Dec 3, 2024
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“You never bet on the end of the world, that only happens once, and the odds of something that happens once in an eternity are pretty long.” – Art Cashin
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 indicate another trendless morning with extremely modest gains or losses depending on the index you want to examine. The economic calendar is on the light side, with October JOLTS being the only notable report. However, we will also hear comments from Fed Governor Kugler and Chicago Fed President Goolsbee later today.
Overnight in Asia, major equity benchmarks were higher across the board. The most notable economic report in the region was South Korean inflation which increased 1.5% y/y compared to a rate of 1.3% in October but was lower than the 1.7% consensus forecast. On the trade front, the Chinese government retaliated against the increased US export restrictions on advanced chip technologies by saying it would restrict certain rare earth materials to the US.
In Europe, stocks are also higher this morning, with the STOXX 600 trading up over 0.4%. In France, the CAC 40 was up close to 1% despite the political turmoil in the country. Opposition parties are on track to back a no-confidence vote to remove PM Michel Barnier.
Semiconductors make up a large part of the Technology sector, so the fact that the Philadelphia Semiconductor Index (SOX) has declined over 10% in roughly the last six months while shares of Nvidia (NVDA) are flat would lead you to believe that the overall sector has been weak. While it hasn’t been a leader, the Technology sector has rallied over 3% since NVDA and the semis peaked in the summer. A big reason for that strength is that as semis dropped the ball, software jumped in and dribbled it right down the court.
Since the closing high in the SOX on 7/10, the software group, as measured by the iShares Expanded Tech-Software ETF (IGV) has rallied over 20%. Through the close yesterday, IGV was 1.5 standard deviations above its 50-day moving average (DMA), but that’s down from more than three standard deviations above its 50-DMA on 11/11, which was the most overbought level since August 2020. All totaled, IGV has closed at overbought levels (1+ standard deviations above its 50-DMA) for 21 trading days.
The largest component in IGV, accounting for just over 9% of the ETF’s assets, is Salesforce (CRM). CRM had a rough start to 2024, and the bottom fell out of the stock in May when the company reported weaker-than-expected sales for the first time since 2006. As shown in the chart below, the 19.7% decline in reaction to that miss was the most negative reaction to an earnings report for CRM since it went public in 2004. It also marked the low for the stock, and it has rallied more than 56% since then.
While CRM shares are currently not quite as overbought as IGV, yesterday marked the 52nd day in a row that the stock closed at overbought levels. That’s the longest streak of overbought readings since its IPO 20 years ago!
Dec 2, 2024
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“Here’s your law: If a company, can’t explain, in one sentence, what it does… it’s illegal.” – Lewis Black
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Global equities kicked off December positively as most Asian equity benchmarks finished the first trading day of the month with gains of between 0.5% and 1.0%. In China, the 10-year yield fell to a record low just below 2% after the country’s services PMI came in weaker than expected at 50.0 even as the Manufacturing component increased modestly to 50.3. While growth in China remained anemic, Japan’s Manufacturing PMI remained in contraction territory for the sixth month.
In Europe, equities have also gotten off to a positive start in December although the magnitude of the gains has been more modest with the STOXX 600 trading up just under half of a percent. Manufacturing in the region remains in contraction as the PMI index fell from 46.0 to 45.2 for its 29th straight month below 50.
US equity futures were modestly higher earlier but have now dipped slightly into negative territory as we await the December release of the ISM Manufacturing report. While it hasn’t been quite as weak as its European counterpart, the ISM index is expected to remain below 50 for the eighth month in a row and the 24th time in the last 25 months. It will be interesting to see, though, if the election results had any impact on manufacturers’ sentiment.
December 2nd may not seem like much of a day to most people, but today marks the 23rd anniversary of Enron’s bankruptcy filing. At the time, Enron was the largest corporate bankruptcy in US history, but 23 years later, it only ranks as the ninth largest. At an estimated $66 billion, Enron’s bankruptcy was less than a tenth of Lehman’s (largest ever) which occurred less than seven years later, and a fifth the size of Washington Mutual which collapsed just after Lehman. The fact that Enron’s bankruptcy was so large at the time but now pales in comparison to some of the largest illustrates once again how despite the power and strength of the US economy, never underestimate the ability of companies to screw things up and ultimately screw their employees, customers, creditors, and shareholders.
Enron’s bankruptcy hit the market at a particularly vulnerable time. Just over two months earlier, the bottom had fallen out of the market following the 9/11 attacks, but the market quickly rebounded giving hope to investors that the whoosh lower when the markets re-opened in September had been a market clearing event. Enron’s bankruptcy stopped the rally in its tracks, and after treading water for a few months, the bottom fell out of the market again as accounting scandals at Tyco and WorldCom hit the market. Enron may not have been the sole cause of the post-9/11 rally losing steam, but in bear markets, there’s always something.
