Oct 20, 2023
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“The deepest urge in human nature is the desire to be important.”– John Dewey
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A negative week is looking to end on a negative note as equity futures are lower following the declines in Asia overnight and Europe this morning (although those were mostly follow-through from yesterday afternoon’s weakness here in the US). Given the likely escalation, or at least a continuation of the war in the Middle East, it’s hard to blame anyone for not wanting to take on added risk into the weekend. If there’s one silver lining, the 10-year yield briefly touched 5% overnight but has since pulled back (for now). The economic calendar is quiet for today, and there are just two Fed speakers scheduled to speak (Harker and Mester)
“There’s something happening here, but what it is ain’t exactly clear.“ Investors have a tendency to take every recent market event and interpret it as “the most important” this or that. When it comes to various asset classes in recent days, though, we have seen some MAJOR moves, and we couldn’t help but think of the above lyrics from Buffalo Springfield’s “For What It’s Worth” after going through them.
First, crude oil. While still off its highs from just a few weeks ago, the 9.1% five-trading day rally in WTI ranks in the 96th percentile of all five-day periods since 1983.
Second, the 10-year US Treasury yield. In what looks like a chart of an internet stock from the late 1990s, yields have been on a one-way move for what seems like forever now. In just the last five trading days, the 10-year yield is up 29 basis points (bps) and right near 5%. Going back to 1983, that ranks in the 97th percentile of all five-day moves in the 10-year yield.
Finally, gold. In the same five trading days through Thursday’s close, gold rallied 5.5% breaking above both its 50 and 200-day moving averages as well as the downtrend that has been in place since the Spring. The magnitude of the rally also ranks in the 98th percentile of all five-day moves since 1983. Not bad for a commodity that was just trading at six-month lows two weeks ago!
By themselves, these moves over the last week are big, but the fact that they’ve all occurred in the same five-day period is extraordinary. Since 1983, when data for all three asset classes is available, there have only been two other periods where gold and crude oil each rallied more than 5% while the 10-year yield jumped more than 25 basis points (bps). The first was in August 1990 following Iraq’s invasion of Kuwait which led up to the first Gulf War, while the second period was during the Financial Crisis when there were three separate occurrences (September 2008, January 2009, and March 2009). Both periods were seminal in US history for years to come, but the market impact varied. 1990 was no walk in the park, but it left a much smaller scar on the market than the Financial Crisis.
Now, just because we’ve had big moves again this time around doesn’t tell us anything about where the market is going in the future, but when you simultaneously see such large moves in different asset classes, it’s hard not to think “there’s something happening”.
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Oct 19, 2023
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“I am not a politician… I only suffer the consequences.” – Peter Tosh
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With complete dysfunction in Washington, we’re all suffering the consequences of politicians. The continuing resolution keeping the government open expires on 11/17, and besides the geo-political turmoil around the world that needs to be addressed, the longer Republicans in the House go without reaching an agreement on who to elect as speaker, the more likely it is that we reach that mid-November deadline without a budget agreement. As easy as it is to complain about the incompetence in DC, though, Thomas Jefferson was right when he said, “The government you elect is the government you deserve.”
After a disheartening session on Wednesday, things aren’t looking all that positive this morning. Nasdaq futures are the lone bright spot following a positive reaction to Netflix (NFLX) earnings as the stock is poised to gap up over 13%. Tesla (TSLA), however, is moving in the opposite direction as the stock is trading down over 7% following a weak report that showed compressed margins and some downright somber commentary from Elon Musk. S&P 500 futures are essentially flat, and Dow futures are low.
Outside of equities, crude oil is trading down by about 1%, gold is slightly lower, the dollar is mixed, and bitcoin is modestly higher. The real action this morning, however, is in the Treasury market, where yields are higher across the curve with the biggest upside moves coming the further out you go as the 10-year yield is up over 7 basis points to just under 5% (4.98%). 5%!
On the economic calendar, jobless claims will be released at 8 AM, and are expected to remain right around the same levels as last week. Along with those numbers, the Philly Fed Manufacturing report will also be released at 8:30 (expectations are for a modest increase) and Existing Home Sales will hit the tap at 10:00. On the jobless claims front, initial claims were lower than expected while continuing claims came in modestly ahead of forecasts but at the highest level since June. Philly Fed was modestly weaker than expected and came in negative at the headline level for the 13th time in the last 14 months. Besides those numbers, Fed Chair Powell will speak at noon along with five other Fed officials throughout the day. Depending on their messages, it could be a pivotal day.
