Nov 25, 2024
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“If you place your head in a lion’s mouth, then you cannot complain one day if he happens to bite it off.” – Agatha Christie
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Investors have a lot to be thankful for this year, and a holiday-shortened week after what has been an eventful year so far is no doubt one of them. The economic and earnings calendars are relatively light this week, but Tuesday will be a relatively busy week for earnings, while Wednesday will be a busier day for economic data as government agencies look to get the reports out ahead of what, for many, will be a long weekend.
In Asia, Japan and India were both up over 1% while Chinese stocks saw modest losses. In Europe, it’s been a mixed tone, with the STOXX 600 basically unchanged. Here in the US, equity futures are higher, and treasury yields are lower in part due to Scott Bessent’s nomination as Treasury Secretary.
The last week of November has historically been positive for equities, and recent history hasn’t deviated from that trend. The S&P 500 has notched gains in the last week of this month in six of the previous seven years. The only down year was in 2021 when the S&P 500 fell over 2.6% as investors feared a resurgence of Covid from the Omicron wave and Fed Chair Powell sent a message to the market that the Fed was no longer not even thinking about thinking about raising interest rates. While the S&P 500 was near record highs heading into the week, both factors sent stocks plunging, and the S&P 500 fell 2.6% for its fifth worst last week of November in the post-WWII period and the worst since 1987. Outside of 2021, though, you have to go back to 2005 to find another year when the S&P 500 dropped over 1% in the last week of November.
Overall, the S&P 500’s median performance during the last week of November since 1945 has been a gain of 0.32% with positive returns 58.2% of the time which is nearly twice the average for all one-week periods since 1945. That’s the good news. The bad news is that in years when the S&P 500 has been up 20%+ YTD heading into the last week of November, the median gain has been more in line with the historical average (0.19%). When the S&P 500 was overbought (1+ standard deviation above its 50-DMA) heading into the last week of the month, the median performance was a decline of 0.20% with gains less than half of the time. Additionally, when the S&P 500 was up 20%+ YTD and overbought, the median performance during the last week was also a decline of 0.18% with gains half of the time.
None of these trends suggest that declines this week are likely, but for a week that has historically been considered one of the most positive weeks of the year, the setup this year is not necessarily as bullish.
Nov 22, 2024
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“Of course it’s the same old story. Truth usually is the same old story.” – Margaret Thatcher
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 eventful month and week, markets are looking to slide into the weekend on a quiet note as US equity futures are little changed on either side of the flatline. Despite a weak batch of flash manufacturing PMI reports from Asia and Europe, global equities are closing off the week on a more positive note. The Nikkei closed 0.7% higher finishing down 0.9% for the week, but in China, both onshore and offshore indices finished down sharply putting them both into the red for the week. European stocks have traded more uniformly positive with the STOXX 6000 trading up 0.5% putting it into the green for the week as the flash PMI manufacturing index slid into contraction territory at 48.1 from 50.0 in October. That weaker-than-expected reading has increased the odds of a December rate cut, pushing the euro to its lowest level in two years at 1.04 versus the dollar.
While the odds of a December rate cut in Europe rise, the odds here in the US have been on the decline. At the start of November, the market was pricing in an 80% chance of a 25 bps cut in December, but as of this morning, the odds have slipped to 60%.
The first rate cut was just over two months ago, so we wanted to see what, if any, change there has been in sector performance before versus after the September cut. The chart below shows the performance ranking of the eleven sector ETFs on a YTD basis through 9/17 (x-axis) versus each one’s performance since then. If there had been no shift in sector performance in the pre-and post-rate cut periods, you would expect to see all the dots on a 45-degree upward-sloping line, but as shown in the chart below, that has hardly been the case.
While several sectors are grouped relatively close to that line, others have seen big shifts. At the lower right side of the chart, Consumer Discretionary, and Energy were two of the worst-performing sectors on a YTD basis leading up to the first rate cut, but they’ve been the two best since then. Normally, you would expect Energy and Consumer Discretionary to move in opposite directions, but that hasn’t been the case this year. At the other extreme, Utilities and Consumer Staples were two of the better-performing sectors on a YTD basis heading into the September cut, but they’ve been laggards ever since then.
Looking at the charts of Consumer Discretionary and Energy, both sectors got a boost from the rate cut in September, but both rallies stalled out in late October before getting turbo-charged after the election, so it hasn’t been just a rate cut story. Energy’s rally is particularly surprising given it was the worst-performing sector during Trump’s first administration.
The Consumer Staples sector had been in a steady uptrend all year right up until September, but the rate cut almost served as a bell for the peak as the longer-term uptrend turned on a dime into a two-month downtrend.
