Jan 24, 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.
“The best argument against democracy is a five-minute conversation with the average voter.” – Winston Churchill
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 rally continues to roll this morning as positive earnings from Netflix (NFLX) and ASML drag the rest of the market up along with it. Even with the positive tone from NFLX, there are several high-profile duds this morning as DuPont (DD), Kimberly Clark (KMB), and Texas Instruments (TXN) are all down either in reaction to earnings or due to lowered guidance. Besides the earnings news, China cut interest rates by 50 bps in a somewhat surprising move.
In terms of economic data, PMI Manufacturing readings out of major European countries topped estimates even as they remain in contraction territory. Here in the US, mortgage applications increased 3.7% last week, and we’ll get flash PMI readings for the Manufacturing and the Services sector later this morning.
Following yesterday’s gain, the S&P 500 has risen in each of the last four trading days notching three all-time closing highs in the process. The index is now up 2% YTD, in what has been a rally driven by Technology and Communication Services which are both up over 5% YTD. Besides those two sectors, Health Care is the only other one outperforming the market. On the downside, six sectors are lower YTD, and five of them are down at least 2% on the year. It’s somewhat interesting to note that of the eleven sectors, the only two that are up or down less than 1% are Consumer Staples (+0.75%) and Industrials (-0.63%).
There’s quite a bit of disparity in sector performance among large caps, but in the small-cap space, performance is more uniform, but unfortunately, it’s to the downside. The S&P 600 is down 2.3% YTD and all but three sectors are down at least 2%, including Energy (-6.2%), Utilities (-4.2%), and Consumer Discretionary (-3.3%).
The lower chart shows the YTD performance spread between large-cap sectors and their small-cap peers. Sectors where there has been the largest disparity in favor of large caps are Communications Services and Technology. These are also the two sectors that have the largest concentration of mega-caps, and that illustrates how even within the large-cap space, performance is centered towards the companies with the largest market caps. While large caps have largely outperformed small caps YTD, there have been a couple of exceptions. As shown in the chart, in both the Real Estate and Materials sectors large caps have underperformed their smaller-cap peers.
Sign up for a two-week trial to Bespoke Premium to continue reading more of today’s macro analysis.
Jan 23, 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.
“The more they actually know, the less confident they become.” – Charles Dow
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 been a very quiet morning in the futures market as the Dow is indicated to open higher by less than 20 points while the S&P 500 is expected to gain less than three points. The Nasdaq is looking stronger, as it has all year, and is currently looking at a gain of 45 points. Europe has been just as quiet as things here in the US are as most major averages in the region are up or down less than five basis points (bps). The economic calendar is quiet again this morning as the Richmond Fed Manufacturing survey is the only report on the calendar.
On the earnings front, the pace of reports has picked up this morning with several Dow components reporting (discussed in the commentary section of this morning’s report), and after the close, we’ll hear from Baker Hughes (BKR), Intuitive Surgical (ISRG), Netflix (NFLX), Steel Dynamics (STLD), and Texas Instruments (TXN).
Just 40 days after crossing 37,000 for the first time in the first half of December, the Dow Jones Industrial Average, “America’s stock market index” never looked back and crossed 38,000 yesterday for the first time. The path from 37,000 to 38,000 was certainly smoother than the run from 36,000 to 37,000 which took almost 20 times longer than the latest 1,000-point run. Even though the run from 36,000 to 37,000 was a move of less than 3%, it was the longest period between 1,000-point thresholds since the 2,119-day gap between 14,000 and 15,000 (a move of over 7%) and the sixth longest ever. Meanwhile, this latest 1,000-point move was the eighth fastest. Lastly, while it’s entirely possible and even likely that the DJIA will at some point pullback below 37,000, at this point the only other 1,000-point threshold that has never been crossed to the downside is Dow 5,000.
Sign up for a two-week trial to Bespoke Premium to continue reading more of today’s macro analysis.
Jan 22, 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.
“Those who will not reason, are bigots, those who cannot, are fools, and those who dare not, are slaves.” – Lord Byron
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 last Friday’s run to record highs, there is no hangover in the markets this morning as futures are firmly in positive territory to kick off the week. There’s not much specific to point to as reasons for the positive tone, and the stocks leading the way in the pre-market are essentially the ones that have taken us here in the first place, namely mega caps, and anything to do with AI. It’s a quiet day for both earnings and economic data to kick off the week, but that will change as the week goes on. In the meantime, the only economic data to be on watch for this morning is Leading Indicators at 10 AM Eastern.
