Nonstop Nasdaq
The mega-cap Tech-heavy Nasdaq 100 is up nearly 1% today as of this writing, which leaves it up 4.5% already in 2024. It’s been about a month now since the Nasdaq 100 took out its prior all-time highs from late 2021, but as shown in the chart below, the index is already 5.9% above those prior highs as the breakout continues.
Two more noteworthy stats:
The Nasdaq 100 is now up 64% during its current bull market that began on 12/28/22.
And, since the COVID Crash low that the Nasdaq 100 made on 3/20/20, the index is up a whopping 150%.
Below is a table showing historical bull markets for the Nasdaq 100 since the index came to be in the mid-1980s. The current bull market is its 16th using the standard 20%+ rally definition, and this bull is now right at the median when it comes to gains and length. As shown, the current bull has seen a gain of 64.3% over 392 days. The median gain for all Nasdaq 100 bull markets is a gain of 64.5% over 407 days.
When it comes to the average bull market, however, the current bull has a ways to go. Because of two very lengthy bulls that saw 600%+ gains in the 1990s and 2010s, the average bull market looks much different than the median bull market. As shown in the table, the average Nasdaq 100 bull market has seen a gain of 163.2% over 799 days — which is basically double the length and 100 percentage points stronger than the median bull.
Bespoke’s Morning Lineup – 1/24/24 – Tech Stays in the Driver’s Seat
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“The best argument against democracy is a five-minute conversation with the average voter.” – Winston Churchill
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
The rally continues to roll this morning as positive earnings from Netflix (NFLX) and ASML drag the rest of the market up along with it. Even with the positive tone from NFLX, there are several high-profile duds this morning as DuPont (DD), Kimberly Clark (KMB), and Texas Instruments (TXN) are all down either in reaction to earnings or due to lowered guidance. Besides the earnings news, China cut interest rates by 50 bps in a somewhat surprising move.
In terms of economic data, PMI Manufacturing readings out of major European countries topped estimates even as they remain in contraction territory. Here in the US, mortgage applications increased 3.7% last week, and we’ll get flash PMI readings for the Manufacturing and the Services sector later this morning.
Following yesterday’s gain, the S&P 500 has risen in each of the last four trading days notching three all-time closing highs in the process. The index is now up 2% YTD, in what has been a rally driven by Technology and Communication Services which are both up over 5% YTD. Besides those two sectors, Health Care is the only other one outperforming the market. On the downside, six sectors are lower YTD, and five of them are down at least 2% on the year. It’s somewhat interesting to note that of the eleven sectors, the only two that are up or down less than 1% are Consumer Staples (+0.75%) and Industrials (-0.63%).
There’s quite a bit of disparity in sector performance among large caps, but in the small-cap space, performance is more uniform, but unfortunately, it’s to the downside. The S&P 600 is down 2.3% YTD and all but three sectors are down at least 2%, including Energy (-6.2%), Utilities (-4.2%), and Consumer Discretionary (-3.3%).
The lower chart shows the YTD performance spread between large-cap sectors and their small-cap peers. Sectors where there has been the largest disparity in favor of large caps are Communications Services and Technology. These are also the two sectors that have the largest concentration of mega-caps, and that illustrates how even within the large-cap space, performance is centered towards the companies with the largest market caps. While large caps have largely outperformed small caps YTD, there have been a couple of exceptions. As shown in the chart, in both the Real Estate and Materials sectors large caps have underperformed their smaller-cap peers.
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S&P 500 Percent of Time at New Highs
The S&P 500 is flat on the session today as of this writing, but that doesn’t take away from the fact that it has traded at record highs in each of the past three sessions. As shown below, the S&P 500 has seen several significant drawdowns in its history, but it has always eventually recovered, and it has traded at or within 1% of an all-time high just as often as it has been down 20%.
Below we break down the percentage of time the S&P 500 has traded within various ranges of an all-time high (ATH) since 1952 when the five-day trading week began. This week joins the 7% of days that have seen the S&P 500 hitting record highs. That is the third largest share behind the 12% of days in which the index has been within 1% of a record high and the 8.5% of days when it is 1% to 2% below a record close. Expanding out a bit more, the S&P 500 has spent 44% of trading days since 1952 within 5% of an ATH compared to just 40.5% of the time when the index has been down 10% or more from an ATH.
