Jan 26, 2024
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“You have to work hard in the dark to shine in the light” – Kobe Bryant
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 was looking like a rough end to the week late last night and into this morning as futures dipped following some weak earnings after the close yesterday from the likes of Intel (INTC), KLA-Tencor (KLAC), and Visa (V), but it started to show some improvement as Europe opened for trading. Right now, S&P 500 and Dow futures are flat to slightly lower, while Nasdaq futures are a bit further below the flatline due to the 10% pre-market decline in shares of Intel (INTC). In the energy space, crude oil is down about 1% after a rally stalled out at its 200-DMA yesterday.
The week’s last batch of economic data included Personal Income and Personal Spending, PCE Deflator (all at 8:30), and Pending Home Sales at 10 AM. Personal Income was right in line with estimates (0.3%), and Personal Spending came in stronger than expected (0.7% vs 0.5%). On the inflation front, the headline PCE Deflator was right in line with forecasts on a m/m and y/y basis. On a core level, the m/m reading was inline (0.2%), but the y/y reading was better than expected, falling to 2.9% versus forecasts for an increase of 3.0%. Net net, this data continues to a backdrop of growth with receding inflation.
Heading into the last four trading days of January, the S&P 500 is up 2.6% YTD which is the strongest start to a year since…last year when the S&P 500 rallied over 5% at this point in the year. In the charts below, we summarize the performance of the S&P 500 during the last four trading days of January since 1953 (which is the first full year of the NYSE five-trading day week in its current form). As shown, in years in which the S&P 500 was down over 2%, median returns for the rest of the month were a gain of 0.14% with positive returns 55% of the time. In the 11 years when the S&P 500 was down less than 2%, the median return in the last four trading days was a decline of 0.27% with gains just 36% of the time. In the years when the S&P 500 was positive to start the year, though, January tended to finish off the month on a more positive note with gains over two-thirds of the time.
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Jan 25, 2024
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“No pressure, no diamonds.” – Thomas Carlyle
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
The market is currently digesting the economic equivalent of a Thanksgiving dinner in terms of the sheer quantity of reports. Like Thanksgiving, most of the platters were good. Headline GDP came in much higher than expected, inflation readings were in line with or better than forecasts, and Durable Goods were weaker than expected at the headline level but stronger after stripping out transportation. The only “yams” on the table were jobless claims, but even they weren’t that bad as both initial and continuing jobless claims came in only modestly higher than forecasts. In reaction to the reports, futures have rallied as the S&P 500 is indicated to open up by about 35 basis points versus just modest gains ahead of the data.
119 years ago today, in a mine 18 feet underground, workers came across what was and still is the largest diamond ever discovered. Weighing in at 1.33 points, the 3,106-carat Cullinan diamond was immediately sold to the local government who then gifted it to Britain’s King Edward VII. The stone was ultimately cut into nine major stones (the Cullinan IX) and dozens of smaller ones, but the two largest, at 530 and 317 carats, respectively, remain on display in the Tower of London along with the other crown jewels.
The equity market’s version of the Cullinan IX is the Magnificent Seven, and while TSLA has had some trouble of late, the remaining “Cullinan Six” of Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon.com (AMZN), Nvidia (NVDA), and Meta Platforms (META) have continued to hum. Through yesterday’s close, the stocks were collectively 22.5% above their 200-day moving averages (DMA) with AAPL the closest at 7.1% and NVDA a seemingly outrageous 43.3% above its 200-DMA. While that may sound crazy, back in the summer NVDA was trading at more than double its 200-DMA.
Putting them all together, the chart below shows the daily historical market cap of the “Mag Six” stocks since the start of 2023 along with the 200-DMA. As of Wednesday’s close, the “Mag Six” had a combined market cap of $12.02 trillion which was more than $1.85 trillion above its 200-DMA. To put that in perspective, that’s the equivalent of over 65% of the Russell 2000’s entire market cap, and if just those six stocks were to experience a correction and pull back to their 200-DMA, it would knock about 5% off the price of the S&P 500.
