Apr 2, 2024
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“Know what you are talking about.” – Pope John Paul II
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Is this the beginning of the sell-off the market has been avoiding for the last several months? Equity futures are lower this morning as rates have risen and Bitcoin is getting shellacked. Making matters worse for equities this morning is a sharp sell-off in the health insurers following updated Medicare Advantage reimbursement rates published after the close yesterday. Crude oil is up 1.5% while the breakout in gold continues, and that’s not helping to make the case for rate cuts. While May has been off the table for weeks now, markets are also increasingly starting to price June out of the picture with odds now falling to not much better than a coin flip. The only economic data on the calendar this morning is Factory Orders and JOLTS which will both be released at 10 AM Eastern.
Outside of the US, the Japanese yen continues to trade at an interesting spot. After making a run to the ever-important 152 level two weeks ago, the Japanese yen has stalled over the last two weeks just shy of that resistance level. As shown in the chart below, 152 is a level where each of the prior two sell-offs in Q4 2022 and Q4 2023 were stopped in their tracks.
As a result of the stall, in each of the last ten trading days, the daily close for the yen has been rangebound between 151.26 and 151.69 for a total range of 0.28%. That’s narrow! The chart below shows the rolling 10-day high-low range of the yen’s daily closing levels dating back to 1980. It’s hard to see it in the chart, but over the last 45 years, there have only been two other periods where the 10-day range was less than 0.30% as it is on pace to do today. Since 1980, the average 10-day range is 2.28%.
In the long-term chart of the yen below, the red dots show each time the rolling 10-day change dropped below 0.30%. The first occurred in early 1986 at a time when the yen was in the middle of a monster rally that took it from over 250 yen per dollar down to under 125 in less than three years. After that, the next time the range dropped below 0.30% didn’t occur until late 2019 and then again in June 2020. Leading up to and after those occurrences, the yen was in a sideways trend and didn’t do much over the following year before the current sell-off started in earnest. It’s a small sample size, but in each of the prior two examples, the trend that was in place leading up to the narrow ten-day range remained in place after.
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Apr 1, 2024
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“If you plan on being anything less than you are capable of being, you will probably be unhappy all the days of your life.” – Abraham Maslow
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 the new quarter! It’s a quiet start to the day, week, month, and quarter as much of the rest of the world remains closed in observance of Easter, but looking back, outside of a handful of countries, natural gas, and fixed income, the first quarter of 2024 picked up right where 2023 left off. You’d have to be living under a rock not to know that the S&P 500 ended March with a five-month winning streak, and along with it, the Nasdaq has also traded higher in each of the last five months in what was the second five-month winning streak in the last year.
In its history dating back to 1971, the current winning streak is the 25th time that the Nasdaq has had a winning streak of at least five months. The current streak is the fourth of the post-COVID era, but heading into Covid, the Nasdaq was also up for five straight months from September 2019 to January 2020 before falling over 6% in February 2020. Overall, for all of the 24 prior five-month streaks, the Nasdaq’s median performance in the following month was a gain of 1.2% with positive returns nearly 63% of the time. More recently, though, four of the last five streaks have ended in the fifth month.
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Mar 28, 2024
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“Even if you don’t have the authorities – and frankly I didn’t have the authorities for anything – if you take charge, people will follow.” – Hank Paulson
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 little changed coming into the 8:30 data dump this morning, even as Ged Governor Waller implied that investors should hold their horses regarding rate cuts by saying he needed to see additional evidence of decelerating inflation before thinking about cutting rates. This morning’s data was generally positive as jobless claims were pretty much right in line with forecasts, while GDP was revised higher. Inflation data in the form of the GDP Price Index and the core PCE Price Index were either right in line or slightly better than expected. In response to all the reports, futures remain little changed although they may have seen a slightly positive bump.
