The Most Volatile Stocks on Earnings
Earnings season has begun with the release of quarterly results of the big banks and the first of the mega caps, Tesla (TSLA), this week. However, the slate doesn’t truly ramp up until next week and the week after. That is in terms of both the number of stocks reporting and their collective market caps. In the chart below, we show the cumulative market caps of Russell 1,000 stocks reporting each day from this week through the end of November. As shown, next Tuesday is the single most important day by market cap thanks to both Microsoft (MSFT) and Alphabet (GOOGL) reporting on the same day. That is followed by Meta Platforms (META) on Wednesday and Amazon (AMZN) on Thursday. While AMZN makes up a massive portion of the market cap reporting next Thursday, it is also one of the busiest days of earnings season in terms of number of companies reporting. That day, 126 Russell 1,000 members will release earnings. The only busier day will be the following Thursday with 129 stocks reporting. From there, earnings season will wind down but there will still be a couple more big reports like Berkshire Hathaway (BRK/B) on November 6th then NVIDIA (NVDA) on November 21st.
In yesterday’s Chart of the Day, we highlighted some stocks that have historically been the top performers on Q3 earnings. In a similar vein, below we show the Russell 1,000 members with at least three years of earnings history that have historically averaged the largest absolute daily move in reaction to earnings. For each stock, we also show its historical beat rates (% of time the stock has beaten consensus analyst EPS and sales estimates) and the percentage of the time that it has raised guidance.
As shown, BILL.com (BILL) tops the list as the most volatile stock on earnings with an average one-day change of +/-18.1%. Across its 15 quarterly reports as a public company, BILL has beaten revenue estimates every single time and missed EPS estimates just once. It has also raised guidance on 8 of its 15 quarterly reports. In addition to BILL, some other stocks that have been extremely volatile on their earnings reaction days include Roku (ROKU), Trade Desk (TTD), Pinterest (PINS), Unity Software (U), AppLovin (APP), Wayfair (W), Netflix (NFLX), Etsy (ETSY), Under Armour (UAA), Twilio (TWLO), and Zoom Video (ZM). This list is a who’s who of many stocks that both surged during the post-COVID bull market in 2020 and 2021 and then plummeted during the bear market of 2022.
Bulls and Bears Back Down
The S&P 500 has fallen over the past week, and that has given sentiment reason to shift lower. The latest sentiment survey from AAII showed only 34.1% of respondents reported as bullish this week, down from 40% last week. That 5.9 percentage point decline is the largest single-week drop in a month although bullish sentiment is still above levels from two weeks ago.
Even though bullish sentiment dropped, those losses did not flow into bearish sentiment. In fact, bearish sentiment also fell by 1.9 percentage points. On top of the 5.1 percentage point decline in the prior week, at 34.6% bearish sentiment is unchanged versus one month ago.
The larger drop in bulls versus bears did result in the bull-bear spread shifting back into negative territory. While not a wide margin, bears outnumber bulls.
Neutral sentiment came in with the lowest reading in a year last week implying increasingly polarized investor sentiment. However, the declines in both bulls and bears this week resulted in neutral sentiment to climb up to 31.3% which is the highest reading in three weeks and right back in line with the historical average.
Continuing Claims Conflict With Initial Claims
The back half of September into the first couple of weeks of October saw jobless claims rebound off their lows. Last week saw that rebound grow with a modestly upward revision to 211K. However, there was a substantial improvement this week with claims dropping to 198K and back below 200K for the first time since the last week of January. That compares to expectations for a reading of 210K.
On a non-seasonally adjusted basis, that improvement is even more impressive. Claims totaled a meager 181K. For the comparable week of the year, the only years with lower readings were 1967 through 1969. While the one-week move is impressive and indicates claims remain at historically strong levels, this time of year has historically seen claims drift higher into year’s end.
While initial jobless claims had a positive move, continuing claims are sending a conflicting signal. After seasonal adjustment, continuing claims have risen for four weeks in a row and are now at the highest levels since early July.
Bespoke’s Morning Lineup – 10/19/23
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“I am not a politician… I only suffer the consequences.” – Peter Tosh
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With complete dysfunction in Washington, we’re all suffering the consequences of politicians. The continuing resolution keeping the government open expires on 11/17, and besides the geo-political turmoil around the world that needs to be addressed, the longer Republicans in the House go without reaching an agreement on who to elect as speaker, the more likely it is that we reach that mid-November deadline without a budget agreement. As easy as it is to complain about the incompetence in DC, though, Thomas Jefferson was right when he said, “The government you elect is the government you deserve.”
