Oct 29, 2024
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“Prudent investors are now buying stocks in huge quantities and will profit handsomely when this hysteria is over.” – John J. Raskob, 10/29/1929
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
S&P 500 and Nasdaq futures are little changed on either side of unchanged this morning ahead of the 10 AM releases of JOLTS and Consumer Confidence. After the close, we’ll also get several earnings reports including Alphabet (GOOGL), AMD, and Visa (V). This morning, we’ve already gotten reports from companies like McDonald’s (MCD), Pfizer (PFE), and Royal Caribbean (RCL) to name a few.
In Asia, it was a mostly positive night as China was the only major benchmark down on the day, but there were reports that the country is considering issuing $1.4 trillion in new debt over the next few years to stimulate the economy. In Europe, the tone is also modestly positive even as Germany lowered its growth forecast to 2024 from 0.0% down to a decline of 0.2%.
Markets are right near all-time highs as we close out October, but 95 years ago today, the picture looked a lot different as the Dow Jones Industrial Average fell over 12% on Black Tuesday in what was, according to The New York Times, the “most disastrous trading day in the stock market’s history.” Thankfully, no one reading this remembers the day, but selling was so extreme that “prices crumbled under the pressure of liquidation of securities which had to be sold at any price.” The peak of the roaring 20s bull market occurred a little over a month earlier, but the selling on Black Tuesday was the worst to date; fortunes were wiped out in hours. White knuckles lined the bars of bars across the Financial District as wiped-out traders, both mentally and in some cases financially, looked to dull the pain of the crash.
In response to the selling, market officials mobilized and took measures to restore market stability. Margin requirements were cut to 25% from as high as 60 to 70%, and the Federal Reserve Board held an all-day session from 10 AM to 4 PM with most not even leaving “the board room for luncheon.” Despite the weakness, The New York Times noted that the day ended on a ‘cheerful’ note for two reasons. “The first was a late day rally towards the close on tremendous buying by those who believe that prices have sunk too low. The other was that the liquidation has been so violent, as well as widespread, that many bankers, brokers and industrial leaders expressed the belief last night that it has now run its course.”
John J. Raskob, a “leading industrial and political leader” and the man responsible for building the Empire State Building in 1930 in just one year, put a stake in the ground after the close on the 29th declaring that “The present decline in the stock markets of this country has carried prices, in many instances, to levels ridiculously low, with the result that nearly all of the standard railroad stocks are cheap and the industrial list is filled with stocks selling at real bargain prices.” He added that “Prudent investors are now buying stocks in huge quantities and will profit handsomely when this hysteria is over…the pendulum has swung too far.” Think David Tepper going on CNBC to say he was “buying everything” or Jamie Dimon buying 500,000 shares of JP Morgan for his personal account.
While Wall Street’s army of high-powered financiers may have bought the dip, another potentially more important group was throwing in the towel. The headline on page three of The Times summed it up with the headline “Women Traders Going back to Bridge Games; Say They Are Through With Stocks Forever”. The writer described one situation where “a stout woman with chins asked a harassed manager for a quotation, heard it and then remarked: ‘You might at least be a gentleman.’ She went away crying.” In Rhode Island, a man dropped dead in his broker’s office as each tick of the tape took another bite out of his net worth. In Kansas City, a man at the Kansas City Club told his friends, “Tell the boys I can’t pay them what I owe them,” and proceeded to shoot himself. The Main Street ducks had stopped quacking.
With the ducks no longer eating Wall Street’s cooking, whatever bounce materialized in the market was short-lived. While the Dow managed a 25%+ gain over the following six months, the ultimate bottom wouldn’t be for nearly three more years and 80%+ later in the summer of 1932.
The three-year period from late 1929 through the 1932 lows comprised the dark ages of the US equity market, and for the entire decade of the 1930s, the Dow’s annualized performance not including dividends was a decline of 4.9% (including dividends, the return would have been closer to breakeven). As shown in the chart below, the 1930s was easily the weakest of any decade, but there have been several decades where returns were nothing to get excited about. In the 2000s, the Dow’s annualized performance was negative 1.0%, and in three other decades (1940s, 1960s, and 1970s), annualized returns were less than 3%. The bulk of the market’s gains occurred during the 1950s, 1980s, 1990s, 2010s, and current decade (so far). Overall, for the entire period from the end of 1929 through now, the Dow’s annualized performance was a gain of 5.6%.
