The Bespoke Report – 4/5/24 – Careful What You Wish For
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Bespoke’s Morning Lineup – 4/5/24 – And the Number Is…
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“Birds scream at the top of their lungs in horrified hellish rage every morning at daybreak to warn us all of the truth, but sadly we don’t speak bird.” – Kurt Cobain
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Futures have been attempting to recover from yesterday afternoon’s sell-off. International indices are sharply lower as they were closed before the selling got underway here. Where the market finishes today will hinge in large part on the March employment report which just hit the tape. Non-farm payrolls came in stronger than expected at 303K versus forecasts for an increase of 214K. The Unemployment Rate was right in line with forecasts at 3.8% as was average hourly earnings which increased 4.1%. The average workweek was modestly longer than expected at 34.4 hours vs. forecasts for 34.3. In reaction to the report, equity futures sold off a bit, and yields increased with the 10-year just under 4.4%.
In yesterday’s Closer, we provided a detailed discussion of Thursday’s reversal in the Nasdaq including its potential drivers (When you boil it down can anyone ever really definitively tell you what the actual cause of any market move is?). This morning, we wanted to take a wider-angle view and look at every time since 1989 (as far back as we have intraday Nasdaq data available) that the Nasdaq experienced a similar reversal to yesterday.
Since 1989, there have been 122 prior days where the Nasdaq was up 1% intraday and finished the day down over 1%. As mentioned last night, many of these days have tended to occur during bear markets. After all, it’s more common for rallies to run out of steam during bear markets than bull markets. When you don’t tend to see these types of reversals is during a bull market when the Nasdaq is right near 52-week highs.
There have now been just ten days since 1989 when the Nasdaq was up 1% intraday and finished the day down 1%. As shown in the chart below, two of those days were in early 1999, a year before the peak of the dot-com bubble. Another two occurred in early 2020, including one on 3/7/00, just three days before the Nasdaq’s intraday peak of that era. The next two occurrences were in 2003 as the market was coming out of the bear market from the internet bubble. After those two days, there were no other reversals of a similar magnitude for seventeen years (7/13/2020 and 11/9/2020), and before yesterday, the most recent occurrence was less than a month ago on March 8th. Is it just us, or does anyone else find it weird that these reversals tended to come in pairs? In every year where there was a reversal, there was always another and not a single more.
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Bespoke’s Consumer Pulse Report – April 2024
Bespoke’s Consumer Pulse Report is an analysis of a huge consumer survey that we run each month. Our goal with this survey is to track trends across the economic and financial landscape in the US. Using the results from our proprietary monthly survey, we dissect and analyze all of the data and publish the Consumer Pulse Report, which we sell access to on a subscription basis. Sign up for a 30-day free trial to our Bespoke Consumer Pulse subscription service. With a trial, you’ll get coverage of consumer electronics, social media, streaming media, retail, autos, and much more. The report also has numerous proprietary US economic data points that are extremely timely and useful for investors.
We’ve just released our most recent monthly report to Pulse subscribers, and it’s definitely worth the read if you’re curious about the health of the consumer in the current market environment. Start a 30-day free trial for a full breakdown of all of our proprietary Pulse economic indicators.
Bespoke’s Morning Lineup – 4/4/24 – Did Anything Good Come Out of the Eighties?
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“I really had a lot of dreams when I was a kid, and I think a great deal of that grew out of the fact that I had a chance to read a lot.” – Bill Gates
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
While the S&P 500, Nasdaq, and Russell 2000 all managed to post gains yesterday, the DJIA closed lower for its third day in a row. That streak may come to an end today, though, as futures are higher across the board. The only notable data point of the morning was jobless claims. Initial claims came in higher than expected (221K vs 214K) and hit the highest level since late January while continuing claims fell back below 1.8 million versus forecasts for a reading just above that level (1.791 mln vs 1.810 mln). Besides the employment data ahead of tomorrow’s jobs report, there are also a ton of Fed speakers on the calendar today, so by the end of the day we should have a much better idea of the prospects of a June rate cut, which currently stands at just about a coin flip.
Happy Birthday to the “Blue Screen of Death”. The world’s largest company, Microsoft (MSFT), turns 49 years old today as it was founded on this day in 1975 in Albuquerque, NM by Paul Allen and Bill Gates. Of the six US publicly traded companies with trillion-dollar market caps, MSFT is the oldest followed by Apple (AAPL) which was founded nearly two years to the day later. The chart below of the Nasdaq shows the dates that each member of the trillion-dollar club was founded.
