Sep 13, 2023
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“You can spend minutes, hours, days, weeks, or even months over-analyzing a situation; trying to put the pieces together, …or you can just leave the pieces on the floor and move…on.” – Tupac Shakur
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Equity futures are taking a cautious tone heading into today’s CPI report for August where headline inflation is expected to rise by 0.6% m/m (largest increase since June 2022) and 3.6% on a y/y basis. European equity market performance hasn’t helped as most indices in the region are down by about 1% as the ECB is likely to hike rates this week by another 25 bps due to stubbornly high inflation. Not helping matters is the fact that economic data in the region including UK GDP and German Industrial Production both came in weaker than expected.
As we’ve noted numerous times in the past, the easy job has been done when it comes to headline inflation and getting it back down to levels more in line with the pre-COVID range will take time. In this morning’s report, the focus will shift to core which is expected to rise by just 0.2% m/m taking the y/y reading down to 4.3%. If the report comes out in line with expectations, it would be the lowest y/y reading in Core CPI since September 2021, and it would also represent the largest decline in the y/y reading from a 12-month high since the early 1980s.
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Sep 12, 2023
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“After a half century in the oil and gas business, I’ve learned a lot of lessons. Few have been cheap.” – T Boone Pickens
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The negative tone in futures this morning is largely attributable to the negative reaction to Oracle’s (ORCL) earnings after the close on Monday. The stock is trading down over 10% which put the stock on pace for its most negative reaction to earnings since December 2011. Besides ORCL, the focus is on Apple (AAPL) which will unveil the new iPhone early this afternoon. In economic news, the only report on the calendar was the NFIB report on small business sentiment. The headline index for that report came in slightly weaker than expected (91.3 vs 91.5) and declined modestly from last month’s reading of 91.9.
In yesterday’s email, we noted the absolute and relative strength of the Energy sector in the first five trading days of September. When the opening bell rang on Monday, it looked as though that strength would continue to start the week. Within the first few minutes of trading, the Energy sector was up just under 1% and trading at a YTD high, but from there it ran out of gas and proceeded to drift lower all day. By the time they rang the closing bell, the Energy sector finished the day down well over 1%.
When a stock or index makes both a higher high and a lower low relative to the prior day’s range, technical analysts refer to it as an outside day, and it is considered a signal of a potential reversal in the prior trend. The actual record of these patterns playing out as expected is mixed, but we would note that the S&P 500 had a similar outside day right at the high in late July and has yet to get back to those levels in the seven weeks since.
Getting back to the Energy sector, in its history since 1990, yesterday was just the sixth time that the sector had an outside reversal day that was comprised of an intraday high of at least 0.5% relative to the prior close but where it closed the day down over 1%.
In today’s Morning Lineup post, we looked at how the sector performed following prior reversals like Monday’s, and if you sign up for a two-week trial to Bespoke Premium to you can check out the full details.
Sep 11, 2023
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“A Nation became a neighborhood; all Americans became New Yorkers.” – George Pataki
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After a weak start to September, futures are heading into the new week on a positive note. There’s a handful of important economic reports this week, including CPI (Wed), PPI (Thur), and Retail Sales (Thur), but the week will start off quietly as there are no economic or earnings reports on the calendar. One notable release today, though, will be the NY Fed’s survey of Consumer Expectations which has become a widely watched gauge for inflation expectations.
The last five trading days, which also encompass all of September, have been weak for US stocks as nine out of eleven sectors are down month to date and seven of them are down over 1%. Despite the weakness, the losses have been relatively contained as Industrials is the only sector down more than 2%. Behind Industrials, Technology, the most important sector in the market given its weighting, is down 1.63%. To the upside, the only two sectors positive this month are Utilities (+0.35%) and Energy (+3.52%). In a market environment preoccupied with inflation, it shouldn’t be a surprise that when the Energy sector rallies over 3%, the rest of the market may struggle.
Looking at the Energy sector, ever since late June, the sector ETF (XLE) has been steadily trending higher moving from oversold to overbought territory, and it is now less than 2% from its 52-week high in November and less than 10% from its all-time high in 2014.
The Industrials sector has been weak (like the rest of the market) of late, and on Friday it closed right at the lower end of a short-term trading range, but even of that level breaks, the sector ETF (XLI) is trading comfortably above the high end of its trading range from 2023.
