Jul 23, 2024
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“Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful.” – Bela Karolyi
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
In today’s world, “The Magnificent 7” often refers to the tech giants Microsoft, Apple, Nvidia, Alphabet (Google), Amazon, Meta Platforms (Facebook), and Tesla. However, the original “Mag 7” were a different kind of legend, made up of Borden, Chow, Dawes, Miller, Moceanu, Phelps, and Strug. These were the seven women of the 1996 US Women’s Gymnastics Team, led by coaches Martha and Bela Karolyi. The August 13, 1984 cover of Sports Illustrated had a picture of Mary Lou Retton with the caption, “Only You, Mary Lou”, but the 1996 Women’s Olympics gymnastics team was stacked with a deep roster of talent and high hopes of winning the gold- something never done before in US women’s gymnastics history.
Battling it out with Russia and Romania, on July 23, 1996, it all came down to the vault, and the US needed a solid score to clinch the gold. First up for the US, Dominque Moceanu slipped on each of her vault attempts leaving it to Kerri Strug. On her first attempt, Strug also slipped and ‘heard something snap’ as she fell to the mat wincing in pain. Despite the burning in her ankle, Strug swallowed the sting and gathered herself at the start of the mat. Strug sprinted down the 75-foot runway, launching into a round-off back handspring onto the vault before soaring into a one-and-a-half twist. Coming back down from orbit, she stuck the landing (on one foot) and turned towards the judges to finish the routine. Not a second later, she collapsed to the mat and crawled off the mat in agony.
Strug scored a 9.712 which was enough for gold. The picture of Bela Karolyi carrying Strug to the medal stand because she couldn’t walk has become one of the most memorable pictures in Summer Olympics history. Nearly as iconic is the picture of each of the original Mag 7 standing on the gold medal platform in their warmup suits…except for Strug in the second from the right position who couldn’t get the pants over her brace.
Alphabet (GOOGL) and Tesla (TSLA) will kick off earnings season for the tech-heavy stock market Magnificent 7 after the close today. Heading into the reporting period, the last several days haven’t seen a gold market performance from any of them, as they’ve all stumbled to varying degrees in the last week. Apple (AAPL) and Amazon.com (AMZN) have both seen declines of at least 4%, while Nvidia (NVDA) isn’t far behind with a decline of 3.8%. The only one of the seven not down more than 1% during this span is TSLA, but it’s also up the least YTD with a gain of 1.22%. Outside of TSLA, the other Mag 7 stocks remain up at least 15% YTD while GOOGL and Meta Platforms (META) hold on to gains of over 30% and Nvidia (NVDA) leaves the rest of them in the dust with a YTD gain of nearly 150%.
Relative to their trading ranges, AMZN and META have broken below their 50-DMAs which would be viewed negatively in the short term from a technical perspective. Meanwhile, AAPL and TSLA have remained at overbought levels bucking the trend of the rest of the group and the broader market. The fact that these stocks have experienced weakness leading up to their earnings reports isn’t necessarily such a bad thing as rallies into earnings would only have the potential to set the bar unrealistically high. It doesn’t take a gymnast to know that the lower the bar, the easier it is to get over it.
Looking at the charts of each Mag 7 stock, even after their recent pullbacks, they mostly all remain in uptrends of varying degrees of steepness. While TSLA may not be in an uptrend, it’s still more than 25% above its 50-day moving average even as it deals with resistance from its late 2023 peak.
Jul 22, 2024
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“There are two hundred million idiots, manipulated by a million intelligent men.” – Pablo Escobar
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Last week’s Bespoke Report asked if you would remember “where you were” last Tuesday when the Russell 2000 registered the most overbought short-term overbought reading for a US index ever recorded. Over the weekend, the major news events kept coming when President Joe Biden released a statement saying he would no longer seek re-election. Will I ever forget the BBQ chicken sandwich with melted cheddar cheese that I was having for lunch when my daughter read the statement from TikTok?
As the news filtered out, President Biden’s decision was quickly compared to President Johnson’s decision in 1968 not to seek re-election. Besides the fact that they were both sitting presidents with low approval readings when they decided to drop out, the two scenarios are very different.
Johnson dropped out very early in the primary season in March 1968 as his chances for the nomination looked very uncertain if not unlikely. Biden’s decision came well after the primaries he overwhelmingly won were completed and his nomination was locked up. Additionally, whereas Johnson announced his decision to the American people in a televised address, Biden’s decision came via a statement that said he would “speak to the nation later this week in more detail about my decision.” When looking back to history for comparisons, it’s hard to find a scenario where a political party’s candidate for President who had high approval ratings within their party at one point was forced to withdraw from the election less than a month later.
Despite the major events of the weekend, the equity market seems undeterred. Futures are firmly higher heading into the new week after rocky returns last week. One factor investors need to be prepared for as we head into the end of July and early August, though, is the calendar. As shown on the Seasonality Tool of our website, while historical returns over the next week are middling relative to the rest of the year, the S&P 500’s median one-month performance from the close on 7/22 over the last ten years has been in the bottom third relative to history. The median three-month performance over the last ten years doesn’t get much worse. As shown at the bottom of the image, the S&P 500’s median three-month performance from the close on 7/22 over the last ten years has been a decline of 1.38% and ranks in just the second percentile relative to all other three-month periods during the year.
