Dec 12, 2023
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“Alcohol may be man’s worst enemy, but the bible says love your enemy.” – Frank Sinatra
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Heading into the big inflation report this morning, futures were firmly higher and rates were lower as traders anticipated a weak print, and the result was only a very modest disappointment. While the headline print came in slightly higher than expected (0.1% vs 0.0%) m/m, the core reading was right in line with forecasts (0.3%) and the year/year readings were right in line with forecasts. In the immediate aftermath of the report, there has been no change in the tone of equity futures or rates.
Yesterday was an interesting day in the equity market. While the stocks of the seven largest companies by market cap, which collectively account for more than 28% of the entire S&P 500, were all down at least 0.78% and as much as 2.24% in the session, the index itself finished the day higher by 0.39%. For investors in favor of a broadening out of the rally, this was exactly the type of action they wanted to see.
Within the semiconductor industry sector, we witnessed a similar type of move. The Philadelphia Semiconductor Index (SOX) traded sharply higher all day, and for most of the session, all but one of the index’s 30 components was higher. That lone holdout? Nvidia (NVDA). The stock opened lower on the session, and outside of the first half hour of trading, it was down at least 1% the entire day and as much as 3.5%. When the closing bell rang, the SOX finished the day up 3.4%, NVDA was down 1.85%, and the only other stock in the index that finished lower on the day was Wolfspeed (WOLF) which closed down 0.35%.
Like the magnificent seven in the S&P 500, NVDA and its market cap of $1.15 trillion accounts for over 28% of the total market cap in the SOX. For the stock to trade down nearly 2% on a day when the SOX trades significantly higher is extraordinary. Looking back over time, since the start of 2010, there have only been three other days where the SOX rallied at least 2% on the day while NVDA traded down over 1%, and the last occurrence was in January 2021. In each of those periods, NVDA wasn’t even the behemoth in terms of market cap that it is now. The charts below of the SOX and NVDA show each prior occurrence, and while there’s a temptation to read into these types of events as a significant turning point, there was no clear trend of performance for either following these prior occurrences.
Think about it this way. In week 9 of the 2020 NFL season, the Tampa Bay Bucs were creamed 38-3 by the New Orleans Saints for their first home loss of the season. Tom Brady had a lousy day with just 209 passing yards and 3 picks. As bad as that one game was, though, three months later it was the Bucs, who as a three-point underdog, crushed the Chiefs 31-9 in Super Bowl LV. Even the best on the field can have an occasional bad day.
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Dec 11, 2023
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“Own only what you can always carry with you: know languages, know countries, know people.” – Alexander Solzhenitsyn
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Are you ready for some central bank decisions? Besides the Fed, which will announce its latest decision on rates this Wednesday, we will also get policy decisions from Brazil, Taiwan, Switzerland, Norway, the UK, the Eurozone, Mexico, Peru, and Russia this week. Then, next Monday Japan will join the fray. Along with the Fed, we’ll have a good amount of economic data to digest with CPI tomorrow and PPI Wednesday. Those aren’t the only reports on the calendar, though. On Tuesday we’ll also have Small Business Optimism from the NFIB, and Thursday will include jobless claims, Retail Sales, Import and Export Prices, and Business Inventories. Then, to close out the week, Friday’s reports will include Empire Manufacturing, Industrial Production, and Capacity Utilization.
While this morning’s economic calendar is light, the one report investors will be watching is the monthly survey of consumer expectations (SCE) from the New York Fed. As inflation has become the market’s primary concern over the last few years, the New York Fed’s SCE, which tracks inflation expectations among other items, has taken on added significance.
Heading into this morning’s 11 AM release, the charts below show historical readings for the SCE’s inflation expectations readings for one and three years ahead. After peaking at 6.8% in June 2022, one-year inflation expectations have been nearly cut in half to the current level of 3.57% which is just modestly above the historical average level of 3.39%. Keep in mind, though, that the average would be a lot lower if it wasn’t for the spike higher during 2021 and the first half of 2022. Before 2021 in fact, one-year inflation expectations were never higher than the current level.
Three-year inflation expectations also spiked higher in 2021 and early 2022. Unlike one-year inflation expectations which are still elevated relative to their pre-Covid levels, three-year expectations are actually below their historical average of 3.00%. Here again, the average is elevated due to the Covid spike, but even before the pandemic, there were several other times when three-year inflation expectations were higher than they are now.
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Dec 8, 2023
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“How can I go forward when I don’t know which way I’m facing?” – John Lennon
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
What was looking like a modestly positive day for stocks earlier has reversed modestly lower, but the reality is that there is little direction ahead of the Non-Farm Payrolls report at 8:30 AM. Also, don’t forget about the University of Michigan Sentiment report at 10 AM as well. Overnight in Asia, it was a mostly positive session, although Japan bucked the trend falling more than 1.7% for a 3.4% decline on the week. The culprit there was a weaker-than-expected GDP report coupled with stronger-than-expected inflation (the worst of both worlds). In Europe, the tone is modestly positive as German CPI was right inline with forecasts and employment data in France was stronger than expected.
