Sep 20, 2024
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“Winners train, losers complain. Give me twelve players that want to win, and they will find a way to win.” – Red Auerbach
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 been a strong week for equities, so the modestly negative tone in futures to start the last day of the trading week isn’t going to concern anyone. There’s also zero on the economic or earnings calendar this morning either, so we’re not quite sure what traders will latch onto to push prices in one way or the other, but they always seem to find something!
Overnight in Asia, traders closed out the week on a positive note as the Nikkei was up over 1.5%, Hong Kong finished 1.4% higher, and even China was up over 1%. The key event in the region was the BoJ keeping rates unchanged with a ‘hawkish hold’. In Europe, the tone isn’t as positive as the STOXX 600 is modestly lower as German PPI came in higher than expected while UK Retail Sales rose more than expected.
The Russell 2000 did not hit an all-time or even 52-week high yesterday, but it did manage to take out its late August high. The chart is forming what looks like a “W-formation” with the first half comprising the massive rally from earlier this summer when the index traded at the most overbought level on record for a major US index. We honestly have no idea what a W-formation means, but if the Russell 2000 manages to break out above the summer highs, it would be a positive development from a technical perspective.
The latest rally in the Russell 2000 has also been impressive given that yesterday was the seventh straight day of gains for the index which is the longest winning streak for the index in three and a half years. Seven-day winning streaks are by no means uncommon or extreme in the Russell 2000’s history. As shown in the chart below, since 1980 there have been 110 other winning streaks of at least seven trading days, and the longest was more than three times longer at 22 in March 1988. What is interesting about the chart below, however, is how common 7-day winning streaks were from 1980 through the dot com bust (86 from 1980 through the end of 2022) and how uncommon they have been since (24 since 2003).
In today’s Morning Lineup, we looked at how the Russell 2000 tends to perform following prior seven-day winning streaks. To see the rest of the analysis, sign up for a trial today!
Sep 19, 2024
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“We did everything adults would do. What went wrong?” – William Golding. Lord of the Flies
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Historically, when the Fed started a rate-cutting cycle, equity market performance on the day of the first cut was very positive with an average one-day gain of 1.30%. Even that positive bias, however, wasn’t enough to counter the negative pull of the market on Fed days during current chair Powell’s tenure since 2018. As shown in the chart below, on Fed days under Powell, there has been a clear negative bias for equities in the final hour of trading, which was again on display yesterday. Even after rallying as much as 0.8% after the statement’s release communicating a 50 bps rate cut, stocks drifted lower and finished with a decline of 0.24% right near the day’s lows.
The negative pull of Powell’s law of gravity may have pulled stocks lower yesterday, but this morning, the S&P 500 is indicated to open sharply higher with the S&P 500 ETF trading up over 1.5% in early trading. If these gains hold through the opening bell, it would be the 16th time since 1994 that SPY has gapped up over 1% on the day after a Fed meeting (scheduled or unscheduled). In the chart below of SPY, we show each of those prior occurrences using blue (when there was no change in rates on the Fed day) and red dots (when there was a cut in rates). Of the 15 prior gaps higher, just four followed a day when the FOMC cut rates. Three of those were after the 2007 peak and through the Financial Crisis while the fourth was in early March 2020 during the early days of the Covid Crisis.
Sep 18, 2024
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“It’s good to be in something from the ground floor. I came too late for that and I know. But lately, I’m getting the feeling that I came in at the end. The best is over.” – Tony Soprano
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 as investors await this afternoon’s Fed decision. Overnight in Asia, equities were generally higher with the Nikkei up half of one percent while Hong Kong rallied more than 1%. The tone is more subdued in Europe as stocks are experiencing measured declines. In commodities, crude oil briefly dipped below $70 per barrel but has recouped some of its losses and is now down just 1.5%.
On the economic calendar, it’s a housing-centric day. Weekly mortgage applications were just released and showed an impressive increase of 14.2%. Refinances also surged 24% to the highest level and share of total applications since early 2022. The only two other reports on the calendar for today are Building Permits and Housing Starts at 8:30.
The day you’ve finally been waiting for is finally here! After several false starts by the market, the Fed will finally cut rates this afternoon. The only question is by how much. As of this morning, futures markets put the odds at a 50 bps cut at 65% meaning it really could go either way, and while certainly not unprecedented, we can’t remember a time when there has been so much uncertainty regarding which direction the Fed would take this close to a report. This afternoon’s cut will end a streak of 288 trading days where the fed funds rate has been unchanged at a range of 5.25% to 5.50%. While it’s nowhere near the record streak of 1,756 trading days from the Financial Crisis through late 2015, it does rank as the sixth-longest streak without a change since at least 1971. It’s about time they get back to work!
This period has been more extreme regarding how long it has been since the Fed last cut the Fed funds rate. At 1,134 trading days (over four years), it will end what ranks as the second-longest period without a cut in rates since at least 1971. Again, the only period that was longer was the 10+ years from late 2008 through July 2019, and only one other streak (mid-2003 through September 2007) lasted longer than four years.
