Bespoke’s Morning Lineup – 1/5/23 – ADP and Jobless Claims Stronger Than Expected
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“Yesterday’s home runs don’t win today’s games.” – Babe Ruth
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Futures had reversed overnight lows and moved into positive territory earlier, but the stronger-than-expected ADP Private Payrolls report coupled with lower-than-expected jobless claims has pushed equities back in the red. Jobless claims were just released and also came in better than expected on both an initial and continuing basis, and that hasn’t helped the tone heading into the opening bell as the 10-year US Treasury yield has spiked up to 3.75%.
It was a close call but Santa did come this year as the S&P 500 posted a positive return during the seven trading day window (the last five trading days of one year and the first two of the next) when the Santa Claus Rally is said to occur. With a gain of 0.80%, though, it was a smaller-than-normal rally. As shown in the chart, that continues a trend of recent subdued returns during this period. In fact, the last time the S&P 500 rallied more than 2% during the Santa Claus Rally was back in 2013, and that ten-year drought without a 2% rally is the longest since at least 1953 when the five-day trading week on the NYSE in its current form began. Hey Santa, stop being such a cheapskate!
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Homebuilders Shrugging Off Mixed Data
The national average for a 30-year fixed-rate mortgage has come well off its highs falling to 6.6% versus a high of 7.35% in early November. Despite the decline, mortgage rates remain at levels not seen since the early 2000s. We would also note that rates have gone on a series of wild swings in the past year. The second chart below shows the rolling 3-month change since 1998. Whereas most of the year saw rapid increases the likes of which have not been seen in the past quarter century, the current drop of 0.4 percentage points over the past few months has ranked as the largest since late 2020 and is just shy of a bottom decile reading of all periods.
With mortgage rates giving buyers some relief, purchase applications had generally been on the rebound throughout November and December. However, the final week of 2022 saw a large reversal in purchase apps with a 12% week-over-week decline (potentially as a result of residual holiday seasonality) in the largest single-week decline since the last week of September.
While it is hard to say if the final week of 2022’s large decline was seasonal or a return to purchase apps that are more consistent with readings from earlier in the fall, 2022 tended to follow seasonal patterns. The year began with applications around some of the strongest levels of the past decade and they continued to rise into peak housing season in the spring with applications hitting their pinnacle in the first week of May. The typical seasonal drift was then exacerbated by the added headwind of higher rates, and applications finished the year with the worst reading since 2014 for the comparable week of the year. Additionally, looking at the drop for each year from the annual high through 34 weeks later (second chart), 2022’s percentage drop was the second largest since 1990 behind only the 75.7% decline in 2013.
Refinance applications have continued to hit new lows as this week saw yet another decline down to the lowest level since May 2000.
Even though there are some silver linings in recent data, housing activity remains weak. Homebuilder stocks continue to look past that though and continue to shrug off much of the broader market choppiness. The past week has seen the homebuilders, proxied by the iShares US Home Construction ETF (ITB), rally 3.25%. That has largely erased the mean reversion from the second half of December and brings the ETF right up to resistance at the mid-August highs. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Morning Lineup – 1/4/23 – Energy and Rates Down, Stocks Up
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“Yet we still live in a troubled and perilous world. There is no longer a single threat. There are many. They differ in intensity and in danger. They require different attitudes and different answers.”– Lyndon B Johnson
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Investors are waking up to a bit of – dare we say it – goldilocks this morning as commodity prices and treasury yields are both lower and economic data out of Europe has been positive. Service sector PMIs for the Eurozone and each of the largest economies in the region have come in better than expected while some inflation-related reports have come in lower than estimates. Import Prices in Germany for the month of November dropped more than expected (-4.5% vs -1.6%) and French CPI for December unexpectedly declined. In response, futures are modestly higher heading into what is likely to be an eventful day with ISM Manufacturing and JOLTS at 10 AM, and the FOMC Minutes at 2 PM.
It wasn’t a particularly great year for financial assets anywhere across the spectrum in 2022. The only area to buck the trend was Energy. To start off 2023, though, Energy has been among the weakest areas as WTI opened the year with a decline of 3.9% on Tuesday (and is down an additional 3%+ this morning). With that decline, the Energy sector tumbled 3.5% (and is down another 1.5% in the pre-market).
The chart for WTI doesn’t look particularly encouraging. After making a lower high last June, the sector has been in a relatively consistent downtrend for more than six months, and a key trend since that peak has been multiple occurrences where the sector tried to rally back above its 50-DMA but failed. The last week has been the most recent example. After failing to take out its 50-DMA yesterday, WTI’s plunge yesterday was its largest decline to kick off a new year since 2007.
Even as oil prices have plunged from their 2022 highs, Energy stocks have held up impressively well. It was only back in mid-November that the Energy sector made a new high for the year while oil prices were well off their highs. Despite the outperformance, the sector’s technical picture has deteriorated. November’s peak was technically a higher high, but it’s starting to look more like a double-top. The fact that after trading below its 50-DMA in early December, the Energy sector has had multiple failed attempts to trade back above that level is a concern for longs. Like crude oil, Tuesday’s 3.6% decline was the weakest opening-day performance for the sector to start a year since 2007.
