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“Tell me a musician who’s got rich off digital sales. Apple’s doing pretty good though, right?” – Prince

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

The recent market trend in non-farm payrolls reports has been positive. Over the last nine months, the headline report came in stronger than expected seven times, and the S&P 500 has been higher eight times on the day of the report. Even including the one day that the S&P 500 was down on a “Payrolls Friday”, its average change on the day of the report was a gain of 0.63%, and the Financial sector has been positive on the day of the report for nine straight months.

We’ve been discussing weak market breadth for a couple of weeks now, including yesterday’s Closer report where we compared the weakness in the cumulative advance/decline (A/D) line to the new high in the S&P 500. Another example is the fact that while yesterday was the only day this week that the S&P 500 was down (and barely at that), the S&P 500’s net A/D line has been negative in three of the last four trading days.

While weak breadth has become especially pronounced in recent days, the trend is not new.  Look at the chart below which shows the performance of the S&P 500 market cap-weighted index versus its equalweight counterpart over the last two years. While the S&P 500 has rallied 30.3%, the equalweight index is up by just a little more than a third of that (11.3%).

Below we show the rolling two-year performance spread between the two indices over time.  At the current level of 19 percentage points, the spread has reached its widest level in nearly 24 years (6/30/00) putting it in the 95th percentile relative to all other two-year periods since 1992.  The last time the spread was this wide, it came just ahead of what ended up being a period of massive long-term underperformance for the cap-weighted index. That being said, the period during which the cap-weighted index had outperformed leading up to that lasted for years.

To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.

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.

“You get your ass on the beach. I’ll be there waiting for you and I’ll tell you what to do. There ain’t anything in this plan that is going to go right.” – Col. Paul R. Goode, June 1944

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.

As expected by everyone, the ECB just cut rates by 25 bps in its latest policy decision. Still, within its statement, it made some hawkish comments noting that “domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year.”  The statement added, “The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim.”  In looking at their words versus actions, there’s the appearance of a wide disconnect, but actions always speak louder than words. We’ll be looking for more color in the 8:45 press conference.

Looking at the moves in financial markets over the last several minutes, you wouldn’t have even noticed there was a major policy decision from a major central bank. Equity futures have seen little reaction and remain modestly higher, while the dollar is little changed, and yields are modestly higher. In the US, Non-Farm Productivity came in higher than expected while Unit Labor Costs were a bit lower.  That’s all good news, but jobless claims did come in slightly higher than expected on both an initial and continuing basis.

Even accounting for last Thursday’s 0.6% decline, the last week of trading has seen stocks put in healthy gains as the S&P 500 rallied 1.7% and hit a record high yesterday. The rally has also been broad-based. As shown in the snapshot below, every sector except for Energy has notched gains, and surprisingly, Technology has not been the leader.  It’s basically the only other sector that isn’t up 1%.  Leading the way higher, Real Estate, Health Care, and Communication Services have rallied more than 2.5%. Five out of eleven sectors finished yesterday at overbought levels while seven are above their 50-day moving average, and only Energy is oversold.

The Energy sector has been in a steady and well-defined downtrend since its high in early April, and if the sector is going to see at least a short-term bounce, now would be the time as the sector closed yesterday right near the bottom end of that channel after bouncing right near its 200-DMA.

Not surprisingly, the Energy sector has been tracking the performance of crude oil which has also been weak. The sector broke its uptrend in early May, and after failing multiple times to get back above that uptrend line in the middle of the month, crude saw extreme weakness to close out the month. While the price decline has been bad for energy stocks, it has been great news for drivers. According to AAA, the national average price of a gallon of gas has dropped below $3.50 for the first time since March 18th and is down over 5% from its April high.

To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.