Bespoke’s Morning Lineup – 8/22/22 – Looking Ahead to Jackson Hole
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“You are always a student, never a master. You have to keep moving forward.” – Conrad Hall
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It’s another weak showing for the bulls this morning as investors assess the upcoming Jackson Hole Fed meeting and grasp to come up with what could be a positive takeaway for financial markets. Risk assets have had big summer rallies and Powell and Company have no interest in being seen as cheerleading the gains, so it is widely assumed that the tone will be hawkish. It’s a quiet day on the data front, as the only economic report on the calendar is the Chicago Fed National Activity Index for July which actually came in better than expected at +0.27 versus expectations for a reading of -0.25.
In what looks like a textbook example of a bear market rally grinding to a halt right at resistance, the S&P 500’s attempt to take out its 200-day moving average (DMA) proved extremely unsuccessful in its first and only attempt last week. The bulls cut out early Friday and still appear to be on vacation heading into the new week as the S&P 500 appears to be bookending the weekend with declines of over 1% on each side. Rallies can’t go on forever, so the pullback shouldn’t surprise anyone, but if the bulls don’t get back on the field soon, the S&P 500’s chart will only look increasingly worse.
The S&P 500 snapped a four-week winning streak last week, and most sectors contributed to the decline. Leading the way lower, Communication Services and Materials each pulled back over 2%. In the process, Communication Services moved back into the down 25% YTD range and is one of only two sectors that is no longer overbought. Besides these two sectors, five others pulled back over 1% last week, so the declines were broad-based. On the downside, defensives attracted investor interest with Consumer Staples and Utilities rallying more than 1%. Along with those two, Energy also managed to rally more than 1% taking its YTD gain back over 46%.
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Bespoke Brunch Reads: 8/21/22
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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Decarbonization
Germany to Keep Last Three Nuclear-Power Plants Running in Policy U-Turn by Bojan Pancevski (WSJ)
With Russia slashing gas supplies, Germany is facing a long, cold winter, but delaying full shutdown of its last three nuclear plants may help stave off the cold. [Link; paywall]
Can the F-150 Lightning Make Everyone Want a Truck That Plugs In? by Talmon Joseph Smith and David Walter Banks (NYT)
As battery manufacturing scales up in rural Georgia to fill the frames of F-150s, it’s still unclear if the truck buyers in the heartland of US pickup demand will adopt the batteries that they build in their local factory. [Link; soft paywall]
Crypto
Fact-checking SBF’s ‘circle jerk’ by Bryce Elder and Robin Wigglesworth (FTAV)
FTX founder and crypto advocate Sam Bankman-Fried recently went on a long Twitter rant about the allegedly circular nature of “tradfi” financial flows. This post is a useful corrective of some of the misrepresentations. [Link; registration required]
The Crypto Geniuses Who Vaporized a Trillion Dollars by Jen Wieczner (NYMag)
Borrowings running near $3bn led to an unprecedented collapse in monster crypto firm Three Arrows Capital this year, fueling a substantial portion of the subsequent collapse in those markets more broadly. Here’s the inside story. [Link; soft paywall]
Tragedy
Should It Be Easier to Take Away a Driver’s License? by Alissa Walker (NYMag)
Why so many Americans who have proven they have no business behind the wheel are still causing crashes that kill tens of thousands per year across the country. [Link]
Russia’s Republic of Grief by Nanna Heitmann and Keith Gessen (NYer)
Soldiers fighting for Russia are overwhelmingly from poor, ethnically diverse areas of the sprawling country where economic opportunities are negligible and the military is one of the only ways out. [Link]
Corporate Press Releases
American Airlines Announces Agreement to Purchase Boom Supersonic Overture Aircraft, Places Deposit on 20 Overtures (American Airlines)
Denver-headquartered Boom has taken a deposit for 20 supersonic aircraft from American, with as many as 20 more planes to follow as the startup moves towards a 2026 target test flight for its Overture airliner. [Link]
Illuminating possibility: Duke Energy and Ford Motor Company plan to use F-150 Lightning electric trucks to help power the grid (Yahoo!/PRNewswire)
A Carolinas utility will work with Ford customers to test a program that takes electricity from parked EVs in order to balance the grid during periods of peak demand. [Link]
