The Closer – March Minutes Reaction, Balance Sheet Runoff, Neighbor Data, EIA – 4/6/22
Log-in here if you’re a member with access to the Closer.
Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a summary of the minutes from the March FOMC meeting. We follow up with a note on balance sheet runoff and the market’s reaction to today’s release of the minutes. We then recap some data South and North of the border in the form of Mexican vehicle production and the record Ivey PMI in Canada. We close out with a recap of this week’s petroleum stockpile data from the EIA.
If you’re wondering what the Closer is like each day, click here or on the thumbnail image below for a sample of a few pages from the report.
See today’s full post-market Closer and everything else Bespoke publishes by starting a 14-day trial to Bespoke Institutional today!
2022: A Story of Rotation
The S&P 500 is lower again today and dropping back below its 200-DMA as of this writing. After rallying over 11% in the second half of March, the S&P 500’s current leg lower has brought it down roughly 3.4% from the March 29th closing high. As for which stocks have done the best and worst during the recent leg lower, it has more or less been a story of rotation from earlier this year. To get a gauge on this, in the charts below, we took a look at the performance of S&P 500 stocks since the recent peak in late March based on their performance during the two legs lower (1/3 through 1/27 and 2/9 through 3/8) as well as during the two rebounds off those lows (1/27 through 2/9 and 3/8 through 3/29).
We go through the charts in a little more detail below, but the short of it is that since the recent high in the final days of March, the worst performing stocks have been the same names that were the weakest during the prior two legs lower this year. Conversely, the stocks that have outperformed recently have been the same ones that were the worst performers during the two rallies in late January/early February and during March. Click here to view Bespoke’s premium membership options.
The two charts below show the performance of S&P 500 stocks since 3/29 grouped into deciles based on how they performed during selloffs from 1/3 to 1/27 (top chart) and from 2/9 to 3/8 (bottom chart). In the case of both charts, the general trend has been that stocks that performed the worst during each of the prior sell-off this year have also been the worst performers over the last week or so since the close on 3/29, while the stocks holding up the best are the same ones that outperformed during those declines.
Similar to the analysis above, the two charts below show the performance of S&P 500 stocks since 3/29 grouped into deciles based on how they performed in the rallies from 1/27 to 2/9 (top chart) and from 3/8 to 3/29 (bottom chart). In this case, the general trend has been that stocks that performed the best during each of the rallies this year have been the worst performers since the close on 3/29, while the stocks that underperformed the most in the two rallies have sold off the least during this most recent decline.
Bespoke’s Morning Lineup – 4/6/22 – Hard Time to be a “Vampire”
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“Bond investors are the vampires of the investment world. They love decay, recession – anything that leads to low inflation and the protection of the real value of their loans.” – Bill Gross
It’s looking like it’s going to be one of those days. Futures were just modestly negative overnight but then started to really weaken as Europe opened for trading and things haven’t stabilized since. The S&P 500 faces losses of around 1% at the open with the Nasdaq down over 1.5%. If equities were looking to rally coming into the week, yesterday’s Fed commentary put at least a temporary stop to that. Interest rates are higher across the curve and the 2s10s yield curve has steepened well out of inverted territory, but that comes along with yields on the 10-year above 2.6% to its highest level in just over three years.
The economic calendar is light today as weekly mortgage applications were the only release, and they fell 6.3% following a 6.8% last week and an 8.1% decline the week before that. Besides that, Energy inventories will be released at 10:30 and the Minutes from March’s FOMC meeting will be released at 2 PM. Philly Fed President Harker and Richmond Fed President Barkin will also be speaking this morning.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
For bond investors, these days are tough indeed. With inflation rampant around the world and central banks finally putting the brakes on the gravy train of liquidity, the increase in interest rates has been relentless with bond prices seeing some of their largest declines in years. A case in point is the iShares 20+ Year US Treasury Bond ETF (TLT). It’s already down 13% YTD and indicated to open lower today by another 1%. The chart below shows historical drawdowns from record closing highs in TLT since its inception in late 2002. Based on where the ETF is trading this morning, it has now declined 26% from its last record closing high back in early August 2020. Throughout its history, there have only been a handful of other periods where TLT ever experienced a peak to trough decline of more than 20%, and the only other time it dropped more was coming out of the Financial Crisis.