The reversal in the Utilities sector hasn’t been as abrupt as the one in Consumer Staples, but as longer-term yields rose after the first cut, momentum slowed significantly, although the election results earlier this month have provided a boost on expectations for a weaker regulatory environment.
Nov 21, 2024
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“Nobody owes nobody nothing.” – Rocky Balboa
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Asian stocks traded mostly lower overnight with the Nikkei down close to 1% while Hong Kong and India saw declines of about half that pace. There were reports that the Chinese government plans to stick to its 5% growth target for 2025 even as the market had been expecting a reduction in the target closer to 4%. Keeping it at 5% would make the need for further stimulus more likely. In Europe, the tone is more positive with most major benchmarks trading higher and the STOXX 600 trading fractionally higher. Comments from an ECB official, Villeroy de Galhau, suggested an expectation for inflation still being on pace to return to the 2% target. This view would boost the odds of a 25-bps cut at the December meeting.
In the US, futures were also modestly higher ahead of jobless claims (initial lower than expected, continuing higher) and the Philly Fed (weaker than expected) at 8:30 and then Existing Home Sales and Leading Indicators for October at 10 AM. Treasury yields are modestly lower. Crude oil is up over 2%, along with gold, which is up about 0.5%. The real story, however, is Bitcoin, which is up over 3% and within 3% of $100,000.
All that hype, and all we have to show for it is a fractional gain in the pre-market. Anticipation of Nvidia’s (NVDA) earnings report last night started last week, and expectations were for a big move. Options markets were pricing in the possibility of an 8% move today in reaction to earnings which would equate to $300 billion in market cap. There aren’t even 30 companies in the United States with $300 billion market caps! NVDA finally reported last night, and after reporting better-than-expected earnings and revenues as well as raising guidance, the stock traded down as much as 5% but is now trading fractionally higher. The options market was only off by a factor of nearly ten!
Where NVDA finishes the day today is anyone’s guess, but a key level for the stock in the short term is $150, which it has had trouble getting above multiple times in the last two weeks. Since first trading above $140 in June, NVDA really hasn’t done much of anything, even though the rest of the market has rallied.
NVDA is the largest component of the Philadelphia Semiconductor Index (SOX) and the largest company in the world, and its massive rally this year has been more of an exception within the semiconductor space than anything else. As shown in the chart below, the SOX is down over 15% from its record high in June.
Of the 30 stocks in the SOX, their average YTD performance has been a gain of 13.7%. However, that number has been skewed by a few big winners. The median performance of the 30 stocks in the index has been a gain of just 1.46%, and only seven stocks in the index are outperforming the S&P 500 on a YTD basis. For a sector that’s typically been considered a leading indicator for the overall market and the economy, the semis are no longer a green light.
Nov 20, 2024
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“We survived ourselves. We were our own worst enemy.” – Jensen Huang
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
There’s a modestly positive tone in futures this morning, but the decks have been cleared to the mother of all earnings reports after the close when Nvidia (NVDA) reports. The only economic report on the calendar was MBA Mortgage Applications which showed a weekly increase of 1.7%. Asian stocks were mixed overnight with modest moves in either direction, and it’s a similar story in Europe this morning. Expect to see much larger moves in tonight’s Asian session, though, as NVDA’s results will have reverberations across the tech sector.
Walmart (WMT) may have marked the unofficial end of earnings season yesterday, but the largest company in the world goes by its own rules and reports on its own schedule. As mentioned above, NVDA will report after the close today, and with the stock accounting for more than 7% of the entire S&P 500 (most than most sectors), a lot rides on how the company reports. The company has reported an astonishing seven straight earnings triple plays which is practically unheard of for any company, but the fact that the most valuable company in the world has so consistently exceeded expectations across the board is unbelievable.
The chart below shows the performance of Nvidia (NVDA) since the release of ChatGPT nearly two years ago, and the red dots indicate each of the seven earnings reports (all triple plays) during that time. While the stock has had several positive reactions to those seven earnings reports (it rallied between 9% and 24% the day after four of those reports) not every one of those triple plays was a launching point for the stock. Following three of those reports, the stock was flat to down on the day after in reaction, including a 6.4% following its triple play in August. As “blowing the doors off” relative to expectations has become more common, investors have come to expect it, which only raises the bar. The best thing NVDA may have going for it heading into this afternoon’s report is that the stock has gone nowhere in the last five months.
