May 12, 2023
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“It’s tough to make predictions, especially about the future.” – Yogi Berra
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
What you think of the stock market these days will depend a lot on which index you’re looking at. While futures are up across the board today, the Dow has been down every day this week and eight of the last nine trading days. The Nasdaq, on the other hand, has been up in four of the last five trading days and is near its highs of the year. There’s little in the way of news driving the positive tone this morning, although the delay of the meeting between political leaders in DC over the debt ceiling until next week has been taken as a positive sign that the two sides are making progress. Along with the positive tone in futures, treasury yields are higher, but the two-year yield is still only at 3.92%. Crude oil prices are up modestly, and Energy Secretary Granholm has reportedly said that purchases for the SPR could resume in June.
On the economic calendar this morning, Import and Export prices will be released at 8:30 while Michigan Sentiment will be the least report of the week at 10 AM.
The performance disparity between major US equity indices has been well documented, but over the last several days, the gap has widened even more. Through yesterday’s close, the S&P 500 was up 7.6% on the year while the Dow was up only 0.5%. At 7.1%, the performance gap between the two indices on a YTD basis through 5/11 has never been wider, and the only time in the post-WWII period that it ever even exceeded five percentage points was in 1985 and 2020.
Given the differences in the way each index is constructed (market cap weighting of 500 stocks for the S&P 500 compared to a price-weighted index of 30 stocks for the Dow), performance disparities this large may not be too surprising, but since 1945, the correlation of daily returns for the two indices has been +0.95 meaning they’re almost perfectly correlated.
At the other end of the spectrum, there have been more years (seven) where the Dow outperformed the S&P 500 by over five percentage points YTD through this point in the year, but the most extreme was in 1999 when at this point in the year, the S&P 500 was up 10.3% while the Dow was already up over 20%! Comparisons between now and the late 1990s/early 2000s have been common, but in the case of performance disparities, the two periods couldn’t have been further apart.
Start a two-week trial to Bespoke Premium to read today’s full Morning Lineup.
May 11, 2023
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.” – Bob Hope
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
After a slug of economic data, equity futures remain biased towards the downside along with treasury yields. Initial jobless claims came in higher than expected, continuing claims were modestly below estimates, headline PPI was weaker than expected, and core PPI was in line with expectations. Headline producer prices are currently up 2.3% on a y/y basis which is right in line with where this reading was in 2018 and 2019. Investors can debate over whether or not the FOMC should be cutting rates later this year, but given the continued weaker trend of data and stress in the banking sector, any continuation of rate hikes in June would be completely out of touch.
It was nice for a few days when headlines surrounding the regional banks weren’t at center stage, but PacWest ended the intermission this morning when it announced that nearly 10% of deposits at the bank left last week when news surfaced that the bank was evaluating strategic alternatives. Shares are down over 20% this morning and dragging other regional banks down with it.
While the banks may have been out of the headlines for a few days, the selling hadn’t stopped. Yesterday, the SPDR Regional Banking ETF (KRE) had its second-lowest close of the year trailing only the level it closed at last Thursday (5/4). In pre-market trading this morning, KRE isn’t quite below that close from a week ago, but it is within 20 cents of that low close ($36.08).
Shares of KRE have come nearly full circle from their COVID lows in early 2020. What’s interesting to note is that after the decline in the COVID crash in 2020, most investors probably thought they would never see regional banks decline that swiftly and with that magnitude ever again, but looking at the chart below, just three years later, history pretty much repeated itself.
Start a two-week trial to Bespoke Premium to read today’s full Morning Lineup.
May 10, 2023
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“The higher up you go, the more mistakes you are allowed. Right at the top, if you make enough of them, it’s considered to be your style.” – Fred Astaire
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
As expected, Congressional leaders made little headway on the debt ceiling and then blamed each other for the stalemate. Given the low expectations, the market reaction was muted. Plus, investors have bigger fish to fry with the release of the April CPI which was expected to increase 0.4% on a m/m basis at both the headline and core levels. On a y/y basis, the headline level was expected to increase by 5.0%, while the core was forecast to increase by a more concerning 5.5%. The actual readings came in right in line with expectations although the headline y/y reading was slightly lower at 4.9%.
