May 6, 2024
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“Success is having to worry about every damn thing in the world, except money.” – Johnny Cash
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Equities are picking up right where they left off on Friday as futures have been gaining ground all morning. Even the Nasdaq is trading higher despite the disclosure over the weekend that Berkshire Hathaway has cut its stake in Apple (AAPL) by 13%. The stock was down over 1% earlier but has erased most of its pre-market losses. There’s very little in the way of economic data to look forward to this week, but there are still plenty of earnings reports to deal with even though, we’ve passed the peak of the Q1 reporting period.
The S&P 500 eked out its second positive week in a row, and the Nasdaq and Russell 2000 each squeezed out their second week in a row of 1%+ gains. Despite the gains, the S&P 500 still closed the week modestly below its 50-day moving average. If you look at the snapshot of US indices from our Trend Analyzer below, all the major US index ETFs closed out the week clustered right around their 50-day moving averages (DMA). No ETF is more than 0.70% above or below its 50-DMA.
While the indices are all “walking the line” of their 50-DMAs, there’s a little more dispersion at the sector level. Four of eleven sectors are trading at least 1% above or below their 50-DMA. Utilities and Real Estate are the two highest-yielding sectors in the S&P 500, but they have moved in opposite directions this year. As of Friday, Utilities was the most extended relative to its 50-DMA while Real Estate was the furthest below. Besides those two sectors, Health Care and Consumer Staples are the two other sectors trading further than 1% from their 50-DMAs.
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May 3, 2024
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“Work takes on new meaning when you feel you are pointed in the right direction. Otherwise, it’s just a job, and life is too short for that.” – Tim Cook
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
An apple a day keeps the doctor away, and an Apple (AAPL) earnings report could be just what the market needs to get out of this week with a gain. At current levels, the gains aren’t quite enough to push the market into the black for the week, but if there’s any positive momentum during the trading day (a bigger ask lately), we could get over the hump. Overnight, Asian markets were mixed as the yen rallied from its multi-decade lows earlier in the week. Europe is firmly in positive territory with gains of around 0.50% as banks lead the rally even as Novo Nordisk falls around 5%. Ahead of the 8:30 jobs report, treasury yields are little changed, oil is slightly higher but still below $80, and gold is down fractionally.
Before the April employment report, we wanted to briefly summarize trends surrounding recent reports. The table below summarizes the last two years’ worth of reports including how each came in relative to expectations along with equity market performance on the day of the report. One thing that immediately stands out is that just three of the last 24 reports have come in weaker than expected, and the average margin of “beat” in these 24 reports was 76K. Before Covid, a beat of 76K was very strong. Post-Covid, it’s a normal occurrence.
In terms of the market’s reaction to these reports, the last eight reports have been extremely positive with positive one-day reactions seven times. Before that, things weren’t quite as strong. From May 2022 through April 2023, for example, the S&P 500 declined on the day of the report nine out of twelve times. In terms of recent sector performance, two standouts have been Energy and Financials. Both sectors have reacted positively to 12 of the last 13 reports with average gains of 0.98% and 0.78%, respectively. Consumer Discretionary and Industrials haven’t been slouches either as they notched gains on eleven of the last thirteen non-farm payrolls days.
Getting back to the pace of stronger-than-expected reports, it’s hard to believe but 21 of the last 24 reports have been better than expected. As shown in the chart below, dating back to 2000, we’ve never seen this torrid pace of stronger-than-expected reports. Can the Fed really be talking about rate cuts when the pace of stronger-than-expected reports is this strong?
While better than expected Non-Farm Payrolls reports have been occurring at a pace never seen before, another notable trend lately has been the pace at which reports have been revised lower. When we compare the originally reported change in Non-Farm Payrolls to the current readings after revisions, just nine reports have been revised higher meaning that 15 have been revised lower. Looking back over time, this isn’t necessarily extreme, but it is above the historical average of 12. In other words, Non-Farm Payrolls reports over the last few years have been blistering hot relative to expectations at their initial release, but unlike a fine wine, they haven’t been getting better with age.