Bespoke’s Morning Lineup – 1/23/24 – How ‘Bout That Dow?
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“The more they actually know, the less confident they become.” – Charles Dow
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 been a very quiet morning in the futures market as the Dow is indicated to open higher by less than 20 points while the S&P 500 is expected to gain less than three points. The Nasdaq is looking stronger, as it has all year, and is currently looking at a gain of 45 points. Europe has been just as quiet as things here in the US are as most major averages in the region are up or down less than five basis points (bps). The economic calendar is quiet again this morning as the Richmond Fed Manufacturing survey is the only report on the calendar.
On the earnings front, the pace of reports has picked up this morning with several Dow components reporting (discussed in the commentary section of this morning’s report), and after the close, we’ll hear from Baker Hughes (BKR), Intuitive Surgical (ISRG), Netflix (NFLX), Steel Dynamics (STLD), and Texas Instruments (TXN).
Just 40 days after crossing 37,000 for the first time in the first half of December, the Dow Jones Industrial Average, “America’s stock market index” never looked back and crossed 38,000 yesterday for the first time. The path from 37,000 to 38,000 was certainly smoother than the run from 36,000 to 37,000 which took almost 20 times longer than the latest 1,000-point run. Even though the run from 36,000 to 37,000 was a move of less than 3%, it was the longest period between 1,000-point thresholds since the 2,119-day gap between 14,000 and 15,000 (a move of over 7%) and the sixth longest ever. Meanwhile, this latest 1,000-point move was the eighth fastest. Lastly, while it’s entirely possible and even likely that the DJIA will at some point pullback below 37,000, at this point the only other 1,000-point threshold that has never been crossed to the downside is Dow 5,000.
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A Lot of Debate For 10 Basis Points
In what is a disparity you don’t see very often, just as the S&P 500 hit an all-time high (ATH) on Friday, the small-cap Russell 2000 remains mired in a bear market as it’s still more than 20% from its record high in late 2021.
For the Russell 2000, the magnitude of the index’s drawdown from its record high eclipsed 30% during this current bear market, which is a level it also eclipsed during the Covid crash and then several other times in the index’s history before that.
While the Russell 2000 lost as much as a third of its value during the most recent bear market, the S&P 500’s drawdown was less severe at around 25%. While the S&P 500 also fell over 30% during the Covid crash, declines of 30%+ from an ATH have been much less frequent which makes sense as you would expect more established companies to have less volatility.
The fact that the S&P 500 hit an ATH even as the Russell 2000 remains down over 20% from its record high has created what is an unusually large disparity between the gaps over where they’re currently trading relative to their ATHs. In the history of the two indices, there has never been another time where the S&P 500 was at an ATH while the Russell was still down at least 20%, and there is only one other period (October 1998) where more than 20 percentage points separated where the S&P 500 was trading relative to an ATH versus where the Russell 2000 was trading. The current period, where the gap widened to more than 20 percentage points (ppts), is extreme. When you pull a rubber band, you never know exactly when it’s going to snap, but you can always tell when it’s getting close enough that you don’t want to be pulling on it anymore.
What’s interesting to note about all the debate throughout the years concerning small versus large caps is that since the Russell 2000’s inception starting in 1979, its cumulative performance (not including dividends) has been a gain of 4,732%, which works out to 9.0% annualized. Over that same period, the S&P 500 has rallied 4,936%, which works out to 9.1% annualized. That’s a difference of just 10 basis points annualized.
Large caps currently have the long-term lead over small caps, but the lead has shifted at multiple points over time. In just the last year, for example, the lead on a cumulative basis has changed eleven times with the most recent change occurring less than three weeks ago.
