Feb 16, 2024
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“The older I get, the better I used to be.” – John McEnroe
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 had a positive bias heading into this morning’s PPI and housing data. With Housing Starts and Building Permits both coming in weaker than expected and PPI coming in higher than expected, they have given up all those gains and are now in the red. Treasury yields are higher, and the 10-year is back above 4.3%. For anyone on the rate cuts sooner rather than later bandwagon, this is a week they’d prefer to forget.
The phrase “somebody call 9-1-1” is a well-worn part of the vernacular these days, but it was only 56 years ago today that the first call on the system was made in Alabama. While it is an invaluable number in an emergency, there have been some “interesting” emergencies in its 50+ years of existence. Someone in Georgia once called to report her car stolen, only to later realize that the grass had grown so tall that she couldn’t see it anymore. Or how about the woman in California who called 911 to report that the special sauce on her Western Whopper at Burger King was left off? While the Whopper wasn’t up to her standards, the stoned guy who called 911 with the munchies would have taken it in a heartbeat. Even more surprising was the guy in Oregon who broke into a house to shower. When the owner got home and heard him, they called 911… but so did the intruder who feared he would be shot. We could go on, but again, these stories are the exception to what has been an invaluable resource over the last several decades.
While there aren’t many emergencies in the market these days (although this week’s inflation data has raised some concern), natural gas traders may be looking for a phone. The commodity has been in absolute free fall over the last several weeks. After prices gapped sharply lower in the last week of January, they have been in a free fall ever since. In the last week of January, futures prices fell below $2 MMBtu, and then yesterday, they fell below $1.60 to the lowest level since June 2020. There’s no inflation here!
Prices are slightly higher today, but heading into the session, natural gas prices were down for eight straight days. While there was a similar losing streak in October, the only streak that has been longer in the last decade was a 12-day streak in October 2019. Going back to 1990, there have been only 12 streaks of eight or more besides the current one.
The losing streak for natural gas has been bad enough, but the magnitude of the decline has been crushing. From its five-week high of 3.313 MMBtu on January 12th, front-month natural gas futures were down 52.3% through Thursday’s close. In the entire history of natural gas futures trading since 1990, the only other time that it traded down more than 50% in the span of five weeks or less was in January of last year, and before that, the record decline in five weeks or less was 47% in March 2003. Whether you want to blame it on weather, regulatory policy, or something else, natural gas has rarely been more out of favor than it is today.
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Feb 15, 2024
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“All truths are easy to understand once they are discovered; the point is to discover them.” – Galileo
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 today’s Morning Lineup, we wanted to mention that yesterday we updated our “Best of Breed” basket which you can read about at this link. You can also click here to create a Custom Portfolio of our Best of Breed basket and monitor it over the next three months before our next update scheduled for mid-May.
Futures are higher this morning and yields are lower following a large slug of economic data, and the results were mixed relative to expectations. Retail Sales came in significantly weaker than expected across the board while Import Prices were higher than expected. Jobless claims were mixed relative to expectations with initial claims coming in lower than expected while continuing claims were modestly higher than expected. Finally, both the Empire and Philly Fed regional manufacturing reports were better than expected. The Philly reading wasn’t only better than expected, but it was also positive for the first time since August. Net net, the data was skewed to the weak side, and with that, the 10-year US Treasury yield is back down to 4.20% and has erased most of its gain following Tuesday’s higher-than-expected CPI.
As weak as the US data was, the headlines this morning are all about how the Japanese and UK economies both entered recessions in Q4 with back-to-back negative quarters of GDP. This continues a trend where economists keep talking about how resilient the US economy has been in avoiding a recession while other large economies around the world have. Keep in mind, though, that if they used the same definition of recession for the US that they do for the rest of the world (back-to-back quarters of negative GDP), the US economy already had its recession in the first half of 2022!
