Nov 3, 2023
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“There is nothing wrong with change.” – Joe Maddon
Below is some introductory commentary of today’s Morning Lineup. Start a two-week trial to Bespoke Premium to get full access.
Seven years ago today, the world woke up to what had been previously thought impossible as the Cubs won the World Series for the first time in 108 years. In typical Cubs style, they didn’t make it easy on themselves; the win came in extra innings of game seven…after a rain delay! There was a lot of excitement in Chicago on November 3, 2016, but no one was happier than Steve Bartman who became the scapegoat of the team’s collapse in game six of the 2003 NLCS when the Cubs blew a 3-0 lead in the eighth and then went on to lose in game seven after blowing a 5-3 lead and losing 9-6 to the Marlins.
The Marlins then went on to win the World Series in six games over the Yankees. Naturally, since the Cubs should have beaten the Marlins, who then went on to beat the Yankees, the Cubs should have won the World Series, and it was all Bartman’s fault. It makes perfect sense, and if you ask any Met fan, they’ll agree.
While not quite as impressive as the Cubs winning the World Series, the market did what seemed impossible on Wednesday by rallying at least 1% on a Fed Day and then rallying more than 1% the next day as well. Fed days lately have been anything but bullish, and like clockwork, you can usually depend on the market selling off right when Chair Bartman steps up to the podium. Wait, does that say Bartman? On Wednesday, though, the S&P 500 traded higher into the press conference and then kept rallying from there and finished near the highs on both days!
In reality, the S&P 500’s two-day rally on Wednesday and Thursday was only the strongest gain on a Fed Day and the day after since the day of and day after the July 2022 meeting. Just like Bartman, Powell probably doesn’t deserve all the blame, but just like Cubs fans when things didn’t go their way, investors are always looking for a scapegoat, and Powell has become the obvious choice. As bad as it has been for Powell over the last two years during this hiking cycle, at least he can go out to dinner this weekend without fearing the mob. It took Bartman 13 years!
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Nov 2, 2023
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“Once you consent to some concession, you can never cancel it and put things back the way they are.” – Howard Hughes
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Stocks are poised to trade higher for the fourth day in a row this morning continuing the positive momentum from yesterday’s trading and a strong session in Europe. Movement in the fixed-income space is also helping as the 10-year yield drops below 4.70%. There’s still a lot of economic data to get through today, and after what has already been a busy day of earnings, there’s still a ton of reports after the close including the biggest of them all – Apple (AAPL) – after the close today. On the economic calendar, we just got a slug of data. Non-farm productivity came in higher than expected, Unit Labor Costs were lower than expected, and both initial and continuing jobless claims were higher than expected.
We’ve all become painfully aware of the typical “Powell Pattern” on Fed days where the S&P 500 finishes near its lows of the day following an afternoon swoon that seems to always take place right after the Fed President starts speaking. Yesterday, the S&P 500 went in the opposite direction as the Powell pattern was completely reversed.
When the closing bell rang yesterday, the S&P 500 tracking ETF (SPY) was up 1.07% making it the best Fed Day since July 2022 when SPY rallied 2.60%. In the nine meetings between yesterday and July 2022, SPY declined an average of 0.78% on Fed days and was only up three times.
The fact that the market finished higher on a Fed Day yesterday was surprising enough. Even more impressive though was the fact that it finished near its highs for the day. When the closing bell rang, SPY was down 0.2% from its intraday high. That was the closest it finished to an intraday high since the May 2022 meeting, and in the eleven meetings between yesterday and May 2022, SPY’s average close relative to the intraday high was a decline of 1.5%. Did Powell get up on the right side of the bed yesterday?
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Nov 1, 2023
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“If you knew how much work went into it, you wouldn’t call it genius.” – Michelangelo Buonarroti
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A 2.4% rally overnight in Japan hasn’t been enough to help the picture for US futures this morning, but we have seen some improvement following a slightly weaker-than-expected ADP report and the refunding announcement from the US Treasury. It’s a busy day of economic ahead with Construction Spending, JOLTS, and ISM Manufacturing. Then, at 2 PM we’ll get the interest rate decision from the FOMC. While the market is all but certain that there will be no change in rates, you never know what Powell will say at 2:30. Once we get through all of that, we’ll get earnings from Apple (AAPL) after the bell.
In yesterday’s Chart of the Day, we discussed the “Nowhere Nasdaq” as the index is basically unchanged since the start of 2021 – a period just two months short of three years! The S&P 500 has fared modestly better during this span, but overall returns have been, at best, ordinary.
The chart below shows the annualized performance of the S&P 500 on a total return basis over the last one, two, five, ten, and twenty years (green bars) and compares those returns to the long-term historical average (blue bars). Outside of the five- and ten-year time windows, returns through the end of October have been weaker than average with the weakest results over the last two years (-3% vs 10.6%). Over the last twenty years, the S&P 500’s average annualized return of 9.3% is 1.6 percentage points below the long-term average, and while that doesn’t sound like much, it adds up over time. For example, $100 invested 20 years ago that compounded at 9.3% is worth $592 today while that same $100 compounded at 10.9% would be worth $792 today.