Student Loans
Biden administration cancels $3.9 billion in student debt for 208,000 borrowers defrauded by ITT Tech by Annie Nova (CNBC)
Student loan balances borrowed by students at ITT Technical Institute will have their remaining balances forgiven in response to findings that the school engaged in widespread and pervasive misrepresentations. [Link]
Comebacks
Adam Neumann Gets a New Backer by Andrew Ross Sorkin, Vivian Giang, Stephen Gandel, Lauren Hirsch and Ephrat Livni (NYT)
The disgraced founder of WeWork has received the largest seed investment in the history of Andreessen-Horowitz, for a company that at this point is nothing more than a vague idea on paper. [Link; soft paywall]
Drought
How We Got Into This Mess on the Colorado River by Jack Schmidt, John Fleck, and Eric Kuhn (Inkstain)
As the flow of water down the mighty Colorado trickles to almost nothing, years of excessive draws on the waterway are catching up with consumption vastly exceeding the flow of water through the river. [Link]
Politics
Conservative push to alter Constitution focuses on primaries by Nicholas Riccardi (AP)
A little-noticed push to re-write the US Constitution via a convention of states has started to gather steam, although the radical and extreme motivations of the movement are far from being realized at this point. [Link]
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The Bespoke Report + Q3 Macro Report
This week’s Bespoke Report newsletter is now available for members.
This week we have published our weekly Bespoke Report plus our quarterly Macro Report by Bespoke Macro Strategist George Pearkes.
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Bespoke Morning Lineup – 8/19/22 – The 1962, 1970 Comp
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“If you don’t know who you are, the stock market is an expensive place to find out.” – Adam Smith, The Money Game
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With August coming to an end soon and what has historically been the worst month of the year for the stock market — September — on deck, this morning we looked for years similar to 2022 that saw strong S&P 500 gains in the first two months of Q3 even though the index was still down big YTD.
Only two other years since WW2 really fit the bill. Both 1962 and 1970 saw 7%+ gains in the first two months of Q3 with the S&P still down more than 10% YTD through August. Below is a chart showing the YTD % change throughout the year in 1962, 1970, and so far in 2022. The patterns look quite similar, and it’s noteworthy that 1962 and 1970 were both mid-term election years for first-term Presidents, just like 2022.
In September 1962, the S&P fell 4.8%, but after that weakness, the index surged higher in Q4. In September 1970, the S&P rallied 3.3% and continued to gain sharply in Q4 as well. In both 1962 and 1970, the S&P was higher from the end of August through year-end. Investors would certainly take a repeat of that this year!
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Total Return vs Price Change Spreads
As we mentioned in today’s Chart of the Day, there can be a wide spread between total returns and price change based on dividend yield. Although it doesn’t always make financial sense for a company to pay dividends, they can certainly magnify returns all else equal. Click here to start a two-week trial to Bespoke Premium and receive our paid content in real-time.
The table below outlines twenty S&P 500 stocks that have seen a high percentage of their returns over the last twenty years come from dividends. The average stock on this list has seen over 80% of their gains over the last two decades come from dividends alone. Although the average stock on this list has only seen a price gain of 61.1% since August of 2002, their average total return when factoring in dividends re-invested has been 278%.
To show you what we mean, below is a chart of price change versus total return over the last 20 years for Altria Group (MO). As you can see, the dividend in this case turns a below average stock into an outperformer. Click here to start a two-week trial to Bespoke Premium and receive our paid content in real-time.
The Bespoke 50 Growth Stocks — 8/18/22
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 three 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.
Bulls Set a New High
Bullish sentiment continued its recent run of increases according to the weekly AAII individual investor sentiment survey. Hitting 33.3% this week, bulls are at the highest level since the last week of 2021. That 2022 is nearly 2/3 complete and we still haven’t seen a bullish reading over 33.3% tells you how negative investors have been this year.
