May 9, 2024
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“You don’t get rich writing science fiction. If you want to get rich, you start a religion.” – L. Ron Hubbard
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 quiet week of economic data, there’s finally a meaningful report this morning with jobless claims at 8:30. Initial claims came in higher than expected (231K vs 212K) and ticked up to the highest level since last August. Continuing claims at 1.785 million were more in line with forecasts and the recent trend. Earnings have still been coming in fast, but the companies reporting aren’t as large from a market cap perspective. That doesn’t mean they’re any less important if you own them, and we continue to see large one-day moves from several companies reporting. Unfortunately, it feels as if most of those big moves have been to the downside.
Moves in the Japanese yen have made headlines recently as the cross broke above resistance taking the yen to multidecade lows versus the dollar. In terms of lead market stories, the yen has started to move off the front pages as investors look for the next shiny object, but recent moves have still been significant. As shown in the chart below, after April’s massive break, the BoJ intervention caused a brief rally which pulled the cross back to levels that had served as major resistance. In a textbook move, the former resistance for USDJPY served as support, and the last few days have seen a return to the upward trend.
The daily moves in the yen have become more subdued this week, but that follows what had been a period of extreme volatility. In the five days ending 5/2, USDJPY’s average intraday range was 2.5% which was tied with a period in November 2022 for the most volatile five stretch since the Covid crash. Since 1989, there have only been a handful of other periods where the cross had a more volatile five-day stretch.
All this volatility in the yen hasn’t been helpful for Japanese stocks. From its high in early March (right before the USDJPY cross broke above resistance at 152) to late April, the Nikkei 225 corrected by more than 10%, and while it bounced with global markets in the last two weeks, the rally has stalled out right at levels that had been acting as support.
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May 8, 2024
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“Leaders get out in front and stay there by raising the standards by which they judge themselves—and by which they are willing to be judged.” – Fred Smith
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 drifting lower all morning. First, it was weaker-than-expected earnings reports in the tech/growth area (Shopify, Uber, etc). Then, Intel lowered Q2 sales guidance for the second time in less than two weeks. Now, Tesla (TSLA) is trading lower on reports of a criminal probe into claims it may have made concerning its full self-driving mode. All of these ingredients create a perfect recipe for an excuse for investors to take a step back after the recent bounce and reassess things. Outside of earnings, there’s little in the way of economic news today with Wholesale Inventories (10 AM) being the only report on the calendar.
We’ve become so used to US stocks leading the rest of the world in recent years, but this morning, there’s been a slight shift in the balance of power. Europe’s benchmark STOXX 600 is up 0.25% this morning for its fourth straight day of gains. In the process, the index has taken out its prior record high from late March, erasing all of the declines from April.
Meanwhile, the S&P 500 also closed out yesterday with its fourth straight day of gains but remains 1.5% below its record high from the end of March.
So, what explains the disparity in performance? The chart below shows the performance of STOXX 600 groups since the end of March when it last made a record high. Leading the way, Basic Resources, Banks, Energy, Utilities, and Drug Stores have all rallied over 3%. Most of these groups have larger weightings in the STOXX 600 than in the S&P 500 and therefore, they have provided a bigger ‘kick’ to the index’s performance. Meanwhile, Technology which isn’t nearly as heavily weighted in Europe as it is in the US is down 1.26%.
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May 7, 2024
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“Extremes to the right and to the left of any political dispute are always wrong.” – Dwight Eisenhower
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
S&P 500 futures were just unchanged on the day in what has been a relatively quiet morning. Crude oil is modestly lower and treasury yields are slightly lower. In terms of earnings, Disney is sharply lower after reporting weaker-than-expected sales and dragging the Nasdaq lower, shares of Palantir (PLTR) are down over 8% despite reporting better-than-expected EPS and sales. Dragging the stock lower? A disappointing forecast relative to lofty expectations.
Heading into yesterday’s session to start the week, the setup looked much like the prior Monday. Then, we started the week following a Friday when the S&P 500 rallied but came up just shy of its 50-DMA. While we rallied to start last week, the market couldn’t maintain enough momentum to get back above its 50-DMA. We then followed that failed attempt with a disheartening three straight days of lower intraday highs and lower intraday lows. Last Friday, we rallied again and broke that streak of lower highs and lows and rallied but finished the week just shy of the 50-DMA.
One positive about weakness in the middle of last week around the Fed meeting was that from the lows in mid-April, the S&P 500 maintained a run of higher lows. Fortunately for bulls, Monday wasn’t a Groundhog Day type event, and the S&P 500 not only opened the week above its 50-DMA, but it stayed there the entire session in a run of three straight days of gains of at least 0.91%.
The picture for the Nasdaq looks a lot like the S&P 500. Unlike the S&P 500, though, the Nasdaq finished off last week above its 50-DMA and stayed there to kick off this week. Like the S&P 500, however, it took the Nasdaq two tries to get back above that short-term moving average. As the old saying goes, “If at first you don’t succeed, try again.”
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May 6, 2024
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“Success is having to worry about every damn thing in the world, except money.” – Johnny Cash
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Equities are picking up right where they left off on Friday as futures have been gaining ground all morning. Even the Nasdaq is trading higher despite the disclosure over the weekend that Berkshire Hathaway has cut its stake in Apple (AAPL) by 13%. The stock was down over 1% earlier but has erased most of its pre-market losses. There’s very little in the way of economic data to look forward to this week, but there are still plenty of earnings reports to deal with even though, we’ve passed the peak of the Q1 reporting period.
The S&P 500 eked out its second positive week in a row, and the Nasdaq and Russell 2000 each squeezed out their second week in a row of 1%+ gains. Despite the gains, the S&P 500 still closed the week modestly below its 50-day moving average. If you look at the snapshot of US indices from our Trend Analyzer below, all the major US index ETFs closed out the week clustered right around their 50-day moving averages (DMA). No ETF is more than 0.70% above or below its 50-DMA.
