Bespoke’s Morning Lineup – 10/10/22 – Treasury Market Closed
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“For the execution of the journey to the Indies I did not make use of intelligence, mathematics or maps.” – Christopher Columbus
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The bond market is closed today, so at least Treasury yields can’t go up. We wish we could say the same thing about yields across the Atlantic, though, where British gilt yields are all higher and getting back up near their closing highs from less than two weeks ago.
Equity markets are open for trading today, and after opening sharply lower last night, futures have rebounded to move close to the unchanged level. That’s the type of environment we’re in these days when just a modestly negative open to start the day is considered a win. With banks and the treasury market closed for trading, there is no economic data on the calendar today, so expect volumes to be on the light side.
How bad is sentiment out there? In looking through the various Bloomberg headlines this morning, the following three were all out one after the other:
- “Deutsche Bank Strategists See 12% Drop in US EPS Next Year”
- “MS Strategists See Bear Market Continuing Until Earnings Reset”
- “Goldman’s Kostin Sees Strong Dollar as Headwind for US Earnings”
Like the birds overhead, sentiment heading into earnings season has been moving south. Bulls can only hope that sentiment has moved south enough already.
Over the last several years, Columbus Day has seen some extreme market moves. The two best Columbus day performances for the S&P 500 were in 2008 (+11.58%) and 2011 (3.41%), and the one thing both of those years have in common is that they were lousy years for stocks heading into Columbus Day To the downside, the worst Columbus Day performance was in 2014 when the S&P 500 declined 1.65%, and no other year besides 2014 over the last 25 has seen a decline of more than 1%.
While the two best Columbus Days for the S&P 500 came in years when stocks were already down big YTD, there isn’t really much of an inverse correlation between YTD performance and Columbus Day returns. In the seven years over the last 25 when the S&P 500 was down YTD heading into the holiday, the median Columbus Day performance was a gain of 0.13% with positive returns four out of seven times (57%). In the 18 remaining years when stocks were up YTD heading into the holiday, the S&P 500’s median performance on Columbus Day was a gain of 0.05% with gains 10 out of 18 times (56%).
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Bespoke Brunch Reads: 10/9/22
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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Ukraine
Russia’s Elites Are Starting to Admit the Possibility of Defeat by Tatiana Stanovaya (Carnegie Endowment)
There are emerging signs that Russian elites are losing patience with the disastrous prosecution of the war in Ukraine after months of solid support. [Link]
She’s a Doctor. He Was a Limo Driver. They Pitched a $30 Million Arms Deal. by Justin Scheck (NYT)
A rush to supply arms to Ukraine has led to shady, untested ventures sprawling across countries delivering large scale shipments of weapons to the embattled country. [Link; soft paywall]
Rate Hikes
U.N. Calls On Fed, Other Central Banks to Halt Interest-Rate Increases by Paul Hannon (WSJ)
The United Nations Conference on Trade and Development (UNCTAD) argued that the speed and size of Fed rate hikes risk a global recession and are getting carried away. [Link; paywall]
Fed’s Rate Increases Defy All the Rules by Greg Ip (WSJ)
The Federal Reserve’s monetary policy has departed from a series of different rules that relate inflation, unemployment, and the policy rate. [Link; paywall]
Lives Lived
I just learned I only have months to live. This is what I want to say. by Jack Thomas (Boston Globe)
A heartfelt essay on the meaning of a life spent with family, words, and the many details of life that the author will mis when he shoves off this mortal coil. [Link]
Layoffs
Peloton is slashing 500 more jobs as its CEO says it has 6 months to turn itself around by Grace Dean (Business Insider/MSN)
The exercise technology company has announced a fourth round of layoffs with a fresh 12% of workers being dropped as part of a sprawling turnaround plan that has seen headcount cut in half from its peak. [Link]
New Tech
100% Electric Vehicles = 11% Of New Vehicle Sales Globally! by José Pontes (CleanTechnica)
Fully electric vehicle sales were up 60% YoY and area headed for 1mm units in September; the August sales pace was good for 1 car in 10 globally and that share is only growing. [Link]
Walgreens Turns to Prescription-Filling Robots to Free Up Pharmacists by Sharon Terlep (WSJ)
Machine-based dispensaries have helped Walgreens fill prescriptions by raising productivity; total cost savings are more than $1bn. [Link; paywall]
Real Estate
Hybrid Working, Commuting Time, and the Coming Long-Term Boom in Home Construction by Jordan Rappaport (KC Fed)
With more workers able to spend only a couple of days per week at the office, out-lying suburbs and exurbs could be the source of a major building boom in the coming decades. [Link; 35 page PDF]
House Prices: 7 Years in Purgatory by Bill McBride (Calculated Risk)
Widely-cited housing observer Bill McBride has gotten a lot more bearish on the housing market after the pandemic era surge has reversed into monthly declines: he sees long-term declines ahead for both real and nominal home prices. [Link]