It’s generally been a positive month so far for US stocks with some small exceptions – and another big one. Leading the way higher, Consumer Discretionary and Real Estate have both rallied more than 2% while Industrials and Utilities are both up over 1%. To the downside, Materials, Consumer Staples, and Technology have all seen modest declines, while Energy has plunged nearly 4%. As a result of Energy’s weakness, while every other sector remains in overbought territory heading into today’s employment report, Energy is not only below its 50-day moving average, but it’s also the only sector that’s oversold.
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Dec 7, 2023
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“With confidence in our armed forces with the unbounding determination of our people we will gain the inevitable triumph so help us God.” – Franklin D. Roosevelt
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 mixed start to the week for indices like the Nasdaq and Russell 2000 while the S&P 500 has been down for three straight days. This morning, futures are flat with a slight positive bias. Overnight in Asia, stocks traded lower on reports that the BoJ is gearing up for rate hikes. That led to a spike in yields and the yen and a decline of over 1% in the Nikkei. In Europe, the declines haven’t been as steep as GDP for the region declined 0.1% which was in line with forecasts, although Industrial Production in Germany unexpectedly declined.
Less than three months ago, the price of a gallon of gas in the US was pushing $3.90 and was up 21% on the year, and the price of crude oil was near $95 per barrel. Since then, crude oil prices have tumbled below $70 per barrel (as of yesterday’s close), and a gallon of gas is $3.20 which is down 17.5% from its peak and down slightly on the year. Next week’s CPI report on Tuesday and the subsequent FOMC report should be interesting.
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Dec 6, 2023
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“It is not heroes that make history, but history that makes heroes.” – Joseph Stalin
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Futures have caught a bid this morning following overnight strength in Asia and also in Europe this morning. The just-released ADP report didn’t do anything to alter that positive mood either, as the headline report came in modestly weaker than expected (103K vs 128K). Non-farm productivity and Unit Labor Costs are just hitting the tape as we type this. It looks like Productivity was higher than expected (5.2% vs 4.9% estimate) and the best since Q3 2020 while Unit Labor Costs fell more than expected (-1.2 vs -0.9%).
Outside of equities, mortgage applications were up for the fifth week in a row, gold is slightly higher, crude oil is slightly lower, bitcoin is above $44K, and Treasury yields have a positive bias with the largest moves at the shorter end of the curve.
After a two-day rally north of 4%, the Russell 2000 gave back about 1.4% on Tuesday but still managed to close above both its 50 and 200-day moving averages for the third day in a row – something we haven’t been able to say since early August.
Whenever a major equity index trades at ‘extreme’ overbought or oversold levels (two or more standard deviations above or below the 50-DMA), it tends to be a sign of overwhelming bullishness or bearishness in the market. These types of readings are mutually exclusive and rarely occur close to each other. The last six weeks for the Russell 2000 have been an exception to that norm. As shown in the trading range chart below, after closing at extreme oversold levels on 10/27, the Russell surged over the next five weeks and closed at extreme overbought levels last Friday (12/1). With just 24 trading days separating the most recent extreme oversold reading from the first extreme overbought reading, it was the quickest that the Russell shifted between the two ranges since June 2021.
In the Russell 2000’s history since 1978, there have only been 16 other times that it went from the oversold extreme to the overbought extreme in 30 trading days or less, and in today’s full post for subscribers, we provided an analysis of the index’s performance following these prior periods. Sign up for a two-week trial to Bespoke Premium to view the full report.
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Dec 5, 2023
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“Once, during Prohibition, I was forced to live for days on nothing but food and water.” – W.C. Fields
In case you missed it yesterday, here’s a clip to yesterday’s segment from CNBC Overtime which discussed the broadening of the market rally. CNBC Overtime – 12/4/23
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 looking like another weak start to the trading day following a weak overnight session in Asia after Moody’s lowered its outlook for China’s credit rating citing rising debt levels. Interest rates are lower as the 10-year yield is on the verge of breaking back down through 4.20%. Where it ends the day, though, will be dictated by the upcoming JOLTS and ISM Services reports at 10 AM.
90 years ago today, Utah ratified the 21st Amendment to the Constitution, and the US thereby achieved the three-fourths majority needed to officially repeal the 18th Amendment and end Prohibition on a national basis. While alcohol was technically illegal in the United States for the prior 13+ years, it was always part of the US culture and social scene, and its illegality only gave organized crime groups a wide open field to operate in. That ended with the 21st Amendment, although even with alcohol being legal on a national basis, several states maintained the Prohibition era through state temperance laws. Mississippi was a dry state for another 33 years before it finally ended Prohibition in 1966. We can only imagine what an Ole Miss tailgate would look like if Prohibition was still in place, but probably not this.
Regarding alcohol, we thought it would be a good time to check out how stocks in the sector have been faring lately. Overall, performance has been mixed. Molson Coors (TAP) has been the best performer this year, gaining more than 20%, but it’s down about 10% from its summer high. Along with TAP, other beer stocks have seen modest YTD gains this year. Even the embattled Anheuser-Bush (BUD) has seen a sharp rebound in the last month as the company’s Bud Light brand has been spending big on brand rehab inking deals with Ultimate Fighting (UFC) and NFL legends Peyton Manning and Emmitt Smith. While beer stocks have had a decent year, companies more involved in the spirits business, like Diageo (DEO) and Brown-Furman (BF/b) are both nursing hangovers.
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