China Struggles
Nowadays, it doesn’t surprise anyone to see Chinese stocks underperforming as the country’s stock market has been mired in a long and steady downtrend for several years. Back in February, there was a brief respite from the selling as the Shanghai Composite bounced just over 20% through May. While Chinese stocks met the technical threshold for a bull market based on an intraday basis (based on closing prices, the Shanghai Composite was up just 17.4%), the rally was capped at the knees with a 7.6% decline over the next five weeks.
While a decline of less than 8% over five weeks isn’t necessarily an extreme move, how Chinese stocks have pulled back stands out. When looking at price charts, trends of lower highs suggest a heavy tape, and by this logic, Chinese stocks have never been heavier. While it’s hard to see in the chart above, over the last 20 trading days, the Shanghai Composite’s intraday high has been lower than the prior session’s intraday high 18 times! China joined the World Trade Organization in December 2001. During that time, there has never been another 20-day period before now where there were as few days where the Shanghai Composite had just two or fewer days that an intraday high was higher than the previous session!
Bespoke’s Morning Lineup – 6/26/24 – The Germans are Coming!
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“I’m afraid what will happen to Europe if it does fail.” – General Lucius D. Clay
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
In the corporate world, you often see scenarios where a company that has done well will use its inflated stock currency to buy beaten-down assets on the cheap. Based on this logic, you would expect US companies, which have steadily outperformed their European peers for years, to be on the prowl in Europe for some cheap bargains. Over less than 24 hours, though, we have seen two major headlines showing the opposite trend. Last night after the close, VW and Rivian announced a deal where the German carmaker will invest up to $5 billion in Rivian. Now, this morning German manufacturing firm Bosch is considering a bid for US appliance maker Whirlpool (WHR)!
The seesaw action in the markets of late is showing up again this morning, and this time, it’s technology, and specifically Nvidia (NVDA) rallying while most of the the rest of the market languishes. One exception in the old economy is FedEx (FDX). Shares are up over 15% this morning following its better-than-expected earnings report after yesterday’s close. On the revenue side, results ended a streak of eight straight weaker-than-expected reports, and it was the first time in seven quarters that sales grew on a y/y basis.
Overnight, equities in Asia were mostly higher even as reports surfaced that the BoJ will consider rate hikes at all of its upcoming meetings and is also expected to announce a reduction in its monthly asset purchases. The yen also fell to its lowest level since Christmas 1986! In Europe, the tone is weaker as the STOXX 600 is down fractionally following weaker-than-expected sentiment reports in Germany and France.
Divergences haven’t just been confined to the stock market lately. In the energy sector, we’ve also seen oil and natural gas follow different patterns. Starting with crude oil, while prices have rallied off the lows from June, the commodity’s price chart has carved out an iron cross formation where the downward sloping 50-DMA crosses down through the 200-DMA which is also sloping downward. Technical analysts view these patterns as a negative technical pattern.
Natural gas, on the other hand, is on the verge of a golden cross, which occurs when the 50-DMA crosses up through the 200-DMA as both are rising, and technical analysts view these patterns as bullish.
To continue reading the rest of today’s morning note, where we show how both crude oil and natural gas performed following iron crosses in crude and golden crosses in natural gas. You’ll also find much more analysis of global equities and economic readings released this morning, so read today’s full Morning Lineup with a two-week Bespoke Premium trial.
Bespoke’s Morning Lineup – 6/25/24 – Futures Higher Ahead of Housing and Confidence Data
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“We do not inherit the Earth from our Ancestors, we borrow it from our Children.” – Crazy Horse
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
US Futures are being led higher by the Nasdaq as Nvidia (NVDA) looks to rebound from its three-day decline of over 10%. After a quiet day of economic data yesterday, today’s calendar looks a little busier with the Chicago Fed National Activity Index which was just released and came in better than expected at +0.18 versus expectations for a decline of 0.3. Still to come, the FHFA House Price Index will be released along with the Case Shiller numbers at 9 AM followed by Consumer Confidence and the Richmond Fed at 10 AM.
Fed Governor Michelle Bowman (a voting member of the FOMC) spoke in London this morning. She noted that it may become appropriate to “gradually lower the federal funds rate” if “incoming data indicate that inflation is moving sustainably toward our 2% goal” but she went on to qualify that statement with the comment that “we are still not yet at the point where it is appropriate to lower the policy rate.” She even left the door open for future increases in the fed funds rate “should progress on inflation stall or even reverse”. While most of her comments were in line with recent commentary from other Fed officials, she took a hawkish turn when she said “I don’t see any rate cuts for 2024”.
