Apr 18, 2024
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“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch
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 trading slightly higher this morning, but that’s nothing new as we’ve seen a number of days in the last week or two start higher only to roll over and sell-off into the close. We cover the recent intraday selling on page four of this morning’s report.
At the end of March, most US equity index ETFs were trading in overbought territory, but now it’s the opposite as shown in the snapshot from our Trend Analyzer below. Small-caps and the Dow are at the most extreme oversold levels.
The percentage of stocks in the S&P 500 that are overbought versus oversold has completely flipped as well, with 46% of the index now oversold compared to just 6% that remain overbought.
For 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.
Apr 17, 2024
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“Houston, we’ve had a problem here.” – Jack Swigert, Apollo 13 Astronaut
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 not a lot of news to speak of this morning, but that isn’t stopping futures from drifting higher. Treasury yields, crude oil, and gold are all little changed with a negative bias. Mortgage applications increased in the latest week even after yields surged, but other than that, the economic calendar is empty for the rest of the day.
54 years ago today, Americans were glued to their TVs anxiously watching as Apollo 13 splashed down in the Pacific Ocean after a troubled six-day mission in space. While the world breathed a sigh of relief as Apollo 13 returned safely from orbit and down to Earth, investors today are nervously watching the market as it comes back down to earth. After trading at overbought levels for months, major indices around the world are pulling back and falling from overbought levels and back below their 50-day moving averages. Yesterday, it was the STOXX 600’s turn as the index closed below its 50-DMM for the first time since November 14th.
Yesterday’s decline ended the longest streak of closes above the 50-DMA since June 2017 and just the 11th streak that lasted more than 100 days. The longest of those streaks ended in April 1997 at 160 trading days and also occurred within a year of the second longest streak on record (142 trading days ending on 6/7/1996).
So, when these streaks come to an end, is it a sign of a market calamity on the way? Not necessarily. For more details check out today’s Morning Lineup!
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Apr 16, 2024
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“Don’t hope. Hope is for people who aren’t prepared.” – Kareem Abdul-Jabbar
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 higher this morning as positive earnings results lift the mood of investors even as interest rates are higher. Housing Starts and Building permits were just released, and both reports came in lower than expected. Housing Starts were a big miss coming in at 1.321 million compared to forecasts for 1.485. Building Permits were also weaker at 1.458 million versus consensus forecasts for 1.510 million. These reports should have been friendly to rates, but so far there has been very little movement in the 10-year yield. Besides these two reports, the only other items on the calendar are Industrial Production and Capacity Utilization at 9:15. We’ll also be hearing from Fed Chair Powel at 1:15 Eastern.
After the last two trading days, and all of April for that matter, there are probably a lot of overexposed traders and investors hoping for an up day or two. We don’t know where the market will go from here in the short term, but at this point, the S&P 500 is only down 3.66% from its closing all-time high at the end of March. That’s not even close to what most people would call a correction, let alone a pullback. While the current decline is the first of that magnitude since late last year, since 1953 there have been 455 declines of 3% or more on a closing basis without a 3% rally in between. That works out to one about every two months. In other words, the fact that we hadn’t had a pullback of 3% in over five months was more unusual than the fact that the S&P 500 is now down over 3% from its high. In fact, since 1953, there have only been ten other periods where the S&P 500 went longer than the just-ended streak without falling 3% from a local closing high.
Looking at the four major US indices across the market cap spectrum, the Russell 2000 is the only one not up YTD, although it was in the black just a week ago. What’s also notable is that a week ago all four indices were above their 50-day moving averages (DMA) and two (MDY and SPY) were overbought. As of yesterday’s close, all four indices are not below their 50-DMA, and two (QQQ and IWM) are oversold. Change tends to happen fast in the markets.