Global Trade
WTO Sees Sharp Slowdown in Global Trade, Pointing to Possible Recession by Paul Hannon (WSJ)
The World Trade Organization sees trade activity growing by 1% in 2023, versus 3.5% growth this year and a 3.4% growth rate previously forecasted. High energy prices, war, and surging interest rates are all key factors. [Link; paywall]
China property woes trigger decline in global cement output by Oliver Telling, Thomas Hale, and Andy Lin (FT)
Collapsing real estate investment in China has driven global cement output down 8% in the first half of 2022 versus the first half of 2021; Chinese cement production (which is about half of the global market) fell 15%. [Link; paywall]
Cargo Shipowners Cancel Sailings as Global Trade Flips From Backlogs to Empty Containers by Costas Paris (WSJ)
After 2021 and early 2022 saw catastrophically high demand for ocean freight capacity, shipping lines are cancelling sailings amidst shipping rates in freefall and collapsing bidding for capacity from North American retail clients. [Link; paywall]
Contras
The Fund That Helped Investors Bet Against Cathie Wood Is Taking on Jim Cramer by Claire Ballentine (Bloomberg)
The ETF provider that gained prominence through a fund designed to move inverse to Cathie Wood’s ARK Invest funds is targeting another big “take the other side” opportunity: bets against stocks recommended by Jim Cramer on CNBC. [Link; soft paywall]
Social Media
Supreme Court takes up a divisive issue: Should tech companies have immunity over problematic user content? by Lawrence Hurley and David Ingram (NBC)
The Supreme Court has agreed to hear a case that could strip internet companies of immunity over content posted by their users; changes could mean much more aggressive content moderation across the political spectrum from companies like Twitter, Facebook, and Google. [Link]
The Call of The Wild
Coyotes Came to New York City, but Not for Our Pizza by Bethany Brookshire (NYT)
While coyotes enjoy the occasional nibble of human chow, even urban packs subsist mostly on the wild foods that they would be eating in any other environment. [Link; soft paywall]
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Have a great weekend!
The Bespoke Report – 10/7/22 – Read Our Lips: No Easing Ahead
This week’s Bespoke Report newsletter is now available for members.
Markets tried and failed once again this week to catch a Fed pivot, but with the central bank refusing to believe inflation has peaked optimism was eventually dashed. Another strong jobs report on Friday sent stocks tumbling in yet another tightening of financial conditions. It’s not just stocks, either. We discuss the move higher in Treasury yields, the rise in the dollar, and rising corporate bond yields from a long-term perspective and in the context of the Fed’s campaign to keep pushing policy tighter. OPEC+ was also in the headlines this week, and we give a full analysis, along with summaries of PMI indices in the United States, a preview of earnings season, analysis of mortgage rates’ surge, discussion of the housing market, recaps of multiple labor market data releases received this week, and much more in this week’s Bespoke Report.
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Bespoke’s Morning Lineup – 10/7/22 – Warm Jobs Report
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“You never know what those Cumberland players have up their sleeve” – John Heisman
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The above comment was made by coach Heisman during halftime of a game on this day in 1916 when Georgia Tech was beating Cumberland University by a score of 126-0. Bulls are this year’s Cumberland University as financial assets of all types are in the red YTD, and the classic 60/40 portfolio is having its worst year on record. This week, they’ve seen a faint glimmer of hope even as the Fed keeps turning up the heat, but it remains to be seen if they can chip away at the bears’ lead. After taking a 126-point lead at the half, Georgia Tech went on to win 222-0 in what was the most lopsided college football game of all time. The bulls can only hope the next three months don’t play out like the second half of Georgia Tech vs Cumberland and make 2022 one of the most-lopsided years in terms of downside stock market performance.
Today’s employment report isn’t going to help the bull’s cause. While Non-Farm Payrolls only surpassed expectations by 8K (263K vs 255K), the Unemployment Rate came in at 3.5% versus forecasts for an increase to 3.7%. Futures, which were higher heading into the report, have reversed those gains and are now indicated modestly lower.
When the economy was cratering during the early days of COVID, once the Federal Reserve and Congress stepped in with massive stimulus, markets looked right through the weakness and rallied. Two years later, we’ve done a 180. Heading into today’s Non-Farm Payrolls (NFP) report for September, seven of the eight reports for 2022 have come in better than expected. Over the course of these eight reports, the initially reported reading was an average of 133K greater than consensus forecasts. That may not sound like a lot, but prior to COVID, there were only six other NFP reports out of 262 where the actual reported reading exceeded consensus forecasts by more than that amount.