Bears also ticked up this week reaching 37.2% versus 36.7% last week. While bearish sentiment has only been below 40% for three weeks in a row, that is the longest stretch of sub-40% readings since the start of the year.
With more bears than bulls once again this week, the bull-bear spread has now been negative for 20 straight weeks.
With both bulls and bears higher, neutral sentiment was the only reading to fall this week. Neutral sentiment dropped 1.7 percentage points from 31.2% down to 29.5%. That was only the lowest reading in four weeks as neutral sentiment sits the closest to its historical average of 31.4%. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke Morning Lineup — 8/18/22 — The Rise of the Utes
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“Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes.” – Edwin Lefèvre, Reminiscences Of A Stock Operator
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
US equity futures are slightly higher ahead of the open this morning as jobless claims just came in weaker (better) than expected and Philly Fed came in stronger than expected. Outside of the 8:30 AM ET data, there’s not much else going on today.
The S&P 500’s action around resistance at its 200-DMA continues to be watched closely by traders. Yesterday’s declines continued the pullback that began late in the day on Tuesday when the index touched up against the 200-DMA in afternoon trading. To get above the 200-day at this point, the index needs to rally about 1.25% from yesterday’s close.
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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10-Day A/D Line Overbought for 15 Days
In an earlier tweet, we pointed out the elevated readings across 10-day advance decline lines in our Sector Snapshot. Not only is the 10-Day A/D line for the S&P 500 approaching one-year highs (as of yesterday’s close), but it has been “overbought” for the last 15 trading days.
Going back to the start of our data in 1990, there have only been eight other times in which the S&P 500’s 10-day A/D line has been overbought for 15 days in a row or more. The last time such a steak was observed was at the start of 2019 which ended at 22 days. That tied for the March 2016 streak for the longest on record back to 1990. We would also note that other than one streak in the first couple of months of 1991, nearly all of these long streaks with an overbought 10-day A/D line occurred since 2010. In other words, consistently impressive breadth by this measure has largely been a recent phenomenon.
This is not the only impressive breadth signal we have covered of late. For example, in yesterday’s Chart of the Day we highlighted that more than 90% of S&P 500 stocks were above their 50-DMAs. Prior times when we’ve seen that reading spike above 90% have been followed by strong returns in the months and year ahead. Looking at the past times in which the 10-day advance decline line has been overbought for 15 days in a row, forward performance of the S&P 500 has not been considerably stronger than the norm. From that 15th day, the S&P has risen half the time one week out. One and three month returns are more consistently positive but weaker than the norm on a median basis. In the year after the long overbought A/D streaks listed below, though, the S&P was higher 7 of 8 times for an average gain of 11.1%.
Below is a chart of the S&P 500 since its 2009 Financial Crisis low. As shown, most of these overbought A/D line streaks have occurred as the index was recovering from some sort of sell off. Only one of them (in early 2018) came about at the time of a notable peak in the index. Click here to learn more about Bespoke’s premium stock market research service.
Moving Averages Putting Up a Fight
Just as the S&P 500 ran into some resistance yesterday at its 200-day moving average (DMA), we’ve seen the same pattern play out in a number of commodities. Two of the more high-profile ones have been copper and crude oil.
Copper fell out of bed in the late spring and early summer, losing a third of its value. Along with the equity market, copper has seen a late-summer rally, but things came to a screeching halt right at the 50-DMA last Thursday. Copper has been down on two of the last three trading days and hasn’t been able to trade back above that elusive 50-DMA since. Click here to start a two-week trial to Bespoke Premium and receive our paid content in real-time.
Crude oil has been just as weak as copper lately, trading in a well-defined downtrend and breaking below its 200-DMA in early August. There was a little bit of a bounce last week, but resistance came into play at the 200-DMA, and after making another lower high, it has since made another lower low.
When stock, commodity, bond, or any other asset class is in a well-defined downtrend, the first thing they have to do to break out of their funks is clear resistance at key moving averages like the 50 and/or 200-DMA. In the case of copper and crude, they have both recently come up short. The S&P 500, again, is facing some resistance at its 200-DMA, but at least it has managed to clear its 50-DMA which it did in the second half of July.