B.I.G. Tips – Q4 Seasonal Earnings
In last week’s Bespoke Report, we provided a rundown of the just-started earnings season. As discussed, the pace of earnings ramps up significantly this week as there are over 100 members of the Russell 1,000 scheduled to report including the first of the mega-caps. In the table from last Friday’s report below, we show those Russell 1,000 members with market caps over $100 billion that are scheduled to report this week. The two largest of these are Tesla (TSLA) and Visa (V) which are due to report on Wednesday and Thursday after the close, respectively. Of the list below, there are several interesting seasonal earnings trends in which the current Q4 reporting period has historically been the best or worst quarter of the year for stock price reactions.
Starting with the good news, below is a screenshot from our Earnings Explorer tool for the “N” in FAANG: Netflix (NFLX). The streaming giant has typically averaged declines in reaction to Q1, Q2, and Q3 earnings, but then Q4 is the lone quarter where the stock has averaged a gain on its earnings reaction day. It hasn’t been a small gain either, averaging over 9% for the full day. Of course, it is worth mentioning that overall NFLX has historically been one of the most volatile stocks on earnings with an average absolute move of 12.18% for all quarters. This week’s report is on the back of a Q3 earnings report in October that saw the stock rally an impressive 16% in response. Amazingly, that only ranks as the 14th strongest reaction on record!
Before NFLX reports Tuesday night, Raytheon (RTX) will kick things off Tuesday morning. Like NFLX, RTX has not been a particularly strong stock in reaction to earnings except for the response to its Q4 report. As shown below, over the past four years since Raytheon merged with United Technology, RTX has risen in reaction to every single Q4 report for an average gain of 2.41%.
There are several other stocks in which Q4 is the best or worst quarter for earnings. Sign up for a 14-day free trial to Bespoke Institutional today to view the rest of this list. In addition, you’ll gain full access to the entirety of our research catalog including the Earnings Explorer tool, the Morning Lineup, B.I.G. Tips reports, the Closer, and much more.
Bespoke’s Morning Lineup – 1/22/24 – Party On
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“Those who will not reason, are bigots, those who cannot, are fools, and those who dare not, are slaves.” – Lord Byron
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 last Friday’s run to record highs, there is no hangover in the markets this morning as futures are firmly in positive territory to kick off the week. There’s not much specific to point to as reasons for the positive tone, and the stocks leading the way in the pre-market are essentially the ones that have taken us here in the first place, namely mega caps, and anything to do with AI. It’s a quiet day for both earnings and economic data to kick off the week, but that will change as the week goes on. In the meantime, the only economic data to be on watch for this morning is Leading Indicators at 10 AM Eastern.
Just as the US equity market breaking out to new highs hasn’t been a tide lifting all stocks, global stocks have also seen disparate performance. The snapshot below shows where the equity benchmarks of the ten largest global economies are trading relative to their trading ranges (in dollar-adjusted terms). While the US was up over 1% last five trading days, the only two other country ETFs that traded higher were India (PIN) and Japan (EWJ). They are also the only two other countries that have managed gains so far this year. While most other major-country ETFs are still above their 50-day moving averages, that can’t be said for the UK, Brazil, and China. However, given the disaster that Chinese equities have been lately, it’s probably not fair to lump the UK and Brazil in the same basket.
