Apr 12, 2024
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“The difference between fiction and reality? Fiction has to make sense.” – Tom Clancy
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Another earnings season has arrived as the big banks kicked off the reporting period this morning, and the results have been stronger across the board. All six companies reporting beat expectations on both the top and bottom lines. While JP Morgan (JPM) is down nearly 3% and Wells Fargo is down fractionally, the other four stocks are all up by at least 1%.
Despite what have been positive results, futures are lower this morning as the market digests yesterday’s gains and headlines that Israel is gearing up for an imminent direct strike from Iran. That would have major implications in the energy space, but there have been similar Friday headlines in recent weeks that never amounted to anything.
As for the economic calendar, Import Prices were just released, and they increased by 0.4% m/m which was higher than the 0.3% forecast. Ex petroleum, though, they were unchanged which was less than the 0.1% forecast. The only other report on the calendar for the week is Michigan Confidence, and the specific area of focus will be inflation expectations. For the next year, economists are expecting one-year expectations to remain unchanged at 2.9%.
Gold prices have continued their blistering rally this morning, notching their eighth consecutive daily gain in the past ten days. The yellow metal has surged 17% since the start of March, pushing it more than 20% above its 200-day moving average (DMA) and 12% above its 50-DMA. Both spreads rank in the top 3% historically, a clear signal of gold’s recent strength.
This surge in gold has fueled a similar rally in gold mining stocks. The NYSE Arca Gold Miners Index (GDX) has spiked 30% since late February, even outpacing gold itself. However, unlike the commodity, the miners remain in negative territory year-over-year. That being said, the GDX did experience a bullish “golden cross” yesterday, where the 50-DMA crossed above the rising 200-DMA. While technicians often view these patterns as a positive sign, they have a mixed historical record.
In the case of the GDX, not only have golden crosses had a mixed historical record, they’ve been more of a bearish indicator than anything else. Since the inception of the index back in 1994, there have been 13 prior golden crosses, and in the table below we summarize the median performance of the index following each one along with the frequency of positive returns. While the GDX’s median performance over the following week was a gain of 1.7% which is well above the average 0.2% gain for all periods since 1994, median performance over the following one, three, six, and twelve months was not only weaker than the average for all periods, it was flat out negative! One year later, for example, the GDX’s median performance was a decline of 12.3% with positive returns less than 40% of the time.
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Apr 11, 2024
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“The road to Easy Street goes through the sewer.” – John Madden
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 were higher heading into yesterday’s CPI report and reversed sharply lower once the data was released. This morning, we have the opposite backdrop ahead of the March PPI report. While the report is unlikely to be as big of a market mover as the CPI report, the results didn’t show as much inflation pressure in the producer sector and jobless claims were pretty much right in line with expectations. The ECB just announced its latest rate decision (no change, “inflation continues to fall”) which we break down in this morning’s report, and we’ll get further color during the press conference at 8:45 Eastern. Overall, futures have rallied a bit on the news as Nasdaq futures moved into positive territory while the S&P 500 is indicated to open just marginally lower. We’ll take it!
Yesterday’s CPI report was a disappointment on all fronts, and while the rate of inflation has slowed, it’s still firmly in positive territory which helps explain why consumers are so miserable. When you consider the cumulative impact of these price increases since the lockdowns in March 2020, it adds up. March’s CPI report reached an inauspicious milestone as it was the first time since March 1991 that the four-year rate of change in headline CPI exceeded 20%. We’re still nowhere near the levels from the 1970s and early 1980s, but 33 years is a long time.
If you show the chart above to any consumer and tell them that the cost of living has increased by 20% in the last four years, they’ll probably ask where you’ve been living the last four years and want to know if there’s any room to move in. What we have all experienced seems much larger. Take a bag of Doritos, a subject we have quite an expertise on. In 2019, a 9.75-ounce bag had a suggested retail price of $4.29, but today it costs about $1.50 more and is half an ounce smaller. Ignoring the change in size, that’s still an increase of 35%! These types of examples come up everywhere you look, and while there are some examples where prices haven’t increased by over 20% in the last four years, they aren’t nearly as apparent.