Even as the US employment situation has outperformed expectations this year by an unprecedented margin, stocks haven’t liked it one bit. The table below lists the date of each NFP report this year and summarizes how the initial reading came in relative to expectations along with how the S&P 500 performed on the day (using SPY as a proxy). Of the seven NFP reports that came in better than expected, the S&P 500 gapped lower by an average of 0.48% and finished the day down by an average of 0.55% six out of seven times. The economy may be doing OK, but once again, the market is looking right through it to one of the most aggressive tightening cycles by the Federal Reserve investors have ever seen.
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Bears Remain Above 50%
The past week’s rebound in equity prices has bolstered sentiment a bit as the latest AAII survey showed an increase in bullishness. For the second week in a row, bullish sentiment rose week over week to come in at 23.9%. That is, of course, still below the reading of 26.1% only three weeks ago and even further depressed relative to the historical average.
The pickup in bullish sentiment borrowed from bears. After two consecutive weeks of readings above 60% (the first such occurrence in the history of the survey), bearish sentiment has turned lower falling to 54.8%. As with bullish sentiment, that marks some improvement, but much more progress would need to be made to bring bearish sentiment back in line with the historical average of 30.5%.
Although the streak of readings above 60% is over, more than half of the respondents remain bearish. As shown below, that has grown to be the longest streak of such readings since the depths of the COVID Crash. Prior to that, there have only been six other such streaks: four occurring between 2008 and 2009 and the others occurring in August and October of 1990.
With both bullish and bearish sentiment improving, the bull-bear spread has risen up to -30.9 after hitting the lowest level since 2009 only two weeks ago.
Again, in spite of any improvement, sentiment remains heavily in favor of bears as it has for more than half a year. As shown below, the bull-bear spread has remained negative for 27 weeks in a row. That is the second-longest streak of negative readings on record but would need to continue for another two months to surpass the 2020 record.
Not all of the losses to bearish sentiment went to bulls. Neutral sentiment also rebounded slightly rising from sub-20% (the lowest level since April 2020) to 21.3%. Click here to learn more about Bespoke’s premium stock market research service.
The Bespoke 50 Growth Stocks — 10/6/22
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. The Bespoke 50 is updated weekly on Thursday unless otherwise noted. There were no changes to the list this week.
The Bespoke 50 is available with a Bespoke Premium subscription or a Bespoke Institutional subscription. You can learn more about our subscription offerings at our Membership Options page, or simply start a two-week trial at our sign-up page.
The Bespoke 50 performance chart shown does not represent actual investment results. The Bespoke 50 is updated weekly on Thursday. 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 Consumer Pulse Report — October 2022
Big Bounce in Claims…Or Is It?
Following a few months of downward trending initial jobless claims bringing the indicator back down around multi-decade lows, there has finally been a significant uptick. Whereas last week’s reading was revised lower to an even more impressive 190K (the lowest since April), the latest print soared 29K to 219K. That is only the highest level since the end of August, but it also is back in the range of pre-pandemic readings while also marking the largest week over week increase in claims since the first week of June.
On a non-seasonally adjusted basis, claims rose as might have been expected for the current week of the year. As shown in the second chart below, as far as consistency of week-over-week increases go, the current week of the year is tied with the 2nd and 45th (approximately the weeks of January 8th and November 5th) for fourth as claims have risen 85.5% of the time since 1967. Additionally, before seasonal adjustment, it was not a particularly large increase as the 13.3K WoW rise was half of the average for the comparable week of the year. Even after that increase, unadjusted claims have only been lower during the year’s comparable week twice: 1968 and 1969. In other words, a drift higher in claims is normal at this point of the year, and even with that move higher, claims remain nothing short of impressive.
As for continuing claims which are lagged an additional week to the initial claims number, the latest week saw a modest increase of 15K to 1.361 million. That snapped a streak of four consecutive weeks of declines. Whereas seasonally adjusted initial claims have risen back into the pre-pandemic range, continuing claims have only experienced a modest move higher and are well below their own levels from pre-pandemic years.
In the past few months, we have consistently checked in on the ratio of initial jobless claims to continuing claims (both seasonally adjusted) as a measure of the lack of follow-through of the former to the latter. With last week’s very strong initial claims number that was more reflective of the still strong continuing claims number, that ratio has now come back in line with the historical average. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Morning Lineup – 10/6/22 – Focus Turns to Jobs
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“I hope to let every citizen know what steps he can take without delay to protect his family in case of attack.” – John F. Kennedy
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The focus for the rest of the week will be on jobs and Fedspeak with jobless claims today (higher than expected) and the September jobs report coming out tomorrow. In addition to the hard data, there are at least seven Fed speakers scheduled to speak between now and the end of the trading week. Last night, Atlanta Fed President Raphael Bostic was relatively hawkish when he noted that the fight against inflation was still in its ‘early days’ and sees the Fed Funds rate rising to around 4.5% by the end of the year and then from there the Fed should assess where the economy is heading. The path of a hike to 4% or 4.5% and then a pause (rather than a pivot) from there seems to be the Fed’s ‘plan’ at this point.