After a disheartening session on Wednesday, things aren’t looking all that positive this morning. Nasdaq futures are the lone bright spot following a positive reaction to Netflix (NFLX) earnings as the stock is poised to gap up over 13%. Tesla (TSLA), however, is moving in the opposite direction as the stock is trading down over 7% following a weak report that showed compressed margins and some downright somber commentary from Elon Musk. S&P 500 futures are essentially flat, and Dow futures are low.
Outside of equities, crude oil is trading down by about 1%, gold is slightly lower, the dollar is mixed, and bitcoin is modestly higher. The real action this morning, however, is in the Treasury market, where yields are higher across the curve with the biggest upside moves coming the further out you go as the 10-year yield is up over 7 basis points to just under 5% (4.98%). 5%!
On the economic calendar, jobless claims will be released at 8 AM, and are expected to remain right around the same levels as last week. Along with those numbers, the Philly Fed Manufacturing report will also be released at 8:30 (expectations are for a modest increase) and Existing Home Sales will hit the tap at 10:00. On the jobless claims front, initial claims were lower than expected while continuing claims came in modestly ahead of forecasts but at the highest level since June. Philly Fed was modestly weaker than expected and came in negative at the headline level for the 13th time in the last 14 months. Besides those numbers, Fed Chair Powell will speak at noon along with five other Fed officials throughout the day. Depending on their messages, it could be a pivotal day.
Admittedly, there’s not a lot of positives out there this morning, but we’ll give you two. First, while today’s date is October 19th, it’s not October 19th, 1987. Second, despite oil prices hovering near $90 per barrel, gas prices have been falling hard. As shown in the chart below, the national average price of a gallon currently sits at $3.565, according to AAA, and that’s the lowest price since July. You know what that means? More money to go inside and grab a bag of Doritos, a Big Gulp, and if you’re really adventurous, one of those things on the hot rollers!
Over the last month, national average gas prices are down just over 8% which is the largest 30-day decline of the year and ranks in in the lowest decile of 30-day returns dating back to 2005.
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Housing Starts Muted Relative to Expectations
Following Monday’s weaker-than-expected report on homebuilder sentiment, actual data on residential construction data in the form of Building Permits and Housing Starts came in mixed relative to expectations. While Housing Starts missed expectations by 25K (1.358 million versus 1.383 million), Building Permits topped forecasts by 20K (1.473 million versus 1.453 million).
The table below breaks down both reports by the size of units and on a regional basis. In last month’s report, the big miss in Housing Starts was due to a sharp decline in multi-family units, but they drove the 7.0% m/m increase in September with a gain of 17.6%. On a y/y basis, though, multi-family units are still down 31.4%. On the multi-family front, Building Permits picked up where Housing Starts left off last month with a 14.3% decline on a m/m basis and a 29.7% y/y decline. On a regional basis, the Northeast experienced the largest m/m decline in terms of both Building Permits and Housing Starts.
Taking a longer-term look at Housing Starts on a 12-month average basis, they continued to roll over in September. At an average monthly rate of 1.4 million, Housing Starts are well off the post-COVID peak from mid-2022 but are still above pre-COVID levels just below 1.3 million. So, on that measure and coupled with the spike in rates, one could make a valid argument that the level of Housing Starts has further to fall in the short term.
Looking at the 12-month average of Housing Starts and Building Permits from a shorter-term perspective shows that both indicators remain weak. While Housing Starts briefly stabilized this summer, they’ve resumed their downward trend in the last couple of months. Building Permits have been in a more pronounced downtrend where the 12-month average reading has declined for 14 straight months- the longest streak of declines since the Financial Crisis. Like Housing Starts, though, the current level of Building Permits is still above its pre-Covid peak.
Bespoke’s Morning Lineup – 10/18/23
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“There are no rules here — we’re trying to accomplish something.” – Thomas Edison
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Oil is trading higher this morning after President Biden’s planned meeting with Arab leaders was scrapped after the bombing of a hospital in Gaza which each side is blaming on the other. At the margin, the trip’s cancellation raises risks of an escalation of the conflict, hence the rise in oil prices and lower equity prices. Normally, you’d expect to see treasuries rally in a situation like this, but they’re so out of favor these days, that they’ve only managed a modest rally.