It’s interesting to note that not even one of the largest US companies is 50 years old. The youngest of the six is Meta Platforms (META), but it won’t be legal to toast its membership for another ten months as it only turned twenty two months ago. People will tell you that while the 1980s were a lot of fun, not much good came out of them, and that’s also the case with the largest companies. After AAPL was founded in 1976, there was a 17-year lull before the next member, Nvidia (NVDA), was founded in 1993. Just over a year after that, Amazon.com (AMZN) was founded in 1994. That was the same year that Katie Couric, Bryant Gumble, and Elizabeth Vargas asked each other, “What is internet?”. Look who’s laughing now!
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The Closer – Powell Speaks, PMIs, EV Sales – 4/3/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with some commentary on Fed Chair Powell’s speech today in addition to an update of our Fedspeak Monitor Index (page 1). We then review the latest PMI data (page 2) before pivoting over to a look at Ford EV sales (page 3). We finish with a review of the latest EIA data (page 4).
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Bespoke’s Morning Lineup – 4/3/24 – And Then There Were Six
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“Don’t fight the problem, decide it.” – George C. Marshall
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Before getting to this morning’s note, we wanted to alert subscribers to our latest B.I.G. Tips report highlighting some of the more interesting charts of companies that have reported earnings Triple Plays so far this year. In our experience, we have found that earnings triple-plays have been a great starting point to find potential new ideas.
Stock futures are modestly lower this morning which would set the market up for its third straight day of declines. The just released ADP Payrolls report for March came in higher than expected (184K vs 150K), and futures experienced a modest bounce in the initial reaction. Still on deck, we have the S&P and ISM PMI indices for the Services sector, and both are expected to show a modest uptick relative to February.
After the close last Wednesday, the S&P 500 and all eleven sector ETFs were trading at overbought levels. The S&P 500 was at a record high, and the long-awaited broadening appeared to be playing out. Except for Real Estate, every sector was up YTD. Besides that, not only was every sector back above their respective 50-day moving averages, but they were also all trading at overbought levels (one or more standard deviation above their 50-day moving averages).
Three trading days later, we’ve seen some deterioration in the market. The S&P 500 still closed at overbought levels yesterday, but nearly half of all sectors have moved out of that range, including Real Estate, which is back below its 50-day moving average, and Health Care, which is barely hanging on to that level. For both sectors, the selloffs have had specific catalysts. In Health Care, it was Monday’s announcement from the Centers for Medicare and Medicaid Services (CMS) that 2025 payment rates for Medicare Advantage plans would effectively be equal to a 0.16% decline relative to this year. The decline in Real Estate stems from concerns over “higher for longer” interest rates threatening the ability of property owners to refinance loans at feasible rates. Just this morning, the FT reported that 2023 cash flows at a $60 bln property fund operated by Blackstone (BX) weren’t enough to cover its annual dividend payments.
To be sure, the declines of the last two trading days are peanuts in the grand scheme of things. The S&P 500 is down less than 1% from its record closing high last Thursday, and most sectors are still overbought. In a bull market, these are exactly the types of rotational moves you would expect to see, and even more short-term weakness in the low to mid-single-digit percentage range shouldn’t be a surprise. The timing is also good. The last thing you would want to see heading into earnings season is a market trading at overbought or extreme overbought levels and setting the bar unrealistically high.
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“A Big F-ing Deal”
After Monday night’s announcement from the Centers for Medicare and Medicaid Services (CMS) that 2025 payment rates for Medicare Advantage plans would effectively be equal to a 0.16% decline relative to this year, managed care stocks plummeted in after hours trading and into the trading session on Tuesday. By the time the closing bell rang on Tuesday, the S&P 500 Managed Care sub-industry fell more than 6.5% compared to the S&P 500’s decline of less than 1%. On a relative basis, managed care stocks underperformed the S&P 500 by 5.6 percentage points for the day. As shown in the chart below, today’s underperformance of the industry relative to the S&P 500 was one of the largest since the Affordable Care Act was signed into law on 3/23/10.
Tuesday’s weakness in managed care stocks is hardly the beginning of a new trend. Since hitting a peak in late October 2022, just as the broader bull market was getting started, the managed care industry has been moving in the opposite direction. Just this year, as the S&P 500 has essentially closed at 52-week highs multiple times per week, the managed care industry is right near 52-week lows.
We can’t think of a better way to illustrate the inverse correlation of managed care stocks relative to the S&P 500 over the last 18 months or so than the chart below. While it has been 370 trading days since the S&P 500’s bear market low in October 2022, the managed care sub-industry has gone 355 trading days without trading at a 52-week high, which is the longest such streak since the ACA was signed into law. As then Vice President Biden “whispered” to President Obama at the time, “This is a big F____ing deal.”
Streaks of the S&P 500
In last Thursday’s Closer, we spotlighted how the S&P 500 has consistently traded at overbought levels this year. Through early afternoon on Tuesday, the S&P 500 was on pace for its 52nd straight trading day of closing at least a full standard deviation above its 50-DMA which ranks as the longest streak since April 1998 (60 trading days).
