Nov 30, 2023
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“It usually takes me two or three days to prepare an impromptu speech.” – Mark Twain
Below is some introductory commentary of today’s Morning Lineup. Start a two-week trial to Bespoke Premium to get full access.
Lower-than-expected inflation data in Europe has stocks around the world in rally mode this morning. Stocks on the other side of the Atlantic are trading higher across the board with the STOXX 600 up 0.5% and just about every country in the region trading higher by about the same amount. Besides the weaker inflation data, employment data out of Germany showed a slightly higher-than-expected level of joblessness.
Here in the US, futures are also higher following positive earnings results from Salesforce (CRM). Looking at the economic calendar, it’s a busy day with jobless claims, Personal Income and Spending, and Core PCE just coming out at 8:30 Eastern. Initial jobless claims were right in line with expectations, but continuing claims were significantly higher than expected. Personal Income and Spending both rose 0.2% which was right in line with forecasts while Core PCE was right inline with expectations. The only other reports left for today are Chicago PMI at 9:45 and Pending Home Sales at 10 AM.
Small-cap stocks outperformed the S&P 500 and other major US averages yesterday, but by the end of the session, investors long waiting for the rally to take hold, left the table with their stomachs still growling. While other major averages have all managed to reclaim both their 50 and 200-day moving averages, the Russell 2000 remains sandwiched between the two above the
50-DMA and below the 200-DMA.
The most frustrating aspect of the last two weeks, though, is that on two separate occasions, the Russell 2000 traded sharply higher early in the session and in the process, broke above its 200-DMA. Both times, though, they sold off more than 1% from their intraday high ending the session back below the 200-DMA. Maybe the third time will be the charm, but for now, there isn’t a US index that has been more frustrating to investors than the Russell 2000. At some point, small caps will break out, and pundits will be out telling everyone that the ‘easy’ money has already been made. But when you hear that, remember that like an impromptu speech by Mark Twain, or anything that looks easy at the surface, a lot of work behind the scenes usually goes into it.
At this point, maybe we’re just delirious, but are those two intraday spikes and subsequent pullbacks starting to look a little like the horns from the old Merrill Lynch bull?
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Nov 29, 2023
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“Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation,” – Warren Buffett
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Futures are firmly higher this morning with the S&P 500 indicated to open higher by 50 basis points (bps) as treasury yields continue to decline. It was barely more than a month ago that the yield on the 10-year peaked above 5%, but this morning it’s back below 4.30%. The catalyst for this morning’s rally appears to be positive inflation data out of Europe which has continued the optimism following some dovish Fedspeak yesterday. Economic data this morning has been generally positive as GDP was revised higher and Core PCE was lower than expected.
Whenever a company announces the death of a high-level executive within the organization, the statement always includes some form of boilerplate about how “so and so” was an integral part of the organization, and it wouldn’t be the same without them. In yesterday’s statement from Berkshire Hathaway announcing the death of Charlie Munger, Buffett’s statement that “Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation,” may have sounded a lot like those typical platitudes, but in this case it couldn’t have been truer.
In 31 of the 46 years that Munger was at the company, Berkshire Hathaway outperformed the S&P 500. More importantly, though, in the fifteen years that Berkshire underperformed the S&P 500, the average underperformance was 13.2 percentage points whereas in the 31 years that Berkshire outperformed the S&P 500, the average margin of outperformance was 20.9 percentage points. So, not only did Berkshire outperform the S&P 500 more than twice as often as it underperformed, but when it did outperform, the gap was much wider than when it underperformed. The chart below compares the growth of $100 invested in Berkshire Hathaway when Charlie Munger officially joined the firm in 1978 to the growth of $100 invested in the S&P 500 on a total return basis. While $100 invested in the S&P 500 in 1978 is worth $16,527 today, that same $100 invested in Berkshire Hathaway is worth nearly $400,000 today! Not bad for two guys who started out in an Omaha grocery store.
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Nov 28, 2023
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“Unlike the mediocre, intrepid spirits seek victory over those things that seem impossible.” – Ferdinand Magellan
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Futures are lower across the board this morning, but the magnitude of the implied losses is extremely small with the Nasdaq leading the way lower, and it’s only down 0.25%. On the economic calendar today, we’ll get Case Shiller Housing data at 9 AM and then Consumer Confidence and the Richmond Fed report at 10 AM. In Europe, most equity benchmark indices are also lower, but again, the magnitude of the losses is generally modest as only France’s CAC 40 is down over 0.5%. Overall, there has been little conviction in markets since Thanksgiving.
Is the paint dry yet? As you might expect for a shortened session after Thanksgiving, trading activity was very slow last Friday. More surprising, though, was the fact that yesterday’s trading was extremely quiet as well. Putting the two together, the S&P 500’s percentage spread between the intraday high and the intraday low over the last two trading days has just totaled 0.31%.
In terms of how this two-day spread stacks up over time, the chart below shows the S&P 500’s rolling two-day trading range over the last five years. The last two days rank as the narrowest spread of the entire post-Covid era, and you have to go back to Christmas Eve 2019 to find a narrower range over a two-day period. With a narrow range like that, is it any wonder why the VIX is trading under 13? What’s that saying about dull markets again?
