Bespoke’s Morning Lineup – 3/26/24 – Spicing Things Up

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“Youth is like having a big plate of candy.” – F. Scott Fitzgerald, This Side of Paradise

Morning stock market summary

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

There’s a positive tone in futures this morning which is helping to reverse Monday’s decline. With earnings season not kicking off for a couple of weeks, investors are left to grapple with whether the results from Q1 will be enough to justify the rally since late October. The only significant earnings report this morning (and this week for that matter) was from spice maker and seasoning behemoth McCormick (MKC) which reported better-than-expected EPS and sales and is trading up about 6% in the pre-market. That better-than-expected result was telegraphed last week when General Mills (GIS) reported better-than-expected EPS and sales and noted in its conference call that it was seeing a pickup in the percentage of Americans choosing to eat at home. Outside of MKC, though, we’re in a bit of a vacuum for earnings results, and that will leave investors forced to focus almost exclusively on economic data and attempt to extrapolate that into company results.

Outside of the equity market, treasury yields have seen a modest downside bias along with the dollar, and Bitcoin is little changed after surging back above $70,000 yesterday. While not necessarily a financial story, the collapse of the Francis Scott Key Bridge in Baltimore after a container ship crashed into it overnight will pose problems for ship traffic in the Port of Baltimore and a traffic nightmare for cars not to mention the tragic loss of life. As fans of The Wire will remember, the port is one of the largest in the nation. Bloomberg also reported that no other port in the United States handles more imports of autos and light trucks.

It’s a holiday-shortened week for the stock market but not for the economic calendar, and the most important report of the week could be Friday’s release of Personal Consumption Expenditures (PCE) for February when the equity market will be closed in observance of Good Friday.  Already released inflation data for February suggested that the January increase may have been more than an aberration. Therefore, traders will pay close attention as PCE is typically considered the Fed’s preferred inflation measure.

While the release of PCE only covers February, already released regional Fed manufacturing reports for March showed some encouraging signs. We’ll start with the bad news first. In the Dallas Fed Manufacturing report, released on Friday, the Prices Paid component ticked up from 15.4 to 21.1 – the highest level since September. While the Dallas Fed report showed a pickup in prices, the Empire and Philly Fed reports showed a deceleration. In the Empire report, March’s reading of 28.7 partially reversed some of the February surge, but outside of February’s reading, it would have been the highest level since last May. Saving the best news for last, the Prices Paid component of the Philly Fed report plunged from 16.6 down to 3.7. Not only is that barely in positive territory, but it’s also the lowest monthly reading since May 2020.

To round out the five regional Fed reports, the Richmond Fed report will be released at 10 AM today and the KC Manufacturing report comes out on Thursday. Overall, the first three of the regional Fed reports show a mixed picture in terms of inflation, but there were some welcome trends.

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Bespoke’s Morning Lineup – 3/25/24 – A World of Overbought

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“This is not an antitrust case but a return of the Luddites.” – John Warden, Microsoft Trial Attorney, October 1998

Morning stock market summary

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

There’s a bit of a hangover in the markets this morning as equity futures are lower across the board.  Besides the fact that markets just need to digest last week’s gains, news out of the EU over probes into Alphabet (GOOGL), Apple (AAPL), and Meta (META) haven’t helped.  Also, in China, the government is now banning the use of AMD and Intel (INTC) in government computers.

On the economic calendar, the Chicago Fed National Activity Index came in better than expected rising to 0.05 vs -0.34 expected. The only other reports scheduled for today are New Home Sales at 10 AM and the Dallas Fed Manufacturing report at 10:30.

Last week, the S&P 500 had its best week of the year, but the rally wasn’t only here in the US, though. As shown in the snapshot of regional international ETFs from our Trend Analyzer below, of the 18 ETFs listed, all but one was up and just three – Latin America (ILF), International Dividend Achievers (PID), and Emerging Markets (VWO) – didn’t close out last week at overbought levels (1+ standard deviations above the 50-day moving average). It’s also worth noting that 17 of the 18 ETFs shown are also up YTD.

