Sep 12, 2024
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“My business is hurting people.” – Sugar Ray Robinson
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
For much of the last three years now in a week with both CPI and PPI, these would easily be the most important reports of the week. Now that the Fed has shifted focus from inflation to employment, though, yesterday’s CPI report had much less than normal fanfare, and most traders probably didn’t even know there was a PPI report today. The flavor of the week now is weekly jobless claims. After trending higher for most of the year and hitting the highest levels in nearly a year in late July, the market (and the Fed) became concerned about jobless claims, so any additional increases raise concern about the economic outlook causing a sell-off in equities and buying in the treasury market.
Leading up to today’s PPI and jobless claims report, equity futures were trading modestly higher and holding on to Wednesday’s gains while treasury yields moved slightly higher. These equity gains follow a positive overnight session in Asia and morning gains in Europe where the ECB just announced a 25 bps cut in the benchmark rate to 3.5% which was in line with expectations.
Getting back to the economic data, PPI came in higher than expected on both a headline (0.2% vs 0.1%) and core basis (0.3% vs 0.2%), but the y/y readings were both in line with forecasts as July’s report was revised lower. Jobless claims, meanwhile, were largely in line with forecasts. Initial claims came in 4K higher than expected (230K vs 226K) while continuing claims were right in line.
What looked like a potentially gruesome day in the morning yesterday took a turn for the better as the day progressed. After trading down 1.6%, the S&P 500 finished the day up by 1.1%. Not only that, but the reversal also took what looked like a downside break of the 50-day moving average (DMA) and turned it into a successful test of that level. In terms of just days where the S&P 500 finished the day higher by over 1% after trading down over 1% earlier in the session, it was the first such positive reversal since 10/13/2022. For you market historians, 10/13/22 was the day after the 2022 bear market closing low.
For these types of 1% positive reversals in general, yesterday was the 52nd such day since 1990, and in the chart below we indicate each prior occurrence with a red dot. While most of these occurrences took place during periods of an upwardly trending market, they weren’t exclusive to that type of environment, and there were more than a handful of them during the bear markets associated with the dot-com crash and the Financial Crisis.
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Sep 11, 2024
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“America was targeted for attack because we’re the brightest beacon for freedom and opportunity in the world. And no one will keep that light from shining.” – George W. Bush
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 two positive days to start the week, futures took a breather today ahead of August CPI. The numbers were just released and were practically all right in line with expectations. Headline CPI increased 0.2% compared to forecasts for a gain of 0.2%, but core CPI was slightly hotter coming in at 0.3% versus a forecast for 0.2%. On a y/y basis, the readings of 2.5% and 3.2% were in line with forecasts.
While the numbers were mostly inline (except for Core), futures have not responded kindly with equity futures adding to their pre-market weakness while treasury yields reversed higher.
Yesterday wasn’t a good day for the banks, and it hasn’t been much of a week either. Below we show a snapshot from our Trend Analyzer of the ten largest components of the KBW Bank Index. All of them are down over the last five trading days and are all down at least 2.5%. Not only that but besides PNC and USB, the eight other stocks listed have all broken down through their 50-day moving averages.
The worst of the losers have been Wells Fargo (WFC), JP Morgan (JPM), Citi (C), Capital One (COF), and Trust (TFC) which are all down over 5%. 5% may not sound like much when you talk about tech or growth stocks, but it’s more than nothing when you’re talking about the largest banks in the country.
For the KBW Bank Index itself, the index has now failed just above 115 for the second time in two months, and like most of the components, it is also back below its 50-day moving average (DMA).
The 115 level hasn’t just been resistance in the last several weeks. If we take a further look back, the index has seen rallies fail at this level multiple times. The chart below shows the performance of the index since mid-2022, and in addition to the two most recent tests of resistance, it also rallied up to that level in the summer of 2022 and early 2023 before pulling back.
Then finally on a longer-term basis, while there was a period during the post-Covid madness from early 2021 through early 2022 where the BKX rallied above 115 and got as high as the high 140s, before that, it also tested and failed levels in the low to mid 110s twice.
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Sep 10, 2024
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“No one asked me to be an actor, so no one owed me. There was no entitlement.” – James Earl Jones
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
To view yesterday’s interview from CNBC Overtime, click on the image below.
Equity futures are moving back and forth on either side of unchanged this morning, with little direction in either direction. The only economic report of the day was small business sentiment from the NFIB, which came in just over two points below expectations (91.2 vs. 93.6).
You may recall that last month’s report came in a bit more than two points above expectations, so this morning’s report essentially erased that move. While the report was weaker than expected, it shouldn’t have been a surprise. As we noted last month, the NFIB’s report tends to skew Republicans, and the prior survey came just after former President Trump had a big lead in the polls following the GOP convention. The latest survey was conducted as Harris shifted into the lead, hence the weaker sentiment. Now that the polls have shifted back to neutral or in favor of Republicans, it wouldn’t surprise us to see a bounce again next month.
Ahead of Wednesday’s CPI report, we realize that the market may have moved on from inflation, but gas prices play a big role in overall inflation levels and especially consumers’ perception of it. On a YTD basis, the national average price of a gallon of gas has increased 4.9%, which wanks as the fourth smallest YTD increase since 2005, and ten percentage points less than the median change during that span.
On a year/year basis, prices have declined 7.6% relative to where they were last year and have mostly been negative for the last year or more.
Lastly, the national average currently stands at $3.26 per gallon. That’s 36 cents more than the historical average since 2005, but when you take inflation into account, prices are lower now than their historical average.
