Dec 6, 2024
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“It is not heroes that make history, but history that makes heroes.” – Joseph Stalin
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 saw little movement as US investors awaited the big November jobs report, in which payrolls were expected to bounce back from October’s hurricane-related weak print. The report was just released, and investors got just about what they expected. Headline jobs was slightly higher than expected (227K vs 220K), and October’s print was revised modestly lower. The Unemployment Rate ticked up slightly to 4.2% from 4.1% which was a tick higher than expected, and average hourly earnings were up 4.2% y/y versus expectations for 4.1%. All in all, the report had little in the way of surprises.
Asian stocks closed out a positive week with a negative bias. Japan, India, South Korea, and Australia were all lower, but China bucked the trend with gains of over 1%. The gains there come in anticipation of next week’s Central Economic Work Conference where investors expect authorities to introduce additional measures to support growth in that ailing economy.
European equities are finishing off a positive week with additional gains this morning. The STOXX 600 is up fractionally (<0.25%) taking its gain for the week to over 2%. GDP for the region increased 0.4% which was in line with forecasts, but Industrial Production in Germany unexpectedly declined. French equities are the big winners in the region with a gain of over 1% as Macron insists that he will finish his Presidency through 2027.
As mentioned above, investors expected a rebound in the November jobs report after last month’s weaker-than-expected print. While the hurricanes in the south impacted job growth for October, last month’s report was the fourth miss relative to expectations in the last seven reports and the biggest miss (-88K) since January 2022. The market hoped for a better November report… but not too much, and that’s exactly what it got. In response, market pricing for a December cut now stands at just about 90%.
Now that everyone has discovered digital gold, is the physical version on its way to becoming a paperweight? After peaking just above $2,800 per ounce at the end of October, gold prices declined as much as 9% to their lows in mid-November, but after a bounce still remain down over 5% hovering right around $2,650 per ounce.
A look at the chart shows a delicate picture. Gold broke its uptrend from the summer just after the election and then surrendered the 50-DMA just days later. From that mid-November low, it rallied back above its 50-DMA but stalled out right below its former uptrend line. These failures at a former key trendline can often signal a shift in trend, and another attempted rally after Thanksgiving has failed at the 50-DMA which is now starting to roll over. The next few days will be critical; it will either break above its short-term downtrend from the October high or below what looks like a very short-term uptrend line from the mid-November low.
As is usually the case, the move in the gold mining stocks has followed a similar path, but with wider swings. The VanEck Gold Miners ETF (GDX) was in an upward trending channel for about six months dating back to late May but broke below the low end of that range as well as its 50-DMA just two days after the election. GDX managed to find some support at its 200-DMA – a level it hasn’t traded below since March, but already appears to be running out of momentum and starting to roll over. Judging by the President-elect’s various real estate holdings, no one seems to love gold more than him, but his victory in November hasn’t been good for anything related to gold.
Getting back to the original question over whether Bitcoin has become a substitute for physical gold, there are certainly some aspects where it could serve as a substitute. Less than a month ago, though, gold was at record highs, so it will take more than a month of weakness and a decline of less than 10% for us to get the hammer out and start putting the nails in gold’s coffin.
Dec 5, 2024
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“If you don’t believe me or don’t get it, I don’t have time to try to convince you, sorry.” ― Satoshi
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 we type this, futures on the S&P 500 and Nasdaq are down 0.01% while Dow futures are unchanged. This comes after all three indices hit record highs yesterday. On the economic calendar, initial jobless claims came in modestly higher than expected while continuing claims fell back below 1.90 million to 1.871 million
In Asia, the Nikkei was modestly higher as expectations for a December rate hike were dialed back following comments from a BoJ official saying that he expects inflation to fall back below the 2% target in 2025 as he sees wage growth slowing down. In South Korea, President Yoon is expected to be the subject of an impeachment vote over the weekend, and Q3 GDP came in weaker than expected rising by just 0.1% compared to expectations for growth of 0.5%.
