Daily Sector Snapshot — 9/23/24
Chart of the Day: Utilities Stocks Leading Now Lengthy Bull
Opposites On Top
Before last week, when the S&P 500 last made a record high in July, breadth was incredibly narrow as only two sectors – Technology and Communication Services (driven mostly by ‘tech-like’ stocks) – had outperformed the S&P 500 on a YTD basis. In the latest leg of the rally, breadth has broadened, and as of last Friday, the number of sectors outperforming the S&P 500 on the year has doubled from two to four. While Technology and Communication Services remain on the outperformer list, Utilities and Financials have also joined. Utilities is not only a new entry on the outperformer list but it has also moved to second overall, trailing only Technology (27.4% vs 25.6%).
The chart below compares the paths that Technology and Utilities have taken on a YTD basis along with the performance of the S&P 500. While the two sectors have similar returns, they have mostly achieved those gains at alternating points in the year. In the first two months of 2024, Technology came out of the gate strong while Utilities started the year with modest declines. As March rolled around, Tech’s momentum stalled while Utilities picked up. In early summer, we saw a similar trend to the start of the year play out until early July when the two sectors’ roles started to reverse again.
The opposite paths of the two sectors stick out much more when we look at their relative strength versus the S&P 500 this year. For each sector, a rising line indicates outperformance versus the S&P 500 while a falling line indicates underperformance. For almost all of this year, the two series have been mirror images of each other. So even as they sit at number one and two in terms of YTD performance, their paths couldn’t have been much more different. What makes the different paths even more notable is that, as last week’s deal between Microsoft (MSFT) and Constellation (CEG) illustrates, both sectors have been riding the same wave to the top of the sector leaderboard.
Bespoke’s Morning Lineup – 9/23/24 – Listless Start to the Week
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“Show me a man with a million dollars, and I’ll show you a million guys trying to take it away from him.” – Mickey Rooney
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
We’re heading into the home stretch of September, and with the S&P 500 up nearly 1% on the month, bulls couldn’t ask for much better especially when you consider how things looked on the 6th. This morning, there’s not a lot going on and futures are trading little changed with S&P 500 futures down slightly and the Nasdaq up slightly. Treasury yields aren’t showing much direction either with the short-end of the curve unchanged while the 10-year yield is up just two basis points. The only economic data on the calendar is the Chicago Fed National Activity Index at 8:30 and flash September PMI readings for the Manufacturing and Services sectors at 9:45.
Getting back to September’s performance, last Thursday’s record closing high for the S&P 500 was notable not only for the fact that it was the first record closing high for the index since mid-July but also because it’s relatively uncommon for the S&P 500 to hit a record high in September. As shown in the chart below, since 1945, there have been fewer record highs in September (5.9%) than any other month. As shown in the chart below, the frequency of record highs tends to drift lower throughout the year with a ‘blip’ in July where just over 10% of all record highs have been recorded. November, however, stands out for having the highest frequency of highs at 11.8%, or twice the rate of September.
So, does a new record closing high in September bode well for the rest of the year? The chart below shows the S&P 500’s historical Q4 performance since 1945, and the blue bars indicate years when there was a record high in September. In the 21 prior years when there was a record high in September, the median rest-of-year performance was +4.7% with gains just over 90% of the time. That median gain is nothing to sneeze at, but it’s slightly less than the median for all years since 1945 (5.3%) although not quite as consistent to the upside (80%).
Brunch Reads – 9/15/24
Welcome to Bespoke Brunch Reads — a linkfest of some of our favorite articles 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.
“You Got It, Dude!”:Full House premiered on September 22nd, 1987, and quickly became a beloved family sitcom. The show centers around Danny Tanner, a widowed father played by Bob Saget, raising his three daughters, D.J., Stephanie, and Michelle, in San Francisco. To help him manage, Danny’s brother-in-law, Jesse, played by John Stamos, and his best friend, Joey, move in, creating a truly “full house.” Everybody remembers the young Olsen twins, Mary-Kate and Ashley, who shared the role of Michelle. Full House ran for eight seasons, ending in 1995. Its family-oriented content made it a staple of 1990s television, and it gained a new generation of fans through reruns and streaming services, eventually leading to a sequel series, Fuller House, which debuted on Netflix in 2016.
