Apr 10, 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.
Investors have taken an optimistic tone this morning heading into the release of March CPI, but that could all change in a big way based on the report. The last several weeks have seen increased concern that inflation will be stickier than previously thought. While the market remains near all-time highs, most investors would say a higher-than-expected report is more likely than a weaker-than-expected one.
The recent breakout in gold and other commodities we discussed yesterday is one reason for investors to position for a higher-than-expected report. After years of stalling below resistance, gold finally broke out in early March and has ripped higher ever since.
While it hasn’t been stuck below resistance for nearly as long as gold, the yen has been simmering in a historically tight trading range just below 152. It first tested the 152-level late last year before rallying sharply into the new year (shown as a falling line in the chart). That rally quickly fizzled, and it wasn’t long before it was back to the low 150s range.
Over the last 15 trading days, the daily settlement price for the yen relative to the dollar has been confined to a 0.33% range, the narrowest since the late 1970s! The intraday chart below shows how the yen weakened to just below 152 in late March and has flatlined there ever since. In the last few days, it has inched closer to that critical level but keeps coming up short. At this point, it seems like only a question of when the yen will break through 152. After that will the move be as dramatic as gold’s move over the last month, or will it fail to live up to expectations?
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Apr 9, 2024
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“The most confident critics are generally those who know the least about the matter criticized.” – Ulysses S. Grant
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 positive tone to kick off the trading day this morning as equity futures are higher, yields are lower, and gold continues to rip. The only asset class seemingly not moving higher is bitcoin, but today’s weakness in the largest crypto follows what was a very positive day to kick off the trading week. The only economic report on the calendar this morning was small business optimism from the NFIB. The headline index came in weaker than expected, and labor market indicators, which we detail in today’s Morning Lineup, continue to show weakness even if there was no additional deterioration relative to February.
If it seems as though gold does nothing but trade higher these days, you’re not entirely mistaken. This morning, prices are higher once again as the commodity is on pace for its tenth up day in the last eleven trading days. That also includes four days last week where it traded up by at least 1%. What’s even more incredible is that heading into today, gold had traded higher on 22 of the last 30 trading days. That’s the highest winning percentage since March 2022, and the last time the 30-day rolling total of up days exceeded 22 was back in August 2020. Going back to the early 1980s, there have only been a handful of periods where the number of daily gains over 30 days was higher.
Gold’s rally has been part of a broader rally in the commodity space. The snapshot from our Trend Analyzer below shows where various energy and metals-related commodities closed yesterday relative to their short-term trading ranges. They’re all up at least 3%, and in most cases much more, in the last week, and most of them are more than 10% above their 50-day moving averages. As a result, it shouldn’t come as a surprise that the ETFs are all in what we define as ‘extreme’ overbought territory (at least two standard deviations above their 50-day moving averages).
Below we show one-year price charts of the six ETFs listed above. Outside of the Commodity Index Total Return ETN (DJP), which is comprised of more than just oil and metals, the five other ETFs are all trading tight at or near 52-week highs, but up until a few weeks ago, they were all somewhat range bound over the last two months. It wasn’t until early March that they really started to get rolling.
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Apr 8, 2024
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“Europe was created by history. America was created by philosophy.” – Margaret Thatcher
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 little changed, but treasury yields are higher this morning with the 10-year yield above 4.45%. European stocks are firmly in positive territory as they play catchup to Friday’s strength in the US. The April reading of European investor sentiment from Sentix also came in less bad than expected in another sign that investor confidence around the globe has been improving. Gains in the short term are likely to be kept in check with this week’s ECB policy meeting looming on Thursday. No change in rates is expected, but markets are still pricing in a June cut, something here in the US that has been increasingly priced as less likely.
There’s not much in the way of economic activity to speak of this morning. The only report on the calendar is the NY Fed’s survey of Consumer Expectations, and the key metric to watch in that report is the reading on one-year inflation expectations. March’s reading showed a modest uptick from 3.00% up to 3.04% which was the first monthly increase since September, and that increase only added fuel to the fire of fears that the progress we’ve seen on inflation is starting to slow. From a broader perspective, though, last month’s increase came after eight declines in ten months. Not only that but including March’s increase, since the peak of 6.78% back in June 2022, expectations for inflation have declined in 15 out of the last 20 months. So, the road lower in inflation was never expected to be a straight line, but so far, there hasn’t been a break of the downtrend.
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Apr 5, 2024
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“Birds scream at the top of their lungs in horrified hellish rage every morning at daybreak to warn us all of the truth, but sadly we don’t speak bird.” – Kurt Cobain
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 have been attempting to recover from yesterday afternoon’s sell-off. International indices are sharply lower as they were closed before the selling got underway here. Where the market finishes today will hinge in large part on the March employment report which just hit the tape. Non-farm payrolls came in stronger than expected at 303K versus forecasts for an increase of 214K. The Unemployment Rate was right in line with forecasts at 3.8% as was average hourly earnings which increased 4.1%. The average workweek was modestly longer than expected at 34.4 hours vs. forecasts for 34.3. In reaction to the report, equity futures sold off a bit, and yields increased with the 10-year just under 4.4%.
In yesterday’s Closer, we provided a detailed discussion of Thursday’s reversal in the Nasdaq including its potential drivers (When you boil it down can anyone ever really definitively tell you what the actual cause of any market move is?). This morning, we wanted to take a wider-angle view and look at every time since 1989 (as far back as we have intraday Nasdaq data available) that the Nasdaq experienced a similar reversal to yesterday.