Investor sentiment this week improved after the market’s rally but with bullish sentiment still below 24% sentiment remains extremely depressed. There’s still a lot going wrong these days. The prices we’re paying for everything remain higher than we could have ever imagined, relations with China and Russia haven’t been this strained in a generation, a major hurricane just decimated parts of one of the country’s largest states, and by some measures, Americans have never been more miserable. It stinks out there.
But if you think you have it bad now, we’ve been here before, and it’s been even worse. Consider yourself lucky that Joe Biden isn’t on TV or TikTok today with a hammer and nails giving you a step-by-step guide on how to build a bomb shelter in the event of a nuclear attack. That may sound farfetched, but that’s where we were just 51 years ago today when President Kennedy made the comments above in a speech on the threats of an attack. And this was a full year before the Cuban Missile Crisis. The current geo-political backdrop is far from stable these days, but at least we’re not all learning to build bomb shelters in our basements or know at least where the closest Fallout Shelter is. Some of you out there may even remember firsthand or through stories from your parents of drills where they would get under their desks in order to protect themselves from nuclear fallout. A lot of good that would have done.
What a difference a few days can make in the markets. Equities around the world are gingerly easing themselves out of the bunker from weeks of declines that brought them into oversold territory. Just over a week ago, on September 27th, every regional equity ETF with the exception of the Latin America ETF (ILF) that we track in our Trend Analyzer tool was in extreme oversold territory, and all but two had been down at least 5% over the prior five trading days. Six were even down over 7%.
Fast forward to the present and every one of these same ETFs has now notched gains over the last week and each one of them has moved out of ‘extreme’ oversold territory. They’re still oversold and only ILF is not down by double-digit percentages YTD, but you have to start somewhere. As we noted in Wednesday’s quote of the day, “When nobody wants something, that creates an opportunity.” Nobody wanted anything to do with stocks – or for that matter, any other asset – as the third quarter ended last week. Investors have hardly fallen back in love with equities again, but they left a pillow on the couch and the back door unlocked.
Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals. We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!
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Oil and Stocks Mix It Up
Like oil and water, oil and stock prices generally don’t mix. A big jump in oil prices usually leads to lower stock prices, while stock prices often experience a boost when oil prices decline. That’s what makes the performance of both to start the week so interesting with the S&P 500 up over 5% week to date through Tuesday’s close while oil prices surged nearly 9% during that same span.
In the case of oil prices, two-day rallies of the magnitude we saw through Tuesday’s close have been common going back to the start of 1984 which is as far back as we have full-year data on a daily basis. You could even say that moves of this magnitude have been relatively common.
Two-day rallies in equity prices of the magnitude seen this week haven’t been nearly as common, but we wouldn’t call them rare either. Besides this week, there have been 23 other times since 1984 when the trailing two-day performance of the S&P 500 was greater than this week’s two-day rally.
Where things really start to get much less common is when both the S&P 500 and crude oil prices rally 5% or more at the same time. That has only happened six other times since 1984, and prior to 2008, it had never happened before. The chart below shows the S&P 500 since 2007 with the red dots showing every day that both the S&P 500 and crude oil rallied 5%+ over a two-day span. Four of those occurrences came during and coming out of the Financial Crisis, another was in August 2015 when China devalued the yuan, and the most recent occurrence before this week was right after the COVID crash lows. With the exception of the first occurrence right after Lehman’s bankruptcy in September 2008, every one of the other occurrences came either in the later stages of a bear market or coming out of a significant decline, and what they all have in common is that they occurred during periods of severe market dislocations.
One aspect of the first occurrence in September 2008 that has bears salivating is that the S&P 500’s pattern leading up to that occurrence looks very similar to the pattern now, and in each case was down by similar amounts from all-time highs (19.2% in September 2008 and 20.7% as of Tuesday’s close). Additionally, in both cases, the bounce came shortly after the S&P 500 broke below a prior low. Looking more closely at the two periods and overlaying them on top of each other, though, besides the fact that the S&P 500 was down sharply in the year leading up to both periods, the patterns don’t look all that similar after all and the correlation between closing prices is just 0.63. Click here to learn more about Bespoke’s premium stock market research service.
