Bespoke’s Morning Lineup – 9/11/24 – Inflation Day
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“America was targeted for attack because we’re the brightest beacon for freedom and opportunity in the world. And no one will keep that light from shining.” – George W. Bush
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 two positive days to start the week, futures took a breather today ahead of August CPI. The numbers were just released and were practically all right in line with expectations. Headline CPI increased 0.2% compared to forecasts for a gain of 0.2%, but core CPI was slightly hotter coming in at 0.3% versus a forecast for 0.2%. On a y/y basis, the readings of 2.5% and 3.2% were in line with forecasts.
While the numbers were mostly inline (except for Core), futures have not responded kindly with equity futures adding to their pre-market weakness while treasury yields reversed higher.
Yesterday wasn’t a good day for the banks, and it hasn’t been much of a week either. Below we show a snapshot from our Trend Analyzer of the ten largest components of the KBW Bank Index. All of them are down over the last five trading days and are all down at least 2.5%. Not only that but besides PNC and USB, the eight other stocks listed have all broken down through their 50-day moving averages.
The worst of the losers have been Wells Fargo (WFC), JP Morgan (JPM), Citi (C), Capital One (COF), and Trust (TFC) which are all down over 5%. 5% may not sound like much when you talk about tech or growth stocks, but it’s more than nothing when you’re talking about the largest banks in the country.
For the KBW Bank Index itself, the index has now failed just above 115 for the second time in two months, and like most of the components, it is also back below its 50-day moving average (DMA).
The 115 level hasn’t just been resistance in the last several weeks. If we take a further look back, the index has seen rallies fail at this level multiple times. The chart below shows the performance of the index since mid-2022, and in addition to the two most recent tests of resistance, it also rallied up to that level in the summer of 2022 and early 2023 before pulling back.
Then finally on a longer-term basis, while there was a period during the post-Covid madness from early 2021 through early 2022 where the BKX rallied above 115 and got as high as the high 140s, before that, it also tested and failed levels in the low to mid 110s twice.
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The Closer – Bank Data Day, ASEC, Historic 3y Sale – 9/10/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we start out with an in depth dive into the latest FDIC quarterly banking profile data (pages 1 – 3). Staying on the topic of banks, we check in on bank stock performance (page 4). We then review the US Census release of the Current Population Survey Annual Social and Economic Supplement (pages 5 – 8). we close out with a 3-year note auction review (page 9).
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Daily Sector Snapshot — 9/10/24
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Bespoke Stock Scores — 9/10/24
Chart of the Day – Power Surge in Utilities
Horrible Small Business Earnings
This morning’s NFIB Small Business Optimism Index showed disappointing results. The index was expected to show small businesses had less optimism with the index forecasted to fall 0.1 points month over month down to 93.6. Instead, the decline was much more dramatic as it fell down to 91.2; erasing all of the summer gains. One factor likely at play that we have noted in the past is political sensitivities.
Historically speaking, NFIB data has tended to hold a positive bias during Republican administrations and vice versa. Put differently, optimism rises when Republicans are in power or are expected to be voted in, and optimism falls when Democrats are in power or are expected to win an election. In reaction to last month’s report, we discussed how the recent surge in optimism earlier this summer was concurrent with the rising odds of former President Trump winning back the presidency. This latest data, on the other hand, would capture that the Presidential race is looking tighter than it did previously, and optimism seems to have moved lower in turn.
Looking under the hood of the report, there wasn’t much to like. Of the inputs to the Optimism Index, only two rose month over month: Plans to Make Capital Outlays and Job Openings as Hard to Fill. The latter of those is by far the strongest category of the report with the August reading in the 92nd percentile of all months. Outside of that, there are four inputs to the optimism index and another three non-input categories that now rank in the bottom decile of readings. Some of those like Actual Earnings Changes and Expectations for Higher Real Sales also fell significantly month over month with bottom decile monthly moves.
As noted above, one of the weaker inputs to optimism was actual earnings changes and other “actual” categories are similarly weak. In August, that index fell 7 points month over month. That is the largest decline in a single month since last October when it fell 8 points. More impressively, that drop results in the index falling below the spring 2020 lows for the worst reading since March 2010. Among other categories for observed (rather than expected) conditions, employment change reached a new near term low of -6. That is the weakest reading in this index in two years. As we showed in the Morning Lineup, combined with other labor market categories, the report is consistent with a further weakening labor market.
Circling back on the weak change to earnings, the report details a handful of reasons that small businesses are reporting lower earnings. As shown below, the most common response in August was increased costs; up 2 percentage points to 16%. The next most common reason was sales volumes which was unchanged sequentially at 13%.
While those responses would indicate that an uptick in inflation has been hurting the bottom line of small businesses, the report’s inflation gauge was somewhat contradictory. There continues to be more companies reporting that prices are higher versus lower than they were three months ago. However, that higher prices index has been improving dramatically. The index dropped to a new low of 20 in August which is the lowest level since January 2021. While that is also still elevated ranking in the 81st percentile of all months on record, that is well below the peak from two and a half years ago and is consistent with decelerating inflation. Additionally, the share of businesses reporting inflation as their biggest problem ticked down modestly to 24% from 25% and is well below the highs near 35%.
Bespoke’s Morning Lineup – 9/10/24 – Slight Positive Tone
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.
“No one asked me to be an actor, so no one owed me. There was no entitlement.” – James Earl Jones
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 view yesterday’s interview from CNBC Overtime, click on the image below.
Equity futures are moving back and forth on either side of unchanged this morning, with little direction in either direction. The only economic report of the day was small business sentiment from the NFIB, which came in just over two points below expectations (91.2 vs. 93.6).
You may recall that last month’s report came in a bit more than two points above expectations, so this morning’s report essentially erased that move. While the report was weaker than expected, it shouldn’t have been a surprise. As we noted last month, the NFIB’s report tends to skew Republicans, and the prior survey came just after former President Trump had a big lead in the polls following the GOP convention. The latest survey was conducted as Harris shifted into the lead, hence the weaker sentiment. Now that the polls have shifted back to neutral or in favor of Republicans, it wouldn’t surprise us to see a bounce again next month.
Ahead of Wednesday’s CPI report, we realize that the market may have moved on from inflation, but gas prices play a big role in overall inflation levels and especially consumers’ perception of it. On a YTD basis, the national average price of a gallon of gas has increased 4.9%, which wanks as the fourth smallest YTD increase since 2005, and ten percentage points less than the median change during that span.
On a year/year basis, prices have declined 7.6% relative to where they were last year and have mostly been negative for the last year or more.
Lastly, the national average currently stands at $3.26 per gallon. That’s 36 cents more than the historical average since 2005, but when you take inflation into account, prices are lower now than their historical average.
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The Closer – AI Antidote, Consumer Credit & Expectations – 9/9/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we lead off with a look at the stocks that have been most and least correlated to AI stocks (page 1). We then look into the latest inflation data from South of the Border (page 2). We then review today’s consumer credit figures (page 3) as well as the New York Fed’s Survey of Consumer Expectations (pages 4 and 5). We then preview this week’s Treasury auctions (page 6) before closing out with positioning data (pages 7-10).
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