Start a two-week trial to Bespoke Premium to read today’s full Morning Lineup.
The Closer – Markets Wake Up Toa Screeching Hawks, Real Yield Surge, Trade Insight – 4/5/22
Log-in here if you’re a member with access to the Closer.
Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin tonight with an overview of today’s Fedspeak and the price action in response. We then take a look at real rates followed by the US trade deficit before finishing with an update on delinquency data for the month of February.
See today’s post-market Closer and everything else Bespoke publishes by starting a 14-day trial to Bespoke Institutional today!
Bespoke’s Morning Lineup – 4/5/22 – Fed Speakers Step Up to the Plate
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“The meek shall inherit the Earth, but not its mineral rights.” – J. Paul Getty
Outside of the drama surrounding Twitter (TWTR) and Elon Musk, who is now a board member of the company, there’s not a lot of newsflows this morning centered on US stocks. The only economic report on the calendar is the ISM Services report at 10 AM eastern, but there are also a number of Fed speakers scheduled. At 10 AM, we’ll hear from Minneapolis Fed President Kashkari, and then at 11:05 AM Fed Governor Lael Brainard will likely shed additional light on whether the Fed moves 50 bps at its next meeting. The final speaker of the day will be New York Fed President Williams at 2 PM.
Equity futures are modestly lower today, but the most noteworthy development of the morning is the fact that the 2s10s curve has steepened and has nearly ‘unverted’.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
With a month-to-date gain of more than 4% in just two trading days, the run higher in Brazilian stocks has continued into the second quarter. Year to date, the iShares MSCI Brazil ETF (EWZ) is now up over 40%, and given that gain, we don’t know what’s more noteworthy. Is it the fact that since its inception in 2000, this represents the best YTD start for the ETF (through 4/4) on record? Or is it that even after this year’s rally, the ETF is over 6% relative to its high in 2021?
Starting with YTD starts, the chart below shows the YTD gain for EWZ going back to 2001. This year’s 40.8% gain easily ranks as the strongest YTD gain for the ETF since its launch.
As mentioned above, the last year has been a roller-coaster for EWZ. Even after this year’s sharp rally, which began on 1/5, EWZ remains more than 6% below its June 2021 high.
Start a two-week trial to Bespoke Premium to read today’s full Morning Lineup.
Background Checks Rise, But Still Compressed
Although not a commonly used indicator, US background checks for firearm purchases can be interpreted as a gauge of sentiment and the view of Americans on the current state of the geopolitical environment. At times of ease, background checks can be expected to decline, whereas a volatile situation (ie the onslaught of COVID, the summer of riots, etc) or concerns over more stringent gun legislation often lead to increased firearm purchases. In March, background checks ticked higher by 20.6% month over month. However, on a y/y basis, background checks are still down by 34.3%, as illustrated in the chart below. On a year-to-date basis, background checks are down a similar 33.9%. In March, a total of 3.1 million background checks were run for Americans looking to purchase firearms.
Monthly background checks remain well above their historical trend, despite the y/y compression. In the near term, it is possible that checks bottomed out last month at 2.6 million. Long story short, although checks are down significantly y/y, the long-term uptrend that was in place prior to the COVID surge is still largely in effect.
Although we like to think that the market is forward-looking, the price action of gun manufacturer Sturm Ruger (RGR) tends to be highly correlated with the number of background checks over the prior twelve months. Since the turn of the century, total trailing 12-month total of background checks and the monthly price of RGR have held a correlation coefficient of 0.90, which indicates a strong positive relationship. Should background checks tick higher, RGR has room to benefit.