Here in the US, it was a broad rally last week as Real Estate was the only sector ETF to finish in the red, and seven of eleven sectors rallied over 1%, including three that were up over 2.5%. Normally, when you have a big gain in the market like last week, you can expect to see Technology at the top of the performance list, and while the 2.25% gain for the sector was pretty much right in line with the S&P 500, it was ‘only’ the fourth best-performing sector on the week. On a YTD basis, Technology ranks as just the fifth best-performing sector, and six other sectors are more extended relative to their 50-day moving average.  Technology has been far from a dog lately, but it’s certainly given up some of its leadership position, and it’s understandable with several of the mega-caps now in the crosshairs of US and EU regulators.

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Bespoke’s Morning Lineup – 3/22/24 – Taking a Breather

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“Don’t be afraid of failing. Don’t be afraid of making an ass of yourself. I do it all the time—and look what I got.” – William Shatner

Morning stock market summary

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

Everything tends to move faster these days- except in sports where time seems to stand still. Did you watch the last four minutes of any of yesterday’s games?  While the NCAA tournament is only just tipping off, the first Masters in Augusta started on this date in 1934.  Today, because of TV and ratings, they don’t start the tournament until April after the college basketball champion has been crowned.

The Masters may have only been pushed out by a few weeks relative to when it first started in the 1930s, but the NHL’s Stanley Cup Championship is almost a summer event.  Like the Masters, the puck was also dropped on the first Stanley Cup hockey Championship series on this day in 1894.  These days, the playoffs (second season) don’t even start until the second half of April and last year, the Vegas Golden Knights didn’t clinch the cup until June 13th!

The markets are still as fast as ever, but this morning is quiet in terms of data.  There’s no economic data on the calendar, and after a flurry of earnings reports after the close yesterday, no reports are hitting the tapes.  That leaves investors with the opportunity to think about the barrage of central bank decisions that were released around the world over the last four days and ponder the fact that despite all of it, the S&P 500 is on pace for its best week of the year.  That, or you can just enjoy the basketball, complain about your busted bracket, and wonder what if the refs hadn’t blown the whistle on a phantom foul at the end of the Kansas-Samford game.

Not only is the S&P 500 on pace for its best week of the year, but the stock markets of major global economies have been rallying in unison.  As shown in the snapshot from our Trend Analyzer below, the ETFs of the G7 countries are all heading into the last trading day of the week at overbought or ‘extreme’ overbought levels.  They’re all sitting on comfortable YTD gains with Japan and Italy both up over 10% while the UK trails the pack with a gain of ‘only’ 2.5%. The last five trading days have seen a similar pattern play out.  Five of the seven country ETFs are all up over 1% in the last week, Germany has eked out a gain of 0.51% and Kentucky France is down 0.31%.

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Bespoke’s Morning Lineup – 3/21/24 – A Flock of Doves

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“We live in a world defined by the rapid pace of technological change.” – Jerome Powell

Morning stock market summary

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

Since yesterday’s close, we’ve seen multiple important central bank decisions from around the world (all discussed in today’s Morning Lineup), and at the margin, they have all been more dovish than hawkish with the Swiss Central Bank even announcing an unexpected rate cut.  This morning’s economic data has also been positive with all three reports (Philly Fed, initial jobless claims, and continuing claims) coming in slightly better than expected. These trends have been good enough to push equity futures near their highs of the morning after stocks around the world rallied overnight.

The positive reaction to yesterday’s Fed decision and subsequent press conference was largely tied to the fact that, despite February data showing that progress on inflation has stalled, Powell showed little concern that the trajectory has changed.  Within the dot plots, uncertainty over the Fed’s inflation forecasts appears to be declining, which indicates that the committee is more confident that inflation is still moving towards its 2% target.  While a May rate cut, at this point, is out of the question, the market is fine with that if the ultimate direction of rates is still lower.

