Jul 5, 2024
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“Maintain a firm grasp of the obvious at all times.” – Jeff Bezos
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Work on the day after July 4th? Life just isn’t fair is it? While many of us out here would prefer to use July 5th as a day to extend the July 4th holiday out an extra day, or even rest off a July 4th barbeque hangover, that wasn’t Jeff Bezos in 1994. Instead of going to the beach or taking an extra day, on this day thirty years ago Bezos started Abracadabra, which ultimately became known as Amazon.com (AMZN). In less than 30 years, this company has become one of the most valuable in the world. Thirty years to become the fifth largest company in the United States may sound impressive, but of the four that are larger, Microsoft (MSFT) and Apple (AAPL) are older after being founded in the mid-1970s, but NVIDIA (NVDA) is only a year older, and Alphabet (GOOGL) is four years younger.
Futures were little changed heading into the Non-Farm Payrolls report, as you would expect given the quasi-holiday, and the same went for Treasuries and crude oil. The market area seeing the most volatility this morning is in the crypto space where the release of assets tied to the Mt. Gox bankruptcy has raised fears of a wave short-term supply hitting the market.
The Non-Farm Payrolls report was just released, and just like last month, the headline reading came in stronger than expected while the Unemployment report was higher than forecast at 4.1%, the highest level since November 2021. Add to that, May’s originally reported number of an increase of 272K payrolls was revised down to 218K, so the blistering pace of the employment sector from a year ago no longer remains the case. As you might expect, treasuries caught a bid on the news and the 10-year yield is down 5 bps to 4.30%.
On the political front, major media outlets like Bloomberg are calling it a “Make-or-Break” weekend for the President saying that “most crucial for Biden will be an interview on Friday with ABC News, offering voters and allies the first unscripted, high-pressure look at the president since he faltered in his showdown with former President Donald Trump.” Whatever your politics, can we all agree that in this country’s nearly 250-year history, the bar for a “Make-or-Break” moment in a President’s administration has never been much lower than a taped interview?
If a monthly employment report drops on the Friday after July 4th when most people took the day off, does it count? That depends on the report. Today, we’ll get another answer as it will be just the fourth time in the last 25+ years that an employment report was released on the Friday after July 4th. In the chart below, we show the S&P 500’s intraday performance on the day of each of those prior three days, and based on that small sample size, you may want to be on the lookout for some volatility – at least more than a sub-13 reading in the VIX would suggest. In two of the three days, the S&P 500 was up at least 1%, while on the third and most recent occurrence (7/5/19), stocks fell 0.20%. Given the 1%+ daily moves on two of the three days, you would think that the reports deviated from expectations by a wide margin, but in 2002, the headline reading in Non-Farm Payrolls (NFP) was just 45K weaker than expected while in 2013, it came in 29K higher. Ironically, it was the 2019 report, when NFP deviated the most from expectations (+65K), that the S&P 500 had its smallest move. And what’s the deal with the shortened session in 2002, and who decided it was a good idea to make today a full trading day since then? Based on where futures are trading now, the S&P 500 looks to be following the low-volatility path of 2019, but there’s still a full session of trading left to go. Thanks, NYSE!
Jul 3, 2024
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“Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes.” – Thomas Jefferson, Declaration of Independence
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
S&P 500 futures are unchanged as we type this, and Dow and Nasdaq futures are also barely on either side of the unchanged line. That follows what was a positive night in Asia and morning in Europe. In Asia, China was the only country that traded lower as the Caixin Services PMI came in more than two points weaker than expected (51.2 vs 53.4). In Japan, the Services PMI was also weaker than expected but much closer to expectations (49.4 vs 49.8) while India’s PMI for the sector was slightly better than expected and firmly in expansion territory (60.5 vs 60.4). In Europe, all major equity benchmarks are in the green following a stronger-than-expected services sector PMI for the entire region, although Germany’s reading was weaker than expected.
There’s a lot of economic data on the calendar today, but the only reports released so far are the ADP Employment report and jobless claims. All of these reports were modestly weaker than expected which has caused some downward bias in futures, but the 10 AM reports on the Services sector and Durable Goods could move things further.
For those of us who will be working on Friday, we looked at historical market performance on July 5th. The chart below shows the performance of the S&P 500 every July 5th that the market was open since 1954 (when the five-day trading week in its current form first started). Overall, the day after our nation’s birthday, the S&P 500’s median performance has been a fractional gain of just 0.092% with positive returns only 58% of the time, so it’s not too much of a positively biased trading day.