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Bespoke’s Brunch Reads – 1/21/24
Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market-related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
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On This Day in History:
Population Problems
France sees collapse in births to lowest since World War Two (Reuters)
French President Emmanuel Macron has pledged to reform parental leave to offer better pay, in response to France experiencing its lowest birth rate since World War II. In 2023, births in France decreased by 7% from the previous year, and 20% since 2020. Despite traditionally robust demographics supported by generous health, childcare, and tax benefits, the birth rate has declined, with the average number of children per mother dropping to a three-decade low of 1.68 in 2022. [Link]
China’s population drops for second year, with record low birth rate (Reuters)
China’s population declined in back-to-back years, with a significant decrease of 2.08 million people in 2023 due to a record-low birth rate and a surge in COVID-19 deaths. The country’s birth rate fell to 6.39 births per 1,000 people, the lowest ever recorded, while deaths increased to 11.1 million, the highest rate since 1974. These demographic shifts are attributed to the long-term effects of the one-child policy, urbanization, economic challenges, and a property sector crisis. [Link]
AI & Technology
Apple tops Samsung for first time in global smartphone shipments (The Verge)
For the first time, Apple’s 234.6 million units shipped in 2023 surpassed Samsung’s 226.6 million. Samsung has been sitting in that driver’s seat since 2010. Apple wasn’t even in the top five then, but the rise in premium device sales, fueled by trade-in offers and financing plans, contributed to Apple’s success. Despite a 3.2% overall decline in smartphone shipments in 2023, the market showed recovery signs in the fourth quarter, indicating potential growth ahead. [Link]
More CEOs fear their companies won’t survive 10 years as AI and climate challenges grow, survey says (El País English)
Just 38% of CEOs in a recent survey are more optimistic about the economy compared to 18% last year when a recession was thought to be a likely outcome in 2023. 45% now fear their companies may not survive the next decade due to challenges like climate change and technological advancements, most notably in AI which does pose significant threats. CEOs argue that it’s tough to evolve in an environment that seems stacked against them on the regulatory playing field. Many say they also lack skilled workers in a quickly advancing world, technologically speaking. [Link]
Legal Troubles
Joe Manchin Will Help You Sue the Biden Administration (Heatmap News)
Senator Joe Manchin has publicly criticized the Biden administration’s implementation of electric vehicle (EV) subsidies under the Inflation Reduction Act, accusing it of relaxing rules to hasten EV adoption. Despite his support for the Act’s goals, Manchin challenges the approach as a deviation from the law, emphasizing his readiness to back legal challenges against these actions. The debate also encompasses the impact of EVs on the electric grid. [Link]
Morgan Stanley Banker Lifted Hedge Fund From ‘Kiddie Table’ With Stock Tips (AdvisorHub)
Pawan Passi, former head of block-trading at Morgan Stanley, entered an agreement with the US Justice Department, pleading not guilty to securities fraud. He’s accused of leaking confidential information about upcoming large stock sales, benefiting selected investors who often shorted the stock ahead of the trades. Morgan Stanley also agreed to pay $249 million to settle investigations, avoiding criminal charges. [Link]
NY Congestion Pricing Plan Violates US Constitution, NJ Governor Says (Bloomberg)
New Jersey Governor Phil Murphy is challenging New York’s plan to implement congestion pricing for motorists entering Manhattan, arguing it violates the US Constitution’s dormant commerce clause by discriminating against New Jersey residents. The lawsuit seeks to halt the MTA’s implementation of the tolls, which are expected to generate significant revenue for New York’s transportation system upgrades, but without any direct benefits or compensation for New Jersey. [Link]
No Beverly Hills Home Renovations Without Affordable Housing: Judge (The Daily Beast)
A judge in Los Angeles County has temporarily halted all home renovation permit requests in Beverly Hills, requiring the city to focus on building new affordable housing. This ruling could lead to an indefinite ban on permits for anything other than new housing developments if the appeal fails. This decision has significant implications for Beverly Hills’ affluent residents, potentially affecting their ability to make luxury modifications to their homes. [Link]
IRS collects more than $500 million in back taxes from delinquent millionaires (MarketWatch)
Millionaires with outstanding tax debts have paid $520 million to the IRS following increased enforcement efforts geared toward wealthy businesses and individuals. Now that the IRS has received a big funding boost from the Inflation Reduction Act, the agency can enhance compliance which is already having success. The crackdown could be hindered by a deal to lift the debt ceiling or a potential deal to avert an upcoming government shutdown, both of which would redirect billions of dollars of funding elsewhere. [Link]
Real Estate
Cantor Fitzgerald CEO Howard Lutnick warns of ‘generational shift’ in real estate market: ‘$1 trillion in defaults coming’ (New York Post)
The CEO of Cantor Fitzgerald predicts rocky times ahead for the US real estate market, forecasting a massive wave of loan defaults, potentially reaching $700 billion to $1 trillion. Speaking at the World Economic Forum in Davos, Lutnick highlighted the impact of high interest rates on commercial real estate loans, foreseeing a situation where property owners might default on their loans as refinancing becomes unfeasible due to lower valuations and higher rates. [Link]
Wealth Management
Offices Around America Hit a New Vacancy Record (WSJ)
Office vacancies in major US cities have reached their highest levels in over four decades, tracing back to overbuilding in the 1980s and 1990s, worsened by the shift towards remote work and smaller office spaces accelerated by the pandemic. Many of the vacancy trends have flipped too. For example, areas that were once booming like San Francisco and Texas cities are now facing high vacancy rates, while cities in Florida that once struggled now show lower rates. [Link]
EVs
Electric vehicles fail at a lower rate than gas cars in extreme cold (Electrek)
Contrary to the story this past week as seen by dead Teslas at charging stations in frigid cold temperatures in Chicago, an assistance service in Norway, Viking, reports that electric vehicles (EVs) are less likely to fail in extreme cold conditions compared to gas-powered cars. In Norway, where about 1 in 4 cars is electric, Viking responded to 34,000 assistance requests in early 2024, with only 13% involving EVs. The issue seen is Chicago was allegedly identified with the chargers, rather than the EVs themselves. [Link]
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The Bespoke Report – 1/19/24 – The Best and the Rest
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Bespoke’s Morning Lineup – 1/19/24 – Yee Haw!
