Oct 11, 2024
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“Age needs the company of youth” – Eleanor Roosevelt
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Welcome to earnings season! The unofficial start to earnings season kicked off this morning, and the overall tone has been positive. Of the five companies reporting, all five exceeded EPS forecasts, and only Wells Fargo (WFC) came up short in revenues. In response to the reports, all five stocks are up in the pre-market with gains ranging from 1.2% for JPMorgan (JPM) to a 5.3% rally for Fastenal (FAST). If first impressions meant anything, this would be a good thing!
The only economic reports on the calendar today are PPI and Michigan Sentiment. Yesterday’s higher-than-expected CPI pushed rates higher and raised concerns of a slower pace of rate cuts, so today’s weaker-than-expected headline number helped to offset the negative sentiment. Headline PPI came in weaker than expected at 0.0% versus expectations for a gain of 0.1%. Core PPI was in line with estimates at 0.2%. On a y/y basis, both readings were 0.2 ppts higher than forecasts at 1.8% for the headline reading and 2.8% on a core basis. A few Fed speakers are also on the calendar today with Goolsbee at 9:45, Logan at 10:45, and Bowman just after 1 PM.
Since tomorrow is Saturday, the market will not be open to celebrate the second anniversary of the bull market but looking at the S&P 500’s performance over the last two years, the gain of slightly more than 60% ranks as the best two-year gain since the two years ending in April 2022 when we were in the early months of the bear market. While the two-year rolling rate of change only briefly dipped into negative territory, it has come roaring back in the last year, and at current levels, the performance ranks in the 95th percentile of all periods since 1954.
The stock market will be open on Monday, but for some of you, it will be a holiday in observance of Columbus Day. The chart below shows the S&P 500’s performance on Columbus Day since it was officially designated as the second Monday of October 1971. During this period, the S&P 500’s median performance has been a gain of 0.16% with positive returns 60% of the time. The best Columbus Day was in 2008 when the S&P 500 rallied 11.6%, and the 3.4% gain in 2011 wasn’t too shabby either. The weakest Columbus Day occurred in 2014 (-1.6%), and in the nine years since then, the S&P 500’s median performance has been a decline of 0.04% with declines in five out of nine years.
Oct 10, 2024
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“At first, dreams seem impossible, then improbable, and eventually inevitable.”– Christopher Reeve
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 Florida recovers from Hurricane Milton and investors prepare for the latest round of economic data, equity futures are just modestly lower, treasury yields are higher, and crude oil is modestly higher. In Asia, equity markets in the region were higher across the board. Australia and Japan were modestly higher while Hong Kong rallied 3% and China was up just over 1%. In Europe, the tone has been less positive as the STOXX 600 trades down 0.2%, and most individual country benchmarks are also lower. Retail Sales in Germany increased 1.6% y/y versus 1.5% in July. Industrial Production in Italy rose just 0.1% m/m versus expectations for an increase of 0.3% but was still up from a decline of 1% in July.
Economic data just hit the tape, and each report went in the wrong direction in terms of the economic impact. CPI data came in higher than expected on both a headline and core basis. Headline CPI increased 0.2% m/m versus expectations for an increase of 0.1% while core CPI rose 0.3% which was also a tenth higher than expected. Jobless claims, on the other hand, both surpassed expectations. Initial claims came in at 258K versus forecasts for a reading of 230K. That’s a pretty significant miss, but looking at the state-by-state numbers, the ones impacted by Hurricane Helene all saw large increases. North Carolina, for example, saw claims surge by over 8K alone.
Besides today’s CPI report and jobless claims, one big area of focus today will be Tesla Robotaxi Day after the close, and investors are expecting the company to shed light on its plans for a ride-hailing fleet of self-driving Teslas. Expectations are high regarding Musk’s vision, but investors probably aren’t expecting much in the way of an actual ready-for-the-wild vehicle. Tesla still has a way to go before getting approval for full-self driving, and Waymo, which currently holds the lead in this space, only operates a limited fleet in a limited number of areas.
Keep in mind, though, that however pie in the sky the concept of getting in a car without a driver feels today, it’s only a matter of time. iPhones, cloud computing, Uber, and even for most people, remote work, didn’t exist 15 or 20 years ago, and now they’re routine parts of our days. Only a little more than a few years ago, if you left for work and forgot your phone you probably decided to go the day without it. Today, you can’t get very far out the door without it. ChatGPT isn’t even two years old, and already has over 180 million users! As Christopher Reeve said above, the impossible becomes inevitable and the inevitable becomes routine.
The S&P 500 closed at another all-time yesterday for the first time this month after five record closes in September. Record closing highs are starting to feel somewhat routine for the market these days, and this year’s total of 44 already ranks as the 11th most since 1954.
Looking at the chart, nothing is guaranteed, but it will only take a couple more closing all-time highs to crack the top ten. With 56 trading days left in the year, there’s even a decent chance that this year could crack the top five (56) if the market averages one new closing high per week. It’s also technically possible but also unlikely that the record of 77 could be reached, but that would require a record high at a pace of about two every three days. Even reaching the 70 in 2021 would require a pace of about one every other day. New closing highs may feel routine, but they’re unlikely to become that routine.
