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.
Jun 26, 2024
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“I’m afraid what will happen to Europe if it does fail.” – General Lucius D. Clay
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
In the corporate world, you often see scenarios where a company that has done well will use its inflated stock currency to buy beaten-down assets on the cheap. Based on this logic, you would expect US companies, which have steadily outperformed their European peers for years, to be on the prowl in Europe for some cheap bargains. Over less than 24 hours, though, we have seen two major headlines showing the opposite trend. Last night after the close, VW and Rivian announced a deal where the German carmaker will invest up to $5 billion in Rivian. Now, this morning German manufacturing firm Bosch is considering a bid for US appliance maker Whirlpool (WHR)!
The seesaw action in the markets of late is showing up again this morning, and this time, it’s technology, and specifically Nvidia (NVDA) rallying while most of the the rest of the market languishes. One exception in the old economy is FedEx (FDX). Shares are up over 15% this morning following its better-than-expected earnings report after yesterday’s close. On the revenue side, results ended a streak of eight straight weaker-than-expected reports, and it was the first time in seven quarters that sales grew on a y/y basis.
Overnight, equities in Asia were mostly higher even as reports surfaced that the BoJ will consider rate hikes at all of its upcoming meetings and is also expected to announce a reduction in its monthly asset purchases. The yen also fell to its lowest level since Christmas 1986! In Europe, the tone is weaker as the STOXX 600 is down fractionally following weaker-than-expected sentiment reports in Germany and France.
Divergences haven’t just been confined to the stock market lately. In the energy sector, we’ve also seen oil and natural gas follow different patterns. Starting with crude oil, while prices have rallied off the lows from June, the commodity’s price chart has carved out an iron cross formation where the downward sloping 50-DMA crosses down through the 200-DMA which is also sloping downward. Technical analysts view these patterns as a negative technical pattern.
Natural gas, on the other hand, is on the verge of a golden cross, which occurs when the 50-DMA crosses up through the 200-DMA as both are rising, and technical analysts view these patterns as bullish.
To continue reading the rest of today’s morning note, where we show how both crude oil and natural gas performed following iron crosses in crude and golden crosses in natural gas. You’ll also find much more analysis of global equities and economic readings released this morning, so read today’s full Morning Lineup with a two-week Bespoke Premium trial.
Jun 25, 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.
“We do not inherit the Earth from our Ancestors, we borrow it from our Children.” – Crazy Horse
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 Futures are being led higher by the Nasdaq as Nvidia (NVDA) looks to rebound from its three-day decline of over 10%. After a quiet day of economic data yesterday, today’s calendar looks a little busier with the Chicago Fed National Activity Index which was just released and came in better than expected at +0.18 versus expectations for a decline of 0.3. Still to come, the FHFA House Price Index will be released along with the Case Shiller numbers at 9 AM followed by Consumer Confidence and the Richmond Fed at 10 AM.
Fed Governor Michelle Bowman (a voting member of the FOMC) spoke in London this morning. She noted that it may become appropriate to “gradually lower the federal funds rate” if “incoming data indicate that inflation is moving sustainably toward our 2% goal” but she went on to qualify that statement with the comment that “we are still not yet at the point where it is appropriate to lower the policy rate.” She even left the door open for future increases in the fed funds rate “should progress on inflation stall or even reverse”. While most of her comments were in line with recent commentary from other Fed officials, she took a hawkish turn when she said “I don’t see any rate cuts for 2024”.
With the caveat that market pricing of future levels in the fed funds rate has been extremely inaccurate over the past year, we wanted to look at where traders are positioned ahead of future meetings based on the CME’s FedWatch tool. Starting with the next meeting, a rate cut at the July meeting is basically off the table as the market is priced for an 89.7% likelihood that rates will be left unchanged.
The Fed has historically shied away from changing rates in the months leading up to a Presidential election, but for the September meeting, there is a slightly better than two in three chance of a cut at that meeting.
Two days after this November’s election, the FOMC will conclude another meeting, and hopefully, we’ll know who came out ahead in the Presidential election. If the Fed has historically avoided changing rates leading up to an election, the market expects them to make up for lost time at the November meeting. Not only is there a nearly 80% likelihood of at least one rate cut by then, but the market has also priced in a 30% chance that the fed funds rate will be at least 50 basis points lower. Then, for the December meeting, the market is pricing in better than a 50/50 chance of at least two 25 bps rate cuts and only a 4.7% likelihood of Bowman’s view that there will be no rate cuts by the end of the year.
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.