Even in the two worst decades of stock market history, the Dow had just as many positive years as negative years, and in every other decade there have been more up years than down years, During the 1950s, 1980s, 2010s, and this decade (so far), 80% of years have been positive, and in the 1990s, the only down year was 1990 (-4.3%). Stocks go up over time, but the climb has been far from a straight line throughout history.
Oct 28, 2024
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“Well it’s kind of the last great American adventure, you know what I mean? Human beings need a little danger, a little uncertainty, a little adventure in their lives and our society frowns upon that.” – Phil Lesh
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 higher this morning as we head into the homestretch of the election season but in some ways the year as well. By the end of this week, the calendar will say November, and there will be less than two months left in 2024. Between now and then, though, this week will be jam-packed with earnings (one-third of the S&P 500) and several major economic reports, including Q3 GDP, October Non-Farm Payrolls, and the ISM Manufacturing report.
Crude oil is sharply lower this morning after Israel retaliated against Iran this weekend and did not target energy assets in the country. Crude has been under selling pressure for a few months now. Earlier this month, it tried to rally back above the 200-DMA but was firmly rejected. Then, last week, it closed Friday slightly back above the 50-DMA, but that didn’t hold for very long.
Lower crude oil prices will likely start to show up in prices at the pump in the coming days, and depending on how much weaker it gets, we could see the national average price of a gallon of gas fall below $3, a level it hasn’t traded at in more than three years!
The weakness in oil prices doesn’t do much good for energy stocks, and while it’s the worst-performing sector so far this year, the technical picture for crude oil wasn’t looking as bad as it does for crude oil…yet. As shown in the chart below, the Energy sector broke its downtrend in early October, and while the sector has pulled back 5% from its recent high, it had managed to hold its 50 and 200-day moving averages and has remained above its former downtrend. However, if you look at this morning’s biggest losers, they’re all from the Energy sector, and at least at the open this morning, the Energy sector will trade below those key support levels.
Oct 25, 2024
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“Wanting alone doesn’t get anything done.” – Bobby Knight
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
S&P 500 futures are indicated about 0.30% higher, but it’s going to take a gain of more than 1% for the market to extend its six-week streak to seven. It’s an especially painful morning for shares of Capri Holding (CPRI) where shares are down close to 50% after a judge blocked the proposed merger with Coach parent Tapestry (TPR), siding with the FTC’s argument that it would reduce competition in the ‘accessible luxury-handbag category’. Talk about a vital sector of the US economy!
Speaking of the US economy, Durable Goods Orders declined 0.8% while August’s report was also revised down to 0.8%. Ex Transportation, September’s report came in at 0.4% versus expectations for a decline of 0.1%. Last month’s report was also revised up to 0.6% from 0.5%.
In Europe, it’s been a mostly negative morning for stocks as major markets over there look on pace to finish the week off with gains of just over 1%. Various measures of business sentiment came in mixed relative to expectations, but PPI in Spain cratered 5.2% y/y compared to a decline of 1.3% in August.
In yesterday’s email, we noted the consistent strength in shares of T-Mobile during the trading day as the stock has closed higher than it opened on 24 of the last 25 trading days. We’ve seen a similar level of persistent buying for the US Dollar Index over the last four weeks.
On 10/17, the index had a streak of 14 straight trading days where it closed higher than it opened. Dating back to 1990, that was the longest streak on record. The next longest streak was 13 trading days ending in August 1997 just ahead of the Asian currency crisis.
Through yesterday, the Dollar Index had closed higher than it opened on 18 of the prior 20 trading days which was tied with the August 1997 period for the most in a 20 trading day period since at least 1990.