Equity futures were modestly lower heading into the report, following the lead of Asia and Europe, while treasuries were mixed, and crude oil was lower trading at $73 per barrel. Investors were clearly positioned for a hot reading, so the initial reaction from the market has been for equities and bonds to reverse their pre-market losses as the two-year yield drops back below 4%.
Semiconductors are an area of the market to watch here. After a lousy April where the Philadelphia Semiconductor Index (SOX) fell 7.3%, the index is down about another 1% so far in May, and the technical picture doesn’t look so great. The index broke below its 50-day moving average (DMA) in the middle of April and hasn’t been able to reclaim that level ever since. Not only that, but the SOX also broke its uptrend from the October lows. Last week, it tried to trade back above both its former uptrend and the 50-DMA but was rejected. Subsequently, last Friday it made another attempt at the 50-DMA but failed again. The S&P 500 has been having its own problems trading back above 4200, and unless the semis can regain their March traction, it could be a tough grind. On any downside in the SOX, the first level of support comes into play at around 2,850 (blue line) or about 3.5% below current levels.
Start a two-week trial to Bespoke Premium to read today’s full Morning Lineup.
May 9, 2023
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“No one knows what interest rate the market would set, it’s always being manipulated.” – William Dunkelberg, NFIB
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
After Friday’s surge didn’t have much in the way of follow-through yesterday, bears have the upper hand this morning as futures are decidedly weaker, and treasury yields are lower (although they’re pretty much exactly where they were at this point yesterday morning). Investors will also be looking ahead to this afternoon’s meeting between the President and leaders of Congress over the debt ceiling. Expectations are low, but you never know. The fact that the President and his advisers are willing to meet after already saying they wouldn’t negotiate, is a small sliver of hope.
The performance of individual stocks grouped by market cap has been interesting to watch this year and for now, has laid to waste the notion that big things come in small packages. The chart below summarizes the average YTD performance of stocks in various major US indices, and while it may look at first like it’s sorted left to right from best to worst, it’s actually by the market cap of stocks that each index represents from largest to smallest. On the left, are the Nasdaq 100 and S&P 100 which are comprised of US mega-caps. The average YTD performance of Nasdaq 100 stocks has been a gain of 11.45% while the 100 components of the S&P 100 are up an average of 4.93% YTD. Broadening out a little bit to the large-cap S&P 500, the average YTD return of those stocks has been a gain of 2.58%.
Stepping down the market cap ladder from large caps, the average YTD return of mid-cap stocks in the S&P 400 has been a gain of 2.13%. Finally, at the bottom rungs, we have small and microcap stocks which are the only two of the six indices shown where the average YTD return is negative (-1.89% for stocks in the S&P 600 and -0.28% for stocks in the Russell Microcap index). It’s at these last two indices where the progression of performance getting incrementally weaker also breaks down.
Given its outperformance YTD, it shouldn’t come as a surprise that the Nasdaq 100 is closer to a 52-week high than any of its peers. The index has essentially been rangebound since a breakout on March 31, but after last Friday’s surge and Monday’s follow-through, it’s making its best effort to break out again. Based on where futures are trading this morning, it doesn’t look like it’s going to happen today, but a lot can change over the course of a few hours, and Wednesday’s CPI will most certainly have a say in how things play out.
Start a two-week trial to Bespoke Premium to read today’s full Morning Lineup.
