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“We will keep at it until we are confident the job is done.”– Jerome Powell, 8/26/22

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 word of the week has been vibes. This morning, positive vibes steer the market as S&P 500 futures are up over 50 bps and the Nasdaq is poised to open 1% higher.  There hasn’t been much in the way of headlines to support the rally, and while earnings results after the bell yesterday were positive, we can’t remember a time when stocks like Intuit (INTU), Workday (WDAY), Cava (CAVA), and Ross Stores (ROST) were considered market movers.  For now, bulls will take the gains, especially after yesterday’s pullback which was also based on not much else besides some negative vibes heading into today’s Jackson Hole speech from Fed Chair Powell.  That speech comes at 10 AM Eastern, and if Powell does anything less than lay the groundwork for a rate cut at the September meeting, look out.

Although August has historically been a weak month, it hasn’t lived up to its reputation as the S&P 500 has a MTD gain of 0.88%.  With August and September traditionally being such weak months, you would think that the last week of August would be especially negative, but historically, that has not been the case. The chart below shows the S&P 500’s performance during the last week of August dating back to 1953 (when the five-day trading week in its current form went into effect).

Overall, the S&P 500’s median performance to close out August has been a gain of 0.53% with positive returns 58% of the time. In the last ten years, performance has been even stronger with a median gain of 1.14%, or more than double the long-term average. Within those last ten years, there have been some big swings. In 2015, the S&P 500 had its best final week to August with a gain of 4.17%, although that followed what had been a MTD decline of 10.0%. At the other extreme, in 2022, the S&P 500 had its second worst-ever final week to August when it fell 4.49% after Powell was direct and to the point at Jackson Hole saying that the fed was “committed” to doing the job of bringing inflation down and that higher interest rates would cause “pain”.  Bulls still have the scars from that one, but as he said in that speech, “Restoring price stability will take some time”. In the two years since that speech, has Powell finally seen enough?

As mentioned above, the S&P 500 is up 0.88% so far this month, but historically speaking, there hasn’t been much of a relationship between how the market performs leading up to the last week of August and how it does in the final week. The only time there has been any connection is after a rough start to the month. As shown in the chart below, in the six years when the S&P 500 was down more than 6% MTD heading into the final week of the month, it was up in the final week all six times. Ironically, in the last 71 years, there have only been four other years where the S&P 500 has been up between 0% and 1% heading into the last week of August. Just another example of how “boring” August has been so far. Right?

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“Common sense is very uncommon.” –  Horace Greeley

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 was a positive tone heading into weekly jobless claims, and futures have remained higher following an inline report. Initial claims were in line with forecasts at 232K while continuing claims were slightly lower than expected (1.863 mln vs 1.870 mln). In Europe this morning, equities are also trading higher following a stronger-than-expected composite PMI report which was goosed mainly by the Paris Olympics.

Outside of Energy (XLE), large-cap sectors have performed admirably over the last five trading days. Of the eleven sector ETFs shown below, only Energy has declined and Real Estate (XLRE) is the only other sector failing to rally more than 1%. At the top of the list are Consumer Discretionary (XLY) and Technology (XLK) which have both rallied nearly 5% or more. Behind those two leaders, four other sectors have rallied more than 2% while three sectors have gained more than 1%. Ten out of eleven sectors are above their 50-day moving averages with six in overbought territory (1+ standard deviations above their 50-DMA) and another two sectors – Consumer Staples (XLP) and Health Care (XLV)– trading in extreme overbought territory (2+ standard deviations above 50-DMA).

From the highs in late March through now, the S&P 500 has experienced a V-formation where the magnitude and speed of the bounce was a mirror image of the decline, and the charts of both Consumer Discretionary (XLY) and Technology (XLK) illustrate that pattern.

While Consumer Discretionary (XLY) and Technology (XLK) have followed the pattern of the broader market, most other sectors have followed their own unique paths.  Energy (XLE), for example, has missed out on most of the rally, remaining well off of its late July highs.

At the other end of the spectrum, if you look at the charts of the Consumer Staples (XLP) and Utilities (XLU) you would never even know that there was a decline in the first place. In the years coming out of the Financial Crisis right up until Covid, investors became used to sectors moving closer in unison to each other, but as the last several weeks have illustrated, it’s not always a tide that lifts and sinks all boats.