The fact that all four of the indices shown above closed below their 50-DMA yesterday was notable because it was the first time since November 2nd that all four of them closed below their 50-DMAs. Since 1990, that streak was on the extreme side, but it wasn’t unheard of as eleven streaks were longer and another six lasted longer than 100 trading days. The most recent ended in August of last year (106 trading days), and the longest was 262 trading days ending in January 1996.
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Apr 15, 2024
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“All taxes discourage something. Why not discourage bad things like pollution rather than good things like working?” – Lawrence Summers
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 market is breathing a sigh of relief after Iran’s much-anticipated attack on Israel was well enough choreographed that it had minimal damage on Israel. While futures are higher, they’re still well below where they were as of the close on Thursday, so not all of the geopolitical risk has been priced out of the market. Going forward, earnings and the economy will take center stage as it’s a busy week ahead on both fronts. Starting things off this morning, Goldman Sachs (GS) reported better-than-expected EPS and revenues and the stock is trading up over 4%. Regarding the economy, there’s a busy calendar with Retail Sales and Empire Manufacturing at 8:30 followed by Business Inventories and Homebuilder Sentiment at 10 AM.
Happy Tax Day. If you haven’t already filed your taxes for 2023, you’re starting to run out of time. Based on the performance of stocks so far in April, it seems like people who owed money have been raising cash in the stock market as the S&P 500 is down 2.5%, the Nasdaq is down 1.3%, and the Russell 2000 is down 5.7%. While you could make a good argument that the weakness is tax-related, a counter to that argument would be that European stocks have also been weak to kick off the quarter, but April 15th isn’t a tax deadline on the other side of the Atlantic.
Whether it’s tax-related or not, there is some historical precedent for April to get off to a weak start, especially in years when the first quarter was positive. The chart below shows the intraday performance of the S&P 500 during April broken out by how the index performed YTD heading into the month. In the 28 years when the S&P 500 was up YTD heading into April, its average MTD performance heading into the start of trading on the 15th was a gain of just 0.2% with positive returns just 57% of the time. That compares to an average rally of 1.4% and gains 69% of the time in the years when the S&P 500 was down YTD heading into the month. Not only is the S&P 500’s average performance in the first half of April weaker in years when it was up YTD through the end of Q1, but in the seven years since 1983 when it was up 10%+ in the first quarter, the average MTD performance through the close on 4/14 was a decline of 0.2%.
On a positive note, while the first two weeks of April have historically been weaker in years when the S&P 500 was up in Q1 versus down, the rest of April has been more positive. In the 28 years when the S&P 500 was positive in Q1, April’s average performance from the close on 4/14 through month end was +1.4% compared to an average gain of 0.7% for all other years.
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Apr 12, 2024
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“The difference between fiction and reality? Fiction has to make sense.” – Tom Clancy
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Another earnings season has arrived as the big banks kicked off the reporting period this morning, and the results have been stronger across the board. All six companies reporting beat expectations on both the top and bottom lines. While JP Morgan (JPM) is down nearly 3% and Wells Fargo is down fractionally, the other four stocks are all up by at least 1%.
Despite what have been positive results, futures are lower this morning as the market digests yesterday’s gains and headlines that Israel is gearing up for an imminent direct strike from Iran. That would have major implications in the energy space, but there have been similar Friday headlines in recent weeks that never amounted to anything.
As for the economic calendar, Import Prices were just released, and they increased by 0.4% m/m which was higher than the 0.3% forecast. Ex petroleum, though, they were unchanged which was less than the 0.1% forecast. The only other report on the calendar for the week is Michigan Confidence, and the specific area of focus will be inflation expectations. For the next year, economists are expecting one-year expectations to remain unchanged at 2.9%.
Gold prices have continued their blistering rally this morning, notching their eighth consecutive daily gain in the past ten days. The yellow metal has surged 17% since the start of March, pushing it more than 20% above its 200-day moving average (DMA) and 12% above its 50-DMA. Both spreads rank in the top 3% historically, a clear signal of gold’s recent strength.
