Sep 4, 2024
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”Obsolescence is the very hallmark of progress.” – Henry Ford II
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 started as a weak start to September in the US spread to Asia overnight, followed through to Europe this morning, and is now back in the US this morning. That’s September for you! The big reports overnight and this morning were PMI readings for the services sector, and they mostly came in weaker than expected but still showed growth. Today’s major economic reports in the US are JOLTS for July and Factory Orders at 10 AM.
Yesterday’s 2.12% decline for the S&P 500 was the worst opening day for a month since May 2020, and the worst start to September since 2015. September is no stranger to big down days to start the month. Since 1953, the first full year of the five-day trading week in its current form, the S&P 500 has declined 1%+ on the first trading day of the month 14 times now, which works out to just under 20% of the time. The next closest months are October and January with eleven each.
In the table below, we summarize the performance of the S&P 500 following 1%+ declines to start the month grouped by month. Over the following day, week, and month, the S&P 500 tends to see steady gains overall, although returns when the decline occurs in September have been below average. One day and one week later, the S&P 500 was positive but up by just an average of 0.13% and 0.14%, respectively. Four weeks later, though, 1%+ declines to start the month of September have been followed by an average decline of 1.36% which is the worst four-week performance of any month except June.
The chart below shows the four-week performance following 1%+ declines by month. Here you can really see the weakness that follows these types of declines during the summer months, but outside of the June to September period, 1%+ declines to start the month have been followed by an average four-week performance of 1% or more.
While the four-week performance of the S&P 500 following a 1%+ decline to start September has been weak, performance following recent 1%+ declines have been positive. The chart below shows the performance of the S&P 500 in the four weeks following the last 20 1%+ declines to start the month, and after each of the last eight occurrences, the S&P 500 has been up four-weeks later every time for a median gain of 4.6%.
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Sep 3, 2024
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“Practice isn’t the thing you do once you’re good. It’s the thing you do that makes you good.” – Malcolm Gladwell
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Right on cue, the first trading day of September has been accompanied by weakness in the futures. One caveat worth pointing out is that much of the weakness is only erasing the late-day surge in the final minutes of trading last Friday. Overnight in Asia, most major benchmarks were also lower, but the magnitude of the losses was mostly modest. Similarly in Europe, the STOXX 600 is down less than 0.5%.
Looking ahead to the rest of the trading day, we’ll get a first look at manufacturing activity and sentiment for August with Manufacturing PMIs from S&P at 9:45 and ISM at 10. Also at 10, we’ll get the latest update on Construction Manufacturing, but that’s a July number.
The negative level of equity futures to kick off September should surprise no one as stocks have gotten a lot of practice being weak in September. Just over the last 20 years, the S&P 500’s median performance the day after Labor Day has been a decline of 0.14% with gains just 40% of the time. More recently, the first real workday of September has been even weaker with declines in seven straight years for a median loss of 0.42%.
With a weak start, Labor Day week has also tended to be weak. Over the last 20 years, the median decline has been 0.20% with gains just half of the time. Over the last four years, Labor Day week has seen declines of at least 1.3% three times. The one exception was in 2022 when the S&P 500 rallied 3.65%.
During the rest of September after Labor Day, performance has been extremely bifurcated. While the S&P 500 has been positive slightly more often than it has been negative, and the median return has been slightly positive (0.26%), the last four years have been weak. As shown in the chart below, performance from the Friday before Labor Day through month end has been negative by at least 1.87% in of the last four years.
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Aug 30, 2024
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“What we learn from history is that people don’t learn from history.” – Warren Buffett
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 unofficial end of earnings season was over two weeks ago, but earnings-related news has dominated recent headlines. Yesterday, Nvidia’s (NVDA) report sparked a 6% decline in the stock even as the rest of the market rallied. This morning, futures are trading higher in response to some positively received reports from Dell (DELL), Autodesk (ADSK), and Lululemon (LULU).
While the tone is positive now, today is the last trading day of August, and next week starts what has been the worst month of the year for equities. If you take a look at the bottom of page one of today’s Morning Lineup you can see just how bad the next one-month period has been relative to all other one-month periods throughout the calendar.
From an economic perspective, the month will end on a busy note with Personal Income, Personal Spending, and PCE at 8:30. These reports will be followed by Chicago PMI at 9:45 and Michigan Sentiment at 10 AM. After that, expect things to quickly quiet down as traders head out for the long weekend. As far as the 8:30 data is concerned, it was mostly in line with expectations except for the reading on Personal Income which was better than expected.
They say you can’t teach an old dog new tricks, and in the case of Warren Buffett who turns 94 years young today, all he still does is win. One long-held selling point of Berkshire Hathaway (BRK/a) has been that while the stock can tend to underperform the market during strong bull markets, it’s when things start to hit the fan that the stock proves its worth. That’s what makes its performance over the last 12 months so impressive. Even as the S&P 500 has rallied 26.2% on a total return basis over the last twelve months, BRK/a has done even better outperforming the index by three percentage points.
Over the last five years, Berkshire has separated itself from the S&P 500 by even more. As shown below, BRK/a’s gain of 130.2% has exceeded the gain of the S&P 500 by more than 20 percentage points.
Over the last ten years, the margin of outperformance hasn’t been quite as strong with BRK/a outperforming the S&P 500 by less than six percentage points.