Breaking out the S&P 500’s three-month performance over the last ten years shows that while overall returns are negative, there has been a lot of dispersion. In the six years over the last ten when the S&P 500 was lower, it declined at least 1.2%. Conversely, in three of the four years when the S&P 500 was higher, it gained at least 4%. Whatever you do, buckle up.
Jul 19, 2024
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“An emperor’s an entertainer, an empire a super-show.”– Nero
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’re reading this, you are one of the lucky ones as computer systems around the world have been crippled. The culprit is a botched security update issued by CrowdStrike (CRWD) through Microsoft (MSFT) systems which has caused thousands (or even millions) of people to be greeted by the dreaded ‘blue screen of death’. Flights and mass transit systems worldwide have been ground to a halt leaving people temporarily stranded as CRWD looks to roll back the update.
After a lousy couple of days for US stocks, Asian and European stocks are closing out the week on a down note. Major Asian equity benchmarks were down between 0.2% for Japan to 2.0% for Hong Kong’s Hang Seng. The Japanese government lowered its 2024 growth forecast from 1.3% to 0.9% even as inflation has pushed rates higher. In Europe, the STOXX 600 declined 0.5% in early trading and is on pace to finish the week down more than 2%. The only major economic report of note in the region was UK Retail Sales, which came in much weaker than expected, falling by 1.2% versus forecasts for a decline of just 0.6%.
There are no economic reports to speak of in the US this morning, and futures are little changed after trading moderately lower overnight, so the main issue of discussion heading into the weekend will revolve around whether or not President Biden stays in the race, and if not, who will replace him.
In what has been a bifurcated year for the market, the five days ending Thursday have continued to be a two-tier system, except now in the other direction. Through yesterday’s close, the S&P 500 tracking ETF (SPY) was down 0.69% over the last week, but mid-caps were up over 1% while small and micro-cap stocks surged over 3%.
There used to be a segment on Sesame Street called, “One of These Things” where they would show four items with one not looking like the others. The one-year charts of the major indices based on market cap would be a perfect version of that game where micro-caps, small-caps, and mid-caps have all surged and broken out of sideways trading ranges in the last few days. Meanwhile, large-caps have pulled back after reaching record highs.
Even as US large-cap stocks have faltered over the last week, they’ve outperformed every other part of the world. As shown in the snapshot of regional ETFs below, European and Asian markets were down slightly more than the S&P 500 while emerging markets fared even worse with declines of over 2%. It may not have been the best week for US stocks in what was an overdue pullback, but other parts of the world fared even worse as US small caps were the only global bright spot.
Jul 18, 2024
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“The brave may not live forever – But the cautious do not live at all” – Richard Branson
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Yesterday was another one of those days when price moved in one direction while breadth went the other way. While the S&P 500 fell 1.3%, a net number of 15 stocks in the S&P 500 finished the day higher. The scatter chart below shows the daily moves of the S&P 500 (y-axis) this year versus the net daily breadth readings (x-axis). Whenever a dot falls in any of the shaded areas, prices and breadth moved in the opposite direction, and occurrences in the darkest shaded areas indicate days when the S&P 500 finished the day up or down 0.5% and breadth moved in the opposite direction. Yesterday (red dot) was one of five days this year when the S&P 500 was down 0.5% and breadth was positive. Not only that, but it was the first time since April 2000 that the S&P 500 was down 1%+ and breadth was positive.
Yesterday was the 34th day this year that the price and direction of the S&P 500 moved in opposite directions. If it ended today, this year’s total would already rank as the seventh-highest number of days where the two moved in the opposite direction. But the year isn’t over yet, and if the current pace keeps up over the next five and a half months, the total number of divergent days for the S&P 500 would total 62, easily setting a record dating back to at least 1990.
In terms of extreme divergence days, yesterday was the 9th time that the S&P 500 rallied (or declined) at least 0.5% and breadth moved in the opposite direction. That already ranks as the fourth most occurrences for a calendar year since 1990. If this pace continues for the rest of the year, there will be 17 occurrences. That would put this year in the position of the second most of all-time, trailing only 19 occurrences in 2000.
It’s never good to find yourself in a world of comparisons to 2000, but when it comes to daily divergences between price and breadth, 2024 has a lot of similarities.
Jul 17, 2024
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“Mercy to the guilty is cruelty to the innocent.” – Adam Smith
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 fun couldn’t last forever, could it? Futures are sharply lower this morning with tech leading the way to the downside as the Nasdaq is indicated to open 1.5% lower. S&P 500 futures aren’t faring much better with an indicated decline of 1%, but the Russell 2000, while lower is down a more respectable 0.40%.
