Oracle (ORCL) Joins the Pack
When you think of the major cloud infrastructure providers, Amazon.com (AMZN), Alphabet (GOOGL), and Microsoft (MSFT) are the first names that typically come to mind. Given that their market caps are all well into the trillions, it makes sense, but one name saying “don’t forget about me” is Oracle (ORCL). If you compare the performance of the four stocks since the launch of ChatGPT, ORCL’s 74.6% gain lands right in the middle of the pack, ahead of GOOGL and MSFT but trailing AMZN’s gain of 82%.
This year, though, ORCL has been the clear leader. With a gain of over 35%, it has doubled AMZN’s 15.2% move and more than quadrupled the gains of GOOGL and MSFT. What’s most impressive about ORCL’s performance is that it’s still right near its highs of the year even as the other three stocks are in drawdowns of 12%-20%.
Making ORCL’s performance even more impressive is that the company has reported weaker-than-expected sales in each of its last four earnings reports. Last September and December, those weaker-than-expected revenues were not met kindly by the market as the stock experienced one-day declines of 12.4% and 13.5% which were the two largest one-day earnings declines since at least 2001! Following its March and June reports, though, the company still reported weaker-than-expected sales, but each of those reports were followed by one-day gains of 13.3% and 11.8% – ranking as the third and fourth strongest one-day gains in reaction to earnings since at least 2001. While no investor ever wants to see a company report weaker-than-expected sales, they were able to look past that shortfall as the company reported a new cloud partnership with Google, 50%+ growth in its cloud infrastructure services unit, and a higher-than-expected backlog.
Even as shares of ORCL have kept pace with the three major cloud providers since the launch of ChatGPT and outperformed handily so far this year, from a valuation perspective, shares trade more in line with the market. At 22.6x estimated earnings for the current year, ORCL’s multiple is slightly more than three turns higher than GOOGL, and well below the multiples of AMZN and MSFT. With a market cap of nearly $400 billion, ORCL is far from an under-the-radar company, but it still doesn’t get the same attention as many of its peers. Its performance this year illustrates that the best returns in the market don’t always come from the places everyone else is already looking.
Bespoke’s Morning Lineup – 9/9/24 – Can the Bounce Last?
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 line between failure and success is so fine. . . that we are often on the line and do not know it.” -Elbert Hubbard
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
After an all-around bad week for stocks, markets are looking to rebound this morning with the Nasdaq leading the way higher. There’s not much in the way of a catalyst for this morning’s bounce and little in the way of economic data. The New York Fed’s survey of Consumer Expectations has been an important report in recent months, but now that the Fed has shifted its focus from inflation to employment, it doesn’t have the heft it used to have.
September didn’t start well. Since 1953, when the five-day trading week in its current form began, this year ranks as the worst first week for the S&P 500 on record. As shown in the chart below, there have only been four other years where the S&P 500 dropped 2.5% or more to kick off the month. Before this year, the record for worst start to kick off the ninth month of the year was 2001 with the other years being 1987, 2008, and 2015. To use a basketball analogy, these years are to bulls what the Detroit Pistons were to the rest of the NBA in the late 1980s and early 1990s.
In the next chart, we show the S&P 500’s performance from the close on 9/7 (or the most recent close before that) through the end of September. For all years since 1953, the median performance was a decline of 0.56% with gains just 44% of the time. In the four other years when the S&P 500 was down 2.5%+ in the first week, the rest of the month tended to be even weaker with the S&P 500 down three times and up just once.
We all know that September is typically weak, so the numbers above shouldn’t be a surprise, but what about the rest of the year? The next chart shows the S&P 500’s performance from the close on 9/7 (or the most recent close before that) through year-end. For all years since 1953, the median rest-of-year performance was a gain of 4.16% with gains 76% of the time. In the four prior years shown the rest of the year was evenly split between gains and losses, but the magnitude of the gains was much less than the losses. In the two years where the S&P 500 rebounded through year-end, the S&P 500 was up 5.74% (2001) and 6.39% (2015), but in the years when it continued lower, the losses were four times larger in magnitude with declines of 21.98% (1987) and 27.29% (2008). Gulp.
