Jan 16, 2024
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“The fault lies not with the mob, who demands nonsense, but with those who do not know how to produce anything else.” – Miguel de Cervantes, Don Quixote
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 poised for a negative start to the US week as European and Asian equities generally traded lower while US markets were closed yesterday. Oil prices along with interest rates have been moving higher this morning, but the Empire Manufacturing report for January which was just released came in significantly weaker than expected, and that could help to keep a lid on rates. While economists were forecasting the headline reading to come in at around -3, the actual reading was much weaker falling to -43.70. Just to put some perspective on that number, the only time it was lower was during the depths of the Covid lockdowns in early 2020, and the only time the report missed expectations by a wider margin was in April 2020.
Atlanta Fed President Bostic was interviewed in the FT over the weekend, and he suggested that any potential rate cuts from the Fed would be unlikely until at least the summer. That has let some air out of the rate cut pricing balloon this morning relative to last Friday (blue vs yellow bars below), but only by a little bit. In the short-term, markets are pricing in 1.8 25 bps rate cuts between now and the May 1st meeting which is slightly less than where things stood at the January meeting but still well above where the market was at the end of October.
Longer-term, pricing of cuts remains aggressive with 6.4 25 bps cuts priced in between now and the 12/18/24 meeting. That’s down from 6.7 last Friday but still slightly above where things stood at the end of last year and well above the 5.9 cuts that were priced in as of December.
Bostic is a voting member of the FOMC this year, so his comments certainly carry weight and looking ahead, investors will be focused on a speech today at 11 AM Eastern where he will be speaking at the Brookings Institution on his economic and policy outlook. Back in November, Waller commented that he was confident that Fed policy was well positioned to slow the economy and get inflation back down to its 2% target and even envisioned a scenario where the Fed could be cutting rates within the next three to five months.
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Jan 12, 2024
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“He not only made me believe—he made us all believe.” – John Dockery, on Joe Namath’s performance in Super Bowl III
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Earnings season kicked off this morning as the major banks along with Delta (DAL) and UnitedHealth (UNH) have all reported earnings this morning. Concerning bottom-line results, five of the eight companies reporting have exceeded results, but only four of the eight managed to exceed top-line results. Of the companies reporting, only JP Morgan (JPM) is trading higher, and the biggest loser has been UnitedHealth (UNH) which is down over 5%, and given its high share price, that is having a large impact on Dow futures this morning.
Futures for the S&P 500 and Nasdaq are also lower this morning, and that’s partly a result of earnings news but also rising tensions in the Middle East as a US-led group launched airstrikes in Yemen on Houthi targets. As you might guess, oil prices have spiked higher in response, and as of this morning are trading up just about 4%.
In economic news, PPI for December was just released, and unlike yesterday’s CPI, the numbers were weaker than expected. At the headline level, PPI declined 0.1% on a m/m basis (+0.1% expected) and rose 1.0% on a y/y basis (1.3% expected). Core PPI was also weaker with the m/m reading coming in unchanged (0.2% expected) and rising 1.8% y/y (2.0% expected).
Everyone loves a three-day weekend, right? While you would think that, there is not much to like about the equity market’s historical performance during the holiday-shortened week coinciding with Martin Luther King Jr Day. While President Reagan signed the holiday into law as a Federal Holiday in 1983, it wasn’t until 1998 that the stock market started to close in observance of the holiday. The chart below shows the performance of the S&P 500 from the Friday before MLK Jr Day through the Friday after. As shown, the median performance has been a decline of 0.32% with gains just 38% of the time. The worst of those weeks was just two years ago when the S&P 500 declined 5.7% in the four-trading day week. While the holiday week has historically been weak, it is worth pointing out that the period leading up to the holiday has typically been better. On a month-to-date basis through the Friday before MLK Jr Day, the S&P 500’s median performance since 1998 has been a gain of 0.88% with positive returns 59% of the time.
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Jan 11, 2024
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“I hear ya, Ton’, but that was before inflation” – Christopher Moltisanti
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 modestly low this morning, but it could be worse given the stronger-than-expected CPI reading for December where both headline and core CPI topped consensus forecasts. Jobless claims, meanwhile, showed strength with initial claims falling to 202K from last week’s level of 209K and continuing claims falling to 1.843 million from 1.855 million in the prior week.
