Bespoke’s Morning Lineup – 3/8/24 – 15 for 15
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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.
Read today’s entire Morning Lineup.
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The Ludicrous List
Essentially the “stock du jour” of any day of the past year has been anything related to AI. The poster child has been NVIDIA (NVDA) with downright gaudy gains lifting the stock to a market cap of over $2 trillion. Although earnings have been impressive and to a degree supportive of those gains in the stock price, the stock currently trades with a price to sales ratio of a lofty 35.94. As we first noted in last Thursday’s Closer alongside the debut of our AI Basket, including NVDA there are currently around 50 stocks that have doubled year-over-year, possess a market cap of at least $500 million, and have a price to sales ratio of 10 or more. In the charts below, we show the number of stocks fitting these criteria each month over the past 30 years. As shown, while there are currently a decent number of these stocks trading with “ludicrous” multiples and gains, the count is far below what it was at the time of the Dot Com era or even as recently as 2021. With that being said, the collective market cap of the current list of names far surpasses those prior peaks. The major caveat to this, of course, is that nearly half of that is all NVDA. Removing the other three stocks making this list with the largest market caps—Broadcom (AVGO), Eli Lilly (LLY), and AMD (AMD)—the collective market cap of this screen of stocks hardly stands out.
In all, currently there are a decent but not unprecedented number of stocks trading at high valuations. While the large collective market cap of these names (and hence their impact on market-cap weighted indices like the S&P 500) can perhaps be viewed as more worrisome, that is more a story for a handful of names rather than a broad market frothiness.
In the table below we show the 49 stocks that are currently on the Ludicrous List. Again, these are stocks that have doubled over the past year, have market caps above $500 million, and a price to sales ratio above ten. Outside of the four largest of these stocks by market cap mentioned above, there is no stock with a market cap above $100 billion. Additionally, the bulk of these names are in the Health Care industry; more specifically the traditionally more speculative Pharmaceutical and Biotech industry.
Overwhelmingly Bullish, Even for All Time Highs
Not only has the S&P 500 returned to new highs but sentiment is also making a push higher. As shown below, the latest AAII Sentiment Survey showed more than half of respondents surveyed responded as bullish. At 51.7%, bullish sentiment is now slightly below the multi-year high from December 21st (52.9%).
While a majority of respondents are reporting as bullish, less than a quarter are bearish. This week, bearish sentiment fell to 21.8% which was a half percentage point uptick versus the previous week.
Regardless of the increase in bears, bulls netted a much larger increase resulting in the bull-bear spread to rise to 29.9. Again, that indicates the most bullish sentiment since December.
Given the S&P 500 is currently trading at record highs, we wanted to check in on how sentiment currently stacks up versus past record closes for the S&P. As shown, it looks a bit more optimistic than normal given where the market is trading as bullish sentiment has historically averaged a reading of 41% when the S&P 500 was at record highs. While the gap between the historical average and now is less dramatic, bearish sentiment likewise shows greater optimism now than in the past.
Finally, we would note that it is not only the AAII survey which is showing high levels of optimism. Factoring in other weekly sentiment surveys, the Investors Intelligence survey saw the highest number of bulls since July 2021 and the NAAIM Exposure Index showed active investment managers added long exposure to equities in the most recent week. Putting them all together into our Sentiment Composite, aggregate investor sentiment now ranks in the 98th percentile of all periods since data began in 2006 and a hair below those from last December. Before that, the only periods with similarly elevated levels of sentiment were December 2010, December 2013, early 2015, around the new year of 2018, the end of 2020, and the spring of 2021.
The Bespoke 50 Growth Stocks — 3/7/24
The “Bespoke 50” is a basket of noteworthy growth stocks in the Russell 3,000. To make the list, a stock must have strong earnings growth prospects along with an attractive price chart based on Bespoke’s analysis. There were 17 changes to the list this week.
The Bespoke 50 is available with a Bespoke Premium subscription or a Bespoke Institutional subscription. With Bespoke Premium, you’ll receive a number of daily market updates from us along with our weekly newsletter and a portion of our investor tools. With Bespoke Institutional, you’ll receive everything that’s included with Premium plus additional daily macro analysis and more stock-specific research.
To see all 50 stocks that currently make up the Bespoke 50, simply start a two-week trial to Bespoke Premium or Bespoke Institutional.