With the caveat that market pricing of future levels in the fed funds rate has been extremely inaccurate over the past year, we wanted to look at where traders are positioned ahead of future meetings based on the CME’s FedWatch tool. Starting with the next meeting, a rate cut at the July meeting is basically off the table as the market is priced for an 89.7% likelihood that rates will be left unchanged.
The Fed has historically shied away from changing rates in the months leading up to a Presidential election, but for the September meeting, there is a slightly better than two in three chance of a cut at that meeting.
Two days after this November’s election, the FOMC will conclude another meeting, and hopefully, we’ll know who came out ahead in the Presidential election. If the Fed has historically avoided changing rates leading up to an election, the market expects them to make up for lost time at the November meeting. Not only is there a nearly 80% likelihood of at least one rate cut by then, but the market has also priced in a 30% chance that the fed funds rate will be at least 50 basis points lower. Then, for the December meeting, the market is pricing in better than a 50/50 chance of at least two 25 bps rate cuts and only a 4.7% likelihood of Bowman’s view that there will be no rate cuts by the end of the year.
To continue reading the rest of today’s morning note, where you’ll find much 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 (SMH) Smoked
The theme of the past couple of weeks has been the S&P 500 pressing higher in spite of weak breadth. Today, the script has flipped, as the S&P 500 is down only a few basis points even though breadth is strongly positive with advancers outnumbering decliners better than 3 to 1. The decliners are being led by a key area of the market: the semis. With the likes of NVIDIA (NVDA) down 5% on the day (and down 14% since last Tuesday’s high), the semiconductor ETF (SMH) is testing the uptrend that has been in place since its April lows.
Since its closing high last Tuesday, SMH is down 7.2%. As shown above, although it’s a significant decline, it’s only a small dent in what has been an incredible rally over the past year. In fact, the ETF is still trading in overbought territory relative to its 50-DMA even after its recent decline. That still does not steal from just how large of a drop it has seen. In the chart below, we show the rolling 3-day percent change in the ETF since its inception in 2000. As shown, there was an even larger drop of 9.1% leading to the April bottom, but the current drop still ranks in the 2nd percentile of all 3-day moves on record.
Bespoke’s Morning Lineup – 6/24/24 – Bitcoin Tries to Hold the Sixties
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“A champion is someone who gets up when he can’t.” – Jack Dempsey
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
US futures are pointing to a flat to slightly negative open this morning on what is going to be a quiet day of economic data. The only report on the calendar is the Dallas Fed Manufacturing report at 10 AM which is expected to come in slightly less worse than last month’s reading of -19.4. European markets started the week on a strong note with no specific news to act as a catalyst, but that doesn’t diminish the fact that the STOXX 600 is up a respectable 0.5%.
Like many stocks, Bitcoin has also found itself treading water for the last several months trying to hang on to the gains from the late 2023/early 2024 rally. This morning, prices are down another 4% near the $60,000 level. After peaking above $70,000 in March, prices have been drifting lower in a sideways range, and if the April lows in the $57,000 range don’t hold, it could be a long summer.
From a longer-term perspective, $65,000 seems to be a level that Bitcoin just can’t shake. In early 2021, it briefly flirted with that level and then quickly erased more than half of its value. Later that year, it got there again and managed to stay there for a few days before crashing over 75%. It took two years and a few months to get back there again, and this time Bitcoin managed to hang around $65,000 again and even take out $70,000, but that level has failed to hold again.
While the recent pullback in Bitcoin looks steep on an absolute basis, relative to its history, 17% is nothing. The chart below shows historical drawdowns in Bitcoin from a record high, and the average since 2011 has been 48%, meaning that on a little less than half of all days since 2011, Bitcoin has been down 50% or more from a prior all-time high.
To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.
Brunch Reads – 6/23/24
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.
“Su Su” (“Keep Fighting”): On June 23rd, 2018, a Thai soccer team, the Wild Boars, made up of boys aged 11 to 16, became stuck in the Tham Luang cave complex with their 25-year-old coach. The team was exploring a cave the coach had previously visited when monsoon rains flooded the tunnels, blocking their exit. For 18 days, an international team attempted to rescue the team. With no food, the team survived on the water that dripped from the cave walls for nine days until divers could get food and water to them. The rescuers also installed an air pipe after oxygen levels dropped to dangerously low levels. Fortunately, the entire team survived after capturing global attention.
AI & Technology
Amazon-Powered AI Cameras Used to Detect Emotions of Unwitting UK Train Passengers (WIRED)
New documents reveal that Amazon’s facial recognition software was used in UK train stations to scan passengers’ faces, predicting their age, gender, and emotions, potentially for future advertising purposes. Over the past two years, eight stations, including major ones like London Euston and Waterloo, tested AI surveillance for safety and crime reduction. This included detecting trespassers, overcrowding, and antisocial behavior. Civil liberties group Big Brother Watch expressed concerns over the lack of transparency and public consultation. [Link]
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The Bespoke Report – 6/21/24 – The Holiday Card Market
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This Week’s Can’t-Miss Analysis — 6/21/24
We publish a lot of market-related content each week, and we want to make sure you don’t miss the most important topics. Below are some charts and tables we view as “can’t miss” from the last week.