Yesterday’s reaction to the announcement and subsequent press conference was a complete 180 versus January. Back then, stocks were lower heading into the announcement and only fell further once Powell started talking and essentially took a cut at yesterday’s meeting off the table. Just as we live in a world defined by a rapid pace of technological change, the way the market reacts to Powell Fed meetings may also be starting to shift.

Yesterday’s reaction to the statement (purple) also bucked the general long-term “Powell plunge” on Fed days since he became chair in 2018. As shown in the chart below, whether you look at his entire tenure as Fed chair or break it up into different slices during that period, Jerome Powell has not exactly been a stock market whisperer.

With a gain of 0.89% for the S&P 500 yesterday, it ranked as the 14th best single-day performance on a scheduled Fed Day of the 48 since Powell became the chair in March 2018.  Not only that, but it was also the 8th best post-decision performance of his tenure. Ironically, all the other days where the S&P 500 had a better post-meeting reaction have occurred since December 2021, essentially when the Fed started to telegraph the most recent tightening cycle.

To further illustrate how the market tide towards Fed decisions has been shifting, while the post-meeting reaction in January was one of the more negative post-meeting reactions under Powell’s tenure, the two meetings before that in November and December, were greeted warmly by the market (6th and 7th best under Powell’s tenure) and looked very similar to yesterday’s post-meeting reaction. If rate hikes are out of the equation, investors are willing to be patient with the timeline of rate cuts.

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Bespoke’s Morning Lineup – 3/20/24 – Muted Breadth

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“Never give up, for that is just the place and time that the tide will turn.” – Harriet Beecher Stowe

Morning stock market summary

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

Happy Fed Day!  After opening lower and rallying throughout the trading day yesterday, futures are more contained this morning but indicated to open slightly higher on the day as traders await the latest policy decision from the FOMC. It may sound hard to believe with the S&P 500 closing at a record high yesterday, but given last week’s hotter-than-expected inflation data, the market seems to be more worried about some hawkish commentary from Powell. Therefore, if there is no change in his commentary from prior speeches in the last several weeks, that could pave the way for some further gains.

Overnight in Asia, Japanese markets were closed for the Vernal Equinox, but that didn’t stop the Yen from continuing its post-BoJ slide versus the dollar. Other indices in the region were mostly positive with China up 0.6% and back above its 200-DMA while Korea rallied over 1%.  In central bank news, BoJ governor Ueda said that easy monetary policy will remain in place for the bank to reach its inflation target, while in China, the PBoC kept its one and five-year loan rates unchanged.

In Europe this morning, it’s been a mixed back with Germany trading up about 0.30% while France is down 0.5% with most other major countries somewhere in between.  There was some good news on the inflation front as both German (PPI) and UK (CPI) data came in below forecasts, and this comes after comments yesterday from ECB Governor Kazaks who said he was comfortable with where the market was on rate cuts this year (three).

The S&P 500’s advance-decline (A/D) wasn’t particularly extreme yesterday, but relative to the last several weeks of subdued readings, it stood out. As shown below, at +269 yesterday’s A/D line was the largest single-day reading in just over a month (2/15).  While strong daily breadth readings have been hard to come by lately, significantly weak daily breadth readings have been uncommon in recent weeks.  Last Thursday’s daily reading of -281 was also the lowest single-day reading in over a month (since 2/13). As shown in the chart below, while these two daily readings were extreme relative to the last month, they hardly stand out from a long-term perspective.  In fact, over the last five years, the S&P 500’s average daily breadth reading was +/-212, so readings in the 200s have hardly been extreme.

The fact that breadth has been subdued on both the upside and downside means that overall market breadth has remained on a solid footing. As shown in the chart below, just like the S&P 500, its cumulative A/D line also made a new high as of yesterday’s close.

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