May 30, 2024
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“Finally, The End of Software is here.” – Marc Benioff, 2008
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 just looking at futures on the major indices, things look a lot worse than they seem. That’s because a 15% decline in Salesforce (CRM) following its earnings results after the close yesterday makes its presence felt, especially on the Dow (more on that below). Outside of that report, investors remain defensive following a surge in rates earlier this week. Rates are lower this morning, but until we get through this week’s inflation data, it will be hard for investors to breathe any easier. In Europe this morning, stocks are generally higher led higher by Spain while the overnight tone in Asia was weaker with both the Nikkei and Hang Seng down over 1%.
A lot of economic data just hit the tape including GDP, Personal Consumption, PCE, and Jobless Claims. Overall, there were no major surprises, and on a positive note, the inflation aspects of the data were generally lower than expected.
Earnings season may have unofficially ended two weeks ago when Walmart (WMT) reported earnings on 5/16, but there have still been plenty of notable reports. Yesterday’s report from Salesforce (CRM) may have been one of the most notable. While the company reported better-than-expected earnings, it had a rare revenue miss and lowered guidance. The revenue miss was the first time the company missed since 2006! That was enough to send the stock plunging after hours, exacerbating what has already been a steady downtrend since its peak in early March. With the stock down over 15% in the pre-market, CRM is poised to close the gap higher from when it reported earnings late last November.
Within the S&P 500, CRM’s weight is just under 0.60%, so even with a decline of 15% in the pre-market, its impact on the index will be a negative hit of around 0.1%. Where CRM’s decline hurts, though, is on the performance of the Dow where its 4.6% weighting will cause a negative hit of around 275 points, or around 0.7%. As we noted yesterday, the DJIA is already underperforming the S&P 500 by a historically large margin YTD, so today’s move will widen the gap even more.
With today’s decline, CRM is also on pace to have its second-worst one-day reaction to earnings as a public company. The worst drop occurred in response to an earnings report in August 2008. Furthermore, the stock has only declined by 10% or more in reaction to earnings four other times in the last 20 years.
While it is not uncommon to see smaller companies react poorly in reaction to earnings, it’s unusual among large-cap companies in the S&P 500. Since the start of April, CRM will be just the 24th S&P 500 company to decline more than 10% in reaction to earnings and just the tenth to fall more than 15% if its current declines hold into the close. Of those companies listed below, though, CRM would be just the fifth to gap down more than 15% on its earnings reaction day.
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May 29, 2024
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“It is not the mountain we conquer, but ourselves.” – Edmund Hillary
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Tech led the way higher for the S&P 500 and Nasdaq yesterday, but the tone is more subdued this morning as futures move lower across the board. While no particular catalyst can be cited for the weakness, higher rates and higher oil prices never help. Following yesterday’s weak Treasury auctions, traders will have their eyes glued to the $44 bln offering of 7-year notes to see how that gets received.
Seventy-one years ago today, Edmund Hillary and Tenzing Norgay became the first known people to reach the summit of Mount Everest. Given the anniversary, it’s only fitting that yesterday was the first ever day that the Nasdaq “conquered” 17,000. Despite the Nasdaq’s achievement, if it was a mountain, measured in feet, 17,000 doesn’t even crack the world’s tallest 100 peaks and would be less than two-thirds the height of Everest.
The table below lists each 1,000-point threshold that the Nasdaq has crossed in its history. Yesterday’s cross of 17,000 was just a 6.3% gain relative to 16,000, but the 921 days that elapsed between the first cross of each threshold was the third longest span between 1,000-point thresholds in the index’s history. Besides the 8,928 days it took from inception to cross 1,000, the only two others that were longer were the 1,095 days between 1,000 to 2,000 and the 6,256 days between 5,000 to 6,000. You can argue that the Nasdaq has reached lofty levels, but since 11/19/21, it has rallied less than 6.3% which works out of 2.3% annualized. Cherry-picking? Maybe. But it does help to put things in perspective.
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May 28, 2024
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“When everybody thinks alike, nobody thinks.” – Bill 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.
While the US observed Memorial Day yesterday, trading in the rest of the world was uneventful but generally positive. This morning in the US, futures are very modestly higher as the S&P 500 and Nasdaq look to make it six weeks in a row of gains. The Nasdaq is leading the way higher this morning as shares of Apple (AAPL) are higher on news of strong sales in China while Nvidia (NVDA) is also up following news that xAI has raised $6 billion in funding, and much of that will likely get plowed right into NVDA chips.
There’s a lot of economic data on the calendar this morning and this week, so check out this morning’s report for a full rundown.
Recent market action has been much less uniform despite year-to-date gains across most sectors. Last week, the S&P 500 eked out a small gain, but nine out of eleven sectors fell. Seven sectors dropped at least 1%, with Energy and Real Estate plummeting over 3.5%. Conversely, Technology and Communication Services were the lone bright spots, finishing the week in positive territory. The spread between the best and worst performers (Technology and Energy, respectively) exceeded five percentage points, highlighting the underlying volatility beneath the seemingly placid surface.