Admittedly, there’s not a lot of positives out there this morning, but we’ll give you two. First, while today’s date is October 19th, it’s not October 19th, 1987. Second, despite oil prices hovering near $90 per barrel, gas prices have been falling hard. As shown in the chart below, the national average price of a gallon currently sits at $3.565, according to AAA, and that’s the lowest price since July. You know what that means? More money to go inside and grab a bag of Doritos, a Big Gulp, and if you’re really adventurous, one of those things on the hot rollers!
Over the last month, national average gas prices are down just over 8% which is the largest 30-day decline of the year and ranks in in the lowest decile of 30-day returns dating back to 2005.
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Oct 18, 2023
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“There are no rules here — we’re trying to accomplish something.” – Thomas Edison
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Oil is trading higher this morning after President Biden’s planned meeting with Arab leaders was scrapped after the bombing of a hospital in Gaza which each side is blaming on the other. At the margin, the trip’s cancellation raises risks of an escalation of the conflict, hence the rise in oil prices and lower equity prices. Normally, you’d expect to see treasuries rally in a situation like this, but they’re so out of favor these days, that they’ve only managed a modest rally.
Earnings season is finally kicking into gear, and after the close, we’ll get reports from Netflix (NFLX) and Tesla (TSLA), but this morning we’ve already seen notable reports which include Morgan Stanley (MS), Procter & Gamble (PG), and Travelers (TRV). Overall, results relative to expectations have been uninspiring as just over two-thirds of companies reporting this morning have exceeded EPS forecasts while less than half topped revenue estimates.
On the economic calendar, the only reports of note this morning were Building Permits and Housing Starts. Both reports came in close to expectations with Housing Starts slightly missing forecasts while Building Permits slightly beat.
Just when you think that European stocks are going to reverse their long-term underperformance relative to the US, US stocks start outperforming again. The last six months have been a perfect example. The chart below compares the rolling six-month performance between the S&P 500 and the STOXX 600 on a dollar-adjusted basis. While the two indices performed in line with each other in the spring, once Memorial Day arrived, US stocks started to pull away, and through yesterday’s close, the S&P 500 was up over 5% in the last six months while European stocks were down over 6%.
From a longer-term perspective, this trend is nothing new. The chart below shows the rolling six-month performance spread between the S&P 500 and the STOXX 600 ($-adjusted). Over the last 20+ years, especially since the Financial Crisis, there have been multiple six-month periods where the US outperformed Europe by an even wider margin (and far fewer periods where Europe outperformed the US by a wide margin). One major exception, though, was in the six months coming out of last October’s lows though April of this year. During that six-month period, Europe outperformed the US by more than 20 percentage points, which was the widest margin of outperformance on the part of Europe relative to the US since the Financial Crisis. It didn’t last long, though, and that period was more the exception than the rule.
The above quote from Thomas Edison is something to think about when you look at the trend of US outperformance relative to Europe. Sometimes, the more ‘rules’ you have the harder it is to accomplish things, and on the issue of regulation, Europe has a much higher burden than the US.
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Oct 17, 2023
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“Behind every successful person lies a pack of haters.” – Marshall Mathers
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Futures were lower this morning heading into the September Retail Sales report, and with the numbers coming in stronger than expected and August’s report revised higher, the tone has become slightly more negative as yields have risen across the board. There’s still a lot more data left to go today with Industrial Production and Capacity Utilization at 9:15 and then Business Inventories and Homebuilder Sentiment at 10 AM. Outside of economic data, shares of Bank of America (BAC) are trading up in the pre-market after reporting earnings earlier.
After multiple days of testing its 200-day moving average (DMA), the S&P 500 staged a nice rally in the early days of October. Just as it traded multiple days testing its 200-DMA from above, though, it has now stalled out just below its 50-DMA. Investors can’t seem to make up their minds over which way to take the market, and it has resulted in a ton of indecision over the last week. And how can you blame them? Scanning the entire investment landscape, there are seemingly plenty of reasons to like the market but just as many to hate it.
Reflecting this uncertainty, over the last five trading days, the S&P 500’s intraday high has stalled out right around 4,380 each day with a highest high of 4,385.85 on 10/10 and a lowest high of 4,377.10. That works out to a range of less than 0.20% and is the tightest such range in years. In fact, the last time the S&P 500’s intraday highs over a five-day span were in such a tight range occurred exactly six years ago in the five trading days that ended on 10/17/17.
