Apr 23, 2020
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This morning’s update of investor sentiment from AAII showed a big drop in bullish sentiment and nearly as large an increase in bearish sentiment. We’ll have more on the details later, but below we wanted to provide a quick update on the sentiment of newsletter writers with the Investors Intelligence survey. In the latest report, the spread between bulls and bears was +12.5 percentage points, which is an improvement off the extremely negative reading of -11.6 percentage points right around the recent lows. Over the last 20 years, readings like the late March one of below -10 have been a pretty good medium to long-term buy signal. With the reading back above zero, it’s obviously nowhere nearly as extreme, but it’s still well below the 20-year average of 23.3 percentage points.
Apr 22, 2020
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After two down days to start off the week, equity futures are indicated to recoup some of those losses at the open. Hopefully, the market can hold onto these early gains, but only time will tell. One positive for the bulls is that semis are trading up over 2% as a group following positive reports from Texas Instruments (TXN) and Teradyne (TER).
Read today’s Bespoke Morning Lineup for a discussion of the latest moves in the crude oil market, major earnings releases, the latest trends in the COVD-19 outbreak, and other stock-specific news of note.
After the May contract for WTI crude oil moved back above zero yesterday and the now front-month June contract is ‘only’ down 3% today, one might be tempted to think that a sense of normalcy is moving back into the crude oil market. Don’t be fooled.
First, let’s look at the historical one-day change for WTI going back to 1983. After Monday’s 306% record (in more ways than one) decline, yesterday’s rally of 126.6% rally out of negative territory was the strongest one-day gain in WTI’s history.
It’s not only the one-day daily changes that suggest the crude oil market is nowhere anywhere close to normal. In looking at the spread between the prices of the current (front month) contract and the price six months from now, the current spread is at levels rarely seen. Through yesterday’s close, the spread between the two contracts was -$14.89 per barrel indicating that crude for delivery six months from now is nearly $15 more expensive than crude oil for delivery in the current month. While that’s well off the record $68 spread seen at the close on Monday, going back to 2006, the only time the spread was at similar levels was during the depths of the financial crisis. One thing we know about the 2008/09 period is that there was nothing normal about then.
Apr 21, 2020
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If you were banking on another turnaround Tuesday following Monday’s declines, it’s not looking that way as of now. A lot can change between now and the close, or for that matter, the open, so we’ll see how it plays out. In earnings news, there hasn’t been much to speak of, which was expected, and investors are generally taking a risk-off approach, sending the VIX back up towards the high 40s.
Read today’s Bespoke Morning Lineup for a discussion of the latest moves in the crude oil market, major earnings releases, the latest trends in the COVD-19 outbreak, and other stock-specific news of note.
The yield on the 10-year US Treasury is down 5 basis points (bps) this morning to a yield of just 0.55%. While that is nowhere near the recent low of 31 bps from early March, on a closing basis, it’s close to new lows. As shown in the chart below, the only day that the yield was lower on a closing basis was on 3/9 when it finished the day at 54 bps- a level that’s certainly within striking distance. In a world where treasury yields are near record lows and crude oil is up over 90% on the day (sort of) and still at negative levels, it’s understandable that the equity market would be under pressure.
Apr 20, 2020
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Oil prices are getting absolutely slammed this morning as the front-month contract expires and nobody wants to take delivery. Even the out month contracts, however, are down by percentages that would look extreme if it weren’t for the crash in the May contract. Not surprisingly, equity futures are also down substantially as markets look to digest the gains of the last two weeks.
Read today’s Bespoke Morning Lineup for a discussion of the drivers of this morning’s crash in crude oil prices, major earnings releases, and the latest trends in the COVD-19 outbreak.
We often refer to oil as the lifeblood of the physical economy and semiconductors as the digital economy’s equivalent. Given the moves in crude oil today amid the virtual lockdown of the physical global economy, we present the chart below which shows the relative strength of the Philadelphia Semiconductor Index (SOX) versus crude oil. For this analysis, instead of using the front-month crude oil contract, though, which is down by a much larger percentage than the rest of the curve due to its expiration today, we used the second-month contract which isn’t down as much today.
Even using the second-month contract, though, the relative strength of the SOX versus crude oil is unlike anything ever seen. Since the start of March alone, the relative strength has doubled! Relative to the economy outside our windows, which is essentially on blocks right now, the economy on our screens is humming along.
Apr 17, 2020
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There was a trifecta of good news after the close last night that sent futures surging and putting the S&P 500 on pace for a gain of over 2% at the open. First, it was reported that Gilead’s (GILD) COVID-19 treatment was showing signs of success. Then, Boeing (BA) announced plans that it would resume production at its Puget Sound plant. Finally, a White House Press Conference outlined plans and criteria for bringing the economy back online. While there has never been any doubt that the US economy would come back online at some point, these three events, taken together, raised optimism (although doesn’t guarantee) that the comeback will be sooner rather than later.
Read today’s Bespoke Morning Lineup for a discussion of the drivers of this morning’s rally in futures, some miserable data out of China, major earnings releases, and the latest trends in the COVD-19 outbreak.
In looking at major US indices and where they stand relative to their trading ranges, the one major takeaway is that it’s all about size. The only major US index that is above its 50-day moving average (DMA) is the large-cap Nasdaq 100 (QQQ). Right behind QQQ, the S&P 100 (OEF), which is made up of the 100 largest stocks in the S&P 500, is right on the verge of breaking back above its 50-DMA. Behind SPY, other large-cap ETFs are also the closest to their 50-DMA.
As you move down the table, though, it’s all about market cap. Below all the large-cap ETFs, you’ll find three mid-cap ETFs and then three more small-cap ETFs at the bottom of the list. It’s also not just with respect to trading ranges either. For both YTD and 5-day returns, it’s almost as though the tables are sorted by those columns as well. The message the market seems to be sending is that the road to recovery is going to be much easier for large-cap US corporations than their small-cap peers.
Apr 16, 2020
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A few million here and a few million there, and pretty soon those millions start to add up. This morning, weekly jobless claims came in at 5.245 million which was below consensus forecasts for 5.5 million but still the third-highest reading on record. In other news, Housing Starts and Building Permits were mixed relative to expectations as Starts missed forecasts (1.216 million vs 1.3 million) while Permits topped expectations (1.353 million vs 1.296 million). The April Philly Fed report was expected to show a headline reading of -32 but was much weaker at -56.6. While the data was bad on an absolute basis, it could have been much worse, and as a result, futures are rallying from where they were before the report.
Read today’s Bespoke Morning Lineup for a discussion of overnight market events in Asia and Europe, some notable earnings results from Asia, Europe, and the US, the latest COVID-19 trends, and other stock-specific news of note.
After a historic rally off the March lows, the S&P 500 has been running into a little bit of resistance around the 2795 level, which happens to represent a 50% retracement of the decline from the February highs. For four days now, the S&P 500 has been dancing around that 50% retracement level with moves both above and below it. Today’s opening in the S&P 500 could put us back above the 50% retracement level, but where it finishes the day is more important.