Earnings season is finally kicking into gear, and after the close, we’ll get reports from Netflix (NFLX) and Tesla (TSLA), but this morning we’ve already seen notable reports which include Morgan Stanley (MS), Procter & Gamble (PG), and Travelers (TRV). Overall, results relative to expectations have been uninspiring as just over two-thirds of companies reporting this morning have exceeded EPS forecasts while less than half topped revenue estimates.
On the economic calendar, the only reports of note this morning were Building Permits and Housing Starts. Both reports came in close to expectations with Housing Starts slightly missing forecasts while Building Permits slightly beat.
Just when you think that European stocks are going to reverse their long-term underperformance relative to the US, US stocks start outperforming again. The last six months have been a perfect example. The chart below compares the rolling six-month performance between the S&P 500 and the STOXX 600 on a dollar-adjusted basis. While the two indices performed in line with each other in the spring, once Memorial Day arrived, US stocks started to pull away, and through yesterday’s close, the S&P 500 was up over 5% in the last six months while European stocks were down over 6%.
From a longer-term perspective, this trend is nothing new. The chart below shows the rolling six-month performance spread between the S&P 500 and the STOXX 600 ($-adjusted). Over the last 20+ years, especially since the Financial Crisis, there have been multiple six-month periods where the US outperformed Europe by an even wider margin (and far fewer periods where Europe outperformed the US by a wide margin). One major exception, though, was in the six months coming out of last October’s lows though April of this year. During that six-month period, Europe outperformed the US by more than 20 percentage points, which was the widest margin of outperformance on the part of Europe relative to the US since the Financial Crisis. It didn’t last long, though, and that period was more the exception than the rule.
The above quote from Thomas Edison is something to think about when you look at the trend of US outperformance relative to Europe. Sometimes, the more ‘rules’ you have the harder it is to accomplish things, and on the issue of regulation, Europe has a much higher burden than the US.
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Rates Hit Homebuilders
Among industrial production and retail sales, the other major economic release this morning was homebuilder sentiment from the NAHB. As shown below, the October report showed sentiment slid down to a new multi-month low of 40. That was a four point decline month over month on top of the September reading being revised one point lower to 44. That marks the third MoM decline in a row since sentiment peaked at 56 in July. That leaves the index 9 points above the post-pandemic low of 31 from last December.
The drop in the headline index was due to broad-based weakness throughout the report. As shown below, every component of the headline number was lower month over month and is now in the bottom quartile of historical readings. Those month-over-month declines in October were also historically large, each one with the exception of future sales ranking in the bottom decile of all month-over-month moves. That would imply the nation’s homebuilders have seen significant deterioration in their businesses which the NAHB noted was on account of higher rates.
As for a regional look at homebuilder sentiment, each area also saw a lower reading month over month, however, there is a degree of variability in these readings. For starters, homebuilder sentiment in the Northeast is by far the healthiest with the October reading registering in the 58th percentile of all months since 2005. That compares to the next highest, the Midwest, which is only in the 38th percentile. Like the Northeast, the Midwest only fell by a single index point month over month, and that was dwarfed by the 7-point decline in the West and a 5-point decline in the South.
In addition to today’s homebuilder sentiment data, one week ago the NAHB also published its quarterly survey on the remodeling market. Here too there has been a significant deterioration in conditions on account of higher interest rates. While the headline index remains bolstered and sits above the pre-pandemic range, it has pulled back significantly and is at the lowest levels since Q1 2020. Future market conditions, however, are back in line with pre-pandemic readings. Remodelers are also reporting new post-pandemic lows of smaller backlogs and fewer appointments for proposals. This trend was also reflected somewhat in the September Retail Sales report where housing-related sectors have seen some of the largest year-year declines in sales.
In addition to homebuilder sentiment having taken a hit, homebuilder stocks have also pulled back. Since the high at the start of August, the iShares Home Construction ETF (ITB) has fallen 13.9% having recently found support at its 200-DMA. While the group has found support, the past couple of months’ downtrend remains firmly in place.
Bespoke’s Morning Lineup – 10/17/23 – Indecision
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“Behind every successful person lies a pack of haters.” – Marshall Mathers
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Futures were lower this morning heading into the September Retail Sales report, and with the numbers coming in stronger than expected and August’s report revised higher, the tone has become slightly more negative as yields have risen across the board. There’s still a lot more data left to go today with Industrial Production and Capacity Utilization at 9:15 and then Business Inventories and Homebuilder Sentiment at 10 AM. Outside of economic data, shares of Bank of America (BAC) are trading up in the pre-market after reporting earnings earlier.