Since 1989, there have been 122 prior days where the Nasdaq was up 1% intraday and finished the day down over 1%. As mentioned last night, many of these days have tended to occur during bear markets. After all, it’s more common for rallies to run out of steam during bear markets than bull markets. When you don’t tend to see these types of reversals is during a bull market when the Nasdaq is right near 52-week highs.
There have now been just ten days since 1989 when the Nasdaq was up 1% intraday and finished the day down 1%. As shown in the chart below, two of those days were in early 1999, a year before the peak of the dot-com bubble. Another two occurred in early 2020, including one on 3/7/00, just three days before the Nasdaq’s intraday peak of that era. The next two occurrences were in 2003 as the market was coming out of the bear market from the internet bubble. After those two days, there were no other reversals of a similar magnitude for seventeen years (7/13/2020 and 11/9/2020), and before yesterday, the most recent occurrence was less than a month ago on March 8th. Is it just us, or does anyone else find it weird that these reversals tended to come in pairs? In every year where there was a reversal, there was always another and not a single more.
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Apr 4, 2024
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“I really had a lot of dreams when I was a kid, and I think a great deal of that grew out of the fact that I had a chance to read a lot.” – Bill Gates
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 S&P 500, Nasdaq, and Russell 2000 all managed to post gains yesterday, the DJIA closed lower for its third day in a row. That streak may come to an end today, though, as futures are higher across the board. The only notable data point of the morning was jobless claims. Initial claims came in higher than expected (221K vs 214K) and hit the highest level since late January while continuing claims fell back below 1.8 million versus forecasts for a reading just above that level (1.791 mln vs 1.810 mln). Besides the employment data ahead of tomorrow’s jobs report, there are also a ton of Fed speakers on the calendar today, so by the end of the day we should have a much better idea of the prospects of a June rate cut, which currently stands at just about a coin flip.
Happy Birthday to the “Blue Screen of Death”. The world’s largest company, Microsoft (MSFT), turns 49 years old today as it was founded on this day in 1975 in Albuquerque, NM by Paul Allen and Bill Gates. Of the six US publicly traded companies with trillion-dollar market caps, MSFT is the oldest followed by Apple (AAPL) which was founded nearly two years to the day later. The chart below of the Nasdaq shows the dates that each member of the trillion-dollar club was founded.
It’s interesting to note that not even one of the largest US companies is 50 years old. The youngest of the six is Meta Platforms (META), but it won’t be legal to toast its membership for another ten months as it only turned twenty two months ago. People will tell you that while the 1980s were a lot of fun, not much good came out of them, and that’s also the case with the largest companies. After AAPL was founded in 1976, there was a 17-year lull before the next member, Nvidia (NVDA), was founded in 1993. Just over a year after that, Amazon.com (AMZN) was founded in 1994. That was the same year that Katie Couric, Bryant Gumble, and Elizabeth Vargas asked each other, “What is internet?”. Look who’s laughing now!
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Apr 3, 2024
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“Don’t fight the problem, decide it.” – George C. 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.
Before getting to this morning’s note, we wanted to alert subscribers to our latest B.I.G. Tips report highlighting some of the more interesting charts of companies that have reported earnings Triple Plays so far this year. In our experience, we have found that earnings triple-plays have been a great starting point to find potential new ideas.
Stock futures are modestly lower this morning which would set the market up for its third straight day of declines. The just released ADP Payrolls report for March came in higher than expected (184K vs 150K), and futures experienced a modest bounce in the initial reaction. Still on deck, we have the S&P and ISM PMI indices for the Services sector, and both are expected to show a modest uptick relative to February.
After the close last Wednesday, the S&P 500 and all eleven sector ETFs were trading at overbought levels. The S&P 500 was at a record high, and the long-awaited broadening appeared to be playing out. Except for Real Estate, every sector was up YTD. Besides that, not only was every sector back above their respective 50-day moving averages, but they were also all trading at overbought levels (one or more standard deviation above their 50-day moving averages).
Three trading days later, we’ve seen some deterioration in the market. The S&P 500 still closed at overbought levels yesterday, but nearly half of all sectors have moved out of that range, including Real Estate, which is back below its 50-day moving average, and Health Care, which is barely hanging on to that level. For both sectors, the selloffs have had specific catalysts. In Health Care, it was Monday’s announcement from the Centers for Medicare and Medicaid Services (CMS) that 2025 payment rates for Medicare Advantage plans would effectively be equal to a 0.16% decline relative to this year. The decline in Real Estate stems from concerns over “higher for longer” interest rates threatening the ability of property owners to refinance loans at feasible rates. Just this morning, the FT reported that 2023 cash flows at a $60 bln property fund operated by Blackstone (BX) weren’t enough to cover its annual dividend payments.
To be sure, the declines of the last two trading days are peanuts in the grand scheme of things. The S&P 500 is down less than 1% from its record closing high last Thursday, and most sectors are still overbought. In a bull market, these are exactly the types of rotational moves you would expect to see, and even more short-term weakness in the low to mid-single-digit percentage range shouldn’t be a surprise. The timing is also good. The last thing you would want to see heading into earnings season is a market trading at overbought or extreme overbought levels and setting the bar unrealistically high.
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