Looking at the two different publicly traded firearms manufacturers, the chart patterns for each look quite different. Whereas RGR has been in a short-term uptrend, Smith and Wesson (SWBI) has been trending lower for several months now, despite a positive federal court ruling in regards to turning over research data and advertising research to the NJ Attorney General just three weeks ago. Nonetheless, this goes to show that, even though these companies are exposed to the same secular trends, near-term performance can and will diverge due to company-specific exposures. Click here to try out Bespoke’s premium research service.
Sector Price and Breadth Update
In an earlier tweet, we highlighted some charts from our Sector Snapshot highlighting the new highs in multiple sectors’ cumulative advance-decline (A/D) lines as of Friday. The cumulative A/D line is used to signal confirmation of a trend by indicating broad participation of an index’s underlying stocks in a rally or decline. In the charts below, we show those same A/D lines updated through today with price also included on the opposite axis.
Utilities, Consumer Staples, and Energy are seeing their AD lines pull back from new highs, but price has been somewhat disconnected. On the one hand, for Consumer Staples, unlike the A/D line, price never broke out above the late 2021/early 2022 levels. Energy, meanwhile, has seen breadth hold up fairly well while its price has been experiencing a more consistent decline in recent days. On the other hand, Utilities have seen price and breadth move more healthily in sync with one another. Communication Services has been somewhat the inverse of these three sectors. While breadth is positive today, the cumulative A/D line is not setting any new short-term highs even as the price is. That is mostly a result of the huge gain in Twitter (TWTR) having an outsized impact on the sector.
Most other sectors have recently seen consistent moves between price and breadth without any sort of major new highs or lows. Technology is close to moving above last week’s high on both a price and breadth basis while both readings for Financials and Industrials have been falling sharply. For Materials, another cyclical sector, breadth and price have been moving in the same direction, but the decline in the cumulative A/D line stands out slightly more. Click here to view Bespoke’s premium membership options.
.
Bespoke’s Morning Lineup – 4/4/22 – Elon Flips the Bird
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“Given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy.” – Elon Musk
Heading into today, it was looking like a quiet start to what was looking like a slow week as the economic calendar is light and earnings season doesn’t kick off for at least another week. That changed a bit following news that Elon Musk had taken a passive 9.2% stake in Twitter (TWTR) pushing the stock up by more than 25% in pre-market trading to its highest level since late November. Last week on Twitter, Musk made the statement at the top of this note and then followed up with the question, “What should be done?” Well, this morning we appear to be getting an answer. Twitter has long been criticized for not realizing its full potential, and TWTR shareholders are hoping Musk can move the company in that direction.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
With the stock poised to open up more than 20% this morning, it will be just the fourth time in its history as a public company in 2013 that TWTR has gapped up more than 20%. Two of those days were in reaction to earnings (July 2014 and February 2018), and then on the day of its IPO in November 2013. Today, it’s all Elon.
Start a two-week trial to Bespoke Premium to read today’s full Morning Lineup.
Bespoke Brunch Reads: 4/3/22
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.
While you’re here, join Bespoke Premium with a 30-day free trial!
