Mar 19, 2024
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“Destiny is not a matter of chance, it is a matter of choice; it is not a thing to be waited for, it is a thing to be achieved.” – William Jennings Bryan
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 two of the areas of the financial universe that had been the subject of the most investor enthusiasm – AI and crypto – are getting hacked this morning. In the AI space, after Jensen Huang’s keynote speech yesterday, investors are taking a sell-the-news reaction. Despite countless companies issuing press releases that they were “working”, “collaborating”, or “partnering” with Nvidia (NVDA), the stock is down just over 2% in the pre-market. The sell-the-news reaction also applies to Super Micro Computer (SMCI) which just announced that it was selling 2 million shares of stock. Based on yesterday’s closing price, that works out to $2 billion or just under 4% of the company’s market cap. In crypto, bitcoin is trading down over 6.4% in what would be its worst day in just over a year. Bitcoin is currently trading at just over $63,000, but overnight on one exchange (BitMex), it crashed down to $8,900 due to a large number of sell orders totaling $55.5 million. For an asset class that is worth over $1 trillion, a $55 million sell order causing a crash of that magnitude certainly doesn’t suggest a lot of liquidity.
On the economic calendar, Building Permits and Housing Starts were just released and both reports exceeded forecasts. Along with that, January’s reports were also revised higher. These better-than-expected housing numbers also follow yesterday’s better-than-expected homebuilder sentiment report.
For Williams Jennings Bryan, his destiny was clearly not to become President of the United States. Along with Henry Clay, Bryan is one of only two people to unsuccessfully run for President of the United States on the ticket of a major political party three different times (1986, 1900, and 1908). Do you know the other person? Benjamin Franklin (who it wasn’t) once said that “energy and persistence conquer all things” but for Bryan, his political career ended with “three strikes and you’re out”.
Like Bryan, the emerging markets ETF (EEM) is currently making its third attempt since the start of 2023 for a breakout above $42. There’s still time, but the last couple of days have seen the ETF’s momentum start to slow putting its ‘destiny’ of a move into the high 40s in question.
Whether or not EEM breaks above resistance will be dictated in large part by the performance of Chinese stocks which account for more than a quarter of the ETF’s holdings. Chinese stocks have been in a steady downtrend for most of the last year. For much of that period, the 50-day moving average acted as consistent resistance, but after breaking above that level after the Lunar New Year holiday, the Shanghai Composite made a beeline right for the 200-DMA. It successfully closed above that level on Monday for the first time since last August, but the ‘breakout’ didn’t last long. Last night, the Shanghai Composite fell over 0.75% and back below its 200-DMA. Unfortunately, the Shanghai Composite’s one-day above its 200-DMA wasn’t even long enough to qualify as a streak.
At 143 trading days, the Shanghai Composite’s streak of closes below its 200-DMA was the longest since November 2022 and the tenth time since China entered the World Trade Organization (WTO) in late 2001 that it closed below the 200-DMA for six months or more. While the break above the 200-DMA may sound like a positive technical development, historically it hasn’t been. In the year that followed those nine prior streaks, the Shanghai Composite’s median performance was a gain of 4.0% with gains 56% of the time.
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Mar 18, 2024
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“Though the people support the government; the government should not support the people.”- Grover Cleveland
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 slow week for stocks last week, bulls are running this morning. Overnight, Japan surged 2.7% ahead of a BoJ rate decision tonight, and China rallied 1%. European stocks are only modestly positive in early trading even as the Nasdaq is indicated to open up well over 1% and the S&P 500 is higher by about 0.7%.
It’s going to be a busy week in terms of global monetary policy, including the Fed on Wednesday. The big event for today, though, is Nvidia’s Developer conference which kicks off today with a keynote speech from CEO Jensen Huang today right after the market closes.
Although it may not necessarily seem like it, the S&P 500 and Nasdaq have now both been down for two weeks in a row. In what bulls are hoping will ultimately end up being a pause that refreshes, nearly half of all sectors have moved out of overbought territory, including Technology which was down nearly 1% last week. The sector is still up nearly 7% on the year which puts it in the number five position in terms of year-to-date performance, trailing Energy, Communication Services, Financials, and Industrials.
We touched on this briefly last week, but it’s been a pretty good couple of weeks for commodity-related stocks, and the two leading sectors last week were Energy and Materials with gains of 3.8% and 1.6%, respectively. Both sectors are at or very near ‘extreme’ short-term overbought levels, but from a longer-term perspective, they’ve forged very different paths. As shown in the one-year charts below, while the Materials sector (XLB) has been hitting 52-week highs on a near-daily basis for the last few weeks, the Energy sector is only now starting to test its 52-week highs from last fall. Does the sector still have enough gas in the tank to push through?
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Mar 15, 2024
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“If you can’t explain it to a six-year old, you don’t understand it yourself.” – Albert Einstein
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Were yesterday’s stronger-than-expected inflation data and weaker retail sales the catalyst to kick off a more significant pullback, or will the dip buyers step back in once again and take us to new highs? This morning’s economic news isn’t helping matters. While Import Prices were in line with forecasts, the New York Fed’s Empire Manufacturing report came in significantly weaker than expected as the headline index dropped to negative 20.9 versus forecasts for a reading of negative 7.0. Within the report, both the Prices Paid and Prices Received components also rose, so that’s not a particularly encouraging sign, even if this report has been notoriously volatile over time.
Futures have pulled back modestly following the reports. While the S&P 500 and Dow are still indicated to open higher, the Nasdaq is modestly lower following some weak earnings after the close on Thursday. The most notable of those was Adobe (ADBE). The stock is trading down over 11% in the pre-market and on pace for its fourth most negative reaction to earnings in the last 20+ years.