AI & Technology
Omnipresent AI cameras will ensure good behavior, says Larry Ellison (Ars Technica)
Oracle co-founder Larry Ellison recently shared his vision for a future where AI powers widespread surveillance, using cameras, drones, and advanced systems to monitor citizens and police alike. He believes this constant oversight would improve behavior and make law enforcement more efficient, even predicting drones could replace police cars in high-speed chases. While Ellison sees the benefits, his ideas bring up big questions about privacy and civil liberties, with parallels to Orwell’s 1984. The challenge of securing enough hardware, like GPUs, remains a key obstacle for companies racing to implement these technologies. [Link]
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The Bespoke Report – 9/20/24 – We Did It
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Utilities Reacting to Reactor News
Although the S&P 500 finished in the red on the day, there is one sector reaching fresh 52-week highs: Utilities. The Utes are one of only two sectors higher today (the other being Communication Services), and its leadership is by a wide margin. Whereas Communication Services is only up 0.17%, the Utilities sector is flying with a 2.58% gain.
That big gain is thanks to news that Constellation Energy (CEG) will sell power to Microsoft (MSFT) in order to power its data centers. To generate that power, CEG will be restarting one of its nuclear reactors at Three Mile Island in Pennsylvania. As shown below, given the news, CEG is the top performer in the sector today with an impressive 21% gain. Vistra (VST) has also benefitted and is up 14.3%. Those two stocks are now top performers on the year with total returns of 79.35% for CEG and 142.2% for VST. Of course, the Utilities sector is often considered an income friendly area of the market, but the surges in the price of CEG and VST have dramatically lowered their yields below 1%. That compares to an average yield of over 3% for all members of the sector. The only other Utilities stock with a lower yield is PG&E (PCG) which recently reinstated its dividend after a few rough years dealing with the fallout of being to blame for wildfires in the back half of the 2010s.
As previously mentioned, Constellation Energy (CEG) is at the center of attention today. As shown below, the over 20% gain today erased all of the declines since the spring, leading to a fresh record high. Additionally, today’s gain is the largest one on record since the stock’s inception following a spinoff of Exelon (EXC) in 2021.
Vistra (VST) has likewise returned to new all time highs on today’s surge, surpassing the previous record close from this past May. The 14.5% single day gain as of this writing is remarkable as there is only a single time that the stock rose by more, and that was on July 31st when it rose 14.8% as news of higher energy prices bolstered the Utilities sector.
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Bespoke’s Morning Lineup – 9/20/24 – Closing Out the Week on a Down Note
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“Winners train, losers complain. Give me twelve players that want to win, and they will find a way to win.” – Red Auerbach
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
It’s been a strong week for equities, so the modestly negative tone in futures to start the last day of the trading week isn’t going to concern anyone. There’s also zero on the economic or earnings calendar this morning either, so we’re not quite sure what traders will latch onto to push prices in one way or the other, but they always seem to find something!
Overnight in Asia, traders closed out the week on a positive note as the Nikkei was up over 1.5%, Hong Kong finished 1.4% higher, and even China was up over 1%. The key event in the region was the BoJ keeping rates unchanged with a ‘hawkish hold’. In Europe, the tone isn’t as positive as the STOXX 600 is modestly lower as German PPI came in higher than expected while UK Retail Sales rose more than expected.
The Russell 2000 did not hit an all-time or even 52-week high yesterday, but it did manage to take out its late August high. The chart is forming what looks like a “W-formation” with the first half comprising the massive rally from earlier this summer when the index traded at the most overbought level on record for a major US index. We honestly have no idea what a W-formation means, but if the Russell 2000 manages to break out above the summer highs, it would be a positive development from a technical perspective.
The latest rally in the Russell 2000 has also been impressive given that yesterday was the seventh straight day of gains for the index which is the longest winning streak for the index in three and a half years. Seven-day winning streaks are by no means uncommon or extreme in the Russell 2000’s history. As shown in the chart below, since 1980 there have been 110 other winning streaks of at least seven trading days, and the longest was more than three times longer at 22 in March 1988. What is interesting about the chart below, however, is how common 7-day winning streaks were from 1980 through the dot com bust (86 from 1980 through the end of 2022) and how uncommon they have been since (24 since 2003).
In today’s Morning Lineup, we looked at how the Russell 2000 tends to perform following prior seven-day winning streaks. To see the rest of the analysis, sign up for a trial today!
The Closer – Day After the FOMC, Home Sales & Affordability – 9/19/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at the historically strong performance for the day after a rate decision (page 1). We then review the latest economic data (page 2) including in depth looks at the current account (page 3), existing home sales (page 4), and affordability (page 5). We finish with a rundown on today’s 10y TIPS reopening (page 6).
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