For investors positioned for a broadening of the rally, a positive reaction by the market to NVDA earnings may be the last thing they want. The chart below shows the performance of NVDA versus the Russell 2000 ETF (IWM) during 2024. Since the end of May, there has been a tendency for the Russell 2000 to perform poorly when NVDA has surged as it sucks all the capital from the pool, and vice versa.
As the market awaits NVDA earnings, this morning’s major report has been Target (TGT) which reported a reverse triple play with weaker-than-expected EPS, revenues, and lower guidance. While analysts have consistently underestimated NVDA earnings, they have been overly optimistic regarding TGT results. As shown in the snapshot below, before this morning’s report, its last report was the only one in the previous ten where the company didn’t miss EPS forecasts, revenue forecasts, or lower guidance. By missing all three this morning, the stock is indicated to gap down over 18%, which would be the second largest downside gap in reaction to earnings since at least 2001.
As shown in the graphic above, even with the relatively poor results recently, shares of TGT haven’t necessarily reacted negatively to the news. However, even in a bull market where the S&P 500 has surged, the stock has performed negatively, and there are only three reports in the last eight where the stock was higher going into one earnings report than it was heading into the prior report.
Nov 19, 2024
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“And like most other overnight successes, it was about twenty years in the making.” – Sam Walton
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
What was looking like a positive morning for equities turned murkier in the last few hours as Russian President Vladimir Putin updated the country’s nuclear doctrine in response to President Biden’s move giving Ukraine the go-ahead to launch attacks on Russian targets deep inside the border. Under the new policy, a spokesperson for the Kremlin said that Russia now “reserves the right to use nuclear weapons in the event of aggression using conventional weapons against it and/or the Republic of Belarus.”
Before the comments, Asian stocks were higher, with fractional gains across the board overnight. European stocks also opened flat to slightly higher but then steadily sold off in the wake of the updated doctrine. The STOXX 600 currently sits down about 0.75%, as even a small increase, however unlikely, of an escalating conflict can understandably cause investors to become more risk averse. It’s also worth highlighting that Putin made similar comments over the weekend that supplying Ukraine with long-range missiles would cross a red line.
Given the tensions, Treasury yields are lower as the 10-year yield is back below 3.4%, crude oil is fractionally lower, and gold and bitcoin are up nearly 1% each with the latter trading firmly above $92K. In terms of economic data, Building Permits and Housing Starts for October were just released and both headline readings came in modestly lower than expected.
Shifting from macro to the micro, Walmart (WMT) marked the unofficial end to earnings season this morning reporting better-than-expected EPS and sales and reiterating its full-year guidance. This was the tenth straight quarter that the company reported better than expected EPS and sales, and in response, the stock is poised to gap up 3.5% which would be the fourth time in a row that the stock gapped up in reaction to earnings. Shares of WMT have already been on a monster run for the last year after dropping below $50 late last year, but this morning the stock is at record highs around $87. One thing to be aware of is that on each of its last six earnings reaction days, the stock has traded down from the open to close.
Nov 18, 2024
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“It is a very sobering feeling to be up in space and realize that one’s safety factor was determined by the lowest bidder on a government contract.” – Alan Shepard
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Two headlines on the front page of the Wall Street Journal stood out to us this morning. The first was “Investors Are Betting on a Market Melt-Up.” There’s not much to say about this except that if you are bullish on the market, given the election results and other factors, you’re not alone. That’s not to say that the market has to go down, but gains could be harder to come by. The beach is always much better when it’s less crowded.
The second headline concerns the still-awaited nomination from President-elect Trump over who should become Treasury secretary (“Jockeying To Lead Treasury Spills Out In Public”). Heading into the weekend, it looked like it was a two-person race between Scott Bessent and Howard Lutnick, but now it appears that the lobbying has annoyed Trump, and he is now expanding the potential field from more than just those two. This pick is easily the most important remaining pick of the future President’s cabinet, and depending on who “gets the rose” it would impact US trade policy and the dollar’s direction.
Markets hate uncertainty, and perhaps some of the increased uncertainty over who will lead the Treasury Department has shown up in the performance of gold and bitcoin this morning, as both are trading higher.
Starting with gold, after an 8% pullback from its late October high and breaking its uptrend that had been in place since earlier in the year, the SPDR Gold Trust (GLD) is trading up over 1% this morning after bouncing near support levels coinciding with its late summer base. If you’re long GLD, seeing a bounce after six days in a row of losses is nice. The real test will come in the days ahead as it looks to get back above that former uptrend line.
It’s hard to attribute a daily 1% move in Bitcoin to anything specific as it’s such a volatile asset. But even after many assets that surged in the immediate days after the election have started to pull back, bitcoin remains within 1% of its record high last week.