The long-term chart of the S&P 500 below shows every time that the S&P 500’s intraday highs over a five-day span were crammed in a range of less than 0.25%. While these types of indecisive periods for the market have been relatively uncommon in recent history (last occurrence was in June 2021), they were much more prevalent in the past. More importantly if you’re a bull is that they were much more common during longer-term uptrends than downtrends. Sure, there’s plenty not to like about the market, but behind every bull market isn’t there always a wall of worry?
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Oct 16, 2023
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“The difference between winning and losing is most often not quitting.” – Walt Disney
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After investors were hesitant to take any risks heading into the weekend last Friday, the lack of any meaningful news on the geo-political front has caused some relief. The pace of earnings news this morning has been slow, and the one economic report released so far – Empire Manufacturing – came in pretty much right inline with expectations.
While most major equity averages were higher on the week, the bifurcated nature of the market remains in place. As shown in the snapshot of US equity performance from our Trend Analyzer, large-cap indices managed to squeeze out gains of just under 0.5% last week. Smaller cap indices didn’t fare as well, though. At the bottom of the table, you can see that mid-cap-focused indices were down about 0.5% while small and micro-cap stocks were down over 1%. One thing all these indices have in common, though, is that they’re all below their 50-day moving averages.
Looking at the charts of indices on both sides of the market cap spectrum shows the divergent paths, although neither chart looks particularly good. Starting with the largest cap stocks, the S&P 100 ETF (OEF) has been making a series of lower highs since its peak in the summer, and while it had rallied in the first half of last week, just as it got back near its 50-DMA in the middle of the week, the rally ran out of steam. If there’s one thing positive to say about large caps, it’s that the uptrend line from last October’s low has remained in place.
The downtrend in small caps has been even more pronounced. After breaking down from a head and shoulders top formation in September, the Russell 2000 ETF (IWM) has continued to decline and is now testing the lowest levels since May. While the S&P 100 is still well above its 200-DMA and just fractionally below its 50-DMA, the Rusell 2000 is over 6% below both moving averages and whatever uptrend line that had formed off the lows last fall has been broken.
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Oct 13, 2023
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“In politics, if you want anything said, ask a man. If you want anything done, ask a woman.” – Margaret Thatcher
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Equity futures are flat as a pancake this morning as investors and traders try to digest what has been some positive earnings results and lower yields along with higher oil prices as Israel gears up to launch a counterattack into Gaza and the US looks to impose harsher sanctions on Russia.
Today marks the unofficial kickoff to earnings season with the major banks and financial companies reporting, and so far, the results have been promising. Between the reports of Blackrock (BLK), Citigroup (C), JPMorgan (JPM), PNC, and Wells Fargo (WFC), they’ve all topped EPS forecasts, and only BLK reported weaker-than-expected sales. In terms of stock price reactions, BLK is the only one trading lower in the pre-market while all the others are trading up over 1%. A lot can change between then and now, but the immediate first impression is positive.
On the economic calendar, Import and Export Prices will come out just as you are reading this while the University of Michigan Sentiment will be released at 10 AM. The headline index is expected to decline modestly from last month’s reading, but a key item to watch will be inflation expectations. Lastly, with the geo-political landscape extremely uncertain heading into the weekend, it will be interesting to watch how the market trades in the hours leading up to the weekend. How willing investors are to hold stocks into the weekend will say a lot about market sentiment.
Friday the 13th is considered the unluckiest of days, but don’t tell that to the stock market. Since the first full year that the current iteration of the five-day trading week started in 1953, the S&P 500’s average daily change was 3.4 basis points (bps) with positive returns 53% of the time. Fridays have been much stronger with an average daily gain of 6.1 bps and positive returns 55.9% of the time. Even the 13th day of the month has been better than average with an average gain of 5.2 bps and positive returns 53.6% of the time. With both Fridays and the 13th being better than average, you can imagine that Friday the 13th would be better than average as well, and historically, they have been much better than average with the S&P 500 gaining an average of 14.5 bps with gains 58% of the time. That’s more than four times the average for all days!
While Friday the 13th has generally been lucky for the market, it depends on the month it falls on. The chart below shows the median Friday the 13th change of the S&P 500 by month, and while October occurrences haven’t been the worst, they’re far from the best either. With a median daily gain of 9 bps, October Friday the 13ths are right in the middle of the pack in a tie for 6th place amount the 12 months. The best months have been the summer months of June, July, and August with median gains of 49 bps, 30 bps, and 21 bps, respectively.
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