Aug 6, 2024
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“Fear is the most contagious disease you can imagine. It makes the virus look like a piker.” – 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.
After falling 12% on Monday, Japan’s Nikkei bounced back 10% on Tuesday, and US equity futures are currently set to open higher by about 0.75% as of 8 AM ET. As shown below, the carnage from the past few weeks has now left the S&P 500 in extreme oversold territory (>2 standard deviations below its 50-DMA). These are areas where you typically start to see some upside mean reversion, although it’s certainly not a guarantee.
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Aug 5, 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.
“The best laid plans of mice and men often go awry” – Robert Burns
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 Fed decided to hold rates steady once again last week while indicating that it was highly likely to cut rates at its next meeting in September. Since that decision, markets have decided that the Fed got too cute. As shown below, with risk assets plummeting around the world this morning, the odds of at least 50 basis points of rate cuts by the September meeting are now at 100%.
Suddenly the Fed Funds Rate all the way up at 5.25-5.50% looks wildly out of line with where the 10-year and 2-year Treasury yields are trading at around 3.75%.
Aug 2, 2024
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“The more you sweat in peace, the less you bleed in war.” – Norman Schwarzkopf
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Welcome to August. Global stock markets have been slapped in the face by a brutal August sell-off driven by weak earnings reports, concerns over the economy, and a generally overbought technical condition. If that wasn’t bad enough, the July employment report was entirely weaker than expected. Non-farm payrolls increased by just 114K vs a 175K forecast. The Unemployment Rate came in 0.2 higher than expected (4.3% vs 4.1%). As if that wasn’t bad enough, both average hourly earnings and the average workweek were weaker than expected. After being down by 1.2% heading into the print, S&P 500 futures are now indicated to open down by over 1.5% while the Nasdaq is down 2.3%. Going the other way are treasury yields where the 10-year yield is below 3.8% and near the lowest level since last July!
As mentioned above, August has started on a poor note, and based on where futures were trading at 8 AM, the S&P 500 was on pace for a decline of 2.5% in the first two trading days of August. Since 1954, only three other years – 1998, 2002, and 2011 – have started weaker. Interestingly, though, in the late 1960s/early 1970s, there was consistent weakness to kick off the month.
In terms of how weak starts to August play out for the rest of the month, buckle up. In 1998, the S&P 500 went on to crater another 10.7% while in 2002, it surged 6.0%. Both of these moves make the 2.8% decline for the rest of August in 2011 seem sleepy.
And for the rest of the year? In 2011, that 10%+ decline fully reversed and turned into a gain of 14.7%, but in 2002 and 2011, the S&P 500 was also up but by less than 2% each time.
Aug 1, 2024
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“Run faster, jump higher, reach farther, and you’ll always win!” – Jerry Garcia
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 a monster rally yesterday, futures are higher again this morning which is impressive considering that Asian markets were lower overnight, and Europe is lower this morning. A rally of over 7.5% in shares of Meta Platforms (META) in reaction to earnings is driving the positive tone, and the company’s plan to keep investing massive amounts into AI has translated to a follow-through rally in shares of Nvidia (NVDA).
Outside of equities, crude oil is trading modestly higher while treasury yields have also reversed a small amount of yesterday’s decline. A lot of these moves could change, though, as the economic calendar is packed between now and 10 AM with Non-Farm Productivity (better than expected), Unit Labor Costs (lower than expected), and jobless claims (higher than expected) all coming out at 8:30. Those reports will be followed by the S&P Manufacturing PMI at 9:45 and then ISM Manufacturing and Construction Spending at 10.
Through the end of July, the S&P 500’s total return over the last year was a gain of 22.1% which is nearly twice the historical average dating back to 1928. Not a bad 12 months! Besides the last year, equity market returns have been consistently above average for years. As shown in the chart below, the S&P 500’s annualized return over the last two years is nearly seven percentage points above the historical average while the annualized return of 15.0% over the last five years towers over the historical average of 10.5%. Stretching out over the last ten years, the gap between the current period and the historical average is not as wide, but at over 2.5 percentage points annualized, it adds up. While a 10.6% annualized return over ten years works out to a gain of 174%, a 13.2% annualized return ends up with a total return of 246%. It isn’t until you go out over the last 20 years that returns fall below average, but the spread is less than half a percentage point.
While it’s been a golden age for equity returns, bond returns have been terrible, but even here there was a little flicker of light. While the one-year performance of long-term US treasuries, as measured by the BofA/Merrill 10+ Year Treasury Index, has been well below average, it was positive which is something we haven’t been able to say much in recent months. Not only that, but monthly returns have also been positive for three straight months, and that’s the longest streak since July 2021.