This July 5th is also a Friday, and Fridays after a holiday are notoriously illiquid given the propensity to extend the weekend to four days. In the chart below, the bars shaded in dark blue indicate days when July 5th fell on a Friday. Of those nine days, the upside bias has been stronger with a median gain of 0.40% and gains two-thirds of the time.
Illustrating the potential illiquidity of these days, the largest daily decline and gain both occurred on July 5th Fridays. Ironically, the worst was in 1996 when the S&P 500 was up over 10% heading into July 4th and fell 2.2% on July 5th while the best day was in 2002 when the S&P 500 was down 16.3% heading into the July 4th holiday but then rallied 3.7% the next day. Whatever the market’s direction this Friday, a lot will depend on how the June Employment report shakes out. Don’t forget about that!
Jul 2, 2024
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“Our whole constitutional heritage rebels at the thought of giving government the power to control men’s minds.” – Thurgood Marshall
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 indicated to open down about 50 basis points (bps) this morning following weakness in Europe where the post-French election rally has been largely reversed. Corporate news flow is tranquil this morning, although an op-ed attributed to President Biden and Bernie Sanders calls on weight loss drug makers to lower prices. On the economic calendar, the only report scheduled is JOLTS at 10 AM, but right at the US open, we’ll hear from Powell and Lagarde speaking together from Sintra.
If someone had told you that four sectors were down over 2% over the last week, another three were down 50 basis points or more, and only three were higher, you’d probably think it had been a bad week. During that period, though, the S&P 500 rallied 0.50% and remains at overbought levels. As shown in the snapshot from our Trend Analyzer below, while the S&P 500 sits at overbought levels, only three sectors – Technology, Consumer Discretionary, and Communication Services – are in overbought territory. At the other end of the spectrum, just two sectors – Materials and Industrials – are oversold.
Below the snapshot, we also included two charts of the percentage of stocks above their 50-day moving average for the Technology and Materials sectors. At 73.1%, the Technology sector has the highest percentage of stocks above their respective 50-DMAs, but even for this sector, that reading is well below other points in the last year when more than 90% of the sector’s components were above their 50-DMAs.
Materials is the most oversold sector in the market, and it also has the lowest percentage of stocks above their 50-DMAs at just 10.7%. While this reading was lower in late October, it ranks in just the sixth percentile relative to all other readings since 1990.
Jul 1, 2024
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“Don’t give up at half time. Concentrate on winning the second half.” – Paul Bear Bryant
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 new week, a new month, a new quarter, and a new half, but the market is picking up right where it left off last week as stocks look to kick off the new quarter on a positive note. Along with higher stock prices, treasury yields are also spiking and the 10-year yield is back above 4.4%, but these moves could change significantly with the release of the Manufacturing PMIs at 9:45 and 10: AM. Besides today’s release, the economic calendar will be jam-packed this week (even though it’s just three-and-a-half trading days) with ADP Employment (Wednesday), ISM Services (Wednesday), and Non-Farm Payrolls (Friday) among others.
Stocks finished up the first half with a gain of 15.3% on a total return basis, and the rally since this time last year has been a very respectable 24.6%. That’s nearly twice the historical average and ranks in the 75th percentile relative to all one-year periods since 1928. Over the last two years, which includes almost four months of the prior bear market, the S&P 500 has returned 22% annualized. Five and ten-year returns of 15.0% and 12.9%, respectively, also rank above the historical average, but over the last 20 years, the annualized gain of 10.3% ranks slightly below the 10.9% historical average for all 20-year periods in the S&P 500’s history. No matter how you look at the last ten years, it’s been a great time for equities, but the ten years before that weren’t so good.
That’s the good news. While stocks have performed admirably, bonds have been swirling down the toilet. Over the last year, long-term US Treasuries, as measured by the BofA 10+ Yeat US Treasury Index, have declined 5.1% on a total return basis. Annualized returns over the last two years have been even worse at a decline of 6.1%, and in the previous five years, the annualized decline has still been negative at 4%. Even over the last ten years, returns have been barely positive at just 0.7% annualized. You have to go out twenty years to get meaningfully positive returns, but even here, the gain has been somewhat muted at just 3.9%.
A great way to illustrate the weakness in bonds over the last three-plus years is the chart below. On a year/year (y/y) basis, there has only been one month in the previous forty-one where returns have been positive. Relative to history, this type of consistent weakness for such an extended period has been unprecedented. The only other period where there was any sort of consistent weakness was from October 1979 through October 1981. Back then, there were only three positive y/y readings in 25 months, but the magnitude of the y/y declines was significantly less than in the current period.