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Sep 8, 2023
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“You hit home runs not by chance but by preparation.” Roger Maris
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After three down days in a row for the S&P 500 and four for the Nasdaq, futures suggest that bulls may end up going o-fer the week. While they are down, the magnitude of the losses at this point remains modest, so anything can happen. Crude oil prices are back to their winning ways this morning after yesterday’s decline ended a nine-day winning streak, and treasury yields are basically flat on the day. It’s a slow day for data and earnings, although NY Fed President Williams spoke last night and suggested that officials need to see more data before determining what to do with rates. At this point, a hike in September (or even November) looks highly unlikely.
September has historically been a weak month for stocks, but when it comes to seasonal market trends, as Charles Dickens may have put it, it’s a tale of two timeframes. The snapshot below comes from the Seasonality Tool on our website, and it shows the S&P 500’s median performance in the one and three months following the close on 9/8 based on the last ten years of trading.
In the month following the close on 9/8, the S&P 500’s median performance over the last ten years has been a decline of 0.62% which ranks in just the ninth percentile relative to all other rolling one-month periods. Not that we need to tell you, but that’s pretty bad.
While seasonal trends for the upcoming month have been poor, performance in the three months following the close on 9/8 have been among the best relative to any rolling three-month period throughout the year. As shown below, the median gain of 4.65% ranks in the 87th percentile relative to all other three-month periods throughout the year.
The stock market may be coming up on the best of times when it comes to the calendar, but to get there, it must get through the worst of times first.
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Sep 7, 2023
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“There is no law. It’s just the best lawyers always win.” – Ron Baron
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Trade disputes and the potential for moving towards more closed borders on commerce has weighed on futures this morning. Futures are down across the board, but the Nasdaq is taking it hardest as additional restrictions on Apple iPhone usage for Chinese government employees could be coming. In the other direction, both the US and Europe are considering adding additional tariffs on Chinese steel imports.
On the economic side of things, Non-Farm Productivity and Unit Labor Costs were both higher than expected, and jobless claims came in lower than expected on both an initial and continuing basis. That kind of data won’t do much to weigh down interest rates, but it will certainly pressure stock prices.
Given its reputation, September has started just how you would expect it to. While the S&P 500 barely avoided finishing the first three trading days of the month down 1%, the Nasdaq finished down 1.16% month to date yesterday. The chart below shows the index’s performance during the first three trading days of the month for all years since 1971, and the red bars indicate years that the index was down 1%+. As shown, 1%+ declines in the first three trading days haven’t been particularly uncommon, especially in the last six years.
So, does a bad start to September for the Nasdaq mean anything with respect to the rest of the month? The table below lists each year that the Nasdaq was down 1%+ in the first three trading days of the month. For each year, we also show the index’s YTD performance heading into the month along with its performance for the remainder of the month. Of the sixteen prior years shown, the Nasdaq’s average change for the rest of the month was a decline of 2.85% (median: -3.70%) with gains less than a third of the time. That’s considerably worse than the 0.85% average decline for all years since 1971.
While it appears that months which start out poorly for the Nasdaq lead to further declines over the course of the rest of September, there is a caveat. If you look at the years when the Nasdaq was up over 10% heading into September but then traded down over 1% in the first three trading days, performance wasn’t nearly as bad. In fact, the S&P 500’s average rest of month performance was a gain of 0.61% (median: 1.56%) with positive returns four out of seven times.
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Sep 6, 2023
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“It’s not what you look at that matters, it’s what you see.” – Henry David Thoreau
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It’s another weak morning for US equity futures as the backdrop of higher rates and oil prices weigh on sentiment. Futures are lower across the board, but not by a large amount. The key report of the day will be ISM Services at 10 AM. Plus, there are a number of conferences today, so be on the look out for individual company news throughout the day.
176 years ago today, Henry David Thoreau moved in with Ralph Waldo Emerson and his family after living in a woodshed on Walden Pond for two years. Two years in a shack is a long time, but bonds have been out behind, or maybe more accurately, in front of the woodshed for even longer. As measured by the Bank of America 10+ Year US Treasury Index, August was the 31st straight month that the year/year total return for US Treasuries was negative, easily surpassing the 15th month streak than ended in December 1980. Not only has the y/y change in long-term Treasuries been negative for more than two and a half years, but the y/y change has also lagged the y/y total return of the S&P 500 for 34 straight months.
Since 1979, there have only been two other periods where the 10-year underperformed the S&P 500 on a y/y basis for more months. The most recent ended in July 1998 at 33 months while there was a 35-month streak ending in October 1981. Given the way the numbers work out, unless treasuries stage a monster rally and/or stocks take a sharp leg lower this month, it’s almost a guarantee that the current streak will at least tie, if not exceed, the 35-month streak from 1981. In at least the last forty years, there hasn’t been a worse time to be creditor of Uncle Sam.
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