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Jan 24, 2024
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“The best argument against democracy is a five-minute conversation with the average voter.” – Winston Churchill
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
The rally continues to roll this morning as positive earnings from Netflix (NFLX) and ASML drag the rest of the market up along with it. Even with the positive tone from NFLX, there are several high-profile duds this morning as DuPont (DD), Kimberly Clark (KMB), and Texas Instruments (TXN) are all down either in reaction to earnings or due to lowered guidance. Besides the earnings news, China cut interest rates by 50 bps in a somewhat surprising move.
In terms of economic data, PMI Manufacturing readings out of major European countries topped estimates even as they remain in contraction territory. Here in the US, mortgage applications increased 3.7% last week, and we’ll get flash PMI readings for the Manufacturing and the Services sector later this morning.
Following yesterday’s gain, the S&P 500 has risen in each of the last four trading days notching three all-time closing highs in the process. The index is now up 2% YTD, in what has been a rally driven by Technology and Communication Services which are both up over 5% YTD. Besides those two sectors, Health Care is the only other one outperforming the market. On the downside, six sectors are lower YTD, and five of them are down at least 2% on the year. It’s somewhat interesting to note that of the eleven sectors, the only two that are up or down less than 1% are Consumer Staples (+0.75%) and Industrials (-0.63%).
There’s quite a bit of disparity in sector performance among large caps, but in the small-cap space, performance is more uniform, but unfortunately, it’s to the downside. The S&P 600 is down 2.3% YTD and all but three sectors are down at least 2%, including Energy (-6.2%), Utilities (-4.2%), and Consumer Discretionary (-3.3%).
The lower chart shows the YTD performance spread between large-cap sectors and their small-cap peers. Sectors where there has been the largest disparity in favor of large caps are Communications Services and Technology. These are also the two sectors that have the largest concentration of mega-caps, and that illustrates how even within the large-cap space, performance is centered towards the companies with the largest market caps. While large caps have largely outperformed small caps YTD, there have been a couple of exceptions. As shown in the chart, in both the Real Estate and Materials sectors large caps have underperformed their smaller-cap peers.
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Jan 23, 2024
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“The more they actually know, the less confident they become.” – Charles Dow
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 very quiet morning in the futures market as the Dow is indicated to open higher by less than 20 points while the S&P 500 is expected to gain less than three points. The Nasdaq is looking stronger, as it has all year, and is currently looking at a gain of 45 points. Europe has been just as quiet as things here in the US are as most major averages in the region are up or down less than five basis points (bps). The economic calendar is quiet again this morning as the Richmond Fed Manufacturing survey is the only report on the calendar.
On the earnings front, the pace of reports has picked up this morning with several Dow components reporting (discussed in the commentary section of this morning’s report), and after the close, we’ll hear from Baker Hughes (BKR), Intuitive Surgical (ISRG), Netflix (NFLX), Steel Dynamics (STLD), and Texas Instruments (TXN).
Just 40 days after crossing 37,000 for the first time in the first half of December, the Dow Jones Industrial Average, “America’s stock market index” never looked back and crossed 38,000 yesterday for the first time. The path from 37,000 to 38,000 was certainly smoother than the run from 36,000 to 37,000 which took almost 20 times longer than the latest 1,000-point run. Even though the run from 36,000 to 37,000 was a move of less than 3%, it was the longest period between 1,000-point thresholds since the 2,119-day gap between 14,000 and 15,000 (a move of over 7%) and the sixth longest ever. Meanwhile, this latest 1,000-point move was the eighth fastest. Lastly, while it’s entirely possible and even likely that the DJIA will at some point pullback below 37,000, at this point the only other 1,000-point threshold that has never been crossed to the downside is Dow 5,000.