There are two catalysts for this morning’s weakness. First, Bloomberg reported that the Biden Administration is considering tighter trade restrictions on companies that provide chips with US-based technology to China. On the other side of the aisle, former President Trump told Bloomberg that Taiwan should pay the United States for providing defense of the country against China. If there’s one thing both Biden and Trump can agree on, it appears that China is the issue.
Normally, the impact of these types of headlines isn’t long-lasting, but in this case, we would note that semis have been underperforming the broader market for the last couple of weeks now, so that’s something to watch.
It’s a busy morning for economic data as well. At 8:30 we got the release of June Building Permits and Housing Starts, and then at 9:15, we’ll get Industrial Production and Capacity Utilization. Today’s housing-related data was important from an economic perspective as each of the last three reports on Building Permits and Housing Starts have all come in weaker than expected and in some cases by a wide margin. This morning’s release provided some relief as both headline readings came in moderately better than expected while last month’s readings were revised higher.
After a five-day rally of more than 11%, the Russell 2000 closed 4.42 standard deviations above its 50-day moving average yesterday. Yesterday’s close was the most overbought level for the small-cap benchmark index since…Ever. The prior record was 3.72 standard deviations on 6/27/23 and before that 3.40 standard deviations in January 1991.
Looking at the chart of the Russell 2000’s daily OB/OS reading, you’ll notice that three of the four most overbought daily readings have all occurred since November 2021. One potential explanation for this phenomenon could be that as the overall market has become much more concentrated at the top, the rest of the market has become smaller and more prone to extreme moves. It was only a couple of years ago when we marveled that the largest company in the S&P 500 was larger than the entire Russell 2000 small-cap index. Before yesterday, though, the Russell 2000 still had a market cap of less than $3 trillion which was less than the market caps of Microsoft (MSFT), Apple (AAPL), and Nvidia (NVDA). Therefore, a 3% shift in the market cap of just those three companies would translate into a 10%+ rally for the Russell 2000!
Not only was yesterday’s close for the Russell 2000, the highest in its history, but of the four major US indices (S&P 500, Nasdaq, DJIA, and Russell 2000), it was the most overbought closing level on record.
Starting with the Nasdaq, in its history dating back to 1971, the most overbought reading based on standard deviations above the 50-DMA was 3.59 in November 1991.
The S&P 500 dates back to 1928, and its most overbought reading on record was 4.06 standard deviations above the 50-DMA on 8/3/1984.
The Dow goes back even further than the S&P 500, and while the chart below only extends back to 1928, since 1900, its most overbought reading on record was 4.36 standard deviations above the 50-DMA also on 8/3/1984.
Jul 16, 2024
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“It’s funny. All you have to do is say something nobody understands and they’ll do practically anything you want them to.” – J.D. Salinger
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 were in the green ahead of the June Retail Sales report this morning as reactions to some of the more high-profile earnings reports were mixed. Shares of Bank of America (BAC) were modestly higher, but both Charles Schwab (SCHW) and Morgan Stanley (MS) were lower. Treasury yields and oil were both lower as gold rallied to what would be a record high on a closing level. In the crypto space, Ethereum is moving modestly lower even as the greenlight was made for ETFs tracking the world’s second-largest crypto to start trading next week.
Retail Sales hit the tape, and the top-lin numbers were better than expected. Overall, sales were unchanged versus an upwardly revised May reading of 0.3%. Ex Autos, sales jumped 0.4% compared to forecasts for a gain of just 0.1% while Ex Autos and Gas, total sales were up 0.9% which was 0.7 ppt better than the consensus forecast. Building Materials saw a large rebound, rising by 1.4% after May’s decline of 0.7%. Nonstore retail (online) saw the largest increase, though, as sales jumped 1.9% on top of May’s increase of 1.1%. As you would expect, yields moved higher on the news, but not by a lot as the 10-year yield is only 2 bps higher than its pre-release level. Still on the calendar for today, we have Business Inventories and Homebuilder Sentiment at 10 AM.
While yesterday’s breadth in the S&P 500 wasn’t strong (+59), it was the fourth straight day where the S&P 500’s net advance/decline line was positive. That’s only the tenth such streak this year, and when you consider that the S&P 500 is up over 18% this year, you would expect to see more similar streaks of positive breadth. The three days that preceded yesterday did show relatively strong breadth, especially compared to other days this year, and all three of them rank in the top eleven in terms of single-day breadth readings.
While breadth readings for the S&P 500 last Wednesday, Thursday, and Friday were strong none of them were strong enough to register as an ‘all or nothing’ day where the net daily breadth reading for the S&P 500 is either +400 or above or -400 or less. That still leaves March 27th (all) and April 12th (nothing) as the only all-or-nothing days this year.
With only two occurrences so far this year, if the current pace continues, 2024 will only have four all-or-nothing days for the entire year. The last time there were fewer was in the extremely placid year of 2017 when there were only three, and before that, you’d have to go back to 2002. While this type of subdued extremes in breadth was normal in the 1990s, most people trading today aren’t familiar with the lack of extremes in day-to-day breadth. While the consistency of low readings in the VIX despite some major geo-political events has been puzzling, the lack of extremes as we have seen in breadth helps to keep the VIX grounded.