“Did you see The Sopranos last night?” 25 years ago today, if someone asked you this question at work on Monday morning, you probably had no idea what they were talking about. With each passing week, though, The Sopranos became a show Americans planned their Sunday nights around, and by the time “Made in America” aired eight years and five months later, 12 million people made sure they were in front of their TVs at 9 o’clock eastern to watch it. It seems so arcane now, but this was a time when there were no DVRs, and the term binge-watching didn’t exist. The Sopranos, like Seinfeld, Friends, and a host of other shows before it, was “Must See TV”. If you weren’t in front of your TV to watch them, you missed them, and the next morning you were in the dark. Raise your hand if you remember desperately trying to get home from wherever on a Sunday night only to get stuck in traffic or delayed by a train or bus and missing the first half hour.
Just for kicks, we were curious to see which current members of the S&P 500 have been the best-performing stocks since the first episode of The Sopranos on January 10, 1999. Perhaps the most interesting aspect of this analysis is that 30% of the index’s components didn’t even exist in their current form back in January 1999. Of the ones that did, the list below summarizes the 25 top performers. It’s also worth noting that 25 stocks in the index are down since the first episode of The Sopranos, including AIG, Ford (F), Citigroup (C), and Carnival Cruise (CCL).
Looking at the list of winners, there are a lot of unexpected names. With a gain of over 46,000%, Apple (AAPL) has been the second-best performing stock (and probably the most expected name) in the index, but its gain has been less than half of Monster Beverage’s (MNST) rally of over 108,000%. Then, at number three, shares of Old Dominion Freight (ODFL) have gained over 40,000%. Given all the trucks that Tony and his crew jacked over the years, ODFL must have been paying quite a substantial pizzo to avoid any trouble!
What’s also interesting about the list below is the names that aren’t on it. While mega-cap stocks like Meta (META), Alphabet (GOOGL), and Netflix (NFLX) weren’t public yet, Amazon.com (AMZN) and Microsoft (MSFT) were, but with gains of ‘only’ 3,700% and 920%, respectively, they didn’t make the list. Ironically enough, Nvidia (NVDA) wasn’t public yet either as its IPO wasn’t until 12 days after the Sopranos premiere. “Oh, poor baby. What do you want, a Whitman’s Sampler?”
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Jan 10, 2024
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“Time makes more converts than reason.” – Thomas Paine
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
We’re looking at another flat morning for US equity futures this morning. Last we looked, S&P 500 futures were exactly unchanged, and both the S&P 500 and Dow were little changed. While there’s been little move in equities, US Treasury yields are lower as the 10-year yield has dipped back below 4%.
In terms of economic data, it’s a quiet morning. Mortgage applications surged over 9%, but the only other report on the calendar is Wholesale Inventories at 10 AM. The next major report will not be until tomorrow when the CPI for December is released. While it’s not economic data, investors will also be on the lookout for an announcement from the SEC regarding potential approval for a bitcoin ETF after yesterday’s disastrous turn of events where it was seemingly approved only but then taken back as the SEC claimed its X account was compromised.
In Asia, the Nikkei surged 2%, but most other major benchmarks in the region were lower, and in Europe, equities are just like US futures – flat as a pancake.
It’s now been 50 trading days since US markets made their Q4 lows on 10/27/23. One of the more impressive rallies has been the 20%+ gain in the small-cap Russell 2000. That move ranks as the largest 50-day rally in the index since 2020 and one of only 21 periods in the index’s history since 1979 that it rallied that much or more in a 50 trading-day period. Before the experiences during the early days of COVID, there was one occurrence in March 2019, but before that, you have to go back to 2012.
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Jan 9, 2024
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“When we put it all together, we’ve got to be perhaps the greatest club ever.” – Bill Sharman
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Markets are experiencing a bit of a turnaround Tuesday (in the wrong direction) this morning as a good chunk of yesterday’s gain is getting retraced this morning. Small Business Optimism from the NFIB topped forecasts reaching its joint-highest reading since September 2022, and the Trade Balance came in slightly narrower than expected. Perhaps the biggest headlines in the next 24 hours, though, will come in the crypto space where the SEC is expected to give a definitive answer regarding approval for a Bitcoin ETF.