Just as the US equity market breaking out to new highs hasn’t been a tide lifting all stocks, global stocks have also seen disparate performance. The snapshot below shows where the equity benchmarks of the ten largest global economies are trading relative to their trading ranges (in dollar-adjusted terms). While the US was up over 1% last five trading days, the only two other country ETFs that traded higher were India (PIN) and Japan (EWJ). They are also the only two other countries that have managed gains so far this year. While most other major-country ETFs are still above their 50-day moving averages, that can’t be said for the UK, Brazil, and China. However, given the disaster that Chinese equities have been lately, it’s probably not fair to lump the UK and Brazil in the same basket.
Sign up for a two-week trial to Bespoke Premium to continue reading more of today’s macro analysis.
Jan 19, 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.
“…and then we’re going to Washington, D.C., to take back the White House! Yeah!” – Howard Dean, 1/19/2004
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 week started with a shaky start on Tuesday and additional losses on Wednesday, but Thursday’s rally and additional strength in the futures this morning have the major averages on pace for a positive week ahead of what will be a busy week for earnings next week. The only reports on the economic calendar today are the Michigan Sentiment report at 10 AM where economists are forecasting a modest uptick in the headline reading and no change in one-year inflation expectations. Along with the report, Existing Home Sales are essentially expected to remain unchanged at 3.83 million. In terms of Fed-speak, Chicago Fed President Goolsbee is about to go on CNBC (or may have already appeared depending on when you read this), and then after the close San Francisco Fed President Daly will speak at an event in her district. After that, the FOMC will go into its quiet mode ahead of its upcoming meeting. While the pace of Fed-speak will slow, along with earnings, the political pace will also pick up next week with the New Hampshire Primaries on Tuesday.
Just when you think this fall’s election matchup is a foregone conclusion, remember that politics is just as volatile as any market. Think back twenty years to the Iowa Caucuses, and Howard Dean’s “I Have a Scream” speech. Dean was one of the leading candidates on the Democratic side, raising a record amount of funds early in the campaign. Not only that, but his support was broad with a large percentage of small donors. Even though he finished third in Iowa, it was expected that when the campaign moved back closer to his home state of Vermont, he would see increased momentum. But then he screamed.
In what would generously be described as an energetic speech, Dean spoke ‘enthusiastically’ about the future of the campaign and the victories it would see right up to the White House in November. He then capped it off with a scream of “Yeah!” where his voice cracked like Peter Brady singing “Time to Change” in the Brady Bunch. The clip was played all over the nightly news, late-night shows, and the internet, and whether it was the main catalyst or not, from there, the wheels fell off the Dean bandwagon. In New Hampshire, Dean finished a distant second behind John Kerry. From there, Dean’s losses in the primaries continued, and after going ‘all in’ on the Wisconsin primary, Dean came in third and dropped out of the race the next morning on 2/18.
In less than a month, Howard Dean went from a leading candidate for the Democratic Party in the 2004 election to out of the race. This November’s election could very well end up being a race between President Biden and former President Trump, but the election is still more than nine months away, and a lot can change between now and then.
Heading into the last trading day of the week, most sectors are down over the last five trading days and on a YTD basis, but the weakest of them all has been Utilities as rising rates have hurt the sector. It’s down more than 5% over the last five trading days, joining Energy as one of just two oversold sectors. While most sectors are down over the last five trading days, Technology and Communication Services have managed to buck the trend with gains. What else is new?
Up until this week, the Utilities sector had been in a somewhat steady uptrend from its October lows when rates peaked. As shown in the chart, though, the uptrend collapsed late last week just as the sector started to bump up against its longer-term downtrend.
Sign up for a two-week trial to Bespoke Premium to continue reading more of today’s macro analysis.
Jan 18, 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.
“The man who wants to lead the orchestra must turn his back on the crowd.” – Captain 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.
It’s looking like a much more positive start to the day than many others recently as the S&P 500 is indicated to open up by about half a percent, and the Nasdaq is looking at a 1% gain. A strong batch of economic data has put a little bit of a damper on things as rates ticked higher, but outside of the Dow where a large decline in UnitedHealth (UNH) is weighing in the index, the start of the trading day at least looks to be positive.