Not only has the S&P 500 been extended versus its 50-DMA, but it has also traded overbought relative to its 200-DMA. Through early afternoon Tuesday (4/2), the index was also on pace for its 95th straight day of closing more than a standard deviation above its 200-DMA. Interestingly, compared to the 50-DMA streak the current streak of overbought closes versus the 200-DMA stands out much less. Since 1928, there have been 34 streaks of at least 95 days with three of the longest lasting for over a year (1955, 1959, and 1996).
That is not to say the current run of longer-term overbought readings is unremarkable. For much of that current streak, the S&P 500 has been extremely overbought (at least 2 standard deviations above its 200-DMA). Yesterday’s close marked the 41st day in a row with a 200-DMA extreme overbought reading. That is the longest such streak since early 2018, and before that, there were only eight other similarly long or longer runs. That being said, the S&P 500 decline of more than 1% in early afternoon trading today puts the index on pace to close 1.9 standard deviations above its 200-DMA, ending the current streak.
The S&P 500 being consistently overbought is not the only notable current streak. As shown below, we are also nearing 100 days in a row in which the S&P 500 has been higher month-over-month (21-trading day rate of change). At 97 trading days, this streak of month-over-month gains ranks as the ninth longest on record after surpassing a 96 trading day streak that ended on September 5th, 1980.
Bespoke’s Morning Lineup – 4/2/24 – A Pause That…
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“Know what you are talking about.” – Pope John Paul II
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Is this the beginning of the sell-off the market has been avoiding for the last several months? Equity futures are lower this morning as rates have risen and Bitcoin is getting shellacked. Making matters worse for equities this morning is a sharp sell-off in the health insurers following updated Medicare Advantage reimbursement rates published after the close yesterday. Crude oil is up 1.5% while the breakout in gold continues, and that’s not helping to make the case for rate cuts. While May has been off the table for weeks now, markets are also increasingly starting to price June out of the picture with odds now falling to not much better than a coin flip. The only economic data on the calendar this morning is Factory Orders and JOLTS which will both be released at 10 AM Eastern.
Outside of the US, the Japanese yen continues to trade at an interesting spot. After making a run to the ever-important 152 level two weeks ago, the Japanese yen has stalled over the last two weeks just shy of that resistance level. As shown in the chart below, 152 is a level where each of the prior two sell-offs in Q4 2022 and Q4 2023 were stopped in their tracks.
As a result of the stall, in each of the last ten trading days, the daily close for the yen has been rangebound between 151.26 and 151.69 for a total range of 0.28%. That’s narrow! The chart below shows the rolling 10-day high-low range of the yen’s daily closing levels dating back to 1980. It’s hard to see it in the chart, but over the last 45 years, there have only been two other periods where the 10-day range was less than 0.30% as it is on pace to do today. Since 1980, the average 10-day range is 2.28%.
In the long-term chart of the yen below, the red dots show each time the rolling 10-day change dropped below 0.30%. The first occurred in early 1986 at a time when the yen was in the middle of a monster rally that took it from over 250 yen per dollar down to under 125 in less than three years. After that, the next time the range dropped below 0.30% didn’t occur until late 2019 and then again in June 2020. Leading up to and after those occurrences, the yen was in a sideways trend and didn’t do much over the following year before the current sell-off started in earnest. It’s a small sample size, but in each of the prior two examples, the trend that was in place leading up to the narrow ten-day range remained in place after.
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Equities Shine Over Bonds
Helped mainly by the massive gain since late October, the S&P 500’s one-year trailing total return through the end of March clocked in at an eye-watering 30.5%, or nearly triple the historical average of 11.8%. While the rally over the last year has been well above average, it followed a period of weak returns in the prior year. When you combine the last two years, the S&P 500’s annualized gain of 9.7% is nearly a full percentage point below the long-term historical average. Looking out over the last five and ten years, annualized returns have been well above average, but over the prior twenty years, the S&P 500’s performance has been sub-par.
Equity market returns may have been below average over the last two and twenty years, but you won’t find many equity investors looking to trade shoes with investors hiding out in long-term (LT) US Treasuries. The chart below shows the annualized total return of the Bank of America/Merrill Lynch index of 10+ Year US Treasuries over various timeframes. Over the last year, LT Treasuries declined 4.8% versus a long-term average annualized gain of 8.1%. If you think that’s bad, check out the two-year annualized decline of 13.1%…in Treasuries! That’s a 25% haircut! Even over the last five years, LT Treasury returns have been negative to the tune of 1.6% annualized. To find – not better than average – but simply positive returns, you have to go out to the ten-year window, where the total return is just 1.6% annualized and still seven percentage points less than the historical average. While technically not a lost decade, it’s been a loser of a decade for sure.