Last week’s decline to kick off the year ended what had been simultaneous nine-week winning streaks for the S&P 500 and the Nasdaq and the longest such streak in decades. Given the weakness to kick off the year, a lot of investors went into the weekend thinking that maybe the rally had finally run its course, and the bears were going to be back in charge for 2024. Yesterday, though, the bulls made a stand as the S&P 500 rallied 1.4% to put it down just 0.13% on the year. Who knows what the rest of the year may bring, but one week doesn’t necessarily make a trend (even if it was the all-important first week of the year). Think back to the 1972 Lakers.
52 years ago today, the Lakers, led by Jerry West, Gail Goodrich, and Wilt Chamberlain ended a record 33-game win streak when Kareem Abdul-Jabbar dropped 39 to help lead the Milwaukee Bucks to a 120-104 win. While the end of the streak was undoubtedly a disappointment at the time, the Lakers still ended the season with a 69-13 record. They then sailed through the playoffs with just three losses in three rounds, ultimately winning the Championship over the Knicks. Even the best runs have their rough patches.
As mentioned above, after five full trading days, the S&P 500 is down just fractionally YTD with a decline of 0.13%, and the average performance of stocks in the index is a decline of 0.23%. Overall, 230 stocks in the index are up YTD, so it’s been a draw all around. While there hasn’t been much movement at the index level, on an individual stock level, there have been some extremes at each end of the spectrum with a handful of ‘stars’ already up over 5% YTD and an even larger number down over 5%.
Starting with the biggest winners, 18 stocks in the S&P 500 have already rallied 5% on the year, and the top five performers are all from the Health Care sector with Moderna (MRNA) leading the way posting a gain of 16.1% YTD. Rounding out the top five, Eli Lilly (LLY) is continuing its run from last year with an additional gain of 7.4%. Outside of the Health Care sector, some of the more notable names on the list include Verizon (VZ), which doesn’t often find itself on a top performer list, and NVIDIA (NVDA), which always seems to be near the top of a top performer list no matter what time frame you look at.
While 18 stocks are already up at least 5% YTD, 27 stocks are already down 5% on the year. The most notable of the losers is Boeing (BA) as it’s down over 12% following its 8% decline on Monday. Tech was a top-performing sector last year, but it has run into a bit of profit-taking in the first week of 2024 as one-third (9) of the stocks listed are all from that sector and more specifically, the semiconductor group.
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Jan 8, 2024
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“All truths are easy to understand once they are discovered; the point is to discover them.” – Galileo
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We may be eight days into the year already, but from a market perspective, today seems like the first day back. While there isn’t any economic news on the calendar, there’s been a ton of announcements from individual companies concerning guidance and Q4 performance. This week also marks the unofficial start of Q4 earnings season, and we’ll have the JP Morgan Healthcare Conference and the 2024 Consumer Electronics Show. It’s also a full trading week!
The biggest individual stock story of the morning is Boeing (BA) which is trading down around 7.5% after a door panel on an Alaskan Air (ALK) flight blew off mid-flight. In response to the event, the FAA has ordered the grounding of all 737 MAX 9 jets in the US.
Boeing can’t seem to catch a break this decade, but towards the end of last year, the 40%+ rally in the stock suggested that maybe the worst of the company’s problems were behind it. This morning, though, the stock is poised to gap down to just above its 50-day moving average (DMA) in what would be the worst downside gap for the stock since 6/11/2020.
As painful as the decline is for BA shareholders this morning, historically the stock has tended to bounce back following downside gaps of at least 5%. The chart below compares the stock’s median performance following 5%+ downside gaps in the stock to its average performance for all periods since 1980. Outside of the one month, the stock’s median performance and frequency of positive returns were better than the average for all periods and in many cases, significantly so. That obviously doesn’t guarantee anything going forward, but even in the post-COVID period, the stock’s performance, especially over the following three, six, and twelve months, has tended to be positive.
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