As far as the economic data is concerned, both Building Permits and Housing Starts came in better than expected, initial jobless claims dropped to 187K for the lowest reading since last January, continuing claims also beat, and even though the Philly Fed report was weaker than expected (-10.6 vs -6.5 expected), it wasn’t near the disaster that the Empire Manufacturing report was earlier in the week.
Anyone who was expecting a continued broadening out of the market in 2024 has been majorly disappointed by how the year has started. Eleven trading days into the year, the cap-weighted S&P 500 has declined 0.64%, but the equal-weighted version of the index is down much more with a decline of 2.55%. That puts the performance spread between the two indices at 1.91 percentage points and represents the widest performance gap eleven trading days into the year in favor of the market cap weighted index since at least 1990.
It may sound hard to believe, but this year’s outperformance on the part of the market cap weighted index ends a streak of three years where the equal weighted index outperformed the cap weighted index at the year’s outset. In two of those three years, the trend reversed for the remainder of the year as the cap weighted index outperformed the equal weighted index, including last year where the gap in favor of the cap weighted index was the second highest of any year since 1990 trailing only 1998. Looking more broadly, in the 34 years since 1990, the direction of the performance gap between the cap weighted versus the equal weighted index eleven trading days into the year continued in the same direction for the remainder of the year less than 60% of the time. In other words, it’s hardly set in stone that just because the cap weighted index came out of the year strong this year doesn’t necessarily mean it will continue for the remainder of the year.
Sign up for a two-week trial to Bespoke Premium to continue reading more of today’s macro analysis.
Jan 17, 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.
“We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.” – Dwight D. Eisenhower, 1/17/61
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 not a pretty morning for risk assets as Asian stocks, specifically China, were down sharply overnight, and Europe is down sharply this morning after ECB President Lagarde followed the lead of US central bankers when she noted that rate cuts aren’t likely to start until the Summer and UK inflation came in higher than expected. Here in the US, it’s a busy day of economic data. Retail Sales and Import Prices were just released, and they both came in higher than expected. On the docket, we have Industrial Production and Capacity Utilization at 9:15 and then Business Inventories and Homebuilder Sentiment at 10 AM.
When comments like the above are made today, the people making them are often written off by the mainstream as candidates being on the fringe, but President Dwight D. Eisenhower made the statement above as part of a nationally televised farewell speech from the Oval Office when his approval rating was just under 60%. Eisenhower’s concerns stemmed from the fact that after multiple major wars, the US defense industry was becoming a much larger share and player within the US economy, and he was pointing out that as its size grew, so too would its influence.
During Eisenhower’s last year in office (1960), total US defense spending, according to the World Bank, was $47 billion. Within 16 years, defense spending had doubled, and just six years later, it had more than doubled again to over $220 billion. Under Reagan, spending steadily increased and reached a short-term peak in 1990 at $325 billion. For the remainder of George H. Bush’s term through most of Clinton’s entire time in office, total spending actually drifted lower but then surged exponentially after 9/11. Spending then generally declined for most of Obama’s time in office and then ramped back up again after Trump came into office (“When I took over our military, we didn’t have ammunition”). As of 2022, the latest year of available figures, total defense spending in the US reached $877 billion, or more than 18 times the level during Eisenhower’s last year in office.
While it may look as though defense spending has only become a larger influence on the US economy since Eisenhower left the Oval Office for the last time, when measured as a percent of GDP, defense spending has generally been on the decline. During Eisenhower’s last year in office, total defense spending equaled about 9% of GDP, and through the decades steadily declined to a low of 3.09% of GDP in 1999 during Clinton’s second to last year in office. Again, spending ballooned as a percent of GDP during George W Bush’s Presidency after the 9/11 attacks, but then started to decline again after Obama came into office. While total dollar-spending surged after Trump came into office, as a share of the economy, the increase looks much more subdued.
In terms of the current US geo-political picture, it’s hard to remember a time when more fires were smoldering around the world, so you would think that it would be a great time for defense contractors. Based on the performance of the largest US defense contractors over the last year, though, that has hardly been the case. The chart below shows the one-year performance of the five largest defense contractors (market cap greater than $50 billion), and during that time, TransDigm (TDG) is the only one that is outperforming the S&P 500. Of the remaining four, two are up less than 4% while Boeing (BA) is down over 5% and RTX is down over 13%. BA is facing its own issues as the company tries to get its act together, but for the other companies rising geo-political instability hasn’t necessarily been good for their stocks.
Sign up for a two-week trial to Bespoke Premium to continue reading more of today’s macro analysis.