After multiple days of testing its 200-day moving average (DMA), the S&P 500 staged a nice rally in the early days of October. Just as it traded multiple days testing its 200-DMA from above, though, it has now stalled out just below its 50-DMA. Investors can’t seem to make up their minds over which way to take the market, and it has resulted in a ton of indecision over the last week. And how can you blame them? Scanning the entire investment landscape, there are seemingly plenty of reasons to like the market but just as many to hate it.
Reflecting this uncertainty, over the last five trading days, the S&P 500’s intraday high has stalled out right around 4,380 each day with a highest high of 4,385.85 on 10/10 and a lowest high of 4,377.10. That works out to a range of less than 0.20% and is the tightest such range in years. In fact, the last time the S&P 500’s intraday highs over a five-day span were in such a tight range occurred exactly six years ago in the five trading days that ended on 10/17/17.
The long-term chart of the S&P 500 below shows every time that the S&P 500’s intraday highs over a five-day span were crammed in a range of less than 0.25%. While these types of indecisive periods for the market have been relatively uncommon in recent history (last occurrence was in June 2021), they were much more prevalent in the past. More importantly if you’re a bull is that they were much more common during longer-term uptrends than downtrends. Sure, there’s plenty not to like about the market, but behind every bull market isn’t there always a wall of worry?
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Near Record Volatility of Bonds Relative to Stocks
2022 was a year of extreme volatility for both stocks and bonds, and while things have quieted down a bit this year, volatility in the US Treasury market remains extremely elevated. The top chart below shows the average daily percentage move in the SPDR S&P 500 ETF (SPY) and the iShares 20+ Year US Treasury ETF (TLT) over a rolling 200-trading day period. Heading into 2022, volatility in both asset classes was very low after spiking to extremes in the early days of COVID, but once the Fed started to hint that it was starting to “think about thinking about” hiking rates, all hell broke loose. While the average daily change in SPY over a rolling 200-day period never exceeded its peak from the COVID crash, volatility in long-term US treasuries, as proxied by TLT, rose above +/-1% to its highest level since the first half of 2012. When treasuries are swinging up and down (mostly down) 1% on a daily basis, that’s a very volatile environment!
While average daily swings in both stocks and bonds have declined this year, volatility has been much slower to subside in the treasury market than in the stock market. The second chart below shows the spread between the average daily percentage move in both ETFs (TLT minus SPY), and as of last Friday, the spread rose to 0.237%, which outside of ten trading days in August 2015, is the widest gap between the two ETFs since TLT was first launched in 2003. Elevated volatility in bonds usually accompanies volatility in stocks, but the current degree of volatility in the bond market relative to stocks is rarely this high.
Bespoke’s Morning Lineup – 10/16/23 – Sigh of Relief
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“The difference between winning and losing is most often not quitting.” – Walt Disney
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After investors were hesitant to take any risks heading into the weekend last Friday, the lack of any meaningful news on the geo-political front has caused some relief. The pace of earnings news this morning has been slow, and the one economic report released so far – Empire Manufacturing – came in pretty much right inline with expectations.
While most major equity averages were higher on the week, the bifurcated nature of the market remains in place. As shown in the snapshot of US equity performance from our Trend Analyzer, large-cap indices managed to squeeze out gains of just under 0.5% last week. Smaller cap indices didn’t fare as well, though. At the bottom of the table, you can see that mid-cap-focused indices were down about 0.5% while small and micro-cap stocks were down over 1%. One thing all these indices have in common, though, is that they’re all below their 50-day moving averages.
Looking at the charts of indices on both sides of the market cap spectrum shows the divergent paths, although neither chart looks particularly good. Starting with the largest cap stocks, the S&P 100 ETF (OEF) has been making a series of lower highs since its peak in the summer, and while it had rallied in the first half of last week, just as it got back near its 50-DMA in the middle of the week, the rally ran out of steam. If there’s one thing positive to say about large caps, it’s that the uptrend line from last October’s low has remained in place.
The downtrend in small caps has been even more pronounced. After breaking down from a head and shoulders top formation in September, the Russell 2000 ETF (IWM) has continued to decline and is now testing the lowest levels since May. While the S&P 100 is still well above its 200-DMA and just fractionally below its 50-DMA, the Rusell 2000 is over 6% below both moving averages and whatever uptrend line that had formed off the lows last fall has been broken.
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