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Jan 22, 2024
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“Those who will not reason, are bigots, those who cannot, are fools, and those who dare not, are slaves.” – Lord Byron
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
After last Friday’s run to record highs, there is no hangover in the markets this morning as futures are firmly in positive territory to kick off the week. There’s not much specific to point to as reasons for the positive tone, and the stocks leading the way in the pre-market are essentially the ones that have taken us here in the first place, namely mega caps, and anything to do with AI. It’s a quiet day for both earnings and economic data to kick off the week, but that will change as the week goes on. In the meantime, the only economic data to be on watch for this morning is Leading Indicators at 10 AM Eastern.
Just as the US equity market breaking out to new highs hasn’t been a tide lifting all stocks, global stocks have also seen disparate performance. The snapshot below shows where the equity benchmarks of the ten largest global economies are trading relative to their trading ranges (in dollar-adjusted terms). While the US was up over 1% last five trading days, the only two other country ETFs that traded higher were India (PIN) and Japan (EWJ). They are also the only two other countries that have managed gains so far this year. While most other major-country ETFs are still above their 50-day moving averages, that can’t be said for the UK, Brazil, and China. However, given the disaster that Chinese equities have been lately, it’s probably not fair to lump the UK and Brazil in the same basket.
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Jan 19, 2024
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“…and then we’re going to Washington, D.C., to take back the White House! Yeah!” – Howard Dean, 1/19/2004
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
The week started with a shaky start on Tuesday and additional losses on Wednesday, but Thursday’s rally and additional strength in the futures this morning have the major averages on pace for a positive week ahead of what will be a busy week for earnings next week. The only reports on the economic calendar today are the Michigan Sentiment report at 10 AM where economists are forecasting a modest uptick in the headline reading and no change in one-year inflation expectations. Along with the report, Existing Home Sales are essentially expected to remain unchanged at 3.83 million. In terms of Fed-speak, Chicago Fed President Goolsbee is about to go on CNBC (or may have already appeared depending on when you read this), and then after the close San Francisco Fed President Daly will speak at an event in her district. After that, the FOMC will go into its quiet mode ahead of its upcoming meeting. While the pace of Fed-speak will slow, along with earnings, the political pace will also pick up next week with the New Hampshire Primaries on Tuesday.
Just when you think this fall’s election matchup is a foregone conclusion, remember that politics is just as volatile as any market. Think back twenty years to the Iowa Caucuses, and Howard Dean’s “I Have a Scream” speech. Dean was one of the leading candidates on the Democratic side, raising a record amount of funds early in the campaign. Not only that, but his support was broad with a large percentage of small donors. Even though he finished third in Iowa, it was expected that when the campaign moved back closer to his home state of Vermont, he would see increased momentum. But then he screamed.
In what would generously be described as an energetic speech, Dean spoke ‘enthusiastically’ about the future of the campaign and the victories it would see right up to the White House in November. He then capped it off with a scream of “Yeah!” where his voice cracked like Peter Brady singing “Time to Change” in the Brady Bunch. The clip was played all over the nightly news, late-night shows, and the internet, and whether it was the main catalyst or not, from there, the wheels fell off the Dean bandwagon. In New Hampshire, Dean finished a distant second behind John Kerry. From there, Dean’s losses in the primaries continued, and after going ‘all in’ on the Wisconsin primary, Dean came in third and dropped out of the race the next morning on 2/18.
In less than a month, Howard Dean went from a leading candidate for the Democratic Party in the 2004 election to out of the race. This November’s election could very well end up being a race between President Biden and former President Trump, but the election is still more than nine months away, and a lot can change between now and then.
Heading into the last trading day of the week, most sectors are down over the last five trading days and on a YTD basis, but the weakest of them all has been Utilities as rising rates have hurt the sector. It’s down more than 5% over the last five trading days, joining Energy as one of just two oversold sectors. While most sectors are down over the last five trading days, Technology and Communication Services have managed to buck the trend with gains. What else is new?
Up until this week, the Utilities sector had been in a somewhat steady uptrend from its October lows when rates peaked. As shown in the chart, though, the uptrend collapsed late last week just as the sector started to bump up against its longer-term downtrend.
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