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Bespoke Market Calendar — January 2023
Please click the image below to view our January 2023 market calendar. This calendar includes the S&P 500’s historical average percentage change and average intraday chart pattern for each trading day during the upcoming month. It also includes market holidays and options expiration dates plus the dates of key economic indicator releases. Click here to view Bespoke’s premium membership options.
Bespoke’s Morning Lineup – 1/3/23 – Turning the Page
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“The beginning is always today.” – Mary Shelley
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It’s a new year but it’s looking like the same old market as positive futures drift off their highs into the opening bell. With treasury yields sharply lower, crude oil and natural gas also lower, and foreign equity markets firmly higher to kick off the year, it’s a positive backdrop for equity bulls to start the year. After a quiet week data-wise to close out the year, things will pick up this week with Construction Spending, ISM, and an Employment report all headlining the calendar on this shortened week.
People tend to put a lot of emphasis on first impressions, so what looks like a positive start to the year for stocks should be a welcome sign. With the S&P 500 (as proxied by SPY) poised to gap up 0.45% at the open this morning, it would be the best start to a trading year since 2020 when SPY gapped up 0.52%. If stocks manage to take out that level at the open, it would be the strongest start to a year since 2017 (0.68%). The last time SPY gapped up 1%+ to start a year was in 2013 (1.9%), and that followed a nearly equally strong start to the year in 2012 when SPY gapped up 1.8%.
So, how important are these first impressions in terms of the remainder of the year? For all years since 1994, when SPY had a larger than average opening gap to start the year, its median performance from the open on the first trading day of the year through year-end was a gain of 13.93% with positive returns 82% of the time. That’s nothing to sneeze at, but it’s actually right in line with the historical average for all years since 1994. On the other hand, in the four years when SPY gapped down to start the year (1996, 2014, 2016, and 2019), its median performance for the remainder of the year was 18.3% with positive returns all four times.
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Bespoke Brunch Reads: 1/1/23
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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The Year Coming & Going
Why everyone thinks a recession is coming in 2023 (CNBC)
Consensus from economists and forecasters is for a US recession in 2023 with Federal Reserve monetary policy tightening the key driver of the slowdown. [Link]
The Year the Long Stock Market Rally Ended by Joe Rennison (NYT)
Soaring interest rates in response to high inflation have crushed the stock market this year, delivering the sort of grinding bear market that was impossible during the previous decade. [Link; soft paywall]
SBF
POLITICO Playbook: Inside the scramble to trace SBF’s dirty money by Ryan Lizza, Rachael Bade, and Eugene Daniels (Politico)
Political donations by the FTX and Alameda Research chief have spiraled outwards and look likely to have driven a straw-donor scheme that has enveloped at least one progressive think tank. [Link]
Sam Bankman-Fried’s only way out is ratting on Binance and Tether by Steven Stradbrooke (Coingeek)
A speculative account that might explain why Sam Bankman-Fried isn’t still behind bars: cooperation on an even bigger fraud fish. [Link]
Consumer Spending
Economy Has Drinkers Choosing Prosecco Over Champagne by Jennifer Maloney (WSJ)
Consumers are less inclined to shell out for premium spirits brands and are more inclined to reach for cheaper swill when they shop for hooch. [Link; paywall]
The world just doesn’t have enough planes as travel roars back (The Straits Times)
Soaring demand for travel combined with supply chain disruptions and production slowdowns during the pandemic mean the global airliner order backlog numbers nearly 13,000 planes. [Link]
Consumers Change Food-Delivery Habits by Preetika Rana and Heather Haddon (WSJ)
After booming during the pandemic, food delivery is shifting thanks to smaller discretionary budgets and high inflation. [Link; paywall]
Auto Industry
Carmakers quietly cut ties with China in supply chain shake-up by Peter Campbell, Eri Sugiura, and Edward White (FT)
Global automakers are shifting away from parts purchases in China, joining other industries in questioning reliance on the country. [Link; paywall]
Electric Vehicle Charging Investment Approaches the $100 Billion Mark by Ryan Fisher (Bloomberg)
By the end of this year investment in electric vehicle charging hardware and installation will top more than $60bn with almost half that again due for next year alone. [Link; paywall]
Toyota Chief Says ‘Silent Majority’ Has Doubts About Pursuing Only EVs by River Davis and Sean McLain (WSJ)
Early skepticism about fully battery-electric vehicles have left Toyota far behind the curve in that segment, so it’s not a surprise that management is talking down an area they lag the market. [Link; paywall]
Food
Who created chicken tikka masala? The death of a curry king is reviving a debate by Emily Olson (NPR)
The ubiquitous tomato-cream chicken is most likely not a creation of the Indian subcontinent at all but a Scottish hybrid based on tomato soup. [Link]
How Changing Diets Leave Us Exposed to War, Extreme Weather and Market Turbulence (Bloomberg)
Global diets are shifting towards the same uniform diet across countries and continents as the world eats more grain, more meat, and less local food. [Link]
Google Employees Brace for a Cost-Cutting Drive as Anxiety Mounts by Nico Grant (NYT)
Gone are the days when massive search revenues and ever-expanding cloud investment fueled huge salaries and a monstrous workforce. The vibe, as they say, has shifted. [Link; soft paywall]
Money Management
Schwab’s Investment in Dynasty Could Be the First of Many by Diana Britton (Wealth Management)
With assets flocking to the registered investment advisor space, brokerage giant Schwab is buying up a services provider that caters to the space. [Link]
China
China Estimates Covid Surge Is Infecting 37 Million People a Day (Bloomberg)
As China’s government lets COVID infections rip, tens of millions of people are contracting the virus every day in one of the largest booms in COVID cases since the pandemic began. [Link; soft paywall, auto-playing video]
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Have a great weekend!
