Mar 11, 2024
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“A written constitution is needed to protect values against prevailing wisdom.” – 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.
Happy inflation week. While the week starts off on a quiet note in terms of economic data, it will be a busy one related to inflation-related reports. Things start off today with the New York Fed Survey of Consumer Expectations and its section on inflation expectations. Tomorrow, we’ll get the February read on CPI which is expected to increase 0.4% m/m and 3.1% y/y. That report will be followed up with PPI on Thursday and Import and Export Prices on Friday.
Although the magnitude was modest (-0.26%), last week was a rare down one for the S&P 500. As shown in the Sector Snapshot below, though, most sectors were higher. Leading the way, Utilities surged over 3%, followed by Real Estate, Materials, and Energy which all rallied over 1%. These aren’t the types of sectors that can drive the market higher, and when large sectors like Consumer Discretionary (-2.55%), Technology (-1.62%), and Communications Services (-0.54%) fall, it’s going to be hard for the major indices to post gains. Even with last week’s declines at the index level, though, every sector except for Consumer Discretionary remains at overbought levels.
Looking ahead, one factor bulls have working in their favor is seasonality. As shown below, whether we look at the next week, month, or three months, the S&P 500’s median returns rank in the 75 or highest percentile relative to all other periods throughout the year.
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Mar 8, 2024
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“I’ve never seen the consumer, or the Americans just generally, more fearful than this.” Warren Buffett, March 9, 2009
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 a quiet morning in the markets ahead of the Non-Farm Payrolls report that is just hitting the tapes as we send this, and that will likely dictate much of the market’s move to close out the week. Recapping the numbers that just hit, the headline reading came in stronger than expected (275K vs 200K), but the last two months were revised down by nearly 170K. As a result, the Unemployment Rate jumped to 3.9% vs expectations for a level of 3.7%. Average weekly hours were right in line with forecasts, but average hourly earnings were weaker than expected. While the headline was a beat, it was offset by some downside revisions and the highest unemployment rate since July 2022. The immediate reaction in equity futures was a jump, but they have already pulled in from the initial spike higher
If you didn’t get a chance to catch yesterday’s CNBC interview, you can watch it here.
It’s always darkest before dawn, and unless you’ve been around as long or longer than Warren Buffett, fifteen years ago tomorrow, March 9, 2009, was as dark of a day in the financial world as you’ve ever seen. A refresher of the news and events that led up to that day are recapped in the chart below, but they don’t even fully reflect the tension of those days where every morning was a different headline leading one to wonder if all they had done to save over the years would disappear in to thin air. Buffett, never known as someone to exaggerate for a headline commented in a March 9, 2009 interview on CNBC that “the Fed did some things in September when it happened that were vital in keeping the place going. I mean, when the–if they hadn’t insured money market accounts and, in effect, commercial paper, you know, you and I would be meeting at McDonald’s this morning.” Later in the interview, he added “the world almost did come to a stop.”
Fifteen years later, the chart of the S&P 500 and sentiment surrounding it looks much different. The market is at record highs fueled by hopes for a new era of Ai enhanced productivity, and sentiment is near some of its most bullish levels in years. Another famous saying from Buffett is to “be fearful when others are greedy and to be greedy only when others are fearful”. We wouldn’t go nearly as far as to say that the current environment is a complete 180-degree turn from March 9, 2009, but don’t expect to see annualized gains of 15% over the next 15 years either.
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Mar 7, 2024
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“Observation is a dying art.” – Stanley Kubrick
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Yesterday’s bounce continued to a second morning as both S&P 500 and Nasdaq futures were in the green ahead of the just-released reports on weekly jobless claims, Q4 productivity, and Q4 unit labor costs at 8:30. Productivity numbers were revised slightly higher, Unit Labor Costs were lower than expected, and jobless claims were just slightly higher than expected.