Returns haven’t just been weak over the last year. Over the last two and five years, annualized returns have been negative and well over 10 percentage points below the historical average. Over the last 10 and 20 years, annualized returns are positive, but still well below the historical average.
Getting back to the fact that long-term treasuries were up in the 12 months ending 7/31, the chart below shows the rolling one-year performance dating back to 1978. July’s positive treading was only the second time in 42 months that the trailing 12-month performance was positive, and there has never been another period when trailing 12-month returns were so consistently negative.
Jul 31, 2024
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“One of the great mistakes is to judge policies and programs by their intentions rather than their results.” – Milton Friedman
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
When Microsoft (MSFT) traded down over 5% in response to earnings last night, S&P 500 and Nasdaq futures immediately traded lower. A positive report from AMD and its halo effect on Nvidia (NVDA) has been more than enough to offset those losses. Positive results from Starbucks (SBUX) and Arista Networks (ANET) have also contributed to the positive tone…for now.
There’s a lot of data to get through between now and the close as the latest FOMC policy decision will be announced at 2 PM Eastern. Before that, we’ll get the ADP Employment report (weaker than expected), Employment Cost Index, Chicago PMI, and Pending Home Sales.
We’ve spoken a lot about the daily divergences between price and breadth for the last several weeks, and as we close out July, we just wanted to compare how this month compares to other months. Through 7/30, the S&P 500’s price moved in the opposite direction as its advance/decline (A/D) line on just over 38% of all trading days this month. Going back to 1990, there have only been three other months where the percentage of divergent days was as high or greater – July 2017 (40%), August 2020 (38.1%), and last month (52.6%). One notably absent period is 2000. While many comparisons have been made between now and the end of the late months of the dot-com bubble, the frequency of divergence days back then never reached the levels we have seen in the last two months.
Looking at breadth divergences on a 50-day moving average basis, through July 30th, 44% of all trading days in the last 50 saw breadth and price move in the opposite direction. No other period since 1990 comes even close. The prior record was 32%, reached in May 1995 and September 2017. Again, at the peak of the dot-com bubble, the percentage of divergent days peaked at 28%.
The similarities to the dot-com bubble arise when we looked at the percentage of days when the S&P 500 was down but breadth was positive. Back in 2000, the 50-day average peaked at just over 16%. Even based on this metric, the current period (18%) eclipses the peak from 24 years ago, but it’s much closer. One notable aspect of the last several years, though, is how the percentage of days has generally been trending higher since the mid-teens. Software may be eating the world, but megacaps are eating the market.
Jul 30, 2024
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“In this building, it’s either kill or be killed. You make no friends in the pits and you take no prisoners.” – Louis Winthorpe III
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
US stocks opened higher yesterday but gave up much of those gains throughout the trading session to close only with modest gains. This morning, futures have taken on a more modest but still positive tone. We’ve had a hefty dose of earnings reports to kick off the trading day, but the main event is Microsoft (MSFT) after the close with Starbucks (SBUX) and Mondelez (MDLZ) playing a supporting role. Before those reports, though, we’ll get JOLTS and Consumer Confidence at 10 AM.
Beyond the US, Asia was mostly lower, although the Nikkei bucked the trend with a modest 0.2% gain after Unemployment came in lower than expected. The tone in Europe is decidedly more positive with the STOXX 600 up 0.4% as GDP for the region came in stronger than expected even though growth in Germany showed an unexpected decline.
With just two trading days left this month, July has been a month of trading places as stocks and areas previously favored by investors have been taken out to the woodshed while some of the more neglected ones finally get their fifteen minutes – or maybe even more. The two tables below show the performance of the ten largest and ten smallest S&P 500 stocks by market cap on both a month and year-to-date basis.
Starting with the top ten, they are some of the bottom performers for the month. Seven of the ten stocks have declined this month, and the median decline of all ten has been over 5%. Even after these declines, though, nine of the ten stocks are up for the month (only Tesla is lower), and their median YTD is over 20%!
Now moving on to the ten smallest stocks, through Monday’s close, their median MTD performance was a gain of 2.27% with six out of ten stocks rallying. Contrast that to their YTD performance where all ten stocks are in the red on a YTD basis with a median decline of close to 20%.
The chart below compares the MTD and YTD performance of the 10 largest and smallest stocks in the S&P 500. On a MTD basis, the performance spread is over 8 percentage points in favor of the ten smallest stocks by market cap. Conversely, on a YTD basis, the performance spread between the two groups of stocks is nearly 42 percentage points. Which areas of the market lead or lag can have a big impact on investor portfolios based on their positioning, but to adapt a phrase from Randolph Duke in Trading Places, no matter which stocks lead or lag the market, Duke & Duke get the commissions.