May 8, 2023
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“If you know the edge of your own ability pretty well, you should ignore most of the notions of our experts about what I call ‘deworsification’ of portfolios.” – Charlie Munger
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
While the S&P 500 was still down for the week, last Friday’s rally did a lot to boost sentiment as it turned a hole of over 2.5% to a weekly decline of less than 1%. For its part, the Nasdaq actually managed to finish the week marginally higher. This morning, the week is starting off on a relatively quiet but positive note as the economic calendar is light, and the pace of earnings slow. Thankfully, there wasn’t even any stress in the banking sector to have to contend with! Looking ahead, though, earnings activity will pick up after the close, and even though the mega-caps are behind us, we’re still in the peak reporting period, so the number of reports won’t slow down. Then, on Wednesday, the April CPI will likely be the major report of the week, and that will likely dictate how we finish the week.
Over the weekend at the annual Berkshire Hathaway shareholders meeting, Warren Buffett referred to Apple (AAPL) as a better business ‘than any we own’. Apple has worked out better than See’s Peanut Brittle for Berkshire shareholders. The chart below shows the quarterly performance of Berkshire Hathaway (BRK/b) over the last 20 years. From 2003 through the end of 2015, before Berkshire started acquiring Apple, the stock’s average quarterly return was a gain of 2.3%. Since 2016, when Buffett first took a bite out of Apple, Berkshire’s average quarterly gain has been more than a full percentage point higher at 3.4%.
Now, to say that the higher average quarterly return is due entirely to Apple would be too simplistic. After all, S&P 500 returns are higher in the post-2016 period (+2.8%) compared to the period from 2003 through the end of 2015 (+2.3%) but given AAPL’s outperformance of the overall market since the start of 2016 (144%) it certainly hasn’t hurt Berkshire, and the stock would almost certainly be lower now had Buffett not placed the bet on Tim Cook.
Not surprisingly, as Apple has become a much larger part of Berkshire, the stock has tended to trade more in line with Apple as well. The chart below shows the rolling 200-day correlation between the daily percentage changes of Apple and Berkshire over the last 20 years. From 2003 through the end of 2015, the average rolling correlation between the two was +0.256. Since Berkshire started acquiring Apple, even though the correlation immediately dipped in early 2016, the overall average correlation has been considerably higher at +0.453.
Start a two-week trial to Bespoke Premium to read today’s full Morning Lineup.
May 5, 2023
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“Employment is nature’s physician and is essential to human happiness.” – Galen
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
You’ve likely seen a few headlines this morning discussing the ‘rebound’ and ‘surge’ in regional bank stocks led by shares of PacWest (PACW) which are trading up 26% in pre-market trading. Any staunching of the bleed in these stocks is welcome, but when PACW is only back to levels where it was trading at in the final hour of trading yesterday and still down over 60% on the week, it’s hard to call it a surge.
With bank stocks showing some stabilization, equity futures are taking the opportunity to rebound. European stocks are all firmly higher this morning, and that comes despite what has been mostly a round of weaker-than-expected economic data as European Retail Sales, German Factory Orders, and Industrial Production in France all came in significantly weaker than expected.
With the Fed on Wednesday and Apple (AAPL) earnings after the close yesterday, you may have forgotten about today’s April Non-Farm Payrolls, but those numbers were just released. Economists were expecting the total change in Non-Farm Payrolls to come in at 185K with the Unemployment Rate increasing to 3.6% from 3.5%. The actual readings came in stronger than expected with payrolls increasing by 253K and the Unemployment Rate falling to 3.4%. Average hourly earnings were also two-tenths stronger than expected at 0.5% m/m. One caveat to the stronger headline print, though, was that prior month readings were revised lower by about 150K.
The monthly payrolls report has been important because, in its quest to bring down inflation, the Federal Reserve has been on a mission to crush employment. Because of that, the chart below continues to give members of the committee nightmares. While other areas of the economy have clearly shown signs of rolling over, up until recently, employment has been humming along. Recently, we have started to see some signs of cooling as jobless claims (after a major revision) have been trending higher while JOLTS has been rolling over, but the Non-Farm Payrolls report has been another story. With this month’s stronger-than-expected print, we have now seen a record 13 straight months where the headline change in Non-Farm Payrolls was better than expected.
Start a two-week trial to Bespoke Premium to read today’s full Morning Lineup.