Jun 28, 2024
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“The end may justify the means as long as there is something that justifies the end.” – Leon Trotsky
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Was there a debate last night? Futures are modestly positive this morning despite a very weak earnings report from Nike (NKE) where the stock is down over 15% in the pre-market in what would be the worst one-day reaction to an earnings report since at least 2001. Several economic reports were just released, and the results have generally been positive. Personal Income was slightly stronger than expected, Personal Spending was slightly weaker, and PCE inflation data was right in line with estimates.
In yesterday’s Morning Lineup note we noted that “barring something completely unexpected, it’s hard to see this night being looked back at as a major milestone come November.” Last night’s debate met the bar. Politico called it the “worst performance of any general election presidential candidate in any debate in modern American history.” NBC News noted that it sent “Democrats into a panic”. A New York Times headline described it as “frightening”, “shaky”, and “halting”. CNN referred to it as ‘disastrous”. On the other side of the Atlantic, Sky News called it “excruciating” and said that some Democrats described it as a “car crash”, BBC called Biden’s performance “incoherent”, and The Economist described it as “horrific” and “casts his entire candidacy into doubt”. Keep in mind, that these aren’t publications that are typically known as leaning conservative.
The initial reaction in the betting markets was swift. As shown in the snapshot from electionbettingodds.com, while Trump’s odds of winning increased 4 percentage points to 59.7%, Biden’s chances plummeted by nearly 15 percentage points to 21.3%. Interestingly, though, on a generic party basis, Democratics odds declined by just 3.2 percentage points as the chances for a candidate other than Biden on the Democratic side grow.
While the Democratic versus Republican party matchup didn’t move nearly as much as Biden’s odds, it was a big move relative to history. As shown in the chart below, the odds of a Republican victory in November are right near the highest levels since at least 2022, and the only time the odds were higher was in late 2023.
The reason Biden’s odds had such a large decline relative to Trump’s increase comes down basically to one person- Gavin Newsom. As shown in the chart below, overnight, Newsom’s odds of being elected in November shot up to 10% for the first time, and he’s now nearly half as likely to be elected in November as Biden! Obviously, it’s still early and a lot can and will likely change between now and November. If you identify as Democrat, Republican, or unaffiliated with either party, if you watched last night’s debate, you won’t forget it.
Jun 27, 2024
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“It is in knowledge that man has found his greatness and his happiness.” – James Smithson
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 monster list of economic data on the calendar this morning, and most of it will be hitting the tape at 8:30, so good luck trying to keep track of it. In a nutshell, initial jobless claims were basically in line with forecasts while continuing claims were modestly higher than expected. Inflation data was a bit higher than expected, and Durable Goods were better than expected. Ahead of the data, futures were modestly lower following overnight weakness in Asia and Europe. Crude oil is higher and above $81 per barrel, while the 10-year yield is unchanged at 4.33%. One of the biggest drivers of the weakness this morning comes from Micron (MU) which is down 6% in the premarket after reporting better-than-expected earnings but merely reaffirming guidance. The weakness in MU has overflowed into the entire semiconductor space, including Nvidia (NVDA) which is down 2%.
Outside of India, major Asian equity indices traded lower overnight as Hong Kong led the losses with the Hang Seng down over 2%. China’s Shanghai Composite finished down 0.9%, and the Nikkei was down 0.8%. In China, Industrial profits were down 3.4% YTD and improved from April’s YTD reading of 4.3% while Retail Sales in Japan rose more than expected (3.0% y/y vs 2.0% estimate). Following the lead of Asia, European stocks are also lower this morning, but not by as much as their peers in Asia. The STOXX 600 is down 0.3% with the biggest losses in France (-0.7%) and Spain (-0.7%) while Germany is slightly higher.
With the S&P 500’s price and net daily breadth moving in opposite directions for five trading days in a row now, the daily divergences have started to add up and the gap between the S&P 500 and its cumulative A/D line has widened. While price and breadth tracked each other very closely for the eleven-month ending about a month ago, the last month has seen each move in opposite directions.
With the first half ending tomorrow, we wanted to see how the recent daily breadth divergences this year compared to the first half of prior years. Through yesterday’s close, the S&P 500’s price and daily breadth readings moved in opposite directions on 23% of all trading days. Dating back to 1990, that level is tied for the most ever. The only other year where there were as many daily breadth divergences was in 1995, and the only other year that was even close was 2000. While 1995 and 2000 may have been similar in terms of breath divergences, from a market perspective, that’s about where the similarities end.
