Dec 29, 2023
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“You can’t be brave if you’ve only had wonderful things happen to you.” – Mary Tyler Moore
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Anyone long the stock market (even small caps after the last two months) will be sad to see this year come to an end, but time moves on, and so do investors. The year ended on a positive note in Asia and Europe, but here in the US equity futures are looking more subdued. The only report on the calendar today is the Chicago PMI report for December. You may recall that last month’s report was much better than expected coming in at a level of 55.8 versus forecasts for a reading of 46.0, ending what had been an extended streak of readings below 50. This month, economists are forecasting a level of 50.0 on the nose, but if the reading can top that level it will help lend some credence to the idea that the manufacturing sector is exiting its multi-month slump.
After a rough late summer/early fall stretch, investors have had nothing but wonderful things happen to them over the last two months. At the rate this week is going, both the S&P 500 and the Nasdaq are on pace to close higher for the 9th straight week. There’s still a day left of trading, and we don’t want to jinx it, therefore, the bar for this week in the chart below is colored in light red. Since the Nasdaq’s inception in 1971, there has only been one other period where both indices had concurrent streaks of nine straight gains, and that was in late 1985 when a streak of gains lasted eleven weeks.
Looking at each index individually, returns following nine consecutive weeks of gains have generally been better than average.
For the S&P 500, there have been nine prior nine-week winning streaks since 1952 (when the five-day trading week in its current form began), and while performance over the next week was negative on a median basis, and performance was down more often than it was up, median returns for the next one, three, six, and twelve months were better than the long-term average for all periods since 1952.
While the Nasdaq has only been around since 1971, it has had more nine-week winning streaks than the S&P 500, and of the fourteen prior streaks, ten extended to ten weeks. Looking ahead, median returns over the following one, three, and twelve months were positive and better than the long-term average, but six months later, the median gain of 3.67% was well below the 6.02% average for all six-month periods since 1971.
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Dec 28, 2023
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“There are no traffic jams along the extra mile.” – Roger Staubach
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 another slow morning in the markets as the pace of data has been slow. The only reports of note on the calendar this morning were Wholesale Inventories, which fell 0.2% on a m/m (right in line with forecasts), and jobless claims. Initial claims were slightly higher than expected (218K versus 210K) while continuing claims increased modestly to 1.875 million which was in line with consensus forecasts. Equity futures are modestly higher for the S&P 500 while the Nasdaq is indicated to open up 0.26%. There’s a small positive bias to yields, but nothing indicating conviction. One other item worth noting is that while the S&P 500 is within spitting distance of a record high, individual investor bullish sentiment declined this week falling to 46.3% from 52.9% and the lowest level since 11/23.
With just two trading days left in the year, the market is on the verge of history. After being written off for dead in the last year, the traditional 60/40 portfolio of 60% stocks and 40% bonds is within a whisker of its best two-month rally since at least 1990. The chart below shows the rolling two-month performance of a 60/40 portfolio using the S&P 500 total return as the stock portion and the Bloomberg Aggregate Bond Index total return as the bond portion. With a gain of 12.16% over the last two months, the current period just surpassed the two-month rally coming out of Covid (May 2020), and the only other period that was better for the strategy was the two months ending in April 2009. Back then, the strategy rallied 12.25%, so if the next two trading days even see marginal gains, the current rally will set the record.
What makes the current period so much different than the other two cited above is where the gains have come from. Let’s start with the stock portion of the strategy. In the current period, the S&P 500 is up 14.35% over the last two months, which is certainly strong relative to history but not anywhere close to a record. In May 2020, the two-month gain was 18.19% and in April 2009 it was 19.17%.
What has stood out in the last two months is how strong the bond portion of the strategy has been. Back in 2009, the bond leg was up just 1.87% while in May 2020 it was up 2.25%. During this current period, bonds have rallied an unprecedented 8.87% which far exceeds any other two-month period since at least 1990. Since they are meant to act as the ‘insurance’ leg in times of market weakness (although it wasn’t the case in 2022), bonds tend to always underperform stocks during periods when the equity market rallies. While they still underperformed stocks in the last two months, they have never acted as a smaller drag on the strategy during a period of strength.
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Dec 27, 2023
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“Chance favours the prepared mind.” – Louis Pasteur
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
While the US was open for trading yesterday, most international markets are only reopening from the Christmas holiday today, and the overall tone has been positive as several major Asian markets were up 1% or more overnight. The tone in Europe is also positive, although it has been more subdued. Here in the US equity futures are about as close to unchanged as possible. Treasury yields are lower across the curve and around the world while crude oil is lower and gold and copper are trading higher.
It’s been a great rally for US stocks over the last two months, and more recently over the last week, stocks around the world have been performing just as good if not better than here. While the S&P 500 tracking ETF is up 0.76% over the last week, all but two of the eighteen regional ETFs we track in our Trend Analyzer have performed even better, and more than half of them are further extended relative to the 50-day moving average (DMA) than SPY which is 6.83% above that level. As shown in the image below, all of the 18 ETFs are also uniformly situated relative to their trading range at ‘Overbought’ levels (1+ standard deviation above their 50-DMAs). It’s hard to get more uniform than that!
Regarding each ETF, most of the regional ETFs are also trading right at 52-week highs (charts with green borders) while just four are shy of their one-year highs. It’s been somewhat of a can’t lose environment for equity investors over the last couple of months, and while it won’t last forever, enjoy it while it lasts.