Turning to the present market, the Treasury market has done its best to confuse markets in the last few months. In early September, all you would hear about was how the start of the Fed easing cycle would unleash a period of lower rates and ease borrowing costs for Americans. While short-term rates declined, the Fed has little control over the long end of the curve, and the 10-year yield made its low for the year just before the September cut. From there, the yield marched steadily higher.
Then, leading up to the election, a Trump victory was considered a harbinger of higher rates as lower taxes would balloon the deficit. The verdict is still out on what a Trump Administration will mean for the deficit as he’s not even in office, but once again, nearly the exact opposite occurred. Yields peaked shortly after the election and finished off November 11 basis points lower than where they started the month.
It’s not just longer-term Treasuries that have rallied, though. The snapshot below from our Trend Analyzer shows the performance of various Treasury and fixed-income-related ETFs. Not only have they all rallied over the last week, but they’re also mostly at or above their 50-day moving averages (DMAs).
Nov 29, 2024
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“There are far, far better things ahead than any we leave behind.” – C.S. Lewis
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 may be a slow day in the US with a shortened session, but it’s business as usual for the rest of the world. It was a busy day for data in Japan, and most of it was weaker than expected. Industrial Production, Retail Sales, and Housing Starts all missed expectations. At the same time, CPI surprised to the upside with the Core reading rising at a 2.2% y/y pace versus expectations for an increase of just 2.0%. Even with the weaker data, the yen rallied as the higher-than-expected CPI print increased the odds of a rate hike at the December meeting. The Nikkei fell 0.4% during the session, but Chinese stocks finished the day and the week in positive territory.
In Europe, the STOXX 600 is marginally higher after a positive session on Thursday. While inflation data in Japan came in hotter than expected, Eurozone CPI was up 2.3% y/y which was right in line with expectations while Core CPI was slightly weaker (2.7% vs 2.8%).
US futures are higher across the board with modest gains, and there’s no data on the calendar to speak of. Treasury yields are slightly lower, and bitcoin is looking to make another run at $100K after failing to rally through that level late last week.
The day after Thanksgiving is considered a day when stocks usually trade higher, and since 1945, the S&P 500’s average performance on the day has been a gain of 0.23% with positive returns two-thirds of the time. Looking at a long-term chart of the S&P 500’s performance on this day, though, shows that in “the old days”, it used to be a much better day. In the 40 years from 1945 through 1953, the S&P 500’s average daily change on the Friday after Thanksgiving was a gain of 0.44% with positive returns 80% of the time, and in the 29 years from 1956 to 1984, it was down just twice! If the market was going to make you come to work the day after Thanksgiving, at least it usually gave you an up day!
Since 1985, performance the day after Thanksgiving has been more of a turkey. In the last 39 years, the S&P 500’s average performance on the Friday after Thanksgiving has been a gain of just 0.02% with positive returns just 54% of the time. Not only has today become much more of a coin flip over the last 40 years, but it has also included the worst after-Thanksgiving performances. In 2021, the S&P 500 plunged 2.27% thanks to the Omicron ‘scare’. Then in 2009, the S&P 500 dropped 1.72% on concerns about debt problems in Dubai while in 1987, it fell 1.5% as investors were still worried about the crash a month earlier.
As bad as those days all were, they weren’t a bad omen for the rest of the year. In 1987, the S&P 500 finished the year 2.8% higher, while in 2009, it rallied 2.2% into year-end. Finally, in 2021 it finished 3.7% higher. Maybe C.S. Lewis was right, after bad Thanksgiving Fridays, “There are far, far better things ahead”!
Nov 27, 2024
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“Knowledge speaks, but wisdom listens” – Jimi Hendrix
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 last trading day before Thanksgiving, equity futures are modestly lower while crude oil sees a modest rally (still below $70), and the 10-year yield is down close to 5 bps trading near 4.25%. After a sharp pullback from record highs in the first half of November, gold prices have caught a bid in the last week, and prices are pushing back close to $2,700 per ounce after dropping as low as $2.540 on the 14th. Bitcoin prices have also pulled back since their all-time high of just below $100,000 last week, and after dropping below $91K yesterday, the price is rallying over 2% today and back above $93K.
With today being the last full trading day of the month, a ton of economic data is getting packed into the day (good luck trying to keep up), so where the market stands at 4 PM today will likely differ a lot from where it is now.
After an initial post-election surge that took the S&P 500 barely above 6,000, stocks took a bit of a breather mid-month as the S&P 500 closed lower than it opened for five straight days pulling back just over 2%. The second half of November has put the market back on track, though, with the S&P 500 now riding a seven-day winning streak into the last trading day before Thanksgiving.