The performance of the Technology (XLK) and Energy (XLE) sector ETFs since last October’s low further illustrates divergences in sector performance. Just as tech started to rally late last year, energy stalled and moved sideways through January. Then, in late January, as momentum in the tech sector stalled, energy stocks picked up steam until April when the two sectors started to reverse course again. With sectors moving in their independent ways lately, Bill Walton would approve!
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May 24, 2024
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“The legacy of heroes is the memory of a great name and the inheritance of a great example.” – Benjamin Disraeli
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 commuted to work today, you already noticed that you’re one of the few, as many people decided to use the Friday before Memorial Day as a work-from-home day or even better, a day off. The data calendar is light to close the week with Durable Goods at 8:30 (stronger than expected) and the University of Michigan Sentiment survey at 10 AM. The preliminary release of this report on 5/10 came in much weaker than expected while one-year inflation expectations surged from 3.2% up to 3.5%. For today’s report, economists expect the one-year reading to recede modestly down to 3.4%.
Heading into the opening bell, equity futures are trading little changed but with a positive bias while treasury yields are little changed. In Asia, equities were lower, even as Core CPI in Japan slowed to a y/y rate of 2.2%. In Europe, stocks are trading lower to close out the week as they catch up to yesterday’s decline in the US.
This morning’s action follows a disappointing session on Thursday where the S&P 500 opened at record highs and what turned out to be the day’s high. It then traded steadily lower throughout the session, and by the time the closing bell rang, the S&P 500 SPDR ETF (SPY) finished down 0.73% and more than 1.3% from its intraday high.
In today’s Morning Lineup, we looked at prior reversals similar to yesterday’s to see where in the market cycle they tended to occur and how the S&P 500 tended to perform going forward. Were prior occurrences an ominous warning? Sign up for Bespoke Premium to find out!
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May 23, 2024
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“The single most important thing for any processor is getting adoption by software developers.” – 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.
Positive earnings from Nvidia (NVDA) have US futures firmly higher this morning, and lower-than-expected jobless claims have also helped to keep things green. Later we’ll get flash PMI readings from S&P at 9:45, New Home Sales at 10, and the KC Fed Manufacturing report at 11 AM.
If there’s anyone who would know about the accuracy of the quote above from NVDA CEO Jensen Huang, it would be Jensen Huang who is riding the wave of AI using his company’s chips to heights that could never have been imagined. A big reason why is because of the Cuda software platform that accompanies those chips, and that was on full display in last night’s earnings report which blew the doors off expectations across just about every possible metric.
Given the magnitude of its beat relative to expectations in its reports last night, traders seemed surprised that Nvidia (NVDA) is up ‘only’ 7% in the pre-market. Whether that’s the ‘right’ reaction to the report, we’ll leave it to others to decide, but a 7% move is anything but small. First, let’s look at NVDA’s price chart. With the stock trading over $1,000 this morning, the stock is up 164% over the last year and 105% on a year-to-date basis. Nothing small about that.
Now let’s compare the change in NVDA’s market cap today to the market cap of individual S&P 500 companies. As of yesterday’s close, the average market cap of S&P 500 components was just under $95 billion while the median market cap was just $35.1 billion. The fact that the average market cap is 169% larger than the median shows how top-heavy the index is, but that’s a discussion for another time. Based on pre-market trading, NVDA is poised to increase its market cap by $175.2 billion. That’s over $80 billion more than the average market cap and $140 billion more than the median market cap. Not only that but that $175 billion in market cap would also rank as the 46th largest company in the entire S&P 500. That’s larger than the market caps of companies like Caterpillar (CAT), American Express (AXP), Pfizer (PFE), and Morgan Stanley (MS). Again, nothing small about that.
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May 22, 2024
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“Volatility is a welcome creator of opportunity.” – Seth Klarman
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 modestly lower this morning as Asian and European stocks trade lower for the second day in a row. One of the main drivers of weaker sentiment has been a hotter-than-expected inflation report in the UK. That has lowered the odds of a June rate cut from the BoE, and treasury yields are increasing in response. We’ll finally get an economic report this week with Existing Home Sales at 10 AM, but the main event everyone has been waiting for all week is Nvidia’s (NVDA) earnings report after the close.
Last Friday’s close of 11.99 in the VIX ended a streak of 1,137 trading days where the index closed above 12. As the index closed just a penny below 12, it was hardly a convincing end to that streak, but yesterday it closed below 12 more convincingly (11.84), so we wanted to highlight it. As shown in the chart below, while the VIX traded at lower levels on an intraday basis last December, it hasn’t closed below yesterday’s level since late November 2019.
The just-ended 1,137-day streak of closes above 12 ranks as the third longest of all time and just the fifth time the index went more than a year without closing below 12. The most recent streak before the just-ended streak was also the shortest of the five lasting just 287 trading days and ending in late November 2019 not long before Covid. The longest streak was coming out of the dot-com bubble burst and lasted 2,257 trading days or the equivalent of just about 5 years.
With the VIX now so low, does the lack of volatility equal less opportunity going forward? In today’s Morning Lineup, we looked into that question and provided a summary of how markets performed going forward. To read that analysis, login or signup today
To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.