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May 2, 2024
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“How you finish, is what they will remember.” – Unknown
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Markets are in rebound mode this morning as they look to recoup the losses from the last hour of trading. Crude oil is higher but still below $80, and the 10-year yield is unchanged. This morning’s economic data has been mixed with jobless claims coming in lower than expected, but Unit Labor Costs rising more than expected (4.7% vs 4.0%) although last quarter’s reading was revised lower. As labor costs increased, Non-Farm Productivity was weaker than expected rising just 0.3% compared to forecasts for an increase of 0.5%.
When people look back on Super Bowl LI, most will only remember that the Patriots won their fifth championship in an unbelievable comeback against the Falcons. The Falcons, who were up by 25 in the second half, won’t be remembered for being so close, but instead for one of the biggest choke jobs in Super Bowl history. At one point in the second half, they had a 99% probability of winning. It was guaranteed.
Similarly for the market, people will not look back on yesterday as being a day when the S&P 500 was up over 1% with less than an hour left in the session. Most people will just remember it as a day when the S&P 500 finished moderately lower (-0.34%), and for those more involved in the day-to-day moves, they’ll remember that the S&P 500 collapsed into the close falling over 1% in the final hour and more than 0.50% in the last ten minutes of trading! As we noted in the Closer last night, at one point yesterday, the S&P 500 had a 99% probability of finishing the day with a gain. Choke job indeed.
What’s even crazier about yesterday’s tank into the close, is that it was the second day in a row where it happened. Below we show the S&P 500’s intraday charts for Tuesday (4/30) and Wednesday (5/1). While the patterns heading into the last ten minutes of both days were almost the opposite, the last ten minutes were nearly identical; The S&P 500 dropped 0.59% in the final ten minutes on Tuesday and 0.60% on Wednesday. These late-day declines are uncommon enough on their own, but to occur on back-to-back days is extremely rare.
The chart below shows streaks where the S&P 500 declined 0.50% or more in the final ten minutes of trading going back to 1985, and there have only been nine other periods where there were back-to-back occurrences (with two extending to an unheard-of third day). The most recent occurrence was in February 2018 during the Volmageddon meltdown. The next before that was in August 2015 when China devalued the yuan and before that August 2011 when the US lost its AAA credit rating from S&P. There were also a few occurrences during the Financial Crisis and also in October 1987 during the market crash. You probably get the point; these types of back-to-back declines normally occur during periods of intense market stress.
For an analysis of how the market performed following these periods, read today’s entire Morning Lineup.
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May 1, 2024
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“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” – 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.
Many global markets are closed in observance of May Day today, and here in the US, most investors are close to crying “Mayday” after futures are firmly lower following yesterday’s sharp declines. It’s another busy day of earnings and economic data, and the big report overnight was from Amazon.com (AMZN) which is trading modestly higher. Several other smaller but notable companies like Super Micro Computer (SMCI), Starbucks (SBUX), and Skyworks (SWKS) are all trading lower, though. And that’s just the companies that begin with ‘S’! On the economic calendar, the ADP Payrolls report came in modestly higher than expected, but we still have JOLTS, ISM, and Construction Spending on deck. Also, don’t forget the Fed at 2 PM and Powell’s presser at 2:30.
April has historically been a positive month for stocks but not this year. The S&P 500’s 4.2% decline was only the weakest April since 2022 (-8.8%), but it was one of only seven Aprils since WWII where the S&P 500 declined more than 4%. Not only was the S&P 500 down in April, but it also broke a five-month streak of gains.
Five-month streaks of gains for the S&P 500 haven’t been uncommon. Since WWII, there have been 31 prior periods where the S&P 500 posted positive returns for five or more straight months. What made the recent streak unique is that every positive month was a gain of at least 1%, and there have only been nine of those since WWII.
