Dec 20, 2023
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“What good is the warmth of summer, without the cold of winter to give it sweetness.” – John Steinbeck
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 finally starting to get colder here in the northeast, and that coupled with the shorter days quickly makes us miss the warmer weather and longer days of the summer. While the temperature is likely to only get colder from here in the coming weeks, if there’s any consolation, tomorrow is the shortest day of the year which means that the days only get longer from there. Applying the forward-looking nature of the market, winter is over!
Traders are coming in today to the warmth of red on their screens as equity futures and treasury yields are both lower. On the economic calendar, we’ll get Existing Home Sales and Consumer Confidence at 10 AM. On the earnings front, the notable reports since yesterday’s close were FedEx (FDX) and General Mills (GIS). Both stocks are trading lower in reaction to their results after management from each company lowered guidance. FDX is getting hit the hardest, though, as the stock is down over 10% and GIS is down 4%. If the declines in FDX hold through the close, it will be the stock’s worst earnings reaction day performance since December 2019.
Like the warmth of summer, it’s hard to fully appreciate a rally without first going through some weakness, and that made the late summer/early fall correction the perfect prelude to the current year-end rally. Heading into today, the Nasdaq has seen nine straight days of gains which is the longest winning streak since – wait for it – November 8th. That’s right. Since the October lows, the Nasdaq has now had two separate nine-day winning streaks. To find a time when there were two winning streaks of nine or more days in closer proximity to each other, you have to go back to 1979!
In the history of the Nasdaq dating back to 1971, it has had 48 different winning streaks of at least nine days. While they aren’t particularly uncommon, what makes the current streak a little more unique is that it has also come as the Nasdaq closed at overbought levels (1+ standard deviation above 50-DMA) on each day of the winning streak. Of the 48 prior streaks, only 16 shared that same trait with the current streak. In today’s Morning Lineup, we provided an analysis of the Nasdaq’s performance following prior nine-day winning streaks along with nine-day winning streaks that occurred when the index closed at overbought levels on each day of the streak. Sign up to read the entire report.
Separately, we’ve had some issues with our email deliverability lately, especially with corporate email addresses that have security filters that automatically click every link in our emails to check that the links are safe. Unfortunately, this “auto-click” process sometimes clicks the “unsubscribe” link in our email as well, which removes the email from our mailing list. One thing you can do to prevent being automatically unsubscribed is to add @bespokeinvest.com as a safe sender in your email software. If you have an IT department, please check with them if you need help.
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Dec 19, 2023
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“It is always the person not in the predicament who knows what ought to have been done in it, and would unquestionably have done it too” – Charles Dickens, A Christmas Carol
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 Dow and the Nasdaq are both on pace for their ninth straight session of gains, and this morning’s data on Housing Starts and Building Permits hasn’t done anything to change the direction. Building Permits were ever so slightly weaker than expected, but Housing Starts came in significantly better than expected coming in at 1.56 million compared to forecasts for a level of 1.36 million. If these pre-market gains in futures hold, it will further reinforce the point that good economic news is good again now that the Fed has pivoted away from rate hikes.
The energy sector was always the fuel to power the industrial economy, but in the digital economy, it has taken a back seat to technology. An example of the shifting role of each sector is the fact that in 1990, Energy accounted for 13.4% of the S&P 500’s market cap or more than twice the 6.3% weighting of the Technology sector. Today, Energy accounts for just 4.7% of the S&P 500’s market cap compared to Technology’s 27.9% weighting.
While most stocks are positively correlated with each other, there has been little correlation between Technology and Energy in recent years, and the last two years provide a perfect example. The charts below show the annual returns of the Energy and Technology sectors since 1990. In 2022, Energy had its best year since at least 1990, rallying 59.0%. Technology, meanwhile, cratered 28.9% for its worst year since 2008 and its fourth worst year since at least 1990. This year (through 12/18), we have seen the opposite pattern playout as Energy has declined 4.3% while Technology has rallied 56.3% for its best year since 2009 and its fourth-best year on record.
Looking at a comparison between the performance of the two sectors a little more closely, the chart below shows the annual performance spread between Technology and Energy for each year since 1990. Last year, Technology underperformed Energy by the largest amount since at least 1990, but this year it is outperforming Energy by the fourth largest margin on record. Additionally, there have been more years (6) in the last ten where the direction of Energy was the opposite of Technology than there were in the prior 24 years (5). Like oil and water, Energy and Technology just don’t mix.
Separately, we’ve had some issues with our email deliverability lately, especially with corporate email addresses that have security filters that automatically click every link in our emails to check that the links are safe. Unfortunately, this “auto-click” process sometimes clicks the “unsubscribe” link in our email as well, which removes the email from our mailing list. One thing you can do to prevent being automatically unsubscribed is to add @bespokeinvest.com as a safe sender in your email software. If you have an IT department, please check with them if you need help.
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Dec 18, 2023
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“Why pay a dollar for a bookmark? Why not use the dollar for a bookmark?” – Steven Spielberg
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 seven straight weeks of gains, US equity futures are modestly higher to kick off what bulls are hoping will be the eighth week of gains in a row. Along with the higher equity futures, treasury yields are lower, and crude oil is modestly higher. On the economic calendar, the only report will be the 10 AM release of homebuilder sentiment. With Christmas less than a week away, look for volumes and newsflow to steadily slow as the week progresses.
