Fixed Income Weekly — 8/21/24
Searching for ways to better understand the fixed income space or looking for actionable ideas in this asset class? Bespoke’s Fixed Income Weekly provides an update on rates and credit each week. We start off with a fresh piece of analysis driven by what’s in the headlines or driving the market in a given week. We then provide charts of how US Treasury futures and rates are trading, before moving on to a summary of recent fixed-income ETF performance, short-term interest rates including money market funds, and a trade idea. We summarize changes and recent developments for a variety of yield curves (UST, bund, Eurodollar, US breakeven inflation, and Bespoke’s Global Yield Curve) before finishing with a review of recent UST yield curve changes, spread changes for major credit products and international bonds, and 1-year return profiles for a cross-section of the fixed income world.
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Chart of the Day: Jackson Hole Begins
Bespoke Best of Breed Basket Update — August 2024
Bespoke’s Morning Lineup – Target Hits the Bullseye
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“He who moulds public sentiment goes deeper than he who enacts statutes or pronounces decisions.” – Abraham Lincoln
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Between the 10%+ rally in shares of TGT and last week’s 6%+ rally in Walmart (WMT) in reaction to its earnings report, it’s hard to get too concerned about the health of the US consumer. Yes, these are more anecdotal observations than quantitative, but they’re also two of the largest retailers in the country,
Let’s start with TGT. The chart below shows TGT’s historical performance on its earnings reaction days since 2002. With the stock trading up over 10% in the pre-market, today would be the third time in the last four quarters that the stock had a double-digit positive reaction to earnings. Since 2002, there have only been seven times when the stock had an earnings day reaction of more than 10%.
Regarding TGT’s stock performance, it had been ‘on sale’ for months heading into this morning’s report, but based on where the stock surged to in the pre-market, the downtrend from the spring high has been broken.
Looking back to WMT’s report last week, the stock’s 6%+ rally was the first time in at least 20 years that it experienced back-to-back earnings reaction day rallies of over 5%, and those two one-day rallies were the fourth and fifth best earnings reaction day performances since at least 2002.
Unlike TGT, which had been under pressure heading into today’s report, WMT’s chart has been more of a one-way move to new all-time highs. WMT’s strength could be construed as a sign that consumers are trading down due to a tough economic environment, but the company made no such comments in its conference call last week. CEO Doug McMillon flat-out rejected that idea when he said “So far, we aren’t experiencing a weaker consumer overall.” CFO John David Rainey reiterated that point when he said, “Each of the months of the second quarter were relatively consistent… Even in the first couple weeks of August here, things have been remarkably consistent.”
Turning to retail stocks in general, it’s been a rangebound summer for the sector. The chart below shows the performance of the SPDR S&P Retail ETF (XRT) which tracks the performance of retailers on an equal-weighted basis. After a strong rally of over 30% off last fall’s lows, the ETT stalled out just under $80 before the broader market corrected in the spring. Since then, XRT has made four additional attempts at breaking through the $80 level but has been stymied each time. TGT’s rally this morning will provide a boost to the sector, but it’s going to take more than that to get it over the hump.
On a longer-term basis, that $80 level in XRT represents an important level, and if and when it can finally break through that resistance, a run to the post-COVID stimulus-fueled highs would be the next level to watch for.
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The Closer – Canadian CPI, Payrolls Benchmark, Labor Survey – 8/20/24
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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 into Canadian CPI and other inflation readings around the globe (page 1). We then recap the latest Fedspeak and earnings (page 2). We follow up with the latest labor data in the form of the annual payrolls benchmark (page 3) and the New York Fed’s Labor Market Survey (page 4).
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Daily Sector Snapshot — 8/20/24
Bespoke Stock Scores — 8/20/24
Chart of the Day – 8/20/24 – Swinger
Country Small-Cap ETFs
Small-caps in the US have been extreme laggards compared to large-caps over the last couple of years, but what about small-caps in other countries? Below is a look at the price change (%) of seven small-cap country ETFs since February 2012 (the first point in which all seven were available).
The Russell 2,000 small-cap US ETF (IWM) is up 159.9% over these 12+ years, and only India small-caps (SMIN) have done better with a gain of 222.8%. India small-caps only recently took the lead on the US with a big jump higher over the last 18 months or so.
Small-caps in other countries have been poor options for US investors relative to owning something like the S&P 500 ETF (SPY). The Europe small-cap (IEUS) and Japan small-cap (SCJ) ETFs are up 68.2% and 63.9%, respectively, since February 2012, while the UK small-cap ETF (EWUS) is up 38.8%.
Small-cap ETFs for China (ECNS) and Brazil (EWZS) are flat-out negative over this extended 12+ year time frame with China down 41% and Brazil down 50%.
If you’ve been lamenting the lagging performance of US small-caps, it could have been worse!
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Bespoke’s Morning Lineup – 8/20/24 – 1,2,3,4,5,6,7,8…
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“Capitalism does live by crises and booms, just as a human being lives by inhaling and exhaling.” – Leon Trotsky
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
There’s no data on the economic calendar today, and there wasn’t a lot in the way of earnings reports overnight or this morning, and that has resulted in a relatively quiet (but slightly positive) tone in equity futures. Likewise, crude oil and treasury yields have seen little movement. The most exciting area of financial markets this morning could be in the gold and crypto markets where bullion is well over $2,500 per ounce and bitcoin is trading back above $60K.
Overnight in Asia, equity indices were all over the place with Japan up nearly 2% and China down about 1%. In China, the PBoC left 1 and 5-year prime rates unchanged. European stocks have seen little movement as the STOXX 600 is little changed as July CPI came in unchanged on a m/m basis which was right in line with forecasts. On the interest rate picture, ECB member Olli Rehn was on the wires saying that risks to the growth outlook have raised the odds of a rate cut in September.
Both the S&P 500 and Nasdaq composite have finished the day higher for eight straight days now, and if the current level of the futures holds, the streak for both indices will extend to a 9th straight day today. Since its inception in 1971, the Nasdaq composite has now had 89 different streaks of eight or more daily gains in a row which works out to about three streaks every two years. For the S&P 500, these streaks have been much less common with just 30 since 1971 or about one every two years. Concurrent streaks of eight or more days in a row have been even less common with just 15 since 1971, or about one every four years.
The charts of the S&P 500 and the Nasdaq below (both on a log scale) show where every concurrent streak of eight or more days of gains occurred, and while the average works out to about one every four years, they haven’t been evenly distributed. The current streak is the second in less than a year and the third in less than three years. Before that, the prior two were about four years apart (2017 and then 2013), but before the 2013 streak, there were more than 21 years without a single occurrence and that included the late 1990s dot-com bubble- a period that people look back on as thinking the market did nothing but go up! In last night’s Closer report, we included an analysis of the performance of both indices following those prior streaks, and performance was mixed with forward returns that were generally weaker than the average forward returns for all periods since 1971.
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