In the charts below, we summarize the performance of the S&P 500 in the one, three, six, and twelve months following the first down month that ended prior streaks. While futures are lower this morning, and the S&P 500 is entering what has historically been a weak period in terms of returns, bulls can take some solace in the fact that median returns following the end of the prior 31 five-month winning streaks along with the median performance following five-month streaks of 1%+ gains have been better than the average for all one, three, six, and twelve month periods since WWII.
Speaking of a weak period for the market, like the recently ended streak, there have only been three other periods where the S&P 500 was up for at least five straight months and then declined in April. It’s a small sample size, but on a positive note, the S&P 500 was higher one, three, and six months later. One year later, though, performance was mixed with declines once, a paltry gain of just 2.4% another time, and a massive gain of over 22% following the streak that ended in April 1986.
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Apr 30, 2024
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“It was the best of times, it was the worst of times.” – Charles Dickens
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 already lower ahead of the 8:30 release of the Employment Cost Index (ECI), and things have gotten worse since then as the report came in higher than expected (1.2% vs 1.0%). This year started with a high probability of multiple rate cuts as inflation was expected to decline. Now, the probability of even one rate cut has been marching toward zero as inflation remains stubbornly high. Still on the docket for today, we have the FHFA House Price Index at 9 Am followed by the Chicago PMI at 9:45 and Consumer Confidence at 10 AM. Outside of November 2023, which looks more and more like an aberration, the Chicago PMI has been below 50 since the fall of 2022, and with economists expecting a reading of 45.0 today, it’s not expected to get back into growth mode anytime soon.
After an impressive rally last week, push is coming to shove as the major averages face their first major test of the bounce in the form of the 50-DMA. While the S&P 500 finished the day higher yesterday, it didn’t quite have enough momentum to close back above its 50-DMA even though it traded briefly above that level intraday.
The picture for the Nasdaq looks similar as it closed just shy of its 50-DMA as well.
One reason for the S&P 500 and the Nasdaq not reclaiming their 50-DMAs is the fact that Microsoft (MSFT), the largest company in both indices, traded down 1% and finished close to its lows for the day.
It wasn’t all bad news from a technical perspective yesterday, though. After coming up just shy of the 50-DMA on Friday, the Philadelphia Semiconductor Index (SOX) opened just below that level on Monday and managed to break through to the upside on an intraday basis and remain there through the close.
While MSFT has been having its troubles recently, shares of Apple (AAPL) have caught a break over the last six trading days, and the former largest company in the world has rallied over 5% taking it back above its 50-DMA for the first time since late January ending what was the longest streak of closes below the 50-DMA since late 2015.
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Apr 29, 2024
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“Endure what is difficult to endure and to suffer what is difficult to suffer.” – Hirohito
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 been a quiet start to the trading week as equity futures trade modestly higher and US Treasury yields are modestly lower. The only economic report on the calendar for the day is the Dallas Fed Manufacturing report which is expected to improve slightly from last month’s reading of -14.4. Just because the week is starting quietly, though, doesn’t mean it will stay that way. In terms of earnings, this week is the second busiest of the reporting period, and the economic calendar is also jam-packed with Consumer Confidence, both the ISM Manufacturing and Non-Manufacturing reports as well as the Employment report on Friday.
While Japanese equity markets were closed for Showa Day, the yen has seen some wild moves overnight. When FX markets opened for trading last night, the yen sold off hard and the USD/JPY cross quickly crossed above 160 for the first time since 1990. It didn’t stay at those levels for long, though, and buyers stepped in and the yen rallied. After briefly dropping below 155, the cross is currently trading right around 156. As shown in the chart below, after breaking above 152 just over a month ago, the yen has become unhinged.
It’s not often that the USD/JPY cross sells off more than 1% in a session and then reverses all those losses and more to finish the day with a rally of more than 1%. Since 1989, that’s only happened seven other times. In terms of where in the yen’s cycle the seven prior reversals have occurred, there hasn’t been a clear pattern. The two in the late 1990s came during periods of yen strength (decline in the USDJPY cross), but the more recent occurrences were all clustered right around the end of a sharp rally in the cross (weaker yen).
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