It may be the last trading day before a long weekend, but one thing you may want to stick around to watch for is whether the S&P 500 can squeak by with a double-digit percentage gain for the first quarter. Through yesterday’s close, the S&P 500’s quarter-to-date gain was 10.04%, so any gain today will make it two straight quarters of double-digit percentage gains. Any decline, however, of even more than a point in the S&P 500 will put the quarter just shy of a 10% gain.
Taking an optimistic approach, the table below shows the performance of the S&P 500 following every prior period where the S&P 500 was up at least 10% since WWII. For each period, we show the S&P 500’s performance following the end of the second double-digit percentage quarter. The following month tended to see some weakness with a median decline of 0.75% and gains just three out of seven times. Three months later, returns shifted positive with a median gain of 1.67%, but none of the streaks extended to a third quarter of double-digit gains. Six months later, performance was also positive with gains more than two-thirds of the time, and one year later, the S&P 500’s median gain was 9.55% with positive returns all but once. The only time the S&P 500 wasn’t up over the next year was following the occurrence in Q4 2010, and that decline was just 0.002%.
Whether the market finished up 10% or more for the quarter, barring a very bad day, it will be the fifth straight positive month for the S&P 500, but one area of the market that hasn’t contributed much to this month’s rally is the mag 7. Through yesterday’s close, two of the seven stocks in the group were down month to date, and five were underperforming the S&P 500. That’s been an uncommon trend since the bull market kicked off in late 2022. The last time the S&P 500 was up in a given month and five of the seven mag 7 stocks underperformed the index was in October 2022.
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Mar 27, 2024
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“If my answers frighten you, then you should cease asking scary questions.” – Jules Winnfield, Pulp Fiction
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 three straight days of losses for the S&P 500, futures are higher this morning along with gold and bitcoin while oil and treasury yields are modestly lower. There’s no economic data on the calendar, and the only earnings reports of note are from Carnival (CCL), Cintas (CTAS), and Unifirst (UNF). CTAS and UNF are both in similar industries (uniform rentals for staff) but reported different results. While CTAS reported better-than-expected EPS and raised guidance, UNF missed forecasts and lowered guidance.
Can the market rally without Apple? For years you’ve heard this question asked within broader market conversations. It’s been especially the case in more recent years as Apple (AAPL) has been the largest company in the world and at one point last year even accounted for over 7% of the entire S&P 500. Just as the question has been asked, though, the market has answered. Over the last 200 trading days, the S&P 500 is up 21%, and during that time, shares of AAPL have dropped over 6%. As shown below, the 27.2 percentage point performance gap between the two ranks as the widest since October 2013. Looking over even a shorter time frame, over the last 100 trading days, the S&P 500 is up over 24% while AAPL is down fractionally. In the entire period since the iPod was first launched in late 2001, this current period is the first time that the S&P 500 has been up 20% or more over a 100-trading day period while AAPL was down.
The chart below compares the performance of AAPL over a 200-trading day period (x-axis) to the performance of the S&P 500 over that same span (y-axis) for all periods since 2002. The shaded area represents periods where the S&P 500 was up 20% or more, and during those, AAPL’s median performance was a gain of 43% compared to the current period’s decline of 6%. More broadly, in the 715 trading days since the start of 2002 when the S&P 500’s trailing 200-day performance was over 20%, shares of AAPL were also higher 94% of the time. Looking at it from the reverse perspective, in all periods since 2002 when AAPL was down over a 200-trading day period, the S&P 500’s median performance during that same span was a decline of 9.3% with gains less than 32% of the time. In other words, the market can rally without AAPL, but it usually doesn’t.
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Mar 26, 2024
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“Youth is like having a big plate of candy.” – F. Scott Fitzgerald, This Side of Paradise
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 in futures this morning which is helping to reverse Monday’s decline. With earnings season not kicking off for a couple of weeks, investors are left to grapple with whether the results from Q1 will be enough to justify the rally since late October. The only significant earnings report this morning (and this week for that matter) was from spice maker and seasoning behemoth McCormick (MKC) which reported better-than-expected EPS and sales and is trading up about 6% in the pre-market. That better-than-expected result was telegraphed last week when General Mills (GIS) reported better-than-expected EPS and sales and noted in its conference call that it was seeing a pickup in the percentage of Americans choosing to eat at home. Outside of MKC, though, we’re in a bit of a vacuum for earnings results, and that will leave investors forced to focus almost exclusively on economic data and attempt to extrapolate that into company results.