Besides the US, the rally over the last several weeks has been global. Of the ETFs that track the G7 countries around the world, all seven were up in the latest week, and they’re all starting the week at overbought levels. With its gain of nearly 2%, the S&P 500 tracking ETF (SPY) was the second-best performer last week trailing only the 2.54% gain in the Canadian ETF (EWC). On a YTD basis, the US is one of four ETFs with a gain of over 20% YTD, and only Italy’s 27.8% topped the S&P 500.
Looking at the charts of all seven ETFs representing the G7, they’re all right at or near 52-week highs. One key difference between the US and the rest of the world, though, is that while other countries are still testing or only marginally higher than their summer highs, the US handily took that level out over a week ago as it has been a leader.
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Dec 15, 2023
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“The only reason they come to see me is that I know that life is great, and they know I know it.” – Clark Gable (Gone with the Wind premiered on this day in 1939)
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
US equity futures are once again set for a higher open this morning, with small-caps leading the way. Speaking of small-caps, the Russell 2,000 didn’t make a new all-time high yesterday like the Dow or the S&P 500 Total Return index, but it did make a new 52-week high. In case you missed this stat in last night’s Closer, it took just 48 days for the Russell 2,000 to go from a 52-week low to a 52-week high. Remarkably, that was the shortest turnaround time ever for the Russell to go from 52-week low to 52-week high!
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Dec 14, 2023
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“Victory awaits him who has everything in order, luck, people call it.” – Roald Amundsen
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
US markets are experiencing a bit of follow-through this morning following the monster rally in stocks and bonds yesterday afternoon. While the Fed was the main event for the week, the ECB just announced no change in rates but moved forward its target date for when it expects to reach 2.0% inflation. Besides the ECB, there are several other central banks announcing decisions today as well. With the Fed now officially on hold, good economic news can be viewed as good again while the market may not be quite as receptive to soft data. We got the first test this morning with Retail Sales (higher than expected), Jobless Claims (lower than expected), and Import Prices (lower than expected) at 8:30 followed by Business Inventories at 10:00. In reaction to this first batch of reports, futures have seen little in the way of a reaction in either direction.
After a cruel summer sell-off that kicked off in August and all but erased the enchanted rally that spanned the months of May, June, and July, the market found itself in a delicate position in late October as the uptrend from the bear market lows in 2022 that we all remembered all too well were being tested. Right around Halloween, all bulls could think was, is it over now?
In reaction to yesterday’s explicit pivot from Fed Chair Powell on interest rates, treasury yields have plunged, crossing some important milestones in the process. We’ll start at the short end of the curve. With the 2-year yield plunging 30 basis points (bps) yesterday, its closing level was 4.43% which is the same level it started the year at. This morning, the 2-year yield is down an additional 10 bps which also puts it within just a couple of basis points of being flat on a year/year basis as well.
The 10-year yield fell 18 bps yesterday to close at 4.02%, and this morning it’s down another eight bps to 3.94%. As shown in the chart below, that’s still up slightly on the year, but crossing below the 4% boundary is an important psychological barrier.
What’s also notable about the decline in the 10-year yield this morning is that it is now down more than 100 bps from its recent closing high on 10/19. Since the FOMC first started talking about hiking rates back in late 2021 the current decline is the largest we have seen to date.
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Dec 13, 2023
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“Just because you make a good plan, doesn’t mean that’s what’s gonna happen.” – Taylor Swift
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 a cruel summer sell-off that kicked off in August and all but erased the enchanted rally that spanned the months of May, June, and July, the market found itself in a delicate position in late October as the uptrend from the bear market lows in 2022 that we all remembered all too well were being tested. Right around Halloween, all bulls could think was, is it over now?
With the start of November, the market found some daylight, and despite the death by a thousand cuts of a strong dollar, higher oil prices, and rising rates in the prior weeks, bulls were able to shake it off in dramatic style and make it out of the woods from the red on hopes that the great war between the Fed and inflation was nearing a truce. It’s far from a love story, but as long as neither side acts up again, the bad blood between them has been set aside. Based on where futures are trading this morning, the S&P 500 Total Return Index will open at an all-time high, and if the rally keeps up, Fed Chair Powell will make the full transition from an anti-hero to mastermind in the eyes of the public. Never in most investors’ wildest dreams would they have thought we would be back to December feeling safe and sound and not far from all-time highs with nothing but blank space above. Were you ready for it?
This morning, it’s a subdued tone on the futures market as the market awaits the FOMC decision at 2 PM. PPI for November was just released and the results were generally weaker across the board. On a year/year basis, headline PPI dropped back down to 2.0%. The reaction from futures has been modestly positive, but how we finish will all depend on the Fed at 2 PM and Powell’s press conference at 2:30.
It hasn’t been the best-performing sector since the S&P 500 late-October low, but the 14.2% gain in the Industrials sector since the 10/27 close puts it modestly ahead of the S&P 500’s gain of 12.8%. As shown in the chart below, the rally puts the sector not only within 1% of its 52-week high but also its all-time high from August 1st.
Along with the steep rally, the Industrials sector is also on the verge of a golden cross formation where its 50-day moving average (DMA) crosses above the 200-DMA as both are rising. Technicians consider these patterns to be positive, but as we have pointed out in the past, returns for other indices and sectors following their own golden crosses have been mixed.
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