In Europe this morning, equities are trading modestly higher as the market increasingly expects the ECB to cut rates at its policy meeting next week as October Retail Sales for the region fell more than expected (-0.5% vs -0.4%).
It’s hard to believe that the election was only a month ago today, and it’s equally hard to believe the move in Bitcoin during that time. After closing just above $69,000 on Election Day, overnight the world’s largest cryptocurrency topped $100,000 for the first time, and this morning those gains have continued as it trades right around $103K. In a month, Bitcoin has rallied nearly 50%. In terms of market cap, that works out to more than $400 billion! While all three major US equity indices hit all-time highs yesterday, Bitcoin saw those gains and one-upped the equity market overnight.
We’ve shown versions of the chart below numerous times over the last few weeks, but the cup-and-handle breakout formation in Bitcoin is textbook.
While Bitcoin has been hitting record highs for the last couple of weeks now, last night’s move was notable for another reason besides crossing $100K for the first time. In yesterday’s DealBook conference, Fed Chair Powell referred to Bitcoin as “just like gold only it’s digital”. The chart below shows the historical ratio of Bitcoin to an ounce of gold. The last peak in this ratio occurred in November 2021, but with yesterday’s move above $100K, the ratio between digital and physical gold also broke out to a new record high. Just like Powell, investors increasingly appear to view Bitcoin as a digital version of gold, that’s a lot easier to store and move around.
Dec 4, 2024
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“If I read as many books as most men do, I would be as dull-witted as they are.” – Thomas Hobbes
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Markets are looking to start the day positively with several key economic reports and Fed speakers. The ADP Employment report just hit the tape and came in modestly weaker than forecasts. Still coming up, we have the ISM Services report at 10 AM which is expected to fall slightly from 56.0 down to 55.6. Besides the economic data, we’ll also get the Beige book at 2 PM Eastern and some Fed speakers, including the Chair himself who will appear at the Dealbook Summit at 1:45 Eastern.
There’s a lot of important economic and Fed-related data for the market to navigate today. Still, bulls can only hope that the news comes in as positive as yesterday’s earnings reports after the close. As mentioned in yesterday’s email, Salesforce (CRM) was the big report of the after-hours session. While expectations were already high, the stock exceeded the bar trading 13% higher in the pre-market. That puts it on pace for the largest upside gap in reaction to earnings since March 2023. If the gains hold through the end of the session, it would be the best one-day reaction to earnings since August 2020.
CRM may be a company with a market cap of $350 billion, but regarding earnings, it’s extremely volatile. Historically, the stock’s average one-day change in reaction to earnings has been nearly 7%, but as shown in the chart below, two of its last three reports have been followed by double-digit percentage moves in reaction to earnings. Typically, you expect stocks to become less volatile in reaction to earnings as they become larger, but as CRM and other mega-cap stocks have illustrated in recent quarters, that doesn’t always seem to be the case.
We showed this chart yesterday, but we wanted to update it to include yesterday and today. Provided CRM doesn’t reverse course and trade sharply lower on the session, today will be the 54th day in a row that the stock has closed at overbought levels (1+ standard deviations above 50-DMA). That’s already easily a record high, but with CRM trading 2.8 standard deviations above its 50-DMA this morning, there’s the potential for this streak to extend several more days.
What makes yesterday’s after-hours earnings news even more impressive is that CRM’s surge was relatively modest. Of the four companies that reported after the close with sales of $500 million or more, CRM is trading up the least and is the only one that didn’t report an earnings triple play! As shown in the table, Marvell (MRVL) and Okta (OKTA) are both up slightly more in the pre-market, and Pure Storage (PSTG) is trading up over 20%. It’s hard to remember another time when four mid-to-large companies reported earnings after-hours and they traded up at least 10%. Looking at how these companies traded heading into earnings, it’s not as though they hadn’t rallied into their earnings reports. As of yesterday’s close, all four were above their 50 DMAs, three were at overbought levels, and two were up over 50%!
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”!
