Dec 11, 2024
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“I certainly wouldn’t invest in the stock market. I never believed in it. Most people lose money because of the emotional difficulty involved.” – Bernie Madoff
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Equity futures and international markets were little changed headed into the November CPI report. The STOXX 600 was unchanged, and overnight the Nikkei was also unchanged. The CPI report continued the narrative that inflation remains sticky, but it wasn’t any worse than expected. For both the headline and core readings, the m/m and y/y readings were right in line with expectations. At 3.3% y/y, though, core CPI remains too high for the Fed’s liking. The lack of any upside surprises, though, has provided a boost to pre-market futures, bond yields have pulled back slightly, and Bitcoin has gotten a bump higher. The fact that the numbers were right in line with expectations, though, all but locks in a rate cut at next week’s meeting.
Remember when CPI reports were the only thing the market cared about? Back in late 2022 and early 2023 right in the middle of the Fed’s rate hiking cycle, the monthly release of CPI was to economists and traders what a Taylor Swift concert was to teenage and twenty-something girls (and a lot of other people). It was an event, and the S&P 500 regularly rallied or declined 1% or more in reaction to the monthly “drop”. As shown in the chart below, in late 2022 and early 2023, the 12-month average daily change in the S&P 500 on the day of CPI reports was a gain or loss of just under 2%. Dating back to the turn of the century, the only other time that market reactions to CPI reports were more volatile was during the financial crisis, but that was a period when overall volatility was a lot higher too, so moves of more than 1% were the norm on any day during that period.
As inflation data has become less ‘exciting’, the market’s infatuation with it has subsided. As shown in the chart below, the average daily change of the S&P 500 on CPI days has plummeted below the long-term average of 0.86% down to 0.71%.
The S&P 500’s daily change on CPI days since the start of 2022 when the Fed’s last rate hiking cycle kicked off, shows the declining importance of CPI data on the market. Over the previous six months, there has only been one month where the S&P 500 moved 1% on a CPI Day, and following last month’s report, the S&P 500 finished the day unchanged rising by just 0.02% or 2 basis points (bps). That was the smallest daily move on a CPI Day since 2019 and was a far cry from two years earlier when the S&P 500 rallied 5.54% in reaction to the October 2022 report which was the largest upside move in reaction to a CPI report since 2008 and the third largest since 1999.
One reason for the more muted reactions to recent CPI reports is that the data has become more behaved and less ‘exciting’. Whether that changes or not remains to be seen, but the recent stickiness of Core CPI relative to headline has economists speculating that there could be a second act.
Dec 10, 2024
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“Having faith is believing in something you just know ain’t true.”– Mark Twain
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Equity futures are mixed this morning with the Dow trading slightly lower while the S&P 500 and Nasdaq futures along with Treasury yields, crude oil, gold, and bitcoin are all modestly higher. In terms of economic news, NFIB’s index of small business optimism saw a monster surge and rose to a 3+ year high in the wake of November’s election. Unit Labor costs for Q3 came in much lower than expected (0.8% vs 1.9% forecast) and Q3 Productivity was inline with forecasts at 2.2%.
Yesterday was a rough day for US stocks relative to the post-election period. With a decline of 0.61%, the only day worse since the election was on 11/15 when the S&P 500 fell 1.32%. In a post yesterday, we noted that the biggest losers of the day were the stocks that had the biggest YTD gains, and that can be seen in the performance of the Momentum ETF (MTUM) which fell 2.13% for its worst one-day decline since the election. Even after the relatively large drop yesterday, the MTUM ETF still managed to hang onto to its uptrend from the summer lows and also remains comfortably above its 50-DMA.
At the sector level yesterday, performance was essentially the opposite of sectors’ direction in the month after the election. As shown in the table and chart below, four of the five best-performing sectors from the election through Friday – Communication Services, Financials, Technology, and Industrials – were also four of the five worst-performing sectors yesterday. Similarly, the only three sectors down in the post-election period through last Friday – Health Care, Materials, and Real Estate – were the only three sectors to trade higher yesterday. The only major exception to yesterday’s reversal theme was Consumer Discretionary (XLY). While it was the best-performing sector ETF after the election through Friday, it only saw a modest decline yesterday.