The red maple-leaf Canadian flag is one of the most recognizable national symbols in the world. However, we were surprised this morning to learn that it has been the national flag of our neighbor up north for less than 60 years as it was only adopted 59 years ago today on 2/15/1965. What may not surprise you is that the process of adopting a national flag in Canada was a forty-year process that began in 1925. Whether you’re talking about tax legislation, foreign aid, hold time on a call to the IRS, or adopting a national flag, when any government gets involved, get comfortable.
Regarding Canada, we discussed the outperformance of the US relative to the rest of the world in yesterday’s Chart of the Day, and Canada has been no exception on a short or long-term basis. The chart below shows the relative strength of Canada versus the US since the red maple leaf flag was first adopted in 1965. While Canadian stocks outperformed the US up until 1980, it was all downhill from around 1980 through 2000. From roughly 2000 through 2010, Canada rallied relative to the US as oil and other commodities rallied, but since the end of the financial crisis, Canadian stocks have done nothing but trade lower on a relative basis, and just this week hit a record low. While the chart below doesn’t include dividends, on a total returns basis, the S&P/TSX Composite has had an annualized return of roughly 7% since February 1964 versus the S&P 500’s annualized gain of around 10.25%.
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Feb 14, 2024
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“Would I rather be feared or loved? Umm… easy, both. I want people to be afraid of how much they love me.” — Michael Scott, The Office
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Was yesterday a blip or the beginning of something else? This morning, futures are modestly higher heading into the midweek trading session, and European stocks are firmly in positive territory. The STOXX 600 is even trading right where it was before yesterday’s January CPI report. Interest rates are giving back some of yesterday’s gains, and cryptos are blistering higher with bitcoin firmly above $50K and Ethereum trading above $2,750.
While there haven’t been any 52-week highs at the index level this week, yesterday was the 30th trading day of the year, and already the S&P 500 has managed to close at a 52-week high 12 times. That’s the most 52-week highs in the first 30 trading days of a calendar year since 2018. It’s also the tenth most of any year since 1953, the first full year of the five-trading day week in its current form. The record for 52-week highs in the first 30 trading days of the year was 20 in 1971, and back in 2013, there were as many as 15.
In today’s report, we looked at the performance of the S&P 500 for the remainder of the year following the 30th trading day of the year to see if there was any correlation between the number of 52-week highs and performance for the remainder of the year. As mentioned above, the last time there was as high of a reading was in 2018 when the S&P 500 went on to fall over 5% for the remainder of the year. So, is it a sign of a blow-off top or does strength beget strength?
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Feb 13, 2024
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“It is myopic to base sweeping change on the narrow experience of a few years.” – 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.
Futures are getting off to a sluggish start this morning. US equity futures are lower as investors take a step back and assess whether sentiment towards equities has gotten a bit too giddy. Bank of America’s Fund Manager survey showed an increase in allocations to US equities, specifically in tech where exposure to the sector reached its highest level since August of 2020. That’s a far cry from November 2022 (right near the bear market lows) when sentiment towards the sector plunged to its lowest level since the Financial Crisis. The current reading in the percentage of funds overweight tech is at the highest level in more than three years, although that level also corresponds to the same range it hovered at for most of the period from 2010 to 2020 (see chart here).
The only two items on the economic calendar today were the NFIB’s Index of Small Business Optimism, which came in weaker than expected and fell below 90 for the first time since last May, and January CPI. Economists were expecting headline CPI to rise 0.2% m/m and 2.9% y/y, while the core reading was expected to rise 0.3% m/m and 3.7% y/y. On all measures, the January CPI came in ahead of expectations, so the widely expected drop below 3% in the headline y/y reading will have to wait at least another month. As you would expect, equity futures have added to their pre-market losses (S&P 500 down 1%), and bond yields are spiking as the 10-year yield tops 4.27% hitting its highest level since early December.