Outside of the equity market, treasury yields have seen a modest downside bias along with the dollar, and Bitcoin is little changed after surging back above $70,000 yesterday. While not necessarily a financial story, the collapse of the Francis Scott Key Bridge in Baltimore after a container ship crashed into it overnight will pose problems for ship traffic in the Port of Baltimore and a traffic nightmare for cars not to mention the tragic loss of life. As fans of The Wire will remember, the port is one of the largest in the nation. Bloomberg also reported that no other port in the United States handles more imports of autos and light trucks.
It’s a holiday-shortened week for the stock market but not for the economic calendar, and the most important report of the week could be Friday’s release of Personal Consumption Expenditures (PCE) for February when the equity market will be closed in observance of Good Friday. Already released inflation data for February suggested that the January increase may have been more than an aberration. Therefore, traders will pay close attention as PCE is typically considered the Fed’s preferred inflation measure.
While the release of PCE only covers February, already released regional Fed manufacturing reports for March showed some encouraging signs. We’ll start with the bad news first. In the Dallas Fed Manufacturing report, released on Friday, the Prices Paid component ticked up from 15.4 to 21.1 – the highest level since September. While the Dallas Fed report showed a pickup in prices, the Empire and Philly Fed reports showed a deceleration. In the Empire report, March’s reading of 28.7 partially reversed some of the February surge, but outside of February’s reading, it would have been the highest level since last May. Saving the best news for last, the Prices Paid component of the Philly Fed report plunged from 16.6 down to 3.7. Not only is that barely in positive territory, but it’s also the lowest monthly reading since May 2020.
To round out the five regional Fed reports, the Richmond Fed report will be released at 10 AM today and the KC Manufacturing report comes out on Thursday. Overall, the first three of the regional Fed reports show a mixed picture in terms of inflation, but there were some welcome trends.
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Mar 25, 2024
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“This is not an antitrust case but a return of the Luddites.” – John Warden, Microsoft Trial Attorney, October 1998
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There’s a bit of a hangover in the markets this morning as equity futures are lower across the board. Besides the fact that markets just need to digest last week’s gains, news out of the EU over probes into Alphabet (GOOGL), Apple (AAPL), and Meta (META) haven’t helped. Also, in China, the government is now banning the use of AMD and Intel (INTC) in government computers.
On the economic calendar, the Chicago Fed National Activity Index came in better than expected rising to 0.05 vs -0.34 expected. The only other reports scheduled for today are New Home Sales at 10 AM and the Dallas Fed Manufacturing report at 10:30.
Last week, the S&P 500 had its best week of the year, but the rally wasn’t only here in the US, though. As shown in the snapshot of regional international ETFs from our Trend Analyzer below, of the 18 ETFs listed, all but one was up and just three – Latin America (ILF), International Dividend Achievers (PID), and Emerging Markets (VWO) – didn’t close out last week at overbought levels (1+ standard deviations above the 50-day moving average). It’s also worth noting that 17 of the 18 ETFs shown are also up YTD.
Here in the US, it was a broad rally last week as Real Estate was the only sector ETF to finish in the red, and seven of eleven sectors rallied over 1%, including three that were up over 2.5%. Normally, when you have a big gain in the market like last week, you can expect to see Technology at the top of the performance list, and while the 2.25% gain for the sector was pretty much right in line with the S&P 500, it was ‘only’ the fourth best-performing sector on the week. On a YTD basis, Technology ranks as just the fifth best-performing sector, and six other sectors are more extended relative to their 50-day moving average. Technology has been far from a dog lately, but it’s certainly given up some of its leadership position, and it’s understandable with several of the mega-caps now in the crosshairs of US and EU regulators.
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