The Bespoke 50 performance chart shown does not represent actual investment results. The Bespoke 50 is updated weekly on Thursday unless otherwise noted. Performance is based on equally weighting each of the 50 stocks (2% each) and is calculated using each stock’s opening price as of Friday morning each week. Entry prices and exit prices used for stocks that are added or removed from the Bespoke 50 are based on Friday’s opening price. Any potential commissions, brokerage fees, or dividends are not included in the Bespoke 50 performance calculation, but the performance shown is net of a hypothetical annual advisory fee of 0.85%. Performance tracking for the Bespoke 50 and the Russell 3,000 total return index begins on March 5th, 2012 when the Bespoke 50 was first published. Past performance is not a guarantee of future results. The Bespoke 50 is meant to be an idea generator for investors and not a recommendation to buy or sell any specific securities. It is not personalized advice because it in no way takes into account an investor’s individual needs. As always, investors should conduct their own research when buying or selling individual securities. Click here to read our full disclosure on hypothetical performance tracking. Bespoke representatives or wealth management clients may have positions in securities discussed or mentioned in its published content.
Bespoke’s Morning Lineup – 3/7/24 – Proper Context
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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.
For more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.
Semis in Uncharted Territory
The unbelievable rally in semiconductors resumed this morning as the Philadelphia Semiconductor Index (SOX) has erased all of Tuesday’s 2%+ decline and is just below its record high from Monday. As of this writing, the SOX is more than 14% above its 50-day moving average, and the closest it has been to that average since early November is 3.99%.
While the SOX has been making record highs for a number of weeks now, in just the last few days, it also reached another milestone for the first time in over two decades. The chart below shows the ratio in the price of the SOX to the S&P 500 since 1994. During the dot-com bubble, the ratio peaked at 0.9553 in March 2000 before crashing down to less than 0.22 in late 2008. In the 15+ years since that low, the ratio has been steadily digging itself out of that hole, and it finally saw the light of day last Friday, March 1st. With the SOX just recently crossing 5,000 and the S&P 500 trading at around 5,100, we’re almost to the point where the SOX could overtake the S&P 500 in terms of its price level.
While the SOX is up just under 20% on the year, the wealth hasn’t been spread evenly across its components. At the top of the list, NVIDIA (NVDA) has rallied nearly 80% while Coherent (COHR) is up over 50%. Behind those two leaders, another eight stocks in the SOX are outperforming the index so far this year. However, that means another 20 components or two-thirds of the index have underperformed the index year to date. It may be a good year for semis at the index level, but try telling that to the third of the index that’s not only trailing the gains of the index but also down for the year.
Bespoke’s Morning Lineup – 3/6/24 – Bouncing Back
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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.
For more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.
Bespoke’s Morning Lineup – 3/5/24 – Higher Highs
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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?
For more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.
B.I.G. Tips – Earnings Triple Plays Recap: Q4 2023
Today we published our newest Earnings Triple Plays report. During the just-completed Q4 2023 earnings reporting period, there were a total of 78 earnings triple plays out of just under 2,000 individual quarterly earnings reports from US-listed stocks. That’s 44 less than the 122 triple plays we saw during the prior earnings reporting period.
What is a triple play? When a stock reports quarterly earnings, it registers a “triple play” when it beats analyst EPS estimates, beats analyst revenue estimates, and raises forward guidance. We coined the term back in the mid-2000s, and you can read more about it at Investopedia.com. We consider triple plays to be the cream of the crop of earnings season, and we’re constantly finding new long-term opportunities from this basket of names each quarter. You can track the newest earnings triple plays on a daily basis at our Triple Plays page if you’re a Bespoke Premium or Bespoke Institutional member. To read our newest report and see some of the triple plays with intriguing charts at the moment, start a two-week trial to Bespoke Premium!
Bitcoin Elevates
As we discussed in the Morning Lineup today, equities’ sleepy start to the week serves as a sharp contrast to surging Bitcoin prices. As of this writing, Bitcoin is up 6% on the day bringing it right above $67,000 for the first time since the record high from 11/8/21.
As Bitcoin nears a new record, we would note that the current streak of 847 calendar days without a record close is the second longest streak next to the recovery from the late 2017 peak.
As shown in the first chart below, the rapid rise in Bitcoin prices this year has resulted in prices flying above the 50-DMA. Currently, Bitcoin trades 2.6 standard deviations above its 50-DMA. That is extremely overbought, albeit the spread eclipsed 3 standard deviations as recently as February 28th. As shown, these have been some of the most overbought readings in the crypto space of the past five years, but historically that isn’t necessarily a bad thing. Whereas the standard theory is that an asset trading well above its moving average would suggest that it is due for some downside mean reversion, the opposite has historically played out for Bitcoin. As shown in the table below, the best average forward returns for Bitcoin have typically occurred when it has been the most overbought rather than oversold.