This surge in gold has fueled a similar rally in gold mining stocks. The NYSE Arca Gold Miners Index (GDX) has spiked 30% since late February, even outpacing gold itself. However, unlike the commodity, the miners remain in negative territory year-over-year. That being said, the GDX did experience a bullish “golden cross” yesterday, where the 50-DMA crossed above the rising 200-DMA. While technicians often view these patterns as a positive sign, they have a mixed historical record.
In the case of the GDX, not only have golden crosses had a mixed historical record, they’ve been more of a bearish indicator than anything else. Since the inception of the index back in 1994, there have been 13 prior golden crosses, and in the table below we summarize the median performance of the index following each one along with the frequency of positive returns. While the GDX’s median performance over the following week was a gain of 1.7% which is well above the average 0.2% gain for all periods since 1994, median performance over the following one, three, six, and twelve months was not only weaker than the average for all periods, it was flat out negative! One year later, for example, the GDX’s median performance was a decline of 12.3% with positive returns less than 40% of the time.
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Apr 11, 2024
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“The road to Easy Street goes through the sewer.” – John Madden
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 higher heading into yesterday’s CPI report and reversed sharply lower once the data was released. This morning, we have the opposite backdrop ahead of the March PPI report. While the report is unlikely to be as big of a market mover as the CPI report, the results didn’t show as much inflation pressure in the producer sector and jobless claims were pretty much right in line with expectations. The ECB just announced its latest rate decision (no change, “inflation continues to fall”) which we break down in this morning’s report, and we’ll get further color during the press conference at 8:45 Eastern. Overall, futures have rallied a bit on the news as Nasdaq futures moved into positive territory while the S&P 500 is indicated to open just marginally lower. We’ll take it!
Yesterday’s CPI report was a disappointment on all fronts, and while the rate of inflation has slowed, it’s still firmly in positive territory which helps explain why consumers are so miserable. When you consider the cumulative impact of these price increases since the lockdowns in March 2020, it adds up. March’s CPI report reached an inauspicious milestone as it was the first time since March 1991 that the four-year rate of change in headline CPI exceeded 20%. We’re still nowhere near the levels from the 1970s and early 1980s, but 33 years is a long time.
If you show the chart above to any consumer and tell them that the cost of living has increased by 20% in the last four years, they’ll probably ask where you’ve been living the last four years and want to know if there’s any room to move in. What we have all experienced seems much larger. Take a bag of Doritos, a subject we have quite an expertise on. In 2019, a 9.75-ounce bag had a suggested retail price of $4.29, but today it costs about $1.50 more and is half an ounce smaller. Ignoring the change in size, that’s still an increase of 35%! These types of examples come up everywhere you look, and while there are some examples where prices haven’t increased by over 20% in the last four years, they aren’t nearly as apparent.
Getting back to the examples of price increases, one we noticed yesterday was postage. The US Postal Service just filed to increase the price of a stamp by 8% to 73 cents in July from 68 cents, The current price, it should be noted, only took effect in January when prices increased by 3%, so this would be the second increase this year and the fourth since the start of 2023! The chart below shows the monthly price levels of a first-class stamp since 1963, and you can see how the pace of increases has picked up steam in recent years. The last time a stamp cost 25 cents was in January 1991. The last time it was 50 cents or less was in late 2018.
In the chart below, we compare the four-year change in the price of a stamp to the four-year change in CPI. If the proposed postage increase takes effect in July, the four-year price change to mail a letter will reach 32.7%, the highest level since the mid-1980s. If CPI increases at a rate of 0.3% per month between now and June (a perfectly realistic, if not conservative rate based on recent CPI reports), the four-year change in CPI will reach 22.2% which would be the largest four-year increase since December 1984. To be fair, the rate of postage inflation still lags the rates from the 1970s, but it’s large and well above the Bureau of Labor Statistics’ official gauge. We should have loaded up on those Forever Stamps four years ago!
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