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Nov 27, 2023
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“I’ve been imitated so well I’ve heard people copy my mistakes.” – Jimi Hendrix
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There are just 24 trading days left in the year, but as we head into the home stretch of trading for the year, it’s hard to imagine a quieter start to the week of trading as there is very little in the way of corporate or economic news to speak of this morning. The only economic report on the calendar today is New Home Sales at 10 AM, but as the week progresses, the pace of reports will pick up steam. One change though is that even as Friday is the first Friday of December, because of where the reference week for November falls on the calendar, the monthly Non-Farm Payrolls report won’t be released until the following Friday (12/8). Outside of the US, it’s also been relatively quiet, but the tone is generally to the downside with modest losses across the board.
November and December have historically been one of the stronger times of year for the market, so as the calendar transitions from the Thanksgiving to Christmas/New Year’s holiday seasons, this morning we looked at market seasonality in the first full week of trading after Thanksgiving. This is usually (although not always) a time of year that includes the last days of November and the first day(s) of December.
The chart below shows the performance of the S&P 500 from the close on the Friday after Thanksgiving through the close on the following Friday. For all years since 1945, the S&P 500’s median gain during the post-Thanksgiving week has been a modest gain of 0.19% with positive returns 55% of the time; that’s slightly weaker than the 0.24% median gain for all five trading day periods since 1945. In years when the S&P 500 was already up at least 15% YTD, the median gain was an even weaker 0.16%. Over the long term, it appears as though bulls come out of the Thanksgiving holiday season a little hungover and sluggish following all the festivities.
While the period after Thanksgiving has been weak for the entire post-WWII period, as you can see in the chart, performance in more recent history has been stronger. In the last twenty years, for example, the S&P 500’s median gain during the current trading week has been 0.44% with positive returns 70% of the time.
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Nov 24, 2023
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“If a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” – Warren Buffett
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As you might expect, it’s a snoozer in US markets this morning. There are no earnings reports to speak of, and the only economic data on the calendar are preliminary PMI readings for the US Manufacturing and Services sectors. US equity markets will close at 1 PM this afternoon in what is likely to be a very quiet session.
Overnight in Asia, we saw a mixed but mostly lower session. The Nikkei was up 0.5% after a lower-than-expected reading in CPI, but Chinese, India, and South Korean stocks were all lower. For the entire week, though, the tone was more positive. Moving over to Europe, trading is more positive as the UK is the only major benchmark in the red for the day while most other countries are modestly higher. On the rates front, Bank of France Governor Villeroy de Galhau said that barring an unexpected event, there will be no further rate hikes while BoE economist Huw Pill commented that even with economic data weakening, high inflation is keeping the central bank from cutting rates.
For this Thanksgiving weekend, more Americans than ever were expected to fly providing more evidence that the world is finally back to normal (or as normal as it will ever be) after three years of various Covid restrictions and precautions. While air traffic has more than fully rebounded, though, the same can’t be said for airline stocks. As shown in the chart below, while the US Airlines ETF (JETS) initially plunged 65% from its 2019 highs in the early days of COVID, three and a half years later, it’s still down 48% and in what has been a long and turbulent downtrend.
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Nov 22, 2023
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“In a crisis, be aware of the danger–but recognize the opportunity.” – John F Kennedy
Below is some introductory commentary of today’s Morning Lineup. Start a two-week trial to Bespoke Premium to get full access.
Heading into the last trading day before Thanksgiving (and the last day of the week for many others), equity futures are higher this morning, treasury yields are lower, and crude oil is down sharply following news that Saudi Arabia may cancel this weekend’s meeting citing disappointment with members not aboding by production quotas. There’s also a decent amount of economic data to squeeze into the day with Thursday’s holiday, and those reports include jobless claims, durable goods, and Michigan Sentiment as well as crude oil and natural gas inventories. On the earnings front, shares of NVIDIA (NVDA) are basically flat on the morning even after reporting blowout earnings last night while Deere (DE) is down 6% after dramatically lowering guidance as high-interest rates crimp the financing environment for heavy equipment.
Thanksgiving week has historically been a positive one for stocks, and that has also been true for the day before and the day after Thanksgiving. Since 1945, the S&P 500’s average daily change has been 0.03% while the median gain has been 0.05%. The scatter chart below compares the S&P 500’s performance on the day before Thanksgiving to its YTD performance heading into the week. For all years since 1945, the S&P 500’s median change on the day before Thanksgiving has been a gain of 0.27% with positive returns 74% of the time. When looking at the S&P 500’s YTD performance heading into Thanksgiving week, there has been little impact on how the market performs around Thanksgiving. As shown in the chart, while the median gain on Wednesday has been 0.27%, performance in those years when the S&P 500 was up 18% or more YTD was right around the same at 0.25% with gains 78% of the time.
Like the day before Thanksgiving, performance the day after has also been positive. For all years since 1945, the S&P 500’s average performance the day after Thanksgiving has been a gain of 0.24% with positive returns two-thirds of the time. In those years when the S&P 500 was up 18% or more YTD, the median change has been a gain of 0.20% with positive returns just 58% of the time. That also includes the two worst Fridays after Thanksgiving when the S&P 500 fell 2.27% in 2021 (remember the Omicron scare?) and 1.72% in 2009 (concerns of a debt default in Dubai).
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