It may look like a chart of an AI stock and its name does have the letters “AI” (in reverse order), but the Materials sector has been on fire for the last two months.
Barring a decline of over 1.4% today, the sector will have its eighth straight weekly gain. That would rank as the longest weekly winning streak since May 2009 and just the sixth winning streak of eight or more weeks in the sector’s history dating back to 1990. That streak in May 2009 was also the only streak that stretched beyond eight weeks.
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Mar 14, 2024
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“If you can’t explain it to a six-year old, you don’t understand it yourself.” – Albert Einstein
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
With some important economic data ahead (PPI, Retail Sales, and Jobless Claims), futures have been rallying this morning. Some of the positive air has been let out of the balloon, though, as the data was, for the most part, disappointing. We’ll start with the good news. Both Initial and Continuing Jobless Claims were better than expected. On the downside, Retail Sales rose less than expected across the board, and to make matters worse, January’s reading was also revised lower. PPI was also disappointing relative to expectations as the headline reading came in at double expectations (0.6% m/m vs 0.3% forecast). Core PPI was closer to expectations at 0.3% vs forecasts for an increase of 0.2%. As mentioned, even with the disappointing data, futures remain firmly in positive territory. As mentioned following the hotter-than-expected CPI earlier this week, while the inflation data was a disappointment, the commencement of rate cuts may be pushed out, but rate hikes still aren’t part of the conversation.
Yesterday was the 50th trading day of the year, and although the S&P 500 finished down for the day, there have still been 17 record closing highs so far this year. As shown in the chart below, this year’s total in the first 50 trading days of the year represents the most since 1998 when there were 20. This year is also just the fifth time since 1953 (when was the first full year of the five-trading day week in its current form) that 30% or more of a year’s first 50 trading days had record closing highs. Of the four prior years shown, the S&P 500 finished the year higher three times with the only exception being the 14.8% decline in 1987.
While 15 or more record closing highs in the first 50 trading days of a year is uncommon, for all 50-day periods it has been more common. The chart below shows the number of record closing highs over all 50 trading day periods since 1953. Looking at it this way, there have been plenty of other periods where there have been as many or much more record-closing highs over a 50-trading day span. Just as recently as September 2021, there were 25 in 50 days.
In terms of performance going forward, looking back at history, short-term market returns have tended to be below average in the week and month after similar periods where there were 15 or more record closing highs over 50 days, but six and twelve months later, average returns were pretty much the same whether there were 15 or more or less than 15.
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Mar 13, 2024
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“I tend to approach bad news as a problem that can be worked through and solved, something I have control over rather than something happening to me.” – Robert Iger
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
With earnings season pretty much out of the way and a sparse economic calendar, there’s not a lot going in markets this morning. While they are off their overnight lows, futures are little changed with a slightly negative bias, and treasury yields are slightly higher. Asian stocks also lacked much conviction overnight, although India was down over 1%. Europe has a more positive tone with the STOXX 600 trading up 0.2% and is being led higher by Spain (+1.3%) and Italy (+0.6%). That strength comes even as Industrial Production on the continent fell more than expected (-3.2% vs -1.8% forecast).
Yesterday was another one of those days in the market where the market rallied, and breadth stunk. While the S&P 500 was up 1.1%, the net advance/decline for the S&P 500 was a paltry +78, and 48 of those advancers were from the Technology sector. Just for the sake of reference, on Monday, when the S&P 500 was down fractionally, the net A/D line was slightly higher at +83!
You would prefer to see more stocks participating as the market rallies than less, but based on the last five years of trading, it hasn’t particularly mattered. Over the last five years, there have been 216 trading days where the market rallied more than 1%, and the average net A/D reading on those days was +344. In the chart below, we show the ten days when the S&P 500 rallied at least 1% that had the weakest daily breadth readings. On these days, the daily breadth reading ranged anywhere from -54 (8/26/20) to +156 (2/2/23). Looking at the chart, these relatively weak breadth readings weren’t a warning sign for the broader market. The only one where the market immediately fell notably was after the February 2023 occurrence, which ironically was the strongest breadth reading of the ten.
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Mar 12, 2024
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“It is your problem no less than it is mine. Together we cannot fail.” – 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.
February CPI was just released and while the headline reading was right in line with forecasts, Core CPI came in at 0.4%, just ahead of the 0.3% consensus forecast. While the initial reaction was a sell-off in equity futures, we’ve seen a bounceback since then as treasury yields are down on the day. The reason? Supercore CPI declined. We’ll see how things shake out as the market digests the data. The biggest thing to keep in mind is that even if the hotter data pushes out the timetable for rate cuts, the Fed still isn’t hiking.
There was a period earlier this year where breadth in the market was narrowing in terms of the percentage of stocks trading above their 50-day moving averages, but as shown in the chart below, the last few weeks have seen a notable upswing. After bottoming out at less than 52% on 2/13, there’s been a steady increase in the percentage of stocks trading above their 50-DMA with yesterday’s level reaching just under 80% (79.5%). It’s still below the 90%+ levels we saw earlier this year, but 80% is a healthy number.
At the sector level, Technology has a slightly higher percentage of stocks trading above their 50-DMAs (82.8%) than the overall market, but it’s no longer leading. At the top of the list now, over 96% of stocks in the Materials sector are above their 50-DMA along with 91% of stocks in the Energy sector. In other words, it’s been a good run for commodity-related stocks. At the other end of the list, just half of the stocks in the Communication Services sector are above their 50-DMA, and it is also the only sector where less than two-thirds of the components are below that level.
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