Oct 9, 2024
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“I believe in everything until it’s disproved.” – John Lennon
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
There’s not much economic data on the calendar this morning but a ton of Fedpseak scheduled, so there is the potential for some volatility around these speeches throughout the day. Futures indicate a modest decline at the open but they are off their overnight lows after major overnight volatility in China. The Shanghai CSI 300 fell over 7% as the Chinese government looks like it has under-delivered on stimulus expectations. Last night’s decline was the largest since early on in the Covid crash, and the ASHR ETF that trades in the US is on pace to crash 20% in two trading days! The only other time it fell over 20% in two sessions was in the summer of 2015 when the Chinese government devalued the yuan. If you thought crypto was volatile, it looks like a ‘widows and orphans’ asset class compared to the moves in China over the last few weeks.
In today’s Morning Lineup, we covered the latest sales results for Taiwan Semi (TSM) and much of those sales come from Nvidia (NVDA). NVDA has rallied over 14% in the last week taking its market cap back above $3 trillion and ahead of Microsoft (MSFT). With a market cap of $3.26 trillion, the only company with a larger market cap than NVDA is Apple (AAPL) at $3.43 trillion. The gap between the two companies is now roughly $170 billion, or one Disney (DIS).
NVDA’s stock had a pretty rough summer. After peaking in June, the stock made a series of lower highs with each successive rally attempt. After its late August lower high, though, the ensuing pullback bottomed out at a higher low, and the pullbacks became milder as the stock rallied back above its 50-day moving average. After successfully testing its 50-day moving average last week, the stock has rallied, and yesterday’s 4% rally enabled the stock to make its first ‘higher high’ since June.
NVDA’s technical picture may be improving, but the picture for the semiconductor sector isn’t as strong. While the Philadelphia Semiconductor Index (SOX) has rallied above its 50 and 200-day moving averages (DMA), it has been hung up at resistance all summer. One bright spot for the sector is that the early September sell-off wasn’t as deep as in August. So, while the SOX may not yet be at the point of making higher highs, there has been a higher low. It’s a start!
Unfortunately, the relative strength of the SOX versus the S&P 500 doesn’t look as promising. September’s sell-off was deeper than August’s relative to the S&P 500, and the subsequent bounce back has also been weaker. In last week’s quarterly Pros and Cons report, the recent performance of semis showed up on the negative side of the ledger, and this chart is a big reason why.
Oct 8, 2024
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“It was a grand sight but hellish in the extreme; streets, houses, trees, and everything in one grand furnace.” – Thomas Foster
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 the southeast US attempts to pick up the pieces from Hurricane Helene at the end of September, and Florida braces for the second landfall of a major hurricane in two weeks, today also marks the 153rd anniversary of the Great Chicago Fire which devastated the city over nearly three days. Ironically, the current disaster in the southeast was due to too much rain, while a primary factor behind the Chicago Fire was not enough rain. As William Bross, one of the Chicago Tribune’s owners at the time, reflected after the fire, “Under the burning sun for so many weeks, the whole city became virtually a tinderbox.” The city had been dealing with a lack of rain for months, and in the 22 days leading up to the blaze, there was only one rain event with a total of just 0.11 inches. With these types of extremes, it’s hard to find stability.
It’s still early, but there’s some stability in equity markets this morning and treasury yields have helped as the 10-year yield is unchanged and the 2-year yield is slightly lower. Crude oil is also giving up some of yesterday’s gains with a decline of nearly 2% but remains above $75. Overnight in Asia, China finally reopened for trading after the National Holiday, and the Shanghai Composite picked up right where it left off with a gain of 4.6%. However, Hong Kong was down 9.4% for its worst day since October 2008, and Japan’s Nikkei fell 1.0%. In Europe this morning, the STOXX 600 was down over 1% but has regained ground throughout the session and is now down just 0.5%.
We now have just four weeks left until Election Day and the start of the mid-term election season. Below we show the performance of the S&P 500 in the four weeks leading up to Election Day for every year since 1945. We have also included blue bars to indicate presidential election years. Overall, the S&P 500’s performance during these years has been weaker than all other years. In years when Americans vote for President, the S&P 500’s median performance in the four weeks leading up to Election Day has been a gain of 0.82% compared to a median rally of 1.89% for non-presidential election years. While median performance in non-election versus election years varies, the consistency of positive returns is identical at 68%.
While you would expect the market to be more volatile leading up to a presidential election year versus all other years, the opposite has been the case. Of the 19 presidential election years shown, the S&P 500’s maximum gain was 5.6% while its maximum decline was just 1.5%. In non-election years, however, the range has been much wider with a maximum gain of 15.6% in 1974 (and three other years when the S&P 500 rallied over 10%) and a maximum decline of 21.4% in 1987.
As we head into the final four weeks, the country looks more divided than ever regarding its preference (or who it dislikes least) for President. Based on tabulations from RealClear Politics (RCP), Harris currently holds a 2.1 percentage point lead at the national level, but in the battleground states, Trump has a modest lead. Meanwhile, in betting markets, Trump has a 3.3 percentage point lead.