Overnight, Asian stocks were mostly lower with Japan leading the way down as the Nikkei fell over 1% as the yen rallied on speculation that the BoJ would abandon its negative policy rate. What Asia taketh away, though, Europe has giveth, and the tone there is more positive as the STOXX 600 rallies 0.4% with Spain leading the way with a gain of 0.6%. In Germany, Factory Orders dropped 11.3%, which was nearly twice the 6% decline that was expected. The ECB just announced its latest policy decision, and as expected, they left rates on hold. You can read more about it in the full Morning Lineup report.
In discussions about inflation this week, we’ve heard multiple references to rising prices at the pump as a sign that inflation is poised to take another leg higher. Based on AAA’s tracking of the national average price of a gallon of gas, prices have taken a turn higher. In mid-January, the price was as low as $3.07 per gallon, but as of today, it’s up to just under $3.40 per gallon and at the highest level since early November.
While the rise in gas prices looks like a concern in isolation, proper context is in order. What if we told you that gas prices almost always rise in the early months of a new year? Going back to 2005, there have only been three years when prices were down on a year-to-date basis through 3/7, and the average YTD change is 8.3%. Given that history, this year’s 9.2% increase doesn’t seem so extreme or worrying.
Look at the chart below where we compare this year’s change in gas prices to a composite of the average YTD change for all years since 2005. They track each other perfectly. Gas prices have increased this year, but they nearly always do at this time of year. When prices start to decline after Memorial Day, as almost always occurs at that time of year, do you think the people crying today about higher gas prices being a canary for higher inflation will also be screaming about a ‘deflationary’ warning then? Something tells us, probably not.
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Mar 6, 2024
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“The greatest danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it.” – Michelangelo
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 relatively rough day yesterday, futures have been bouncing back this morning with the Nasdaq trading up about 0.8% and the S&P 500 up by a more modest 0.4%. The ADP Employment report for February just came out, and it showed modestly lower-than-expected job growth (140K vs 150K), but investors are more focused on the 10 AM testimony of Fed Chair Powell before Congress. Will he say anything to jawbone the markets?
We’ve highlighted a version of the chart below multiple times in our discussion of Fed rate cuts and the market, and it illustrates the fact that as much as people want to credit (or blame) the Fed for the market rally since the October lows, it hasn’t been the case. While the early stages of the rally did coincide with the market pricing in a higher number of 25 basis point (bps) rate cuts by the December 2024 meeting, that reading peaked in early January at just under seven. In the nearly two months since then, the number of cuts priced in for December has been more than cut in half, yet stocks kept rallying. If the rally was just about rate cuts, we’d be closer to 4,000 on the S&P 500 now rather than above 5,000.
Back in early December, when the market was pricing in cuts as soon as April, we noted that no rate cuts by then would be “the best thing for the market”. The reasoning was that by the Fed just pivoting and moving to the sidelines and no longer actively looking to kneecap economic growth, it was enough for the market to embrace the good news is good again mentality. If the Fed had to come in and cut rates so soon, it would have only meant that something was going wrong in the economy.
This brings us to yesterday’s market decline. While stocks opened the day lower, the weakness was modest…until just after the 10 AM release of Factory Orders, Durable Goods, and ISM Services. All the reports were weaker than expected, including the ISM Services report which showed a contraction in employment. Immediately, after the release, the market had a Pavlovian response of briefly trading higher, but within seconds, stocks reversed and traded lower throughout the day, finishing down just over 1% in what was the third weakest day this year. The market was overbought and due for a breather heading into yesterday, but the weaker-than-expected slug of economic data didn’t help.
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Mar 5, 2024
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“Nothing in life is as important as you think it is when you are thinking about it.” – Daniel Kahneman
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 a bit of a hangover this morning as futures are lower across the board. S&P 500 futures suggest a 33 bps decline at the open while the Nasdaq is down over 50 bps. There’s not much in the way of a catalyst for the move lower besides the fact that the market has come so far so fast, and investors appear to be looking over their shoulders for Fed Chair Powell’s congressional testimony tomorrow and Thursday. Since the Fed started hiking rates in 2022, Powell has been known to take a crowbar to the knees of any rally, so some apprehension is understandable.
