Mar 14, 2024
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“If you can’t explain it to a six-year old, you don’t understand it yourself.” – Albert Einstein
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
With some important economic data ahead (PPI, Retail Sales, and Jobless Claims), futures have been rallying this morning. Some of the positive air has been let out of the balloon, though, as the data was, for the most part, disappointing. We’ll start with the good news. Both Initial and Continuing Jobless Claims were better than expected. On the downside, Retail Sales rose less than expected across the board, and to make matters worse, January’s reading was also revised lower. PPI was also disappointing relative to expectations as the headline reading came in at double expectations (0.6% m/m vs 0.3% forecast). Core PPI was closer to expectations at 0.3% vs forecasts for an increase of 0.2%. As mentioned, even with the disappointing data, futures remain firmly in positive territory. As mentioned following the hotter-than-expected CPI earlier this week, while the inflation data was a disappointment, the commencement of rate cuts may be pushed out, but rate hikes still aren’t part of the conversation.
Yesterday was the 50th trading day of the year, and although the S&P 500 finished down for the day, there have still been 17 record closing highs so far this year. As shown in the chart below, this year’s total in the first 50 trading days of the year represents the most since 1998 when there were 20. This year is also just the fifth time since 1953 (when was the first full year of the five-trading day week in its current form) that 30% or more of a year’s first 50 trading days had record closing highs. Of the four prior years shown, the S&P 500 finished the year higher three times with the only exception being the 14.8% decline in 1987.
While 15 or more record closing highs in the first 50 trading days of a year is uncommon, for all 50-day periods it has been more common. The chart below shows the number of record closing highs over all 50 trading day periods since 1953. Looking at it this way, there have been plenty of other periods where there have been as many or much more record-closing highs over a 50-trading day span. Just as recently as September 2021, there were 25 in 50 days.
In terms of performance going forward, looking back at history, short-term market returns have tended to be below average in the week and month after similar periods where there were 15 or more record closing highs over 50 days, but six and twelve months later, average returns were pretty much the same whether there were 15 or more or less than 15.
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Mar 13, 2024
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“I tend to approach bad news as a problem that can be worked through and solved, something I have control over rather than something happening to me.” – Robert Iger
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
With earnings season pretty much out of the way and a sparse economic calendar, there’s not a lot going in markets this morning. While they are off their overnight lows, futures are little changed with a slightly negative bias, and treasury yields are slightly higher. Asian stocks also lacked much conviction overnight, although India was down over 1%. Europe has a more positive tone with the STOXX 600 trading up 0.2% and is being led higher by Spain (+1.3%) and Italy (+0.6%). That strength comes even as Industrial Production on the continent fell more than expected (-3.2% vs -1.8% forecast).
Yesterday was another one of those days in the market where the market rallied, and breadth stunk. While the S&P 500 was up 1.1%, the net advance/decline for the S&P 500 was a paltry +78, and 48 of those advancers were from the Technology sector. Just for the sake of reference, on Monday, when the S&P 500 was down fractionally, the net A/D line was slightly higher at +83!
You would prefer to see more stocks participating as the market rallies than less, but based on the last five years of trading, it hasn’t particularly mattered. Over the last five years, there have been 216 trading days where the market rallied more than 1%, and the average net A/D reading on those days was +344. In the chart below, we show the ten days when the S&P 500 rallied at least 1% that had the weakest daily breadth readings. On these days, the daily breadth reading ranged anywhere from -54 (8/26/20) to +156 (2/2/23). Looking at the chart, these relatively weak breadth readings weren’t a warning sign for the broader market. The only one where the market immediately fell notably was after the February 2023 occurrence, which ironically was the strongest breadth reading of the ten.
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Mar 12, 2024
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“It is your problem no less than it is mine. Together we cannot fail.” – Franklin D. Roosevelt
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
February CPI was just released and while the headline reading was right in line with forecasts, Core CPI came in at 0.4%, just ahead of the 0.3% consensus forecast. While the initial reaction was a sell-off in equity futures, we’ve seen a bounceback since then as treasury yields are down on the day. The reason? Supercore CPI declined. We’ll see how things shake out as the market digests the data. The biggest thing to keep in mind is that even if the hotter data pushes out the timetable for rate cuts, the Fed still isn’t hiking.
There was a period earlier this year where breadth in the market was narrowing in terms of the percentage of stocks trading above their 50-day moving averages, but as shown in the chart below, the last few weeks have seen a notable upswing. After bottoming out at less than 52% on 2/13, there’s been a steady increase in the percentage of stocks trading above their 50-DMA with yesterday’s level reaching just under 80% (79.5%). It’s still below the 90%+ levels we saw earlier this year, but 80% is a healthy number.
At the sector level, Technology has a slightly higher percentage of stocks trading above their 50-DMAs (82.8%) than the overall market, but it’s no longer leading. At the top of the list now, over 96% of stocks in the Materials sector are above their 50-DMA along with 91% of stocks in the Energy sector. In other words, it’s been a good run for commodity-related stocks. At the other end of the list, just half of the stocks in the Communication Services sector are above their 50-DMA, and it is also the only sector where less than two-thirds of the components are below that level.