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“He who moulds public sentiment goes deeper than he who enacts statutes or pronounces decisions.” – Abraham Lincoln

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

Between the 10%+ rally in shares of TGT and last week’s 6%+ rally in Walmart (WMT) in reaction to its earnings report, it’s hard to get too concerned about the health of the US consumer.  Yes, these are more anecdotal observations than quantitative, but they’re also two of the largest retailers in the country,

Let’s start with TGT. The chart below shows TGT’s historical performance on its earnings reaction days since 2002. With the stock trading up over 10% in the pre-market, today would be the third time in the last four quarters that the stock had a double-digit positive reaction to earnings. Since 2002, there have only been seven times when the stock had an earnings day reaction of more than 10%.

Regarding TGT’s stock performance, it had been ‘on sale’ for months heading into this morning’s report, but based on where the stock surged to in the pre-market, the downtrend from the spring high has been broken.

Looking back to WMT’s report last week, the stock’s 6%+ rally was the first time in at least 20 years that it experienced back-to-back earnings reaction day rallies of over 5%, and those two one-day rallies were the fourth and fifth best earnings reaction day performances since at least 2002.

Unlike TGT, which had been under pressure heading into today’s report, WMT’s chart has been more of a one-way move to new all-time highs. WMT’s strength could be construed as a sign that consumers are trading down due to a tough economic environment, but the company made no such comments in its conference call last week. CEO Doug McMillon flat-out rejected that idea when he said “So far, we aren’t experiencing a weaker consumer overall.”  CFO John David Rainey reiterated that point when he said, “Each of the months of the second quarter were relatively consistent… Even in the first couple weeks of August here, things have been remarkably consistent.”

Turning to retail stocks in general, it’s been a rangebound summer for the sector. The chart below shows the performance of the SPDR S&P Retail ETF (XRT) which tracks the performance of retailers on an equal-weighted basis. After a strong rally of over 30% off last fall’s lows, the ETT stalled out just under $80 before the broader market corrected in the spring. Since then, XRT has made four additional attempts at breaking through the $80 level but has been stymied each time. TGT’s rally this morning will provide a boost to the sector, but it’s going to take more than that to get it over the hump.

On a longer-term basis, that $80 level in XRT represents an important level, and if and when it can finally break through that resistance, a run to the post-COVID stimulus-fueled highs would be the next level to watch for.

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“Capitalism does live by crises and booms, just as a human being lives by inhaling and exhaling.” – Leon Trotsky

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

There’s no data on the economic calendar today, and there wasn’t a lot in the way of earnings reports overnight or this morning, and that has resulted in a relatively quiet (but slightly positive) tone in equity futures. Likewise, crude oil and treasury yields have seen little movement.  The most exciting area of financial markets this morning could be in the gold and crypto markets where bullion is well over $2,500 per ounce and bitcoin is trading back above $60K.

Overnight in Asia, equity indices were all over the place with Japan up nearly 2% and China down about 1%. In China, the PBoC left 1 and 5-year prime rates unchanged. European stocks have seen little movement as the STOXX 600 is little changed as July CPI came in unchanged on a m/m basis which was right in line with forecasts. On the interest rate picture, ECB member Olli Rehn was on the wires saying that risks to the growth outlook have raised the odds of a rate cut in September.

Both the S&P 500 and Nasdaq composite have finished the day higher for eight straight days now, and if the current level of the futures holds, the streak for both indices will extend to a 9th straight day today. Since its inception in 1971, the Nasdaq composite has now had 89 different streaks of eight or more daily gains in a row which works out to about three streaks every two years. For the S&P 500, these streaks have been much less common with just 30 since 1971 or about one every two years.  Concurrent streaks of eight or more days in a row have been even less common with just 15 since 1971, or about one every four years.

The charts of the S&P 500 and the Nasdaq below (both on a log scale) show where every concurrent streak of eight or more days of gains occurred, and while the average works out to about one every four years, they haven’t been evenly distributed. The current streak is the second in less than a year and the third in less than three years.  Before that, the prior two were about four years apart (2017 and then 2013), but before the 2013 streak, there were more than 21 years without a single occurrence and that included the late 1990s dot-com bubble- a period that people look back on as thinking the market did nothing but go up! In last night’s Closer report, we included an analysis of the performance of both indices following those prior streaks, and performance was mixed with forward returns that were generally weaker than the average forward returns for all periods since 1971.

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