and beyond.
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Apr 21, 2023
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The buildup to earnings season is always full of anticipation, but it usually starts off slowly as the pace of reports doesn’t usually really get going until the second full week of the reporting period. This earnings season has proved to be no different. While there were some notable reports from companies like Tesla (TSLA), Netflix (NFLX), Goldman Sachs (GS), Johnson & Johnson (JNJ), Lockheed Martin (LMT), IBM, AT&T (T), Taiwan Semi (TSM), and Procter & Gamble (PG), the real fireworks won’t be until next week when more of the mega-cap stocks start to report.
While equities escaped the week with just modest losses, they felt heavy for most of the week. As things stand now, both the S&P 500 and Nasdaq remain stuck in a sideways range and have stalled out at their February highs and remain well off their highs from last August. For all the talk about whether we’re in a new bull market or still stuck in a bear, at this point it seems like neither. If you want to call it a bear market, it looks about as savage as a koala, and if you’re going to go the bull route, it’s raging more like a cow than a bull.
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Apr 14, 2023
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A month ago, financial markets were focused on how badly the Federal Reserve had broken the banking system. This week, the initial earnings from a few very large banks suggest that the quick work of the FDIC and Federal Reserve in the wake of Silicon Valley Bank’s failure have prevented broader damage. Lenders including PNC Financial (PNC), JPMorgan (JPM), Wells Fargo (WFC), and Citi (C) reported Friday,, and the sigh of relief from markets was palpable. JPM delivered beats on strong investment and commercial banking performance and raised guidance for net interest income this year by some 11%. That drove the stock to its biggest gains since 2020 and its second best earnings reaction day in at least 20 years. It’s hard to view the US banking system as faulty when its largest lender is finding such firm ground beneath its feet. Other lenders delivered less spectacular results, but reassured investors that among big banks there isn’t much reason to be concerned. In the charts at right, we show the aggregate results from banks reported Friday in the form of loan loss reserves as a percentage of the total loan book and loan book-weighted average interest margin. Credit quality didn’t deteriorate much on the quarter, and there are plenty of reserves relative to recent history. At the same time, the core bank business of borrowing short and lending long appears to be doing just fine with net interest margins nearing 3%.Terra firma beneath the feet for financials may be just the platform this market needs to push higher.
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Mar 31, 2023
This week’s Bespoke Report newsletter is now available for members.
In this week’s newsletter, we’ve updated our Equity Market Risk Gauge for the month of March, and we also take a look at market technicals, inflation stats, Q1 performance numbers, April seasonality, and what’s on tap for the coming weeks.
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