Sep 17, 2024
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“I don’t carry the burden of the past or the madness of the future. I live in the present.” Narendra Modi
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 in positive territory today as the S&P 500 looks to extend its streak of daily gains to seven in a row. It’s a relatively busy morning for economic data, and Retail Sales just kicked things off. The headline report came in better than expected at +0.1% m/m versus expectations for a decline of 0.2%. Not only that but last month’s report was revised slightly higher from 1.0% to 1.1%. While the headline report was better than expected, stripping out autos and gas, the numbers were somewhat weaker than expected. All in all, this was a decent report at the surface and doesn’t suggest that the consumer is showing signs of significant weakness.
Outside of the Retail Sales report, we’ll get Industrial Production and Capacity Utilization at 9:15 Eastern and then Business Inventories and Homebuilder sentiment at 10 AM.
One of the topics covered in the commentary section of today’s Morning Lineup is economic data from India covering trade and wholesale prices. Today is also the birthday of Indian Prime Minister Narendra Modi who turned 74 years old today. While not directly connected, Modi no doubt is appreciative of the fact that Indian equities traded at all-time highs yesterday ahead of his 74th birthday. Indian stocks have also done right by US investors as well. The chart below shows the performance of India’s Sensex over the last 12 months in dollar-adjusted terms, and during that span, the SENSEX is up 21.5%
Relative to other international stocks, India has also done well under Modi. The chart below compares the performance of Indian equities to other major global equity benchmarks on a dollar-adjusted basis since Modi assumed office in May 2014. With a gain of 138%, no other region of the world has come even close. Japan, the next best-performing market is up ‘only 81%’ while Europe is up just 22% – or about the same that India has gained in just the last year! Relative to other BRIC countries, India is also blowing both Brazil and China out of the water.
While India may be ahead of the rest of the world, it still trails the US. With a gain of 195%, the S&P 500 leads India by 57 percentage points.
Sep 16, 2024
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“All great and honorable actions are accompanied with great difficulties, and both must be enterprised and overcome with answerable courage.” – William Bradford
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 mixed this morning with the Dow indicated to open higher, the S&P 500 trading slightly lower, and the Nasdaq trading a little deeper into negative territory. The weakness in the Nasdaq is mostly due to Apple (AAPL) which is down over 2% following reports that iPhone orders over the first weekend of sales have been weaker than expected. These reports usually have little more than a temporary effect, but on an otherwise quiet morning, it’s making its impact felt. The only economic report on the calendar today is Empire Manufacturing, which was just released and came in stronger than expected at +11.5 vs forecasts for a reading of -4.0. Believe it or not, that was the first positive reading of the year and the highest level since April 2022.
Don’t let the quiet start to the week lull you into sleep, though. Tomorrow, we’ll get an important Retail Sales report, and then Wednesday morning we’ll get the August read on Housing Starts and Building Permits as an appetizer to the FOMC rate decision at 2 PM Eastern where the only question is whether Powell and Company will cut rates by 25 or 50 basis points.
The market mood heading into this past weekend and into the new week stands in stark contrast to where things stood a week ago. The snapshot below from our Trend Analyzer shows where major index ETFs stood last Friday and a week earlier. After Labor Day and the first week of September, all three index ETFs were below their 50-day moving averages and down between 3.2% and 5.6% as September looked to be living up to its reputation as the cruelest month. A week later, each of the four indices erased nearly all their declines from the prior week and reclaimed their 50-day moving averages.
When the market experiences weekly reversals like the one seen over the last two weeks, the sectors that led on the way down also usually lead on the way up or vice versa. That wasn’t necessarily the case last week. While that trend applied to Technology (best last week and worst the week before) and Communication Services (third best last week, third worst week before) it didn’t to most other sectors. Take Energy; last week it was the only sector to finish lower for the week, and the week before, it performed worse than every other sector except for Technology. Going the other way, Real Estate was one of just two sectors to finish each of the last two weeks with gains.
Sep 13, 2024
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“If you can make it through the night, there’s a brighter day.” – Tupac Shakur
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
After the worst week in months to start September, the S&P 500 has already rallied more than 3% this week, and if it can finish the day in the green today, it will have had its second ‘perfect’ week in a month (and second five -day perfect week this year). At this point, futures are cooperating with modest gains as declines in Adobe (ADBE) and Boeing (BA) have been offset by rallies in Oracle (ORCL) and RH. To hold on to those gains, though, they’ll have to get through Import Prices at 8:30 and Michigan Sentiment at 10:00.
Even after the gains this week, the S&P 500 remains down close to 1% this month, so September has already lived up to its reputation for being the weakest month of the year. If the month continues to follow the seasonal trend, bulls should remain on guard. The snapshot below from our Seasonality Tool shows that based on the last ten years, the upcoming one-month period has historically been one of the weakest periods for the S&P 500. Over the last ten years, the S&P 500’s median performance over the next month has been a decline of 1.79% which ranks in just the first percentile relative to all other one-month periods throughout the month.
That’s the bad news. The good news is that despite the next month being so weak, the next three months have historically been among the best periods of the year for the S&P 500. With a median gain of 4.65%, the SP&P 500’s performance over the next three months ranks in the 87th percentile relative to all other periods.
The composite chart below illustrates the pattern. While the back half of September typically experiences sharp declines, the last three months have been strong. To borrow a phrase from Tupac Shakur, who died 28 years ago today, “If you can make it through the night, there’s a brighter day.”
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