Turning to individual stocks, the table and chart show the 20 best-performing stocks in the S&P 500 from 11/5 through 12/6 along with their performance yesterday. In the post-election period, these 20 stocks were up an average of 30.3%, and all but one was up at least 20%. Yesterday, though, was not nearly as positive. As shown, 13 of the 20 stocks were down on the day, and the average performance of all 20 stocks for the day was a decline of 1.8% or three times the decline of the S&P 500.
Dec 9, 2024
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“I’ve got an old saying: at the poker table, you’ve got to pay to learn. You can talk all you want, but you’ve got to get in the game.” – Steve Cohen
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Even though the S&P traded higher on four of five trading days last week and finished the week up nearly 1%, the index saw more decliners than advancers (negative breadth) on all five trading days. Fortunately, the index had a streak of seven straight days of positive breadth heading into last week, so maybe it was just downside mean reversion, but we’ll be watching breadth closely over the next few days.
As shown below, eight sectors fell more than 1% last week, while three sectors gained more than 2%. Last week was a mega-cap AI-led rally, while pretty much everything else traded lower.
Dec 6, 2024
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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 saw little movement as US investors awaited the big November jobs report, in which payrolls were expected to bounce back from October’s hurricane-related weak print. The report was just released, and investors got just about what they expected. Headline jobs was slightly higher than expected (227K vs 220K), and October’s print was revised modestly lower. The Unemployment Rate ticked up slightly to 4.2% from 4.1% which was a tick higher than expected, and average hourly earnings were up 4.2% y/y versus expectations for 4.1%. All in all, the report had little in the way of surprises.
Asian stocks closed out a positive week with a negative bias. Japan, India, South Korea, and Australia were all lower, but China bucked the trend with gains of over 1%. The gains there come in anticipation of next week’s Central Economic Work Conference where investors expect authorities to introduce additional measures to support growth in that ailing economy.
European equities are finishing off a positive week with additional gains this morning. The STOXX 600 is up fractionally (<0.25%) taking its gain for the week to over 2%. GDP for the region increased 0.4% which was in line with forecasts, but Industrial Production in Germany unexpectedly declined. French equities are the big winners in the region with a gain of over 1% as Macron insists that he will finish his Presidency through 2027.
As mentioned above, investors expected a rebound in the November jobs report after last month’s weaker-than-expected print. While the hurricanes in the south impacted job growth for October, last month’s report was the fourth miss relative to expectations in the last seven reports and the biggest miss (-88K) since January 2022. The market hoped for a better November report… but not too much, and that’s exactly what it got. In response, market pricing for a December cut now stands at just about 90%.
Now that everyone has discovered digital gold, is the physical version on its way to becoming a paperweight? After peaking just above $2,800 per ounce at the end of October, gold prices declined as much as 9% to their lows in mid-November, but after a bounce still remain down over 5% hovering right around $2,650 per ounce.
A look at the chart shows a delicate picture. Gold broke its uptrend from the summer just after the election and then surrendered the 50-DMA just days later. From that mid-November low, it rallied back above its 50-DMA but stalled out right below its former uptrend line. These failures at a former key trendline can often signal a shift in trend, and another attempted rally after Thanksgiving has failed at the 50-DMA which is now starting to roll over. The next few days will be critical; it will either break above its short-term downtrend from the October high or below what looks like a very short-term uptrend line from the mid-November low.
As is usually the case, the move in the gold mining stocks has followed a similar path, but with wider swings. The VanEck Gold Miners ETF (GDX) was in an upward trending channel for about six months dating back to late May but broke below the low end of that range as well as its 50-DMA just two days after the election. GDX managed to find some support at its 200-DMA – a level it hasn’t traded below since March, but already appears to be running out of momentum and starting to roll over. Judging by the President-elect’s various real estate holdings, no one seems to love gold more than him, but his victory in November hasn’t been good for anything related to gold.
Getting back to the original question over whether Bitcoin has become a substitute for physical gold, there are certainly some aspects where it could serve as a substitute. Less than a month ago, though, gold was at record highs, so it will take more than a month of weakness and a decline of less than 10% for us to get the hammer out and start putting the nails in gold’s coffin.