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Mar 11, 2024
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“A written constitution is needed to protect values against prevailing wisdom.” – Antonin Scalia
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Happy inflation week. While the week starts off on a quiet note in terms of economic data, it will be a busy one related to inflation-related reports. Things start off today with the New York Fed Survey of Consumer Expectations and its section on inflation expectations. Tomorrow, we’ll get the February read on CPI which is expected to increase 0.4% m/m and 3.1% y/y. That report will be followed up with PPI on Thursday and Import and Export Prices on Friday.
Although the magnitude was modest (-0.26%), last week was a rare down one for the S&P 500. As shown in the Sector Snapshot below, though, most sectors were higher. Leading the way, Utilities surged over 3%, followed by Real Estate, Materials, and Energy which all rallied over 1%. These aren’t the types of sectors that can drive the market higher, and when large sectors like Consumer Discretionary (-2.55%), Technology (-1.62%), and Communications Services (-0.54%) fall, it’s going to be hard for the major indices to post gains. Even with last week’s declines at the index level, though, every sector except for Consumer Discretionary remains at overbought levels.
Looking ahead, one factor bulls have working in their favor is seasonality. As shown below, whether we look at the next week, month, or three months, the S&P 500’s median returns rank in the 75 or highest percentile relative to all other periods throughout the year.
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Mar 8, 2024
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“I’ve never seen the consumer, or the Americans just generally, more fearful than this.” Warren Buffett, March 9, 2009
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 quiet morning in the markets ahead of the Non-Farm Payrolls report that is just hitting the tapes as we send this, and that will likely dictate much of the market’s move to close out the week. Recapping the numbers that just hit, the headline reading came in stronger than expected (275K vs 200K), but the last two months were revised down by nearly 170K. As a result, the Unemployment Rate jumped to 3.9% vs expectations for a level of 3.7%. Average weekly hours were right in line with forecasts, but average hourly earnings were weaker than expected. While the headline was a beat, it was offset by some downside revisions and the highest unemployment rate since July 2022. The immediate reaction in equity futures was a jump, but they have already pulled in from the initial spike higher
If you didn’t get a chance to catch yesterday’s CNBC interview, you can watch it here.
It’s always darkest before dawn, and unless you’ve been around as long or longer than Warren Buffett, fifteen years ago tomorrow, March 9, 2009, was as dark of a day in the financial world as you’ve ever seen. A refresher of the news and events that led up to that day are recapped in the chart below, but they don’t even fully reflect the tension of those days where every morning was a different headline leading one to wonder if all they had done to save over the years would disappear in to thin air. Buffett, never known as someone to exaggerate for a headline commented in a March 9, 2009 interview on CNBC that “the Fed did some things in September when it happened that were vital in keeping the place going. I mean, when the–if they hadn’t insured money market accounts and, in effect, commercial paper, you know, you and I would be meeting at McDonald’s this morning.” Later in the interview, he added “the world almost did come to a stop.”
Fifteen years later, the chart of the S&P 500 and sentiment surrounding it looks much different. The market is at record highs fueled by hopes for a new era of Ai enhanced productivity, and sentiment is near some of its most bullish levels in years. Another famous saying from Buffett is to “be fearful when others are greedy and to be greedy only when others are fearful”. We wouldn’t go nearly as far as to say that the current environment is a complete 180-degree turn from March 9, 2009, but don’t expect to see annualized gains of 15% over the next 15 years either.
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Mar 7, 2024
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“Observation is a dying art.” – Stanley Kubrick
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Yesterday’s bounce continued to a second morning as both S&P 500 and Nasdaq futures were in the green ahead of the just-released reports on weekly jobless claims, Q4 productivity, and Q4 unit labor costs at 8:30. Productivity numbers were revised slightly higher, Unit Labor Costs were lower than expected, and jobless claims were just slightly higher than expected.
Overnight, Asian stocks were mostly lower with Japan leading the way down as the Nikkei fell over 1% as the yen rallied on speculation that the BoJ would abandon its negative policy rate. What Asia taketh away, though, Europe has giveth, and the tone there is more positive as the STOXX 600 rallies 0.4% with Spain leading the way with a gain of 0.6%. In Germany, Factory Orders dropped 11.3%, which was nearly twice the 6% decline that was expected. The ECB just announced its latest policy decision, and as expected, they left rates on hold. You can read more about it in the full Morning Lineup report.
In discussions about inflation this week, we’ve heard multiple references to rising prices at the pump as a sign that inflation is poised to take another leg higher. Based on AAA’s tracking of the national average price of a gallon of gas, prices have taken a turn higher. In mid-January, the price was as low as $3.07 per gallon, but as of today, it’s up to just under $3.40 per gallon and at the highest level since early November.
While the rise in gas prices looks like a concern in isolation, proper context is in order. What if we told you that gas prices almost always rise in the early months of a new year? Going back to 2005, there have only been three years when prices were down on a year-to-date basis through 3/7, and the average YTD change is 8.3%. Given that history, this year’s 9.2% increase doesn’t seem so extreme or worrying.
Look at the chart below where we compare this year’s change in gas prices to a composite of the average YTD change for all years since 2005. They track each other perfectly. Gas prices have increased this year, but they nearly always do at this time of year. When prices start to decline after Memorial Day, as almost always occurs at that time of year, do you think the people crying today about higher gas prices being a canary for higher inflation will also be screaming about a ‘deflationary’ warning then? Something tells us, probably not.
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