Breadth continued to be a major topic of discussion this week. In Tuesday’s Morning Lineup, we highlighted that seven of the last twenty trading days saw the S&P 500 close higher on the day even though there were more stocks in the index down on those days than up. A stretch like this hasn’t occurred since August 2020, when the mega-caps were rallying because of a theory that they would be the main beneficiaries of COVID lockdowns.
While the S&P 500 keeps making new highs, in Thursday’s Morning Lineup, we noted that Technology is the only major sector making new highs along with the index. Most sectors haven’t made new 52-week highs in a month or longer, highlighting the thinness of the recent rally.
To continue reading the rest of this week’s “Can’t-Miss” analysis, which includes another dozen or so important market-related topics, start a two-week trial to Bespoke Premium today! With a two-week trial, you’ll also receive our daily research in your inbox as it gets posted. Go ahead and give it a try by signing up at this link.
Before you go…
Check out Bespoke co-founder Paul Hickey’s appearance on CNBC if you missed it earlier this week. Click here or on the image below to view. Also, don’t miss our latest Conference Call Recaps and Triple Plays Report available with a trial!
Have a great weekend!
Bespoke’s Morning Lineup – 6/21/24 – June Swoon?
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“Saying that you don’t care about privacy because you have nothing to hide is no different from saying you don’t care about freedom of speech because you have nothing to say.” – Edward Snowden
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
From where markets stand now, equities would finish the week with gains, after breadth in the S&P 500 came in positive yesterday for the third day in a row. That may not sound like much, but the last time the S&P 500’s A/D line was positive for three or more days was in the first week of May. To stay positive on the week, though, we’ll have to get through flash PMIs for the Manufacturing and Services sectors 15 minutes after the opening bell and then Leading Indicators and Existing Home Sales at 10 AM. In Europe this morning, flash PMI readings generally were weaker than expected while UK Retail Sales rose more than expected. Equities on that side of the Atlantic are down between 0.5% and 1%, but the losses still aren’t enough to fully erase the week’s gains.
You’ve probably heard a lot lately about how the end of June can be a tough time for the equity market, and below we show how the numbers have played out since 1980. Usually, the S&P 500 declines from the close on 6/20 through month-end. The S&P 500’s median change during the period has been a decline of 0.09% with positive returns just 44% of the time. Even in years when the S&P 500 was up sharply YTD heading into the last days of June, performance was still on the weak side as the S&P 500’s median change from the close on 6/20 through month end was a decline of 0.23% with gains just 43% of the time.
The silver lining? Over the last four years, the S&P 500 has been up during this period each time, and in the last three years, it has rallied 3.1%, 3.0%, and 1.4%, respectively. As strong as certain seasonal tendencies can be over time, there are always exceptions.
To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.
Nearing 10x Sales for Large-Cap Tech
In today’s Chart of the Day we took a look at valuations across the Tech sector and how things stand relative to historical extremes. (It’s an eye-opening read, so make sure to check it out if you haven’t seen it yet.)
Below is a quick look at trailing 12-month price to sales ratios (P/S) over the last five years for the large-cap S&P 500 and small-cap Russell 2,000 along with each index’s respective Technology sector. As shown, the Russell 2,000’s price to sales ratio is just 1.25x, which is slightly below its average P/S ratio over the last five years. The Russell 2,000 Technology sector’s price to sales ratio is higher at 2.8x, but that’s still below the 2.9x P/S ratio for the S&P 500 as a whole. Incredibly, the S&P 500 Tech sector’s price to sales ratio has pushed all the way up to 9.8x, which is well above its high at the peak in late 2021. A 9.8x multiple is attractive if you’re looking at price to earnings (P/E), but for Tech stocks to be trading at 9.8x annual sales, that’s just a remarkably high number. (As mentioned, we’ve got further coverage of this topic in today’s Chart of the Day if you’d like to read more of our thoughts.)
Below is a look at the stocks in the large-cap Russell 1,000 that have seen the biggest increase in their price to sales (P/S) ratios since the current bull market began on 10/12/22. As shown, NVIDIA (NVDA) has seen its share price rise more than 1,000% during this bull market, but its P/S ratio has made 32 turns higher from 9.7x up to 41.9x! That’s by far the biggest jump of any stock in the index. Of the 30 stocks shown, the average P/S ratio has risen 9.6 points from 8.6x up to 18.2x, and most stocks on the list are Tech stocks.