Getting back to the examples of price increases, one we noticed yesterday was postage. The US Postal Service just filed to increase the price of a stamp by 8% to 73 cents in July from 68 cents, The current price, it should be noted, only took effect in January when prices increased by 3%, so this would be the second increase this year and the fourth since the start of 2023! The chart below shows the monthly price levels of a first-class stamp since 1963, and you can see how the pace of increases has picked up steam in recent years. The last time a stamp cost 25 cents was in January 1991. The last time it was 50 cents or less was in late 2018.
In the chart below, we compare the four-year change in the price of a stamp to the four-year change in CPI. If the proposed postage increase takes effect in July, the four-year price change to mail a letter will reach 32.7%, the highest level since the mid-1980s. If CPI increases at a rate of 0.3% per month between now and June (a perfectly realistic, if not conservative rate based on recent CPI reports), the four-year change in CPI will reach 22.2% which would be the largest four-year increase since December 1984. To be fair, the rate of postage inflation still lags the rates from the 1970s, but it’s large and well above the Bureau of Labor Statistics’ official gauge. We should have loaded up on those Forever Stamps four years ago!
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Apr 10, 2024
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“The road to Easy Street goes through the sewer.” – John Madden
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 taken an optimistic tone this morning heading into the release of March CPI, but that could all change in a big way based on the report. The last several weeks have seen increased concern that inflation will be stickier than previously thought. While the market remains near all-time highs, most investors would say a higher-than-expected report is more likely than a weaker-than-expected one.
The recent breakout in gold and other commodities we discussed yesterday is one reason for investors to position for a higher-than-expected report. After years of stalling below resistance, gold finally broke out in early March and has ripped higher ever since.
While it hasn’t been stuck below resistance for nearly as long as gold, the yen has been simmering in a historically tight trading range just below 152. It first tested the 152-level late last year before rallying sharply into the new year (shown as a falling line in the chart). That rally quickly fizzled, and it wasn’t long before it was back to the low 150s range.
Over the last 15 trading days, the daily settlement price for the yen relative to the dollar has been confined to a 0.33% range, the narrowest since the late 1970s! The intraday chart below shows how the yen weakened to just below 152 in late March and has flatlined there ever since. In the last few days, it has inched closer to that critical level but keeps coming up short. At this point, it seems like only a question of when the yen will break through 152. After that will the move be as dramatic as gold’s move over the last month, or will it fail to live up to expectations?
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Apr 9, 2024
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“The most confident critics are generally those who know the least about the matter criticized.” – Ulysses S. Grant
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 a positive tone to kick off the trading day this morning as equity futures are higher, yields are lower, and gold continues to rip. The only asset class seemingly not moving higher is bitcoin, but today’s weakness in the largest crypto follows what was a very positive day to kick off the trading week. The only economic report on the calendar this morning was small business optimism from the NFIB. The headline index came in weaker than expected, and labor market indicators, which we detail in today’s Morning Lineup, continue to show weakness even if there was no additional deterioration relative to February.
If it seems as though gold does nothing but trade higher these days, you’re not entirely mistaken. This morning, prices are higher once again as the commodity is on pace for its tenth up day in the last eleven trading days. That also includes four days last week where it traded up by at least 1%. What’s even more incredible is that heading into today, gold had traded higher on 22 of the last 30 trading days. That’s the highest winning percentage since March 2022, and the last time the 30-day rolling total of up days exceeded 22 was back in August 2020. Going back to the early 1980s, there have only been a handful of periods where the number of daily gains over 30 days was higher.
Gold’s rally has been part of a broader rally in the commodity space. The snapshot from our Trend Analyzer below shows where various energy and metals-related commodities closed yesterday relative to their short-term trading ranges. They’re all up at least 3%, and in most cases much more, in the last week, and most of them are more than 10% above their 50-day moving averages. As a result, it shouldn’t come as a surprise that the ETFs are all in what we define as ‘extreme’ overbought territory (at least two standard deviations above their 50-day moving averages).