Despite the consistent strength in the Dollar Index, its performance over the last 20 trading days, while impressive, hasn’t been anywhere near a record. As shown in the chart below, there have been several periods since 1990 when the index rallied more than the current 3.7% over four weeks with the most recent occurrence just over two years ago near the lows of the bear market in September 2022.
When it comes to the dollar’s impact on the stock market, over the last 20 trading days, the S&P 500 has rallied just over 1.25%. Leading the way higher, Financials have rallied 4.3% which makes sense given the sector has a high level of domestic exposure. The next two best-performing sectors, however, Technology and Energy, both have high levels of international exposure, so all else equal, a strong dollar would be negative for those sectors.
At the other end of the spectrum, Health Care is another sector with a high share of domestic exposure, but it is still the worst-performing sector over the last four weeks. Materials and Consumer Staples, however, both have high levels of international exposure, so their weakness as the dollar has rallied makes sense.
Oct 24, 2024
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“If you want to increase your success rate, double your failure rate”. – Thomas Watson, IBM CEO 1914 – 1956
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’s a mixed morning for US equities as Dow futures trade slightly lower, the S&P 500 is up 0.5%, and the Nasdaq looks like it will open up nearly 1%. Jobless claims were just released and initial claims came in about 15K lower than expected at 227K while continuing claims were modestly higher. European stocks are also higher this morning as rates reverse some of the gains of recent days. There’s been a ton of earnings news since the close yesterday, and we go through the most high-profile ones in today’s report.
Yesterday, the S&P 500 opened modestly lower but then drifted lower throughout most of the trading day before a modest rally into the close which kept the damage contained to a decline of less than 1%. The weakness throughout the trading day was counter to the trend we have seen in recent weeks where the S&P 500 tended to trade higher throughout the trading day. As recently as last week, the S&P 500, measured by SPY, had traded higher from the open to close on 17 of the prior 25 trading days. The fact that the market has been rallying throughout the trading day signals healthy underlying demand.
While last week’s reading of 17 is not a historical extreme, it was tied for the highest frequency of days that SPY traded higher from the open to close in a 25-trading day period this year. In 2023, there were multiple periods when the 25-day rolling toll reached as high as 19 or 20. The best this reading has been able to get in 2024, though, has been 17.
Regarding individual stocks, T-Mobile (TMUS) reported after the close last night, and if you’re looking for an extreme example of stocks consistently rallying from the open to close, we can’t think of a better one. Heading into last night’s earnings report, shares of TMUS traded higher from the open to close on 24 of the last 25 trading days. Talk about a stock that investors can’t enough of!
Looking back over the stock’s history, the current rate of days where TMUS traded higher from the open to close over the last 25 trading days is easily the highest ever. Before the last five weeks, it never got above 21.
We can’t think of another example when a stock traded higher from the open to close with such consistency, and if we look back at the history of Apple (AAPL) and Nvidia (NVDA), the two largest and most successful companies in the US market, neither one ever experienced a run where the stock traded higher from the open to close on more than 21 out of 25 trading days.
Oct 23, 2024
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“If you are first you are first. If you are second, you are nothing.” – Pele
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
We’re looking at another negative equity market open today, and once again, the Dow is leading the way lower. The E. coli outbreak tied to McDonald’s (MCD) has that stock down 7%, which works out to more than half of the Dow’s pre-market losses. Along with the negative news from MCD, Starbucks (SBUX) lowered guidance, so it’s not shaping up to be much of a good morning for companies tied to the fast food sector.
The only economic report on the calendar this morning is Existing Home Sales at 10 AM, but there have been plenty of earnings reports in the pre-market with more to come after the close.
The last week has been mixed for equities on a global scale. As shown in the snapshot from our Trend Analyzer, emerging market equities have been the top performer narrowly edging out US stocks with a gain of 0.69%. These are also the only two regions with positive returns as European, Latin American, and Asia Pacific stocks are all lower. With most regions trading lower, the Developed World ex-US ETF is also down 0.71%.
