Nov 11, 2024
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“It doesn’t take a hero to order men into battle. It takes a hero to be one of those men who goes into battle.” ‒ H. Norman Schwarzkopf
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Fixed income markets are closed this morning in observance of Veterans Day, but the equity markets are open for a full session, and futures suggest a continuation of the post-election rally as crude oil and gold continue to pull back and Bitcoin surges above $80,000. Given the holiday, there’s no economic data on the calendar and little in the way of earnings news, but that will change in the days ahead with CPI on Wednesday and PPI on Thursday. These reports will take on added significance given the upward move in rates lately and comments from Federal Reserve officials that the pace of rate cuts may slow in the months ahead. For now, though, Newton’s first law of motion still applies.
Overnight in China, inflation for the world’s second-largest economy showed more downward pressure as CPI declined 0.3% m/m in October taking the year/year rate down to 0.3% while PPI fell 2.9% relative to last year. Between this data and China’s underwhelming stimulus measures announced after the local market close on Friday, stocks in the country had a mixed start to the week with the Shanghai Composite trading up 0.5% while Hong Kong’s Hang Seng fell 1.5%.
The tone has taken a more decidedly bullish tone in Europe, where the STOXX 600 spiked more than 1% higher to start the week, even with no specific catalyst driving the gains.
The election has come and gone, and with it, the S&P 500 surged 4.7% last week in the third-best Presidential election week performance for the index since 1928. The only two weeks with better returns were the 11.6% gain in 1932 as FDR was elected and the 7.3% gain in 2020 after President Biden was elected. We’d also note that the 3.8% gain following Trump’s 2016 election ranks the fourth best tied with former President Clinton’s re-election in 1996.
Nov 8, 2024
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“Commonplaces never become tiresome. It is we who become tired when we cease to be curious and appreciative.” Norman Rockwell
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 equities paused for a water break this morning as futures trade with a modestly negative bias and yields decline. For all the talk about how a Trump victory would cause a leg higher rin interest rates, the 10-year yield has basically gone nowhere since Monday’s close. International markets are mostly lower as China declined 1% following disappointing news regarding the hoped-for stimulus measures. Crude oil is also following equities lower, but Bitcoin is modestly higher trading right near all-time highs. The only economic report on the calendar this morning is Michigan Sentiment at 10 AM.
The snapshot below from our Trend Analyzer shows where major US index ETFs closed yesterday relative to their trading ranges. Talk about extreme! All 14 of the ETFs listed closed at ‘extreme’ overbought levels (2+ standard deviations above their 50-DMA) yesterday, and each one was up by a minimum of 4.5% over the last week with small and micro-cap related index ETFs up by nearly twice that. It’s been quite a race as every index ETF looks to sprint to the front of the pack.
These moves are a bull’s best friend and usually a hallmark of a strong market, but momentum like this is unsustainable. Just as you can’t start a marathon with a sprint, the market will run out of gas sooner if it doesn’t properly pace itself. It can’t keep sprinting at an intense pace of multi-percentage points per week without tweaking something. It’s natural to have at least a pause, so set your expectations accordingly, and don’t get greedy.
While things look extremely uniform at the index level, sector performance has shown much more dispersion. As shown in the snapshot below, three sectors posted declines over the last five trading days. While six sectors closed yesterday at overbought levels, three finished the day in oversold territory (Consumer Staples, Real Estate, and Health Care), so the gains have been much less uniform beneath the surface.
Nov 7, 2024
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“Several commentators have reflected on the fact that this may be one of the great political victories of all time.” – Richard Nixon, 11/7/72
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 if the Election Day and post-Election Day returns weren’t enough, equity futures are positive again this morning. Today’s early gains are only modest, though, and we just got a bunch of economic reports to go through including Non-Farm Productivity (weaker than expected), Unit Labor Costs (higher than expected), and jobless claims (roughly in line) at 8:30, so the positive tone could change between now and the open. And did we mention that there’s a Fed meeting with a decision on interest rates expected at 2 PM? Markets are overwhelmingly pricing in a 25-bps cut, but what Powell says at the 2:30 press conference will be more important than the actual decision.