Russia
Russia Built Parallel Payments System That Escaped Western Sanctions by Alexander Osipovich and AnnaMaria Androtis (WSJ)
While Russia’s central bank and debt markets have been badly hobbled by sanctions, consumer payments are flowing thanks to the country’s homegrown payments system. [Link; paywall]
War with Russia? Finland has a plan for that by Richard Milne (FT)
Finland’s larger neighbor has long been a threat, and the response from Finnish society has been a layered approach that builds best practices for national defense into all aspects of social planning. [Link; soft paywall]
Politics
Democrats: Go Directly to the Center by Ruy Teixeira (The Liberal Patriot)
A plea for Democrats to hue away from the left ahead of midterms later this year, though whether they can recover from the traditional mean-reversion against the majority during a President’s first term regardless of their pitch to voters is an open question. [Link]
Why are women voters moving to the left? by Stephen Bush (FT)
Across the developed world, women are increasingly voting to the left, with the patterns holding across a range of countries over the past decade or so. [Link; soft paywall]
Driving
A Rugged Newcomer Looks to Fill a Void Left by Land Rover by Mercedes Lilienthal (NYT)
Upstart auto manufacturer INEOS Group is hoping to seize the terrain vacated by Jaguar Land Rover when it discontinued its venerable Defender SUV in 2016. [Link; soft paywall]
ES…Something
Expensify’s unusual diversity drive by Jamie Powell (FT Alphaville)
A SaaS company that IPO’d last year is going to contribute 25% of salaries paid to white, male employees to a foundation that focuses on housing equity, youth advocacy, food security, reentry services, or climate justice. [Link; registration required]
Seeing Green
Positive Drug Tests Among U.S. Workers Hit Two-Decade High by Will Feuer (WSJ)
Roughly one in twenty five drug tests processed by Quest Diagnostics last year came back positive as legalized marijuana spread across the country. [Link; paywall]
Speculation
Ben McKenzie Would Like a Word With the Crypto Bros by David Yaffe-Bellany (NYT)
The fascinating story of how the former star of The OC has become a voice of reason and anti-crypto activist in the midst of a campaign against his fellow celebrities’ constant shilling. [Link; soft paywall]
Organized Crime
Citrus fruits, scurvy and the origins of the Sicilian mafia by Alessia Isopi and Arcangelo Dimico (The Conversation)
The origins of la cosa nostra in Sicily during the 19th century are obscure, but probably had a lot to do with the booming demand for citrus brought on by a desire to keep sailors away from scurvy during long-distance sea voyages. [Link]
Renewables
Global wind and solar growth on track to meet climate targets by Forrest Crellin (Reuters)
If the wind and solar industry can continue growing at its 10 year growth rate over the next decade, there will be enough renewable energy supplanting carbon-based generation to reduce sufficiently to limit warming to 1.5 degrees Celsius. [Link]
Study Up
Class Attendance in College: A Meta-Analytic Review of the Relationship of Class Attendance With Grades and Student Characteristics by Marcus Credé, Sylvia G. Roch, and Urszula M. Kieszczynka (Review of Educational Research)
Regular class attendance is an incredibly consistent predictor of academic success across a wide variety of outcomes and controls, outperforming all other variables. [Link; 25 page PDF]
Read Bespoke’s most actionable market research by joining Bespoke Premium today! Get started here.
Have a great weekend!
The Bespoke Report – 4/1/22 – Just a Mirage?
This week’s Bespoke Report newsletter is now available for members.
After a bounce in the second half of March that surprised just about everyone watching, the last two trading days of Q1 and the first trading day of Q2 have called into question whether or not the rally was the real thing. On the positive side, the gains that stalled out earlier this week pushed the S&P 500 back above its 50 and 200-day moving averages as well as the highs from early February forming a higher high in the process. On the negative side, the highs from February didn’t hold for long as Thursday’s waterfall decline to close out the quarter took the S&P 500 back below those levels.
Friday started off with some gains, but sellers quickly took control as equities weakened throughout the day before some stabilization into the close. While the February highs are overhead resistance again, bulls will be closely watching the major moving averages for signs of support. This week’s declines haven’t been enough yet to cause bulls to lose hope, but it won’t be a worry-free weekend either.
With the beginning of a new quarter, markets are in a bit of a limbo period as investors await what is likely to be a volatile earnings season, but there was still a lot to cover this week. There’s not enough time (or computer memory) to cover everything that transpired this week, but we tried to cover some of the most pressing macro issues. Make sure to check it all out in this week’s Bespoke Report.
To read this week’s full Bespoke Report newsletter and access everything else Bespoke’s research platform has to offer, start a two-week trial to one of our three membership levels.