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Brunch Reads – 9/8/24
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.
Nixon Pardoned: On September 8th, 1974, President Gerald Ford made the controversial decision to pardon his predecessor, Richard Nixon, for any crimes he may have committed during the Watergate scandal. As the scandal unfolded, Nixon faced impeachment for obstruction of justice, abuse of power, and contempt of Congress, eventually becoming the first US president to resign on August 8th, 1974. Just a month later, Ford issued the pardon, hoping to bring an end to the national strife caused by Watergate. Ford believed that prolonged legal proceedings against Nixon would only deepen divisions within the country. While most supported Ford’s decision as an effort to move the nation forward, others saw it as a betrayal of justice, accusing Ford of shielding Nixon from accountability.
Economic Trends
New Argentine Currency Launched to Offset Milei’s Shock Therapy (BNN Bloomberg)
La Rioja, one of Argentina’s poorest provinces, has taken drastic measures in response to President Javier Milei’s economic policies. After federal funding was cut, the province defaulted and entered a deep recession, prompting Governor Ricardo Quintela to introduce a local currency called the “chacho” to help workers make ends meet. Though shopkeepers were encouraged to accept chachos, many are wary of holding too much of the currency, while residents are rushing to spend them before they potentially lose value. [Link]
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The Bespoke Report – 9/6/24 – Holding Out For Lower Rates
To read our weekly Bespoke Report newsletter and access everything else Bespoke’s research platform has to offer, start a two-week trial to Bespoke Premium. This week we talk about the bad economic news this week and why market declines this week went far beyond that bad news.
Daily Sector Snapshot — 9/6/24
JOLTS: Job Openings Fall as Firings Edge Up
The following charts were included in our daily Closer report on 9/4/24. You can receive our Closer in your inbox with a two-week trial to Bespoke Institutional.
July data on job openings and labor market turnover (JOLTS) showed a larger-than-expected drop in job openings, which came in 5% lower than estimated with a 3% downward revision to June data. The JOLTS data has been very consistent for some time in terms of showing a slowdown in hiring. Hires were over 4.5% of the labor force at the peak in late 2021 but have been trending lower for almost three years now; the same goes for the quits rate. Both those metrics improved this month despite weaker openings, but the weaker trend is very clear. One final note that is arguably the most concerning: while layoffs are still low, gross job terminations were 1.68mm in July. That’s not unusually high compared to pre-COVID levels, but firings may be starting to pick up. If slow hiring is now being matched by outright firings, problems could mount.
To read the rest of The Closer from 9/4 which also included our analysis on the Fed’s Beige Book, mega-cap AI mentions, and the latest job opening data from Indeed, sign up for a Bespoke Institutional trial today.
Sluggish Economy Reported in Fed Beige Book but CRE Begins to Stabilize
The following charts were included in our daily Closer report on 9/4/24. You can receive our Closer in your inbox with a two-week trial to Bespoke Institutional.
Our Bespoke Beige Book Index measures the relative frequency of positive and negative terms reported in the Federal Reserve’s Beige Book. In general, a higher relative frequency of positive terms equates to stronger GDP and vice versa (though the correlation is by no means perfect). Below is an updated chart of our Beige Book Index following this week’s release. In the chart, the dark blue line shows our Beige Book Index advanced six months forward, while the light blue line shows actual YoY GDP growth. Based on our index, the current backdrop is consistent with much weaker GDP than the current ~3% pace (US GDP was up 3.1% YoY and 3.0% annualized QoQ in Q2, while the Atlanta Fed’s GDPNow tracker is sitting at 2.1% for Q3 after yesterday’s data).
This week’s Beige Book release on the qualitative economic backdrop was unimpressive to say the least. Activity was reported as “flat or declining” in nine of twelve Federal Reserve districts with employment “steady overall” despite some reports of reduced labor utilization. Consumer spending “ticked down in most districts” and manufacturing activity “declined in most districts.”