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Sep 9, 2024
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The line between failure and success is so fine. . . that we are often on the line and do not know it.” -Elbert Hubbard
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 an all-around bad week for stocks, markets are looking to rebound this morning with the Nasdaq leading the way higher. There’s not much in the way of a catalyst for this morning’s bounce and little in the way of economic data. The New York Fed’s survey of Consumer Expectations has been an important report in recent months, but now that the Fed has shifted its focus from inflation to employment, it doesn’t have the heft it used to have.
September didn’t start well. Since 1953, when the five-day trading week in its current form began, this year ranks as the worst first week for the S&P 500 on record. As shown in the chart below, there have only been four other years where the S&P 500 dropped 2.5% or more to kick off the month. Before this year, the record for worst start to kick off the ninth month of the year was 2001 with the other years being 1987, 2008, and 2015. To use a basketball analogy, these years are to bulls what the Detroit Pistons were to the rest of the NBA in the late 1980s and early 1990s.
In the next chart, we show the S&P 500’s performance from the close on 9/7 (or the most recent close before that) through the end of September. For all years since 1953, the median performance was a decline of 0.56% with gains just 44% of the time. In the four other years when the S&P 500 was down 2.5%+ in the first week, the rest of the month tended to be even weaker with the S&P 500 down three times and up just once.
We all know that September is typically weak, so the numbers above shouldn’t be a surprise, but what about the rest of the year? The next chart shows the S&P 500’s performance from the close on 9/7 (or the most recent close before that) through year-end. For all years since 1953, the median rest-of-year performance was a gain of 4.16% with gains 76% of the time. In the four prior years shown the rest of the year was evenly split between gains and losses, but the magnitude of the gains was much less than the losses. In the two years where the S&P 500 rebounded through year-end, the S&P 500 was up 5.74% (2001) and 6.39% (2015), but in the years when it continued lower, the losses were four times larger in magnitude with declines of 21.98% (1987) and 27.29% (2008). Gulp.
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Sep 6, 2024
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“The sea is dangerous and its storms terrible, but these obstacles have never been sufficient reason to remain ashore.” – Ferdinand Magellan
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
To catch a segment of yesterday’s interview on CNBC, click on the image below.
The trend of weakness in September looks likely to continue this morning as equity futures are lower and the 10-year yield falls to 3.7%, the lowest level since June 2023. Nasdaq futures are leading the decline this morning following earnings from Broadcom (AVGO) which is down over 7% after a lackluster report after the close yesterday.
The only economic report on the calendar today was Non-Farm Payrolls at 8:30, and traders were anticipating it for signs of whether or not the weakness in the economy is a precursor to something worse or just a soft spot. Unfortunately for the optimists, the headline reading came in weaker than expected as Non-Farm Payrolls rose by 142K versus forecasts for an increase of 165K. Last month’s report was also revised lower. Besides that, average hourly earnings rose more than expected, but the unemployment report (4.2%), average weekly hours (34.3), and the labor force participation rate (62.7%) were all right in line with forecasts. Not a terrible report, but not a strong one either.
Markets have seen a stormy September as the S&P 500 has declined 2.7% month to date. That ranks as the worst 3-day start to September since 2011 (-4.40%), but for all months, August’s 6.08% decline was more than twice as deep. For all months since 2000, just 26 out of 297 months (8.8%) have seen declines of 2.5%+ in the first three trading days of the month, so the fact that we’ve seen back-to-back months of 2.5%+ to kick off a month is not common, and the last time it happened was in September and October 2008.
The Nasdaq finds itself in a similar situation to the S&P 500. With that index down 3.3% in the first three trading days of the month, it also ranks as the worst first three days of September since 2011, but again for all months, August’s 7.95% decline was more than twice as week. Unlike the S&P 500, 2.5%+ declines in the first three trading days of a month are much more common. Since 2000, 15.4% (46) of all months have seen declines of this magnitude, and to find a period where there were 2.5%+ declines in back-to-back months, you only have to go as far back as early 2022.
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Sep 5, 2024
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“Do right and risk the consequences.” – Sam Houston
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
The equity market weakness that kicked off September has continued into the third trading day of the month, but the magnitude of the losses has been restrained. In the fixed-income market, treasuries have gotten off to a strong start this month, but this morning, rates are little changed as the 2s10s yield curve has moved into positive territory…if you go out to four decimal places (0.0001%).
After some weak data to kick off the month and yesterday’s Beige Book, investors have returned to worrying over the state of the US economy. That means weak labor data will not be positively received from the equity market. The first of those labor reports was the ADP Employment report which showed monthly growth of just 99K relative to forecasts for an increase of 142K – the smallest monthly increase since January 2021. That was the bad news. The good news was that initial and continuing jobless claims came in lower than expected.
In addition to those two reports, Non-Farm Productivity was in line with forecasts (+2.5%), and Unit Labor Costs rose just 0.4% versus forecasts for an increase of 0.8%. The only other reports on the calendar for today are PMI readings for the Services sector from S&P and ISM both of which are expected to decline slightly from their prior readings.
It may sound hard to believe, but with the S&P 500 now 2.6% off its mid-July high, long-term US Treasuries, as measured by the iShares 20+ US Treasury ETF (TLT), are closer to a 52-week high than the US stock market. As shown in the chart below, TLT’s current 52-week high was back in late 2023.
The chart below shows the historical spread between TLT’s closing price and its 52-week high (on a closing basis), and as of yesterday, the ETF finished the day 1.5% from a 52-week high which is as close as it has been since late 2020.
2000 was a long time ago, and the current spread of 1,027 trading days without closing at a 52-week high is by far the longest drought since the ETF first started trading in the early 2000s. For fixed-income investors, the 52-week high list has been a foreign concept, but if concerns over the economy start to increase, they may start spending a lot more time together.
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