Going back to 2000, the current run for the S&P 500 is the 26th time the index has been up at least seven trading days in a row. Of the prior 25 streaks, only eight stretched to an eighth day, and the longest was nine trading days in November 2004. What makes the current run somewhat unique is that it is the fourth time in the last five months that the S&P 500 put together a streak of at least seven positive days in a row. The only other year since 2000 that saw even four seven-day winning streaks in an entire calendar year was 2013.
Nov 26, 2024
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“I think I’ve discovered the secret of life — you just hang around until you get used to it.” – Charles Schultz
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
US equity futures are mixed this morning. The Dow looks to open lower due to a 7% decline in Amgen (AMGN) after the company reported disappointing data related to its weight loss treatment. S&P 500 and Nasdaq futures are firmly in the green, but the Russell 2000 is indicated to open slightly lower after missing a record close yesterday by less than a point.
Treasury yields have barely budged from yesterday’s levels, crude oil is up less than 1% but below $70 per barrel, and gold is modestly higher. In a sign that some of the froth may be settling in the market, Bitcoin is down 3% this morning and trading near $92K after trading just under $99K yesterday. MicroStrategy (MSTR) calls its stock a leveraged play on Bitcoin, and that’s been the case both up and down. After trading as high as $543 per share on Friday, the stock is trading down near $380 this morning for a 30% decline. That’s a big move for a company that briefly had a market cap of over $100 billion last week!
Overnight, most major benchmarks were modestly lower in Asia, likely in at least part due to President-elect Trump’s statement that he would levy an additional 10% tariff on all goods imported from China. Europe was left out of the latest tariff talk, but stocks in the region are also lower across the board with modest gains as the STOXX trades down 0.4%.
Circling back to the US, it’s been a relatively busy morning for earnings, especially from retailers. Of the ten companies reporting, six topped EPS forecasts, seven beat sales forecasts, but two – Best Buy (BBY) and Kohl’s (KSS) – lowered guidance. Those two stocks are being punished accordingly with the former down over 7% and KSS down more than 15%. While the drop in KSS is large, in May it fell nearly 23% in reaction to earnings.
With Americans starting to get on the road for Thanksgiving today and tomorrow, one thing to be thankful for is lower pump prices. According to AAA, the national average price of a gallon of gas is just $3.067 per gallon. Over the weekend, it was as low as $3.056 which was the lowest national average price since June 2021 and nearly $2 below the peak from June 2022.
While the national average is still above $3 per gallon, just over half of US states have a national average below $3 per gallon, including Oklahoma which has the lowest average price at just over $2.50 per gallon. Nothing wrong with that!
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Nov 25, 2024
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“If you place your head in a lion’s mouth, then you cannot complain one day if he happens to bite it off.” – Agatha Christie
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Investors have a lot to be thankful for this year, and a holiday-shortened week after what has been an eventful year so far is no doubt one of them. The economic and earnings calendars are relatively light this week, but Tuesday will be a relatively busy week for earnings, while Wednesday will be a busier day for economic data as government agencies look to get the reports out ahead of what, for many, will be a long weekend.
In Asia, Japan and India were both up over 1% while Chinese stocks saw modest losses. In Europe, it’s been a mixed tone, with the STOXX 600 basically unchanged. Here in the US, equity futures are higher, and treasury yields are lower in part due to Scott Bessent’s nomination as Treasury Secretary.
The last week of November has historically been positive for equities, and recent history hasn’t deviated from that trend. The S&P 500 has notched gains in the last week of this month in six of the previous seven years. The only down year was in 2021 when the S&P 500 fell over 2.6% as investors feared a resurgence of Covid from the Omicron wave and Fed Chair Powell sent a message to the market that the Fed was no longer not even thinking about thinking about raising interest rates. While the S&P 500 was near record highs heading into the week, both factors sent stocks plunging, and the S&P 500 fell 2.6% for its fifth worst last week of November in the post-WWII period and the worst since 1987. Outside of 2021, though, you have to go back to 2005 to find another year when the S&P 500 dropped over 1% in the last week of November.
Overall, the S&P 500’s median performance during the last week of November since 1945 has been a gain of 0.32% with positive returns 58.2% of the time which is nearly twice the average for all one-week periods since 1945. That’s the good news. The bad news is that in years when the S&P 500 has been up 20%+ YTD heading into the last week of November, the median gain has been more in line with the historical average (0.19%). When the S&P 500 was overbought (1+ standard deviation above its 50-DMA) heading into the last week of the month, the median performance was a decline of 0.20% with gains less than half of the time. Additionally, when the S&P 500 was up 20%+ YTD and overbought, the median performance during the last week was also a decline of 0.18% with gains half of the time.
None of these trends suggest that declines this week are likely, but for a week that has historically been considered one of the most positive weeks of the year, the setup this year is not necessarily as bullish.