One more observation: the Beige Book was consistent with a bottoming of commercial real estate markets. Below is a look at some of the commentary surrounding CRE in the latest Beige Book release:
In Boston, CRE activity was “flat” with “improvements along some dimensions.” NY reported CRE markets “held steady” with “some decline in vacancy rates and an increase in asking rents.” Philadelphia noted “steady construction” with a range of projects entering the pipeline. Cleveland’s numbers were “mixed,” in Richmond “activity picked up,” and Atlanta reported that “vacancy rates rose” but “a slight uptick” in property transactions. In Chicago’s district, vacancies “edged down,” and St. Louis noted “more properties on the market in anticipation of lower interest rates.” Results weren’t universally positive: Minneapolis was weaker noting CRE “remained soft” while San Francisco noted CRE “weakened slightly overall.” Still, on balance we can see a clear trend across these markets: the shock to CRE appears to have mostly played out, and while that doesn’t mean it’s all sunshine and roses, the market looks likely to firm going forward.
To read the rest of The Closer from 9/4 which also included our analysis on the JOLTS report, mega-cap AI mentions, and the latest job opening data from Indeed, sign up for a Bespoke Institutional trial today.
$10,000 in Silver (SLV)
In today’s “$10,000 in…” post, we’re looking at the silver ETF (SLV) that began trading back in 2006. Similar to the gold ETF (GLD), SLV allowed investors to gain exposure to silver in traditional brokerage accounts.
So how would an investor have done hypothetically putting $10,000 into the silver ETF (SLV) back in 2006 when it launched? As shown below, that $10k would be worth a little more than $18,500 today. You would still not even have a doubling of your money more than 18 years later.
As shown below, instead of buying SLV when it launched in 2006, had you bought the gold ETF (GLD) instead, the $10k would now be worth about $35,400.
Back in the early 2010s, SLV kept up with GLD for a bit, but it has lagged pretty badly for the last ten years.
As always, past performance is no guarantee of future results.
Bespoke’s Morning Lineup – 9/6/24 – Stormy Market
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“The sea is dangerous and its storms terrible, but these obstacles have never been sufficient reason to remain ashore.” – Ferdinand Magellan
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
To catch a segment of yesterday’s interview on CNBC, click on the image below.
The trend of weakness in September looks likely to continue this morning as equity futures are lower and the 10-year yield falls to 3.7%, the lowest level since June 2023. Nasdaq futures are leading the decline this morning following earnings from Broadcom (AVGO) which is down over 7% after a lackluster report after the close yesterday.
The only economic report on the calendar today was Non-Farm Payrolls at 8:30, and traders were anticipating it for signs of whether or not the weakness in the economy is a precursor to something worse or just a soft spot. Unfortunately for the optimists, the headline reading came in weaker than expected as Non-Farm Payrolls rose by 142K versus forecasts for an increase of 165K. Last month’s report was also revised lower. Besides that, average hourly earnings rose more than expected, but the unemployment report (4.2%), average weekly hours (34.3), and the labor force participation rate (62.7%) were all right in line with forecasts. Not a terrible report, but not a strong one either.
Markets have seen a stormy September as the S&P 500 has declined 2.7% month to date. That ranks as the worst 3-day start to September since 2011 (-4.40%), but for all months, August’s 6.08% decline was more than twice as deep. For all months since 2000, just 26 out of 297 months (8.8%) have seen declines of 2.5%+ in the first three trading days of the month, so the fact that we’ve seen back-to-back months of 2.5%+ to kick off a month is not common, and the last time it happened was in September and October 2008.
The Nasdaq finds itself in a similar situation to the S&P 500. With that index down 3.3% in the first three trading days of the month, it also ranks as the worst first three days of September since 2011, but again for all months, August’s 7.95% decline was more than twice as week. Unlike the S&P 500, 2.5%+ declines in the first three trading days of a month are much more common. Since 2000, 15.4% (46) of all months have seen declines of this magnitude, and to find a period where there were 2.5%+ declines in back-to-back months, you only have to go as far back as early 2022.
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Bespoke’s Consumer Pulse Report — September 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.