Dec 5, 2024
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“If you don’t believe me or don’t get it, I don’t have time to try to convince you, sorry.” ― Satoshi
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
As we type this, futures on the S&P 500 and Nasdaq are down 0.01% while Dow futures are unchanged. This comes after all three indices hit record highs yesterday. On the economic calendar, initial jobless claims came in modestly higher than expected while continuing claims fell back below 1.90 million to 1.871 million
In Asia, the Nikkei was modestly higher as expectations for a December rate hike were dialed back following comments from a BoJ official saying that he expects inflation to fall back below the 2% target in 2025 as he sees wage growth slowing down. In South Korea, President Yoon is expected to be the subject of an impeachment vote over the weekend, and Q3 GDP came in weaker than expected rising by just 0.1% compared to expectations for growth of 0.5%.
In Europe this morning, equities are trading modestly higher as the market increasingly expects the ECB to cut rates at its policy meeting next week as October Retail Sales for the region fell more than expected (-0.5% vs -0.4%).
It’s hard to believe that the election was only a month ago today, and it’s equally hard to believe the move in Bitcoin during that time. After closing just above $69,000 on Election Day, overnight the world’s largest cryptocurrency topped $100,000 for the first time, and this morning those gains have continued as it trades right around $103K. In a month, Bitcoin has rallied nearly 50%. In terms of market cap, that works out to more than $400 billion! While all three major US equity indices hit all-time highs yesterday, Bitcoin saw those gains and one-upped the equity market overnight.
We’ve shown versions of the chart below numerous times over the last few weeks, but the cup-and-handle breakout formation in Bitcoin is textbook.
While Bitcoin has been hitting record highs for the last couple of weeks now, last night’s move was notable for another reason besides crossing $100K for the first time. In yesterday’s DealBook conference, Fed Chair Powell referred to Bitcoin as “just like gold only it’s digital”. The chart below shows the historical ratio of Bitcoin to an ounce of gold. The last peak in this ratio occurred in November 2021, but with yesterday’s move above $100K, the ratio between digital and physical gold also broke out to a new record high. Just like Powell, investors increasingly appear to view Bitcoin as a digital version of gold, that’s a lot easier to store and move around.
Dec 4, 2024
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“If I read as many books as most men do, I would be as dull-witted as they are.” – Thomas Hobbes
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Markets are looking to start the day positively with several key economic reports and Fed speakers. The ADP Employment report just hit the tape and came in modestly weaker than forecasts. Still coming up, we have the ISM Services report at 10 AM which is expected to fall slightly from 56.0 down to 55.6. Besides the economic data, we’ll also get the Beige book at 2 PM Eastern and some Fed speakers, including the Chair himself who will appear at the Dealbook Summit at 1:45 Eastern.
There’s a lot of important economic and Fed-related data for the market to navigate today. Still, bulls can only hope that the news comes in as positive as yesterday’s earnings reports after the close. As mentioned in yesterday’s email, Salesforce (CRM) was the big report of the after-hours session. While expectations were already high, the stock exceeded the bar trading 13% higher in the pre-market. That puts it on pace for the largest upside gap in reaction to earnings since March 2023. If the gains hold through the end of the session, it would be the best one-day reaction to earnings since August 2020.
CRM may be a company with a market cap of $350 billion, but regarding earnings, it’s extremely volatile. Historically, the stock’s average one-day change in reaction to earnings has been nearly 7%, but as shown in the chart below, two of its last three reports have been followed by double-digit percentage moves in reaction to earnings. Typically, you expect stocks to become less volatile in reaction to earnings as they become larger, but as CRM and other mega-cap stocks have illustrated in recent quarters, that doesn’t always seem to be the case.
We showed this chart yesterday, but we wanted to update it to include yesterday and today. Provided CRM doesn’t reverse course and trade sharply lower on the session, today will be the 54th day in a row that the stock has closed at overbought levels (1+ standard deviations above 50-DMA). That’s already easily a record high, but with CRM trading 2.8 standard deviations above its 50-DMA this morning, there’s the potential for this streak to extend several more days.
What makes yesterday’s after-hours earnings news even more impressive is that CRM’s surge was relatively modest. Of the four companies that reported after the close with sales of $500 million or more, CRM is trading up the least and is the only one that didn’t report an earnings triple play! As shown in the table, Marvell (MRVL) and Okta (OKTA) are both up slightly more in the pre-market, and Pure Storage (PSTG) is trading up over 20%. It’s hard to remember another time when four mid-to-large companies reported earnings after-hours and they traded up at least 10%. Looking at how these companies traded heading into earnings, it’s not as though they hadn’t rallied into their earnings reports. As of yesterday’s close, all four were above their 50 DMAs, three were at overbought levels, and two were up over 50%!
