Nov 20, 2023
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“We can know only that we know nothing. And that is the highest degree of human wisdom.” – Leo Tolstoy
Below is some introductory commentary of today’s Morning Lineup. Start a two-week trial to Bespoke Premium to get full access.
It’s been just over three weeks now that US equities have been in rally mode as we head into a holiday-shortened trading week. Markets are closed on Thursday for Thanksgiving, and Friday is a shortened session with stocks closing for the week at 1 PM on a day. With just three and a half days of trading, the economic calendar is very light, although the earnings calendar will be relatively busy on Tuesday with several retailers, as well as NVIDIA (NVDA), reporting results. Even Fed officials, who seem to love getting in front of a microphone nowadays, are mostly taking the week off.
Over the course of the three-week rally for US stocks, the S&P 500 has been positive all three weeks, and its total gain during that span has been just under 10%. Rallies of this magnitude in a three-week span aren’t unprecedented, but they aren’t common. Prior to the current surge in stocks, the last time the S&P 500 rallied more over a three-week span was back in June 2020.
While the S&P 500’s rally has been impressive, the Nasdaq has rallied even more with its gain of 11.7%. Like the S&P 500, the last time the Nasdaq rallied by a larger amount in a three-week span was back in April 2020, although there were two times in 2022 (April and August) when it rallied by more than 10% over a three-week period.
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Nov 17, 2023
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“There’s no such thing as simple. Simple is hard.” – Martin Scorsese
Below is some introductory commentary of today’s Morning Lineup. Start a two-week trial to Bespoke Premium to get full access.
After tons of economic data, at least twenty different Federal Reserve speeches, and the finale of earnings seasons, stocks finished the week with healthy gains. Easy a pie, right? Well, if you asked anyone at the beginning of the week how the week was going to go, we’d put good money that no one would have expected the Russell 2000 to rally over 5%…in a single day! Everything is easy in retrospect.
This morning, futures are modestly higher on the day, and the only economic data on the calendar is Building Permits and Housing Starts at 8:30. There are several Fed speakers scheduled to speak between now and noon, and the earnings calendar is very light.
Stocks in Asia were mixed overnight. Hong Kong stocks declined over 2% after Alibaba (BABA) fell over 10% on news that the company was canceling the IPO of its cloud business. Foreign Direct Investment in China also declined 9.4% on a YTD versus a decline of 8.4% in September. Over in Europe, though, it’s a much more positive tone as major benchmark indices are up across the board. CPI in the Eurozone decelerated for the seventh straight month falling from 0.3% down to 0.1% which was in line with expectations while UK Retail Sales unexpectedly fell 0.3% versus forecasts for an increase of 0.3%. That weaker report has bonds rallying on hopes that the UK’s rate hiking cycle is over.
There are still almost two weeks left in the month, but along with the equity rally, Treasuries have also surged. Based on where the iShares 20+ Year Treasury ETF (TLT) is trading this morning, its month-to-date gain currently stands at 7.8% which, if it holds through the end of the month, would be the largest monthly gain since August 2019.
The chart below shows the monthly prices of TLT since the start of 2003, and gains of 5%+ have been nothing out of the ordinary with 23 occurrences, or about one every ten months. Since TLT’s monthly peak in July 2020, this month’s gain would be just the third occurrence (if it holds). The last two occurrences came in a three-month span in which TLT rallied over 11% before rolling over again.
The chart below shows the monthly change of TLT going back to 2003, and what stands out about the current period is the fact that this month’s gain follows a loss of similar magnitude in October. That would make it just the second time in TLT’s history that it fell 5%+ in one month and then rallied 5%+ the next. Ironically, the only other occurrence was in October and November of last year. With more and more indicators lately, it seems as though the last time we saw similar extremes was exactly a year ago.
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Nov 16, 2023
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“Asking economists for investment advice is like asking a physicist to fix a broken toilet. Not their field, though sort of related.” – Milton Friedman
Below is some introductory commentary of today’s Morning Lineup. Start a two-week trial to Bespoke Premium to get full access.
As if the calendar of economic data hasn’t been significant enough already, it’s another busy day for data today with Import and Export Prices (both weaker than expected), Jobless Claims (higher than expected), and the Philly Fed (less negative than expected) at 8:30. Then at 9:15, we’ll get releases of Industrial Production and Capacity Utilization, followed by Homebuilder Sentiment at 10 and the KC Fed Manufacturing report at 11.
In addition to the economic slate, earnings season comes to an unofficial end today as Walmart (WMT) reported earlier this morning. While the company reported better-than-expected earnings and sales, the stock is trading down over 6% after lowering full-year guidance and some cautious commentary from management on the state of the consumer (see page four of today’s report).
Since last Thursday’s close when the last update to the weekly sentiment survey from the American Association of Individual Investors (AAII) was released, the S&P 500 has rallied over 3%. Given the surge in stocks, you would expect to see a sharp spike in bullish sentiment, but as this week’s latest update shows that hasn’t necessarily been the case.
In the last week, AAII’s survey of bullish sentiment showed an increase from 42.6% up to 43.8%. Granted, the prior week saw an increase of over 18 percentage points, but with the market continuing its run, we would have expected a bullish reading of closer to 50% this week.