Regarding post-election market returns, yesterday’s 2.5% gain in the S&P 500 was historic. Since WWII, market performance the day after Presidential elections was typically negative with a median decline of 0.4% and positive returns just 42% of the time. Yesterday’s gain was the best, surpassing the prior record of 2.2% from 2020.
Small caps had an even better day. While the Russell 2000 has only existed since the late 1970s, yesterday’s 5.8% gain ranks easily as the best, nearly doubling the 3.1% gain after Trump’s last election!
One not-so-bright spot about yesterday’s rally was breadth. Normally, when the S&P 500 rallies 2% or more net breadth for the S&P 500 is also very positive at an average of +3.83. Yesterday’s net breadth reading for the S&P 500 was just +180. Since 1990, there have been 273 days that the S&P 500 rallied at least 2%; of those, only eight had a weaker daily breadth reading. And now for the trivia stat of the day. The last time the S&P 500 rallied 2%+ and net breadth was below +200 was on 11/4/20, the day after the 2020 election when breadth was negative 32!
Nov 6, 2024
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“I think we just witnessed the greatest political comeback in the history of the United States of America.” – JD Vance
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’ve been saying for quite some time now that half of the country would be waking up disappointed this morning and based on the results of the election so far, it appears to be slightly less than half of the country. Former President Donald Trump has been projected as the winner of the 2024 Presidential election, and he is also modestly ahead in the popular vote as well. Like it or not, when you look back at the last few years, objectively speaking, it’s hard not to agree with VP-elect JD Vance that this has to rank right up there as one of the biggest political comebacks in US history.
For the last several months now, we’ve been documenting the correlation between market performance and President Trump’s numbers in national polls and betting markets. It comes as no surprise, therefore, that equity markets are sharply higher given the fact that we have results this morning and they went in the Republican party’s direction. The S&P 500 shot higher overnight, and the S&P 500 tracking ETF is on pace to gap up over 2% which would be the largest upside gap since December 2022.
The move in small caps has been even more notable. Take a look at the chart below. The iShares Russell 2000 ETF (IWM) is trading up over 5% this morning, which would be the largest upside opening gap since “Pfizer Monday” on 11/9/2020 when the company announced the results of its vaccine trials. Today would be just the sixth time in the history of the iShares Russell 2000 ETF (IWM).
As equities rally this morning, bonds have tanked as yields surge. The yield on the 10-year has surged to 4.45%, which is the highest since early July. With that move, the iShares 20+ Year Treasury ETF (TLT) is poised to gap down 3.35%. That would rank as the largest downside gap in the history of the ETF and is one of just four times that it gapped down 2.5% or more. The others were 9/19/08 (-3.29%), 3/24/20 (-2.86%), and 5/10/10 (-2.53%).
Nov 5, 2024
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“The ignorance of one voter in a democracy impairs the security of all.” – John F. Kennedy
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 finally over. The votes are counted, and the results are in. In the words of one CEO involved, “While the past few months have been difficult for all of us, we are all part of the same team. We will only move forward by listening and working together.” Yes, the Boeing strike is over. Wait, you didn’t think we were talking about the election? For that, the votes are still coming in and need to be counted, and one thing we can be confident of is that once we do finally have a winner, there will be very little ‘listening’ and ‘working together’ with the other side. Not if past experience is any indication of future results!
Heading into today’s session, equity futures are modestly higher. Outside of Palantir (PLTR) which is up by double-digit percentages, much of the earnings news overnight was weak, and this morning’s only economic report is ISM Services which is forecast to come in at 53.8 from 54.9 in September. Europe and Asian markets were mostly higher overnight, while Treasury yields and crude oil have also joined in on the upside.
If the betting market odds are to be believed (big if) when the dust all settles, former President Trump will be the 47th President, Republicans will take over the Senate, and Democrats will retake control of the House. Wouldn’t that be an interesting mix?