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“…and then we’re going to Washington, D.C., to take back the White House! Yeah!” – Howard Dean, 1/19/2004
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
The week started with a shaky start on Tuesday and additional losses on Wednesday, but Thursday’s rally and additional strength in the futures this morning have the major averages on pace for a positive week ahead of what will be a busy week for earnings next week. The only reports on the economic calendar today are the Michigan Sentiment report at 10 AM where economists are forecasting a modest uptick in the headline reading and no change in one-year inflation expectations. Along with the report, Existing Home Sales are essentially expected to remain unchanged at 3.83 million. In terms of Fed-speak, Chicago Fed President Goolsbee is about to go on CNBC (or may have already appeared depending on when you read this), and then after the close San Francisco Fed President Daly will speak at an event in her district. After that, the FOMC will go into its quiet mode ahead of its upcoming meeting. While the pace of Fed-speak will slow, along with earnings, the political pace will also pick up next week with the New Hampshire Primaries on Tuesday.
Just when you think this fall’s election matchup is a foregone conclusion, remember that politics is just as volatile as any market. Think back twenty years to the Iowa Caucuses, and Howard Dean’s “I Have a Scream” speech. Dean was one of the leading candidates on the Democratic side, raising a record amount of funds early in the campaign. Not only that, but his support was broad with a large percentage of small donors. Even though he finished third in Iowa, it was expected that when the campaign moved back closer to his home state of Vermont, he would see increased momentum. But then he screamed.
In what would generously be described as an energetic speech, Dean spoke ‘enthusiastically’ about the future of the campaign and the victories it would see right up to the White House in November. He then capped it off with a scream of “Yeah!” where his voice cracked like Peter Brady singing “Time to Change” in the Brady Bunch. The clip was played all over the nightly news, late-night shows, and the internet, and whether it was the main catalyst or not, from there, the wheels fell off the Dean bandwagon. In New Hampshire, Dean finished a distant second behind John Kerry. From there, Dean’s losses in the primaries continued, and after going ‘all in’ on the Wisconsin primary, Dean came in third and dropped out of the race the next morning on 2/18.
In less than a month, Howard Dean went from a leading candidate for the Democratic Party in the 2004 election to out of the race. This November’s election could very well end up being a race between President Biden and former President Trump, but the election is still more than nine months away, and a lot can change between now and then.
Heading into the last trading day of the week, most sectors are down over the last five trading days and on a YTD basis, but the weakest of them all has been Utilities as rising rates have hurt the sector. It’s down more than 5% over the last five trading days, joining Energy as one of just two oversold sectors. While most sectors are down over the last five trading days, Technology and Communication Services have managed to buck the trend with gains. What else is new?
Up until this week, the Utilities sector had been in a somewhat steady uptrend from its October lows when rates peaked. As shown in the chart, though, the uptrend collapsed late last week just as the sector started to bump up against its longer-term downtrend.
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