Not only was the increase in bullish sentiment modest, but bearish sentiment increased slightly rising from 27.2% to 28.1%. Again, the prior week showed a sharp decline in bearish sentiment, but with the S&P 500 up so much during the week, any increase in bearish sentiment is a bit surprising.
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Nov 15, 2023
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“Anyone with any degree of mental toughness ought to be able to exist without the things they like most for a few months at least.” – Georgia O’Keefe
Below is some introductory commentary of today’s Morning Lineup. Start a two-week trial to Bespoke Premium to get full access.
After yesterday’s monster rally, futures are still in a celebratory mood as futures are higher across the board. Even bitcoin, which sat out Tuesday’s rally is trading up over 1.5%. A slug of economic data was just released, including PPI, Retail Sales, and Empire Manufacturing. In a nutshell, the inflation data was weaker than expected while Retail Sales and Empire Manufacturing were better than expected. Equity futures are little changed in response to the data while treasury yields are modestly higher which is likely due to the stronger Retail Sales report. That being said, as discussed yesterday, with the door closed on further rate hikes, good economic news is actually good market news!
Bulls went a ‘few months’ where equities did nothing but seemingly go down, and by the end of October, you couldn’t have faulted anyone for becoming frustrated with the way things were going in the market. For those who had the toughness to stick it out, they’ve been rewarded in the last two to three weeks as the S&P 500 has rallied over 9% from its lows.
Investors in small-cap stocks have had an even tougher time of it lately, but they had their day yesterday as the Russell 2000 surged 5.44% which was 3.53 percentage points more than the S&P 500’s gain of 1.91%. Since the Russell 2000’s inception in 1979, yesterday was only the 24th day that the index outperformed the S&P 500 by 2.5 percentage points or more in a single day, and in the chart below we have highlighted each of those days with a blue dot.
As shown, there were several of these occurrences coming out of the COVID lows as investors were flush with cash from all the stimulus sloshing around in the US economy, and before that most, but not all of the other occurrences were clustered around the period coming out of the Financial Crisis, around the peak of the dot-com boom, and after the 1987 crash.
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Nov 14, 2023
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“It is better to fail in originality than to succeed in imitation.” – Herman Melville
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After a slow start to the week for economic data things are picking up this morning. We’ve already had the release of NFIB’s Index of Small Business Optimism, but that’s just the appetizer for the October CPI report which is coming out as we send this. Heading into the report, there was very little movement in markets as futures, interest rates, and commodities have seen little in the way of change from their closing prices on Monday.
When it comes to monthly inflation reports, things really have changed over the last year. In October of last year, the market was trying to navigate a record pace of higher-than-expected CPI reports as the ‘transitory’ inflation of the Covid era decided to stick around longer than anyone had expected. At the headline level, the trailing 12-month total of higher-than-expected headline CPI reports was at a record high of nine (top chart) while the trailing 12-month total of higher-than-expected Core CPI prints was also at a record high of eight (lower chart).
Fast forward 13 months and the ‘uncontrollable’ wave of inflation has crested. At the headline level, there has been just one higher-than-expected CPI report in the last 12 months, and that occurred last month. The last time this reading was that low was back in October 2019. At the core level, there have been just two higher-than-expected CPI prints, and that’s the lowest since August 2019.
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Nov 13, 2023
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“Victory is not simply defeating the enemy, but also preserving and protecting the values we hold dear.” – George B McClellan
Below is some introductory commentary of today’s Morning Lineup. Start a two-week trial to Bespoke Premium to get full access.
Unlike seemingly most Fridays this year where investors were hesitant into the weekend, last week bucked the trend as the S&P 500 rallied more than 1.5%. The downside of the positive close to the week is that there’s less fuel for a relief rally to start the week, and that’s exactly what we’re seeing this morning as futures trade modestly lower. It’s a quiet start to the week in terms of economic data, but there will be a ton of events to watch this week as the economic calendar is packed, including a very important CPI report on Tuesday. Earnings season will also unofficially wind down as Walmart reports later this week, and on the geo-political stage, President Biden will meet with Chinese President Xi in San Francisco on Wednesday.
While there isn’t much in the way of actual economic data today, one important report will be the NY Fed’s Survey of Consumer Expectations, specifically its reading on inflation expectations. In last Friday’s Michigan Sentiment report, inflation expectations showed a meaningful increase. While that could just be a one-off quirk of that survey, any confirmation of that trend in today’s report would spark concerns in the Treasury market. The results of that survey will be released at 11 AM.
With the S&P 500 and Nasdaq up over 1% last week, it looked like a good week for stocks, but that’s not a complete picture. Smaller stocks were crushed with the Russell 2000 down over 3% and micro-caps down closer to 4%. At the sector level, performance was also mixed. While the Technology sector rallied 4.5% and Communication Services gained over 1%, sectors like Energy, Utilities, and Real Estate all fell over 2%. In terms of where various sectors finished the week relative to their trading ranges, there was also a lot of disparity with Technology at ‘Extreme’ overbought levels, while Energy and Health Care finished the week at Oversold levels.
In a nutshell, last week was a week where what had been working all year continued to work, and what hadn’t been working didn’t. The scatter chart below compares sector performance on a YTD basis (horizontal axis) with performance over the last five days. As shown, there is a clear trend where sectors that were positive on a YTD basis finished the week higher and vice versa. Of the eleven sectors, the only two where last week’s performance wasn’t in the same direction as their YTD performance were Consumer Staples and Materials.
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