The key economic data this morning will be the ISM Services report at 10 AM, and the headline index is expected to decline modestly, falling from 53.4 down to 53.0. That would follow last Friday’s weaker-than-expected report for the Manufacturing sector which remains stuck in contraction territory. While not an economic report, Target (TGT) is trading higher this morning after reporting better-than-expected EPS. In response, the stock is trading up over 8%.
Several of the top-performing stocks this year are also the largest in the S&P 500 (think Nvidia, Meta, and Eli Lilly), but over 60% of stocks in the index are up YTD and 45% are up over 5%, so underlying breadth has also been positive. Looking through our Daily Sector Snapshot report, you can see the positive breadth in the cumulative A/D line which has been regularly hitting record highs, along with the percentage of S&P 500 stocks trading above their 50 and 200-day moving averages (DMA) which has also been well over 50%.
Another signal of strong breadth is in the percentage of stocks hitting 52-week highs. Just yesterday, 19.5% of stocks in the S&P 500 hit 52-week highs which is the highest single-day reading in at least a year after it took out the prior high of 19.3% from early January.
When looking at the individual sectors driving the expansion of new highs, there are some modestly surprising trends. Leading the charge in new highs was the Industrials sector where 42% of the sector’s components traded at their highest levels in at least a year yesterday.
The Materials sector has also seen a steady widening in the number of new highs as its reading has steadily increased from less than 10% in late January to more than 30% yesterday.
The Consumer Discretionary sector didn’t see a new high in new highs yesterday, but at nearly 23%, only a couple of days in mid-December had a higher percentage of new highs.
Whenever we’re talking about market strength, you expect to hear Technology as part of the conversation. While nearly 30% of the Technology sector hit 52-week highs yesterday, that reading was lower than Friday’s level of 34%. As shown in the chart below, there have been several days in the last few months where a higher percentage of Technology sector stocks hit 52-week highs. Is Tech finally starting to pass the baton?
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Mar 4, 2024
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“The only thing we have to fear is fear itself.” – 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.
91 years ago today, with the country in the grips of the Great Depression, Franklin D Roosevelt was inaugurated as President and attempted to strike a tone of optimism for a country badly in need of a boost. The current picture is far different. Although Americans may not exactly be optimistic, the economy is doing relatively well, and just last Friday, the S&P 500 and Nasdaq both closed at record highs. Even the Russell 2000 hit a 52-week high! Maybe now, the only thing to fear is the lack of fear itself.
The picture this morning is a bit more subdued as futures are modestly lower ahead of a quiet day of economic data, but things will pick up later in the week with ISM Services and the February Employment report. It will also be a very busy week for Fedspeak as we head into the pre-meeting blackout on Friday. Chair Powell will even be testifying to Congress on Wednesday and Thursday.
Stocks may be quiet to start the week, but Bitcoin prices are going crazy again this morning with a move above $65,000. Since the ETPs started trading in early January, Bitcoin has rallied more than 40%, and from the post-ETP launch low on 1/26, prices are up 69%.
Just as a year ago no one was thinking the S&P 500 would be trading at all-time highs within a year, two months ago not many people were thinking that Bitcoin would be trading to new highs any time soon. With prices back above $65,000, though, bitcoin is now within 4% of its all-time high of just under $68,000.
While digital gold has gone parabolic of late, physical gold hasn’t been as strong, although prices are also within 4% of an all-time high. This morning, gold is trading just shy of $2,100 per ounce which is a level it has had a lot of trouble taking out over the last two years. Back in March 2022 and May 2023, gold prices rallied towards $2,100 and quickly pulled back. Late last year, though, gold made another run at $2,100, and while it failed to break through again, it didn’t experience a pullback anything like the prior two. Third time the charm?
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