Lastly, over a 20-year time frame, BRK/a’s performance of nearly 713% outperforms the S&P 500 by 65 percentage points. When a stock outperforms the broader market with such consistency over so many different timeframes you can chalk it up to more than just luck. It may have taken until just before Buffett’s 94th birthday for his company to reach the trillion-dollar club but he proved long ago that he is the greatest investor in at least a generation.
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Aug 29, 2024
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“I want my name back” – Richard Jewell
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
If you missed yesterday’s CNBC segments previewing and then discussing Nvidia’s (NVDA) earnings results, you can catch them by clicking on the image below.
The main event has come and gone, and there are now just two trading days to Labor Day weekend. Even though shares of NVDA are trading lower in response to its earnings report last night, futures are trading higher this morning with even the Nasdaq trading marginally in the green. Besides the weakness in NVDA, a positive report from salesforce.com (CRM) and others has helped to offset some of the weakness.
Besides the busy slate of earnings last night and this morning, the economic calendar was busy at 8:30 with revised GDP, Core PCE, Wholesales Inventories, and Jobless Claims. From an equity market perspective, the results couldn’t have been better as GDP and Personal Consumption came in better than expected, inflation data was weaker than expected, and jobless claims were slightly lower. The only other report on the calendar for the day is Pending Home Sales at 10 AM.
Throughout August, US Treasury yields have declined across the curve, but the short end has seen the steepest declines. After starting the month at 4.26%, the 2-year US Treasury yield has declined 40 basis points to 3.86%, while the 10-yield has dropped just 20 basis points, falling from 4.03% to 3.83%.
Given the steeper declines at the short end of the curve, the spread between the two yields has narrowed considerably and is close to flipping positive from inversion (negative spread). It got close earlier this month during the heightened volatility when the yen carry trade was being unwound, but this would be the closest it has gotten to a positively sloped curve in a ‘normal’ market environment since mid-2022.
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Aug 28, 2024
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“Virtual reality, all the A.I. work we do, all the robotics work we do – we’re as close to realizing science fiction as it gets.” – 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.
It’s the day we’ve all been waiting for, at least if you were to believe the financial headlines since last weekend. Ever since Friday afternoon, every market-related story has included an obligatory reference to “investors eagerly awaiting earnings from Nvidia (NVDA) on Wednesday after the close”. NVDA’s earnings report has become the world’s most important financial news event. Federal Reserve officials must be getting nervous.
While the hype nearly never lives up to reality, when it comes to being the most important stock in the market, investors may have a point regarding NVDA. Throughout its history as a public company, the stock has averaged a one-day move of +/- 8.1% in reaction to earnings. As shown in the chart below of the 15 most heavily weighted stocks in the S&P 500, that 8.1% move ranks as tied for second (trailing the 8.3% average move in Amazon.com) regarding the most volatile stock. Besides META, the only other stocks that have experienced average one-day moves of more than 5% in reaction to earnings are Tesla (TSLA) and Alphabet (GOOGL).
While NVDA may not be the most volatile of the 15 largest stocks in the S&P 500 when you take into account its $3.2 trillion market cap and 6.7% weight in the S&P 500, its average impact on the S&P 500 in reaction to earnings towers over every other stock in the market. As shown in the chart below, the ‘average’ reaction to earnings from NVDA coupled with its market cap translates into a one-day impact on the S&P 500 of 54 basis points (bps), or 0.54%. The next closest stock based on this measure would be Apple (AAPL) at 33 bps; the only other stock with an impact of more than 25 bps is AMZN.
Now just because NVDA’s average one-day change in reaction to earnings translates to the largest impact of any other stock in the market doesn’t mean the S&P 500 will experience a move of 0.54% tomorrow. As shown in the chart below, there have been plenty of quarters where NVDA’s one-day reaction to earnings has been well less than 8%, including four of the last eight quarters where the one-day reaction to earnings was less than half of the average. Then again, there have also been three quarters during that same span where NVDA’s one-day move in reaction to earnings was well over 10%, including last May when the stock surged 24%! Based on its current market cap, a 24% move in NVDA would equate to a 1.6% move in the S&P 500 – for just one stock!
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Aug 27, 2024
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“We can draw lessons from the past, but we cannot live in it.” – Lyndon B Johnson
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Depending on the index, equity futures are trading within 0.1% above or below unchanged this morning as treasury yields move slightly higher. The only economic reports on the calendar this morning are FHFA House Prices and Consumer Confidence. Besides these two reports, investors continue to look ahead to Nvidia (NVDA) earnings after the bell on Wednesday. It’s hard to remember a time when there was so much anticipation regarding one company’s earnings report, but besides Apple (AAPL) over the years, it’s also hard to remember a stock in recent history that has garnered as much of an iconic status.
For anyone frustrated with the slower momentum in the US economy, consider yourself lucky we’re not Germany. Q2 GDP in Europe’s largest economy and the third largest in the world contracted by 0.1%, which was in line with expectations. The latest quarterly print represents the latest example of an economy stuck in the mud and not going anywhere. Look at the chart below of quarterly GDP in Germany since the start of 2014. For nine quarters, quarterly GDP prints have alternated between gains and losses.
The chart below shows historical streaks where German GDP alternated between growth and contraction, and at nine quarters in a row now, the current streak is unlike anything seen since East and West Germany reunified in the early 1990s. It’s over twice as long as the next longest streak of four quarters. Not only that, but unless there are revisions to prior quarters, the streak will either extend to ten next quarter, or the economy will be in a technical recession (back-to-back quarters of negative GDP)!
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