As ‘meh’ as equity returns have been over time, they blow the returns of long-term US Treasuries out of the water. The BofA 10+ Year US Treasury Index has now had negative 1-year rolling total returns for a record 33 straight months.
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Oct 31, 2023
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“You cannot keep birds from flying over your head, but you can keep them from building a nest in your hair.” – Martin Luther
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It’s been a while and it’s still early in the day, but with futures trading higher as we head into the opening bell, the S&P 500 is on pace for its first back-to-back run of gains in three weeks. Treasury yields are moving lower this morning, and the 10-year yield is barely hanging onto the 4.8% level after breaking above 5% just over a week ago. In international economic data, China released some weak PMI data, and GDP in Europe missed expectations.
Back here in the US, the Employment Cost Index came in slightly higher than expected at 1.1% versus forecasts for an increase of 1.0%. Besides that report, we still have home price data at 9 AM, Chicago PMI at 9:45, and Consumer Confidence at 10 AM.
There’s never a shortage of strange when it comes to the markets, and October has been no exception. In a month where geo-political uncertainty in the Middle East moved to the front burner, gold surged (which you would expect), but crude oil, which you would also expect to rally, quickly ran out of steam. The fact that crude oil was unable to get going given the geo-political backdrop reinforces the view that the market isn’t expecting a major escalation/spillover of the current unrest.
With crude oil down just under 9% this month and gold up just under 9%, October is on pace to be just one of 20 other months in the last 40 years that crude fell at least 5% in the same month that gold rallied more than 5%. In the table below, we list each of those prior periods along with each commodity’s forward three-month performance. Going forward, crude oil has tended to largely recoup the ground it lost, averaging a three-month gain of 8.9% (median: +5.3%) with positive returns just over two-thirds of the time. Gold, however, was not as strong. Over the next three months, it averaged a gain of just 1.2% with gains less than half of the time (42%) On a median basis, though, gold’s forward three-month performance was a loss of 0.2%.
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Oct 30, 2023
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“When so many hours have been spent convincing myself I am right, is there not some reason to fear I may be wrong?” – Jane Austen
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While the record streak of positive Mondays ended last week, it’s looking like another positive start to the trading week this morning as investors breathe a sigh of relief that the world didn’t end over the weekend. The week is starting off slow in terms of news and data, but it’s going to be a busy week of data, earnings, and central bank decisions (FOMC, BoJ, and BoE).
Simply put, last week was a lousy one for US stocks. While the S&P 500 was down less than 1.5% for the month of October heading into the week, it now finds itself down just under 4%. What was notable about the declines, though, was in how uniform they were. In a market that has been so uneven for at least the last year (see the YTD performance numbers in the fourth column), all fourteen of the US index ETFs we track in our Trend Analyzer were down over 2% but less than 3%. Another common theme? All of them are at ‘Extreme’ oversold levels.
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Oct 27, 2023
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“If you could kick the person in the pants responsible for most of your trouble, you wouldn’t sit for a month.” – Theodore Roosevelt
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It’s getting to the point where if you want to see the market trading higher, set your alarm an hour or two earlier. Dow futures were firmly in the green very early this morning but reversed sharply a couple of hours ago as oil prices spiked following news that the US had launched airstrikes on certain targets in Syria. You know what that means; we’re heading into another weekend with a ton of uncertainty over what’s going to happen in the Middle East. There’s very little incentive to take much of a stand heading into an over 60-hour lull where the equity market will be closed for trading. Therefore, how the market manages to finish the day today will give a good idea of how sentiment looks after a rough couple of weeks of trading. Not including today, the S&P 500 has been down on five of the last six Fridays.
While Dow futures are now firmly in the red, S&P 500 futures are hanging onto positive territory (for now), and the Nasdaq is indicated to open firmly higher. Whether those gains hold will depend in part on how this morning’s economic data comes in relative to expectations. At 8:30, we got updates on Personal Income (weaker than expected) and Personal Spending (stronger than expected) as well as the PCE Deflator on both a headline (higher than expected) and core (inline) basis. At 10:00, the University of Michigan will give us updates on overall consumer sentiment and inflation expectations. Of the reports, Core PCE and the inflation expectations components of the Michigan survey are the two we’ll be paying closest attention to.
The last five trading days have been painful for US stocks, but the weakness has been global in nature. The snapshot below from our Trend Analyzer shows the performance of regional global equity ETFs and where they stand relative to their trading ranges. Outside of Europe, which is still oversold, every other ETF in the snapshot closed yesterday at ‘extreme’ oversold levels. Declines have been widespread around the globe with every ETF trading down at least 1.5% over the last week and all but two are at least 5% below their 50-day moving averages.
Looking a little closer at the returns in the last week, US equity ETFs have been hit especially hard with declines of more than 3% while most of the other ETFs are down closer to 2% or less. The underperformance of US equity-based ETFs is mostly a reflection of the weakness in mega caps this week. Mega caps have been big drivers of US outperformance this year, but now investors are getting a taste of the process working in reverse.
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