Based on numbers from electionbettingodds.com, there have been some notable moves in the betting markets over the last few weeks. After trailing late in the summer and into early September, former President Trump saw his odds steadily improve from around 45% in mid-September to roughly 63% in late October. From there, VP Kamala Harris saw her odds rebound briefly into this past weekend, but as we headed into Election Day, her odds have pulled back again and now stand at 41.0% versus 58.5% for Trump. While a nearly 20-point gap in the betting markets looks wide, it’s a smaller lead than it seems and indicates only a modestly better than coin-flip chance in favor of the former President. Nothing is close to guaranteed at this point.
As Trump’s odds rallied from mid-September before peaking out in late October and subsequently pulling back into the weekend, there were also some notable moves in the equity market. The table and chart below compare sector performance from 9/18 to 10/29 (when Trump’s odds were improving) to performance from 10/29 to 11/4 (when Harris’ odds rallied).
When the market started to price in a Trump win sectors like Technology, Communication Services, Financials, Consumer Discretionary, and Industrials all rallied over 3% while Health Care, Consumer Staples, and Real Estate fell over 1%. When Harris’ odds started to improve, Energy was the only sector with gains (1.82%) while Technology was the worst-performing sector. As shown in the scatter chart, it’s not a perfect relationship but many of the best-performing sectors during the period when Trump’s odds were rising were some of the weaker performers when Harris’ odds improved and vice versa.
Before finishing, we wanted to leave off with one last snapshot of sector performance heading into the election results from our Trend Analyzer. It’s a mixed picture. Most sectors are down over the week, and while there were four overbought and two oversold sectors a week ago, today, Communication Services is the only overbought sector while Consumer Staples, Health Care, and Real Estate are all oversold. Relative to their 50-day moving averages, six sectors are above and five are below. You can’t get much more neutral than that! Don’t forget to vote.
Nov 4, 2024
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“The person who is the star of previous era is often the last one to adapt to change, the last one to yield to logic of a strategic inflection point and tends to fall harder than most.” – Andrew Grove
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 are little changed this morning but are trading with a positive bias as crude oil rallies and treasury yields move lower. There hasn’t been a lot of earnings or economic news, but with the election tomorrow, polls are a major focus, and news over the weekend, showed the race getting much closer. Just a few more hours left!
While not the most notable news of the weekend, Friday evening’s announcement that Intel (INTC) would be removed from the Dow Jones Industrial Average (DJIA) in favor of Nvidia (NVDA) represents another milestone in the transition of the old to new guard in the semiconductor sector. INTC entered the DJIA 25 years ago in November 1999, and the addition followed what had been a rally of over 900% in the prior five years. If you think that’s impressive, NVDA’s rally over the last five years has been over 2,500%!
INTC’s quarter century in the DJIA was fraught with dysfunction. While the stock initially rallied sharply in the months after it was added, the honeymoon ended quickly. INTC quickly reversed course and lost over 80% of its value. While the stock rallied from 2010 through 2020, it is lower now than it was when it was added. At this point, not many tears are being shed over the end of this union.
The election is just a day away, and with the polls so close between two completely different candidates, it’s understandable to see elevated levels of uncertainty in the market like the VIX’s reading of 22.45. The chart below shows the level of the VIX on the day before every Election Day, both Presidential and Non-Presidential, since 1990. For all years since 1990, the median level of the VIX on the day before Election Day was 18.4, and while you might think that volatility was elevated in Presidential Election years, it was only marginally higher (median: 18.6). This year, the current level of 22.45 ranks as the fourth highest of the nine Presidential Election years since 1990. So uncertainty has ratcheted higher for a year where the VIX has been mostly below average as Americans head to the polls.
Regarding equity market performance, the S&P 500 tends to see positive returns to close out the year after Election Day. For all years since 1990, the median gain has been 3.3% with positive returns 25 out of 34 times. For Presidential Election years, performance has tended to be modestly stronger with a median gain of 3.9% and gains six out of eight times.
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