One Year’s Loss Is Not the Next Year’s Gain
It’s finally the last trading day of what has been a tough year for most asset classes, especially equities. As of this writing, the S&P 500 is on pace to finish the year with a 19.83% loss. Over the course of the index’s history, there have only been nine other years in which the S&P 500 has fallen at least 15% for the full year. Of course, turning the page of the calendar does not mean all the issues dragging stocks lower magically go away, and a big decline one year does not in and of itself mean we’re due for a big gain the next year.
In the chart below we plot the annual percentage change of the S&P 500 versus its move the following year. Taking a linear regression shows that performance one year is not a good explainer for next-year performance with a miniscule R squared of 0.0003. Looking just at those years where the S&P fell 15%+, five times the index posted gains the next year, while four times the index posted further declines. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Morning Lineup – 12/30/22 – One Last Gut Punch
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“Hope smiles from the threshold of the year to come, whispering ‘it will be happier’…” – Alfred Lord Tennyson
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In case you missed it last Friday, we emailed out our annual Bespoke Report which covers everything you need to know about the setup for financial markets and the economy heading into 2023. You can read it here.
At least we hope next year will be happier! That’s not the case this morning, though, as markets are giving the pulls one last dagger to close out the year. Nasdaq futures are currently down over 1% while the S&P 500 is indicated to open down roughly half of one percent. Besides the fact that the calendar still says 2022, there’s little in the way of catalysts driving the weakness. US Treasury yields are modestly higher on the day while crude oil trades lower. The only economic report on the calendar today is the Chicago PMI which is expected to rebound following last month’s surprise plunge. That index could use a lift as it’s currently in the midst of its largest y/y decline since 1980! From a market perspective, can today’s closing bell come soon enough?
For all the volatility we’ve seen this month, it was surprising to see that the nine 1% days in the S&P 500 (up or down) this month only ranks tied for 10th going back to 1952 when the five-day trading week in its current form started on the NYSE. In fact, even last year just as the S&P 500 was about to peak, the month of December had more 1% daily moves. The other years with more 1% days in December all stand out in market history as some of the most volatile years in market history, including 2008 when there were 15 (more than two-thirds of all trading days in the month) 1% daily moves.
There’s still one trading day left in the year, and if the S&P 500 has another 1% day today it will move 2022 into a tie for 5th place with 1974, 1998, 2000, and 2018 in terms of 1% daily moves in December.
Where December 2022 stands out more, however, is in the number of 1% down days. With six 1%+ declines this December, it already ranks as tied for the third most 1% declines during the last month of the year since 1952. The only years with more were 2008 and 2018 while 1973, 1974, 2000, and 2002 are tied with this year. The only thing positive we can say is that it’s almost over, and hopefully, the new year will be ‘happier’.
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The Bespoke 50 Growth Stocks — 12/29/22
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.
Bulls Come Home for the Holidays
The last week of the year also brings in the last reading on investor sentiment for 2022. Perhaps a bout of new year’s optimism has overridden the negative impact of the market’s continued decline, but bullish sentiment actually rebounded up to 26.5% after spending four straight weeks below 25%. That leaves the reading right in the middle of the past year’s range.
Bearish sentiment, on the other hand, fell from a recent high of 52.3% down to 47.6%. Unlike bullish sentiment, that level remains a bit more elevated. Outside of last week’s 50%+ reading, it would have been the highest reading since October 20th.
In spite of a slightly more bullish tilt, this week’s data continues to show sentiment is dominated by bears. The bull-bear spread favors bears by 21.1 percentage points; the third week in a row with a sub -20 reading.
Not all of the gains to the bullish camp came from the bears. The share of respondents reporting neutral sentiment was also lower this week falling for the fourth week in a row. This week’s 1.5 percentage point drop was the smallest of that four-week span but brings the indicator to the lowest level since October 20th. Click here to learn more about Bespoke’s premium stock market research service.