While the indices are all “walking the line” of their 50-DMAs, there’s a little more dispersion at the sector level. Four of eleven sectors are trading at least 1% above or below their 50-DMA. Utilities and Real Estate are the two highest-yielding sectors in the S&P 500, but they have moved in opposite directions this year. As of Friday, Utilities was the most extended relative to its 50-DMA while Real Estate was the furthest below. Besides those two sectors, Health Care and Consumer Staples are the two other sectors trading further than 1% from their 50-DMAs.
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May 3, 2024
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“Work takes on new meaning when you feel you are pointed in the right direction. Otherwise, it’s just a job, and life is too short for that.” – Tim Cook
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
An apple a day keeps the doctor away, and an Apple (AAPL) earnings report could be just what the market needs to get out of this week with a gain. At current levels, the gains aren’t quite enough to push the market into the black for the week, but if there’s any positive momentum during the trading day (a bigger ask lately), we could get over the hump. Overnight, Asian markets were mixed as the yen rallied from its multi-decade lows earlier in the week. Europe is firmly in positive territory with gains of around 0.50% as banks lead the rally even as Novo Nordisk falls around 5%. Ahead of the 8:30 jobs report, treasury yields are little changed, oil is slightly higher but still below $80, and gold is down fractionally.
Before the April employment report, we wanted to briefly summarize trends surrounding recent reports. The table below summarizes the last two years’ worth of reports including how each came in relative to expectations along with equity market performance on the day of the report. One thing that immediately stands out is that just three of the last 24 reports have come in weaker than expected, and the average margin of “beat” in these 24 reports was 76K. Before Covid, a beat of 76K was very strong. Post-Covid, it’s a normal occurrence.
In terms of the market’s reaction to these reports, the last eight reports have been extremely positive with positive one-day reactions seven times. Before that, things weren’t quite as strong. From May 2022 through April 2023, for example, the S&P 500 declined on the day of the report nine out of twelve times. In terms of recent sector performance, two standouts have been Energy and Financials. Both sectors have reacted positively to 12 of the last 13 reports with average gains of 0.98% and 0.78%, respectively. Consumer Discretionary and Industrials haven’t been slouches either as they notched gains on eleven of the last thirteen non-farm payrolls days.
Getting back to the pace of stronger-than-expected reports, it’s hard to believe but 21 of the last 24 reports have been better than expected. As shown in the chart below, dating back to 2000, we’ve never seen this torrid pace of stronger-than-expected reports. Can the Fed really be talking about rate cuts when the pace of stronger-than-expected reports is this strong?
While better than expected Non-Farm Payrolls reports have been occurring at a pace never seen before, another notable trend lately has been the pace at which reports have been revised lower. When we compare the originally reported change in Non-Farm Payrolls to the current readings after revisions, just nine reports have been revised higher meaning that 15 have been revised lower. Looking back over time, this isn’t necessarily extreme, but it is above the historical average of 12. In other words, Non-Farm Payrolls reports over the last few years have been blistering hot relative to expectations at their initial release, but unlike a fine wine, they haven’t been getting better with age.
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May 2, 2024
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“How you finish, is what they will remember.” – Unknown
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 rebound mode this morning as they look to recoup the losses from the last hour of trading. Crude oil is higher but still below $80, and the 10-year yield is unchanged. This morning’s economic data has been mixed with jobless claims coming in lower than expected, but Unit Labor Costs rising more than expected (4.7% vs 4.0%) although last quarter’s reading was revised lower. As labor costs increased, Non-Farm Productivity was weaker than expected rising just 0.3% compared to forecasts for an increase of 0.5%.
When people look back on Super Bowl LI, most will only remember that the Patriots won their fifth championship in an unbelievable comeback against the Falcons. The Falcons, who were up by 25 in the second half, won’t be remembered for being so close, but instead for one of the biggest choke jobs in Super Bowl history. At one point in the second half, they had a 99% probability of winning. It was guaranteed.
Similarly for the market, people will not look back on yesterday as being a day when the S&P 500 was up over 1% with less than an hour left in the session. Most people will just remember it as a day when the S&P 500 finished moderately lower (-0.34%), and for those more involved in the day-to-day moves, they’ll remember that the S&P 500 collapsed into the close falling over 1% in the final hour and more than 0.50% in the last ten minutes of trading! As we noted in the Closer last night, at one point yesterday, the S&P 500 had a 99% probability of finishing the day with a gain. Choke job indeed.
What’s even crazier about yesterday’s tank into the close, is that it was the second day in a row where it happened. Below we show the S&P 500’s intraday charts for Tuesday (4/30) and Wednesday (5/1). While the patterns heading into the last ten minutes of both days were almost the opposite, the last ten minutes were nearly identical; The S&P 500 dropped 0.59% in the final ten minutes on Tuesday and 0.60% on Wednesday. These late-day declines are uncommon enough on their own, but to occur on back-to-back days is extremely rare.
The chart below shows streaks where the S&P 500 declined 0.50% or more in the final ten minutes of trading going back to 1985, and there have only been nine other periods where there were back-to-back occurrences (with two extending to an unheard-of third day). The most recent occurrence was in February 2018 during the Volmageddon meltdown. The next before that was in August 2015 when China devalued the yuan and before that August 2011 when the US lost its AAA credit rating from S&P. There were also a few occurrences during the Financial Crisis and also in October 1987 during the market crash. You probably get the point; these types of back-to-back declines normally occur during periods of intense market stress.
For an analysis of how the market performed following these periods, read today’s entire Morning Lineup.
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