Mar 6, 2024
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“The greatest danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it.” – Michelangelo
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 a relatively rough day yesterday, futures have been bouncing back this morning with the Nasdaq trading up about 0.8% and the S&P 500 up by a more modest 0.4%. The ADP Employment report for February just came out, and it showed modestly lower-than-expected job growth (140K vs 150K), but investors are more focused on the 10 AM testimony of Fed Chair Powell before Congress. Will he say anything to jawbone the markets?
We’ve highlighted a version of the chart below multiple times in our discussion of Fed rate cuts and the market, and it illustrates the fact that as much as people want to credit (or blame) the Fed for the market rally since the October lows, it hasn’t been the case. While the early stages of the rally did coincide with the market pricing in a higher number of 25 basis point (bps) rate cuts by the December 2024 meeting, that reading peaked in early January at just under seven. In the nearly two months since then, the number of cuts priced in for December has been more than cut in half, yet stocks kept rallying. If the rally was just about rate cuts, we’d be closer to 4,000 on the S&P 500 now rather than above 5,000.
Back in early December, when the market was pricing in cuts as soon as April, we noted that no rate cuts by then would be “the best thing for the market”. The reasoning was that by the Fed just pivoting and moving to the sidelines and no longer actively looking to kneecap economic growth, it was enough for the market to embrace the good news is good again mentality. If the Fed had to come in and cut rates so soon, it would have only meant that something was going wrong in the economy.
This brings us to yesterday’s market decline. While stocks opened the day lower, the weakness was modest…until just after the 10 AM release of Factory Orders, Durable Goods, and ISM Services. All the reports were weaker than expected, including the ISM Services report which showed a contraction in employment. Immediately, after the release, the market had a Pavlovian response of briefly trading higher, but within seconds, stocks reversed and traded lower throughout the day, finishing down just over 1% in what was the third weakest day this year. The market was overbought and due for a breather heading into yesterday, but the weaker-than-expected slug of economic data didn’t help.
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Mar 5, 2024
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“Nothing in life is as important as you think it is when you are thinking about it.” – Daniel Kahneman
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Markets are in a bit of a hangover this morning as futures are lower across the board. S&P 500 futures suggest a 33 bps decline at the open while the Nasdaq is down over 50 bps. There’s not much in the way of a catalyst for the move lower besides the fact that the market has come so far so fast, and investors appear to be looking over their shoulders for Fed Chair Powell’s congressional testimony tomorrow and Thursday. Since the Fed started hiking rates in 2022, Powell has been known to take a crowbar to the knees of any rally, so some apprehension is understandable.
The key economic data this morning will be the ISM Services report at 10 AM, and the headline index is expected to decline modestly, falling from 53.4 down to 53.0. That would follow last Friday’s weaker-than-expected report for the Manufacturing sector which remains stuck in contraction territory. While not an economic report, Target (TGT) is trading higher this morning after reporting better-than-expected EPS. In response, the stock is trading up over 8%.
Several of the top-performing stocks this year are also the largest in the S&P 500 (think Nvidia, Meta, and Eli Lilly), but over 60% of stocks in the index are up YTD and 45% are up over 5%, so underlying breadth has also been positive. Looking through our Daily Sector Snapshot report, you can see the positive breadth in the cumulative A/D line which has been regularly hitting record highs, along with the percentage of S&P 500 stocks trading above their 50 and 200-day moving averages (DMA) which has also been well over 50%.
Another signal of strong breadth is in the percentage of stocks hitting 52-week highs. Just yesterday, 19.5% of stocks in the S&P 500 hit 52-week highs which is the highest single-day reading in at least a year after it took out the prior high of 19.3% from early January.
When looking at the individual sectors driving the expansion of new highs, there are some modestly surprising trends. Leading the charge in new highs was the Industrials sector where 42% of the sector’s components traded at their highest levels in at least a year yesterday.
The Materials sector has also seen a steady widening in the number of new highs as its reading has steadily increased from less than 10% in late January to more than 30% yesterday.
The Consumer Discretionary sector didn’t see a new high in new highs yesterday, but at nearly 23%, only a couple of days in mid-December had a higher percentage of new highs.
Whenever we’re talking about market strength, you expect to hear Technology as part of the conversation. While nearly 30% of the Technology sector hit 52-week highs yesterday, that reading was lower than Friday’s level of 34%. As shown in the chart below, there have been several days in the last few months where a higher percentage of Technology sector stocks hit 52-week highs. Is Tech finally starting to pass the baton?
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Mar 4, 2024
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“The only thing we have to fear is fear itself.” – 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.
91 years ago today, with the country in the grips of the Great Depression, Franklin D Roosevelt was inaugurated as President and attempted to strike a tone of optimism for a country badly in need of a boost. The current picture is far different. Although Americans may not exactly be optimistic, the economy is doing relatively well, and just last Friday, the S&P 500 and Nasdaq both closed at record highs. Even the Russell 2000 hit a 52-week high! Maybe now, the only thing to fear is the lack of fear itself.
The picture this morning is a bit more subdued as futures are modestly lower ahead of a quiet day of economic data, but things will pick up later in the week with ISM Services and the February Employment report. It will also be a very busy week for Fedspeak as we head into the pre-meeting blackout on Friday. Chair Powell will even be testifying to Congress on Wednesday and Thursday.
Stocks may be quiet to start the week, but Bitcoin prices are going crazy again this morning with a move above $65,000. Since the ETPs started trading in early January, Bitcoin has rallied more than 40%, and from the post-ETP launch low on 1/26, prices are up 69%.