Yesterday looked like another one of those days where semiconductors were going to rip higher and close at new highs again. Early on, the SOX traded 1.7% higher to another record high, and Nvidia (NVDA) even pulled ahead of Amazon (AMZN) as its market cap briefly eclipsed $1.82 trillion. In just 29 trading days this year, NVDA has seen its market cap increase by $600 billion. $600 billion! That’s more than the market cap of all but eight companies in the S&P 500, including Tesla (TSLA)! Maybe traders sobered up from the Super Bowl parties and took a second to think about just how much $600 billion is, but at around lunchtime, the enthusiasm dried up. By the close, NVDA was flat, and the SOX erased all its early gains and finished down on the day.
Semis are an extremely volatile sector, so a reversal like Monday’s can pop up at any time, but they’ve been somewhat uncommon over the last three years. The red dots in the chart below show each time that the SOX hit a 52-week high intraday but then reversed lower finishing down on the day and more than 1% from the high. Outside of one occurrence in July 2021, every other since has come in bunches and shortly before a moderate to severe sell-off in the sector. With futures down sharply this morning, could yesterday’s reversal be another prelude to a sell-off?
While these types of reversals have recently been followed by a shaky performance from the SOX, from a less myopic vantage point, they have occurred at all different points in the cycle. Leading up to the peak in early 2022, there were several occurrences in the two-plus year period beginning in October 2019, and before that, there were several other extended runs where these types of reversals were sprinkled throughout, and the SOX didn’t miss a beat. There were other times, though, in the early 2000s when similar reversals occurred right before a moderate to severe sell-off. All of this is a long-winded way to say, that just as, or more often than, these reversals signaled a significant pullback, they also turn out to be meaningless.
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Feb 12, 2024
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“America will never be destroyed from the outside. If we falter and lose our freedoms, it will be because we destroyed ourselves.” – Abraham Lincoln
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 days after Thanksgiving, July 4th, and Christmas are expected to be quiet, but “Super Bowl Monday” is starting to look like one of those days. US equity futures are little changed this morning, and outside of a merger announcement between Diamondback Energy (FANG) and Endeavor, there’s little in the way of corporate news flow. Economic data? It’s empty. International markets? It’s been quiet there too as several countries in Asia observe the lunar new year. European markets are open for trading, though, and the tone is generally positive.
Heading into the new week, after starting the year on a down note, the S&P 500 has risen for five straight weeks with gains of more than 1% each week. At the sector level, just six of eleven sectors are overbought while Utilities is oversold. The biggest gainers last week were Technology, with a gain of over 2.5%, followed by Consumer Discretionary, Health Care, and Industrials, which were all up over 1%. The S&P 500 is up 5.4% on the year. While Communication Services and Technology have been the largest outperformers, Health Care has also moved into the outperformer column while eight sectors are underperforming, including four sectors that are down on the year.
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Feb 9, 2024
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“How old would you be if you didn’t know how old you are?” – Satchel Paige
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 brief second where it traded above 5,000 yesterday before dipping back down below that level into the close, the S&P 500 is poised to open firmly above that psychological level today. Whether or not it holds into the weekend remains to be seen, but four out of five Fridays this year have been positive.
Driving the tone in futures markets this morning there have been many big reactions to earnings where stocks like Pinterest (PINS), Expedia (EXPE), and Affirm (AFRM) are sharply lower, while shares of Cloudflare (NET) have been the big pre-market winner with a gain of over 25%. Outside of the equity market, treasury yields are little changed, crude oil is modestly lower, and bitcoin is surging back above $47K.
The economic calendar i slight today as the only release is the revisions to CPI seasonally adjusted data.
While there have been some concerning trends related to market breadth lately, one indicator that remains strong is the percentage of stocks hitting 52-week highs. For three months and running, there hasn’t been a single day where more stocks in the S&P 500 hit 52-week lows than 52-week highs, which is a very impressive run. Now, if we could finally start to see some broadening of the market, maybe we could start to see an expansion in the percentage of stocks hitting new highs as well. Wouldn’t that be nice?
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