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.
Oct 3, 2024
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“The corporate grip on opinion in the United States is one of the wonders of the Western world. No First World country has ever managed to eliminate so entirely from its media all objectivity—much less dissent.” – Gore Vidal
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
While investors await tomorrow’s non-farm payrolls report, there’s a lot of economic data to get through this morning with jobless claims at 8:30 and the ISM Services at 10:00 which should not be overlooked. Heading into these reports, futures are modestly lower but off their overnight lows as tensions in the Middle East weigh on sentiment. Jobless claims came in mixed relative to expectations as initial claims were 4K higher than expected while continuing claims were 4K lower.
Overnight and this morning, markets in Asia were mixed as China remains closed for the National Holiday. The Nikkei rallied over 2% continuing its roller coaster week while the Hang Seng dropped 1.5%. Service sector PMIs for Japan and Australia were in expansion territory, but both came in weaker than expected and decelerated relative to August.
In Europe, stocks are mostly lower as the STOXX 600 fell about 0.5%. PMI readings for the Services sector were mixed. For the region, activity slowed less than expected. Germany was generally in line with expectations, the UK and Italy missed expectations, and France and Spain expanded more than expected.
It’s still hard to get used to this chart below where we have a market up about 20% YTD. Yet the market’s most defensive sector, Utilities, is the top-performing sector. Granted, Communication Services and Technology aren’t far behind, but it’s like a Mustang struggling to pass a Corolla on the highway. You don’t see it often.
Utilities stocks often get lumped together as somewhat interchangeable, but if this year has taught us anything, not all Utilities are created equal. Take the two most common barometers of performance for the sector – the Dow Jones Utilities and the S&P 500 Utilities sector. While the S&P 500 Utilities sector has racked up a gain of 28.5%, the Dow Jones Utilities Index is up a much more modest 20.8. Both are respectable gains, but going back to 1990, the 27.5% gain for the S&P 500 Utilities sector through the end of Q3 ranks as the second best trailing only the 47.0% gain in the first three quarters of 2000, while for the Dow Jones Utilities Index, it ranks as just the fourth best since 1990.
In terms of consistency, the S&P 500 Utilities sector has been much better than the Dow Jones Utilities Index. While both indices have historically risen on 53% of all trading days, the S&P 500 Utilities sector has rallied on 59.4% of all trading days this year (second best since 1990) while the Dow Jones Utilities Index has risen on a much more modest 55.8% of all trading days (ninth best since 1999).
Returning to the performance spread, through the end of Q3, the S&P 500 Utilities Sector outperformed the Dow Jones Utilities Index by a record 7.2 percentage points. The only two other years that were even close were 1991 (6.7 ppts) and 2000 (6.4 ppts).
Oct 2, 2024
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“For civilization to survive, the human race has to remain civilized” – Rod Serling
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Click on the image below to view yesterday’s CNBC interview discussing the market backdrop heading into October.
ADP Payrolls came in stronger than expected this morning putting to rest some fo the concerns markets have had in the last few weeks. Mideast tensions continue to boil, and oil prices are trading up over 2% in reaction, but US Treasury yields have been on the rise at the long end of the curve. Equity futures are modestly lower, and Nike (NKE) is partly to blame as the stock is down over 5% in reaction to earnings after the close yesterday. If these losses hold, it will be NKE’s fourth straight quarter of declining at least 5% in reaction to earnings. Before this current streak, the longest streak of 5%+ declines on earnings reaction days dating back to 2001 was just two.
Throughout the entire conflict in the Middle East, the price of crude oil has been remarkably sullen. While prices have rallied 6% from Monday’s close, since the attacks on Israel last October, crude oil has declined over 16%, and since the end of Q2, prices have dropped over 10%. On the other hand, natural gas prices have been trying to break out of a long funk. Natural gas tends to be much more volatile than crude oil, but since its low in late August, the former is up over 55% which is impressive no matter how volatile a commodity we’re talking about.
In looking at the chart below, two things stand out. First, even after a 55% rally, natural gas remains more than 20% from a 52-week high. Second, looking at the moving averages of natural gas, the 50-day moving average is about to cross up through the 200-day moving average. With both moving averages on the rise, that would make it the first golden cross for the commodity in two and a half years (3/8/22).
Natural gas has now gone 530 trading days without hitting a 52-week high. That ranks as the fifth-longest streak on record, and the longest since 2016. If the current streak lasts another three weeks, it will move into fourth place overall while it would take another three months without a 52-week high to overtake the 590-day streak that ended in 2016.
Oct 1, 2024
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“Doctors tell me I have the body of a thirty-year-old. I know I have the brain of a fifteen-year-old. If you’ve got both, you can play baseball.” – Pete Rose
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
With Chinese markets closed through October 7th, they didn’t rally last night, but Japan managed to erase some of Monday’s losses with a rally of nearly 2%. However, the country’s manufacturing sector remained in contraction as September PMI fell to 49.7 from 49.8 but still slightly beat expectations.
In Europe this morning, equities are also higher with the STOXX 600 up 0.4%. Like Japan, the manufacturing PMI for September further contracted falling to 45.0 from 45.8, but that was also slightly better than expected. The bigger news, though, was a tame inflation report where headline CPI rose just 1.8% y/y and pushed interest rates in the region sharply lower.
On the economic calendar in the US this morning, we’ll get manufacturing PMIs from S&P and ISM at 9:45 and 10, respectively. Also at 10, we’ll get Construction Spending and JOLTS. Following in the wake of Europe, US interest rates are also falling with the 10-year yield down over 5 bps to 3.74%. Lastly, the East Coast port strike is less than nine hours old, so it isn’t a major concern at this point, but the longer it lasts, the more we’ll have to start factoring in negative impacts on the economy.
A breeze of relief blew through Wall Street after the closing bell as the S&P 500 finished the month with a gain of just over 2%. Based on the calendar, October has been a much friendlier month to bulls from start to finish, but in between it hasn’t been a walk in the park. As shown in the chart below, the S&P 500’s average Intra month peak to trough decline (on a closing basis) has been the largest of any month at 4.6%.
The chart below shows October peak-to-trough declines for every October since 1945. For the last two years, the S&P 500 has experienced an intra-month decline of at least 5%, and there have been four in the last six years. While the average decline has been 4.6%, that magnitude has been heavily skewed by 25%+ declines in 1987 and 2008. On a median basis, October’s intra-month decline has been a relatively more modest 3.4%. Overall, though, there have still been 26 intra-month drawdowns of at least 5% in the last 79 years.
With those 26 intra-month declines of over 5%, October is tied with September for the highest frequency at 33%. From here, though, intra-month volatility tends to abate into year-end. Historically, only 24% of Novembers have experienced 5% intra-month drawdowns while December has had the lowest frequency of drawdowns of that size.