It hasn’t just been the last week where these regions have underperformed. On a YTD basis, the US has rallied 23.5% while emerging markets are up just under 14%. All four of the other ETFs, meanwhile, are up less than 10%, or in the case of Latin America (ILF) down over 10%.
Looking at the charts of all six ETFs over the last year, EEM and SPY have maintained their rallies and trade above their 50-day moving averages. The four other ETFs, however, look less promising from a technical perspective. ILF has been below both its 50 and 200 DMAs for several days now while SPDW, VGK, and VPL all broke below their 50-DMAs in the last few days.
Oct 22, 2024
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“aggressive conduct, if allowed to go unchecked and unchallenged ultimately leads to war” – John F Kennedy, 10/22/1962
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Just when it seemed nothing could go wrong for the market, yesterday we had a weak day underneath the surface in terms of breadth. That weakness has continued into this morning as US futures are firmly lower following a decline of over 1% in the Nikkei. In Europe, despite positive earnings from SAP and Logitech, the STOXX 600 is down close to 1%.
Treasury yields remain the culprit as the relentless rise in longer-term interest rates continues since the Fed cut rates in September. The 10-year yield has risen above 4.2% for the first time since the summer as the market continues to experience one of the sharpest increases in yields following a rate cut in at least the last 30 years.
The S&P 500 was only down 0.18% yesterday, but breadth was terrible with a net advance/decline reading of negative 338. The weak breadth was also evident in the equal-weighted S&P 500 which was down 0.85%. The 4% rally in NVIDIA (NVDA), which is now within 2% of Apple’s (AAPL) market cap, was a big factor behind the big performance spread between the cap and equal-weighted indices. The scatter chart below compares the S&P 500’s daily percent change versus the net A/D reading, and the shaded area highlights days when the net A/D reading was between -350 and -300 (yesterday was -338). On those days, the S&P 500’s average decline has been 1.23%. To put yesterday into perspective (red dot in lower chart), it is one of just two days since 1997 that the net A/D reading was between -350 and -300 and the S&P 500 was down less than 0.25%!
Can you believe it? The day is almost here. Two weeks from today is the last day we can vote in the 2024 Presidential Election, and then we’ll finally get a break from all the politics. Right?
Like what we did two weeks ago, the chart below shows the performance of the S&P 500 in the two weeks leading up to Election Day for all years since 1948, and we have noted Presidential Election years in dark blue. While you might expect volatility leading up to Election Day, the S&P 500 has historically performed better in the two weeks leading up to Presidential elections (1.62%) than it has in non-presidential election years (0.87%), but it has been slightly less consistent to the upside at 68.4% during Presidential election years versus vs 73.3% in non-election years. The biggest gains and losses for the S&P 500 during these two weeks have also been during non-presidential election years (9.1% in 1962 and a decline of 4.4% in 1973). During Presidential election years, the largest gain was 5.4% in 1960 and the largest decline was 2.6% in 1988.
The table below lists the performance of the S&P 500 during the two weeks leading up to each Presidential election since 1948. Along with that, we have also included the number of days that had transpired between the last all-time closing high (ATH) and each Election Day, the number of ATHs in the 50 trading days leading up to Election Day, and whether the part of the incumbent or non-incumbent party won the election.
This year isn’t listed on the table since it’s not Election Day yet but with nine all-time highs already in the 50 trading day window (with ten to go) this year is already tied with 1964 and 1968 for the second most. With the most recent all-time high occurring last Friday, even if there isn’t another closing all-time high between now and then it will rank at least as the fourth fewest number of days between the last ATH and Election Day. The only ones with a shorter gap were 1996 (0 days), 1972 (1 day), and 1968 (8 days).
We also found it interesting that strong markets don’t necessarily help the incumbent party, but short-term weakness in the two weeks before may hurt the incumbent party. In the nine prior periods when the S&P 500 hit an all-time high within 100 trading days of Election Day, the incumbent party only won the Presidency four out of five times. There have been five prior periods when the S&P 500 was down in the two weeks leading up to the election, and in four of those periods, the non-incumbent party won. These are all small sample sizes, and there were other factors at play in each election, but any excuse to talk politics, right?