Just as a year ago no one was thinking the S&P 500 would be trading at all-time highs within a year, two months ago not many people were thinking that Bitcoin would be trading to new highs any time soon. With prices back above $65,000, though, bitcoin is now within 4% of its all-time high of just under $68,000.
While digital gold has gone parabolic of late, physical gold hasn’t been as strong, although prices are also within 4% of an all-time high. This morning, gold is trading just shy of $2,100 per ounce which is a level it has had a lot of trouble taking out over the last two years. Back in March 2022 and May 2023, gold prices rallied towards $2,100 and quickly pulled back. Late last year, though, gold made another run at $2,100, and while it failed to break through again, it didn’t experience a pullback anything like the prior two. Third time the charm?
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Mar 1, 2024
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“Wilderness is impersonal. It does not care whether you live or die. It does not care how much you love it.” – Lee Whittlesey
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 new month has started quietly in terms of equity futures trading, but activity will pick up at 10 AM Eastern with the releases of Construction Spending, Michigan Sentiment, and ISM Manufacturing data. Beyond the data, upcoming Fedspeak holds particular interest following a busy data week. Outside the US, Asian and European markets began March positively. In China and Japan, PMI Manufacturing data meets expectations, while the same report for Europe exceeded expectations but remains firmly in contraction.
152 years ago today, President Grant signed legislation officially recognizing Yellowstone as the first national park in the country. One of Yellowstone’s highlights has always been Old Faithful. While hundreds of geysers reside in the park, Old Faithful is unique as its eruptions can be predicted with relative accuracy. Since its discovery in the 1800s, and likely for millennia before, it has erupted at consistent intervals. Geologically, Old Faithful is exceptionally reliable, but eruption intervals have lengthened from just over an hour in the 1930s to an average of 90 minutes since 2000. And no, climate change is not the culprit; geologists attribute the change to subterranean earthquakes altering water levels. While Old Faithful has been one of the most reliable geysers for centuries, its continuation is far from guaranteed. If you haven’t witnessed it, make sure you do.
Markets, like most geological patterns and global changes, are impossible to predict. However, investors seem to have their own “Old Faithful” – the S&P 500’s consistent monthly gains. While bulls have enjoyed the last four months, it’s safe to assume that when the current streak ends, Old Faithful will still erupt roughly every 90 minutes. Yellowstone historian Lee Whittlesey’s words about nature aptly apply to markets: they are impersonal, indifferent to individual wins or losses, and unconcerned with how attached you are to a particular investment.
February saw the latest S&P 500 monthly gain of 5.2%, impressive in any market. This raises the question of whether investors typically take profits after such significant gains in the early days of a new month. While the historical record is mixed, some initial weakness in March wouldn’t be surprising.
The table below shows instances since 1953 (the first full year of the NYSE’s current five-day trading week) where the S&P 500 rallied over 4% in February, along with its cumulative month-to-date (MTD) performance in the first five trading days of March. Of the nine prior occurrences, the first day of March had an average and median positive return, but the S&P 500 only closed higher slightly more than half the time. The second day generally saw positive and consistent returns, with MTD gains in eight out of nine instances. However, MTD returns declined thereafter. By the fifth trading day, while the average performance remained positive (+0.44), the median change was a modest decline (-0.07%), with gains occurring only four out of five times. This compares to an average gain of 0.30% and positive returns 61% of the time for all other Marches since 1953. Overall, these figures are inconclusive, but as mentioned earlier, some weakness at the beginning of the month wouldn’t be unexpected.
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Feb 29, 2024
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“We must walk consciously only part way toward our goal, and then leap in the dark to our success.” – Henry David Thoreau
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
When looking at the market’s longer-term trend, we like to use a chart of the S&P 500’s 200-day moving average on its own with the daily price changes removed from the chart completely in order to eliminate the day-to-day noise and smooth the trend out. What’s notable here is that the S&P’s 200-day just recently took out its prior all-time high made in early 2022, ending a streak of 460 trading days without a new all-time high for the 200-DMA. While the S&P made a new all-time high on its daily price chart back in January, a new all-time high for the smoothed out 200-DMA is yet another confirmation of the current bull that has been legging higher for the last month or so.
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Feb 28, 2024
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“Truth is not determined by a majority vote.” – Pope Benedict XVI
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 gains in four of the last five days, equity futures were indicated lower ahead of some key GDP and inflation data this morning. Along with lower equity futures, bond yields are also lower, and that is welcome news for the housing market where Mortgage applications fell over 5% last week after falling more than 10% in the week before that.
US stocks have led the way during the recent bull market, especially since the lows of October 2022. The S&P 500 ETF (SPY) has gained 42.2% since then, compared to 31.0% for the rest of the world (iShares MSCI ACWI ex US ETF, ACWX). However, most of this outperformance occurred after late October. As the chart below shows, both SPY and ACWX were performing similarly until then.
Year-to-date, only the Japan ETF (EWJ) has outperformed SPY, with a gain of nearly 8%. However, international markets have shown recent strength. While the S&P 500 gained 2.05% last week, ETFs for China, Germany, Italy, and France all outperformed it. Only India’s ETF declined.
Looking at all ten country ETFs, most are near or at 52-week highs, except China (MCHI). While they haven’t experienced the same rapid ascent as the US (bottom chart), they have still reached significant levels.
For a closer look at how the market performed following prior moves like we saw yesterday, read today’s full Morning Lineup with a two-week Bespoke Premium trial.