Below we show one-year price charts of the six ETFs listed above. Outside of the Commodity Index Total Return ETN (DJP), which is comprised of more than just oil and metals, the five other ETFs are all trading tight at or near 52-week highs, but up until a few weeks ago, they were all somewhat range bound over the last two months. It wasn’t until early March that they really started to get rolling.
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Apr 8, 2024
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“Europe was created by history. America was created by philosophy.” – Margaret Thatcher
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 futures are little changed, but treasury yields are higher this morning with the 10-year yield above 4.45%. European stocks are firmly in positive territory as they play catchup to Friday’s strength in the US. The April reading of European investor sentiment from Sentix also came in less bad than expected in another sign that investor confidence around the globe has been improving. Gains in the short term are likely to be kept in check with this week’s ECB policy meeting looming on Thursday. No change in rates is expected, but markets are still pricing in a June cut, something here in the US that has been increasingly priced as less likely.
There’s not much in the way of economic activity to speak of this morning. The only report on the calendar is the NY Fed’s survey of Consumer Expectations, and the key metric to watch in that report is the reading on one-year inflation expectations. March’s reading showed a modest uptick from 3.00% up to 3.04% which was the first monthly increase since September, and that increase only added fuel to the fire of fears that the progress we’ve seen on inflation is starting to slow. From a broader perspective, though, last month’s increase came after eight declines in ten months. Not only that but including March’s increase, since the peak of 6.78% back in June 2022, expectations for inflation have declined in 15 out of the last 20 months. So, the road lower in inflation was never expected to be a straight line, but so far, there hasn’t been a break of the downtrend.
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Apr 5, 2024
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“Birds scream at the top of their lungs in horrified hellish rage every morning at daybreak to warn us all of the truth, but sadly we don’t speak bird.” – Kurt Cobain
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 have been attempting to recover from yesterday afternoon’s sell-off. International indices are sharply lower as they were closed before the selling got underway here. Where the market finishes today will hinge in large part on the March employment report which just hit the tape. Non-farm payrolls came in stronger than expected at 303K versus forecasts for an increase of 214K. The Unemployment Rate was right in line with forecasts at 3.8% as was average hourly earnings which increased 4.1%. The average workweek was modestly longer than expected at 34.4 hours vs. forecasts for 34.3. In reaction to the report, equity futures sold off a bit, and yields increased with the 10-year just under 4.4%.
In yesterday’s Closer, we provided a detailed discussion of Thursday’s reversal in the Nasdaq including its potential drivers (When you boil it down can anyone ever really definitively tell you what the actual cause of any market move is?). This morning, we wanted to take a wider-angle view and look at every time since 1989 (as far back as we have intraday Nasdaq data available) that the Nasdaq experienced a similar reversal to yesterday.
Since 1989, there have been 122 prior days where the Nasdaq was up 1% intraday and finished the day down over 1%. As mentioned last night, many of these days have tended to occur during bear markets. After all, it’s more common for rallies to run out of steam during bear markets than bull markets. When you don’t tend to see these types of reversals is during a bull market when the Nasdaq is right near 52-week highs.
There have now been just ten days since 1989 when the Nasdaq was up 1% intraday and finished the day down 1%. As shown in the chart below, two of those days were in early 1999, a year before the peak of the dot-com bubble. Another two occurred in early 2020, including one on 3/7/00, just three days before the Nasdaq’s intraday peak of that era. The next two occurrences were in 2003 as the market was coming out of the bear market from the internet bubble. After those two days, there were no other reversals of a similar magnitude for seventeen years (7/13/2020 and 11/9/2020), and before yesterday, the most recent occurrence was less than a month ago on March 8th. Is it just us, or does anyone else find it weird that these reversals tended to come in pairs? In every year where there was a reversal, there was always another and not a single more.
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