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Dec 26, 2023
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“This century hasn’t got the lock on insanity.” – William Peter Blatty, The Exorcist
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
We hope you all had a great holiday weekend, and for those who are back to work, it’s going to be a quiet day in the markets as much of Asia, all of Europe, and Canada are closed in observance of Boxing Day. Futures have a modestly positive bias, and crude oil is trading up close to 2% in the session.
Investors in just about every asset class outside of Energy have had a great end to the year, and the rally in US Treasuries has been among the most impressive. At the long end of the Treasury curve, the iShares 20-Year Treasury ETF (TLT) has rallied over 15% from its lows since late October. In the twenty-year history of the ETF, there have been only five other periods where the ETF rallied as much or more in 50 trading days. The three most notable were during the Financial Crisis, in 2011 right around the time of the US debt downgrade by S&P, and then again in March 2020 at the time of COVID. Admittedly, each of those rallies was significantly larger, but what makes the current period notable is that it followed what had been a historically large 15% decline in a 50-trading day span that ended in early October. Never in the ETF’s history has it shifted so fast from one extreme to the other.
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Dec 22, 2023
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“The clash of ideas is the sound of freedom.” – Lady Bird Johnson
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
If you’re planning on flying somewhere in the next week, you’re going to have a lot of company. According to AAA, a record 39 million Americans will travel by air this holiday season, topping the prior record in 2019. That means that millions of Americans will be going through the ‘odorous’ process of taking their shoes on and off just to get through airport security, and we can all thank the ‘shoe-bomber’ who attempted to light his explosive-laden sneakers on fire while on a flight from Miami to Paris on this day in 2001. Thankfully, alert crew members and passengers aboard that flight were able to restrain the shoe-bomber, but even though he was unsuccessful, we’re all still paying the price 22 years later.
Dow futures are making it look like a moderately negative morning for equities on this last trading day before Christmas, but those numbers are skewed by Nike (NKE) which is trading down over 12% in reaction to weak earnings after the close yesterday. If NKE’s current declines carry through to the closing bell, it would be the second worst one-day reaction to earnings for the stock in at least 20 years, and if it finishes the day down more than 12.8%, it will be its worst earnings reaction day since at least 2001.
S&P 500 and Nasdaq futures are flat, treasury yields are lower, and crude oil is modestly higher. That could all change after 8:30 given the slug of economic data on the calendar that includes Personal Income, Personal Spending, PCE Deflator, and Durable Goods. Then, at 10, we’ll get New Home Sales and Michigan Sentiment. After that, there’s not a lot on the calendar, so expect things to slow down for the remainder of the day, but don’t forget to be on the lookout for a CNBC appearance at 11: 30 and our Year End report which will be posted and sent out later today.
The last week of the year has traditionally been thought of as a positive time for stocks, and for the most part that has been true. Over the last 20 years, though, median returns haven’t been nearly as positive. As shown in the chart below, while the S&P 500’s median post-WWII performance during the last week of the year has been a gain of 0.59% with gains just over two-thirds of the time, over the last twenty years, the median gain has been just 0.02% with gains half of the time.
On the right side of the chart, we have also summarized the S&P 500’s performance under various performance scenarios like this year. In the 19 years since 1945 that the S&P 500 was up 20%+ heading into the last week of the year, its median performance in the last week was a gain of 0.85% with gains 79% of the time. Similarly, in the 23 years when it was up 2.5%+ MTD, its median performance in the last week of the year was also a gain of 0.85% with gains 78% of the time. Lastly, in the eight prior years that the S&P 500 was up 20%+ YTD and 2.5%+ MTD, its median performance in the last week of the year was a gain of 1.24% with gains seven out of eight times.
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Dec 21, 2023
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“There was no established way for a man to tell his wife he was going to the moon. A man could tell his wife he was going to sea or going to war; men had been doing that for millennia. But the moon? It was a whole new conversation.” – Apollo 8: The Thrilling Story of the First Mission to the Moon
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Treasury yields are doing little this morning and equity futures are looking to reclaim some of yesterday’s afternoon weakness. Crude oil and copper are modestly lower, while gold is flat. In Europe, stocks are lower as markets there closed before yesterday’s afternoon reversal. On the economic calendar, there’s a ton of data to be on the lookout for including revised GDP, Personal Consumption, Core PCE, jobless claims, Philly Fed, Leading Indicators, and finally the KC Fed report at 11 AM.
It was a tale of two markets yesterday. In the morning, the S&P 500 rallied to new 52-week highs only to give it all back and more in the afternoon. By the time the closing bell rang, stocks were at the lows of the day and finished down over 1%. There aren’t many places in the world where you can go skiing in the morning and swim in the ocean in the afternoon, but the market did its version of that yesterday.
While yesterday’s reversal was jarring, in the context of a daily chart of the S&P 500 ETF (SPY), it barely looks like anything more than a blip. Even after yesterday’s decline, SPY is more than 5% above its 50-day moving average (DMA) and more than 8% above its 200-DMA.
While yesterday’s reversal doesn’t look like much on a one-year chart of SPY, in the ETF’s history dating back to 1994, reversals of that type have been incredibly uncommon. The last time the ETF traded at a 52-week high on an intraday basis but finished the session down over 1% was back in April 2014, and in the ETF’s near-30-year history, there have only been seven other occurrences before yesterday. In the chart of SPY below, we have marked where each of those prior reversals occurred with a red dot. As shown, none of the prior occurrences marked a significant top for the market. In today’s Morning Lineup, we provided an analysis of SPY’s performance following prior reversals. Sign up to read the entire report.
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