Based on the Electoral Map, RCP has Trump in the lead at 219 to 215 with 104 votes still in toss-up states, while if you include the toss-up states, Trump has a 24 electoral vote lead at 281 to 257. Lastly, within the 12 battleground states, Harris holds the lead in six, Trump in five, while Pennsylvania, which is tied with Illinois for the fourth most electoral votes of any state (19) is tied. Whether your horse is Harris or Trump, there’s something in this table for everyone!
Oct 7, 2024
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“We learn from history that we don’t learn from history!” – Desmond Tutu
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 quiet morning on the economic calendar today, but things will pick up later in the week with the releases of CPI on Thursday and then PPI and Michigan Sentiment on Friday. Besides the economic data, earnings season will kick off later this week when the big banks like Blackrock (BLK), JPMorgan Chase (JPM), and Wells Fargo (WFC) report on Friday morning. Outside of the Financials, we’ll also get reports from Pepsi (PEP) tomorrow, and Delta (DAL) Thursday morning. So, enjoy the calm while it lasts. More importantly, the west coast of Florida is anxiously watching the path of Hurricane Milton which is expected to rip through the state from west to east later this week.
Last week may have been the fourth straight week of gains for the S&P 500, but the gain’s magnitude was the smallest of the last four weeks. While the week ending 9/13 saw the S&P 500 rally over 4%, every week since has seen a smaller percentage gain. Gains are still gains, though, and outside of the Russell 2000, other major US indices finished last week higher and remained at overbought levels.
At the sector level, the picture looks different. While just three sector ETFs finished last week up by more than 1%, four finished down by over 1%. Leading the way lower, Consumer Staples, Materials, and Real Estate were down more than 1.5%. On the upside, geo-political worries in the Middle East pushed the Energy sector ETF (XLE) up by close to 7%, and it was the best week for the sector since mid-October 2022. While there was a lot of dispersion in sector performance last week, one consistent across all eleven sectors has been that they are all up by double-digit percentages.
Looking at the Energy sector specifically, in addition to last week being the best week for the sector in nearly two years, it also broke the downtrend it has been in since the spring highs. The big gains for Energy may spark concerns over inflation, especially with CPI and PPI coming up this week, but at this point, the bulk of the rally in the sector can be chalked up to geopolitics. If the gains were more due to concerns over inflation and higher demand, Materials should have also rallied, and with a decline of 1.8%, it was the second worst-performing sector last week.
Oct 4, 2024
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“Being an intellectual creates a lot of questions and no answers.” – Janis Joplin
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Call it the calm before the jobs storm, but equity futures have drifted into positive territory as we approach the September non-farm payrolls report. A tentative agreement on the port strike has also helped sentiment. In Asia, Chinese markets remain closed for the National Holiday, but the Hang Seng was open, and it rallied another 2.8% taking its weekly gain to 10.2%. Hong Kong’s Manufacturing PMI for September ticked up to 50.0% from 49.4 in August, so that helped investor sentiment heading into the weekend. The Nikkei gained a more modest 0.2% in Japan and finished the week down 3%. India finished the day down 1.0% as the September Services PMI fell more than expected to 57.7 from 60.9 in August.
In Europe this morning, the tone is mostly positive as markets look to end a negative week (STOXX 600 down over 2%) on a positive note. While French Industrial Production came in higher than expected (1.4% vs 0.3% forecast), Retail Sales in Italy and Spanish Industrial Production unexpectedly declined.
For a Federal Reserve that is more concerned about the job market than inflation, it feels as though this morning’s employment report hasn’t had quite the buildup of other reports in the past. Be that as it may, history would suggest a weak report. As shown in the chart below, since 1998, the September change in non-farm payrolls (reported in early October) has consistently come in weaker than expected. Of the 26 prior reports, the initial headline reading has missed expectations nearly 70% of the time, and the median spread relative to expectations has been a miss of 47K.
With economists expecting a headline reading of 150K, history would suggest a possibility of a sub-100K number. That would be just the second such reading since the start of 2021 and the last three months! So does that mean a weaker-than-expected print is in the bag? Nothing is ever that easy, and while the September report has historically been weak, last year’s initially reported number was the biggest beat relative to expectations since at least 1998 (although it was ultimately revised down by 90K in the ensuing months).
It has been over two weeks since the Fed cut rates, so we wanted to step back and see how various asset classes and market sectors have performed. Starting with asset classes, commodities have been the biggest winners with gold up over 4% and crude oil rallying 3.8%. After that, the Nasdaq, US Dollar Index, Bitcoin, and the S&P 500 have rallied between 1% and 2%. Lastly, on the downside, US Treasuries and the Russell 2000 have declined.
At the sector level, given the surge in oil prices, the Energy sector has been the top-performing sector with a gain of over 6%. Communication Services and Utilities have followed with a rally of over 3.5%. No matter what the environment has been this year, it seems there’s no stopping the Utilities sector. On the downside, Consumer Staples, Health Care, and Real Estate have all declined over 2% as interest rate-sensitive sectors (besides Utilities) have felt the pressure of rising rates.
