Daily Sector Snapshot — 5/14/24
Bespoke Best of Breed Basket Update — May 2024
Small Businesses Sit Out Growth
Earlier in the day on 5/14, the NFIB published the results of its latest survey of Small Business Optimism. While economists expected a modest decline, the index rebounded from 88.5 in March to 89.7 in April. As shown below, albeit higher month over month, current levels of small business optimism remain historically depressed, even lower than at the height of COVID.
While the optimism index sits in the bottom decile of historical readings, the 1.2 point month-over-month jump ranks in the top quartile of monthly moves, and it was on account of a wide number of categories. In fact, the only categories not rising were expectations for the economy to improve, expected credit conditions, and expansion outlook. As we discussed in today’s Morning Lineup, the six different labor market series in aggregate rebounded following a large drop in March.
As previously mentioned, one of the few areas to decline month-over-month was expectations for the economy to improve. The drop was small at just 1 point, and as shown below, the reading is still progressing in the right direction over the past two years. However, the progress has been painfully slow as the reading remains below anything observed before the past few years. In addition to the weak economic outlook, only 4% of businesses consider now a good time to expand. That was unchanged versus March, and current levels are consistent with the past two recessions and lower than the two before that!
The NFIB provides greater detail into why small businesses are reporting optimism or lack thereof. As shown below, economic conditions are overwhelmingly blamed for the negative expansion outlook. Headed into the final six months before the election, another 11% point the finger at the political climate. Next up, with each at 7% of total responses, are interest rates and the cost of expansion.
Below we plot those reasons for negative expansion outlooks over the past decade. Although it remains the biggest problem, the percentage of respondents reporting a poor economy as a reason for not growing their businesses has come down significantly over the past couple of years. Similarly, interest rates are not as big of an issue as it was only a few months ago. However, as another negative on the inflation front, cost of expansion is back to swinging higher. At 7% in April, the reading matches previous highs of the past decade.
Chart of the Day – Improved Sentiment in Europe
Bespoke’s Morning Lineup – 5/14/24 – Here Come the Inflation Reports
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.
“He can’t have his own way, so he’s causing chaos” – John Lennon
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 little change in futures this morning ahead of the April release of PPI, and the only action seems to be in the meme stocks where the rally in GameStop (GME) from an X post of a guy sitting in a chair has that stock up more than 100% on the week. The results of April’s PPI showed a hotter-than-expected m/m reading with the headline reading rising 0.5% versus forecasts for a 0.3% increase, while the core reading also increased 0.5% compared to estimates for a 0.2% increase. That’s the bad news. On a y/y basis, though, the readings were much closer to expectations as March’s report was revised down to negative 0.1% on both a headline and core basis. The initial reaction from the market was for equities and bonds to both sell-off, but when you consider the revisions, the report was right around expectations.
Just when you think you have it all figured out, life has a way of changing. A lead story in the Wall Street Journal highlighted how Walmart (WMT) is laying off hundreds of employees in its corporate unit and asking staff in remote jobs and small offices throughout the country to relocate to larger central hubs. If we didn’t all live through and experience it we wouldn’t believe it, but less than four years ago the centralized hub approach to work seemed like a bygone relic of the pre-Covid world and companies couldn’t find enough workers to fill open roles. In June 2020, a story in Forbes titled “The Remote Office Is The New Normal” summed up the zeitgeist of the time. Some companies were even encouraging their employees to move wherever they wanted. That became awkward when the same companies ordered those workers back to California or Seattle (or wherever the corporate headquarters was). When times are good and the money’s flowing, the boss doesn’t care where you work, but when things start slowing down, that’s when it starts to get real.
We’ve all heard about complacency lately; investors are too bullish on the market and banking on a soft landing in the economy. Both those outcomes certainly aren’t out of the question, but don’t tell that to the 1,300 households comprising April’s Survey of Consumer Expectations (SCE) from the New York Fed released yesterday. We covered the report in more detail in yesterday’s Closer, but three charts are worth highlighting.
First, the stock market. Just 38.7% of those surveyed expect the stock market to be higher a year from now. That’s more than one percentage point below the survey’s historical average dating back to June 2013.
Sentiment towards the economy was even worse. Just over half of those surveyed said they could find a new job within three months if they lost their job. That reading hasn’t been this low since April 2021, and before Covid, you have to go back to 2014 to find a comparable reading.
While unemployment remains near historically low levels, consumers aren’t particularly confident regarding their finances. Just under 13% reported that they could not make the minimum payment required to keep current on their debts. It’s just one survey, but the results from this month’s SCE from the New York Fed didn’t show complacency towards the market or a ‘booming’ economy.
Read today’s entire Morning Lineup.
For 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.
The Closer – Rallies on a Tight Fed – 5/13/24
Log-in here if you’re a member with access to the Closer.
Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at how the market performs based on two different measures of Fed tightness (pages 1 and 2). We then dive into today’s Survey of Consumer Expectations by the New York Fed (pages 3 and 4). We finish with a look at the latest positioning data (pages 5 – 8).
See today’s full post-market Closer and everything else Bespoke publishes by starting a 14-day trial to Bespoke Institutional today!
Daily Sector Snapshot — 5/13/24
Shorts Surge
Thanks to a single tweet marking the return of the poster child of 2021’s meme stock mania, shares of GameStop (GME) are back in the news thanks to a soaring share price. As shown below, the stock that was at the center of the 2021 short squeeze is once again flying with gains of well over 70% in today’s session.
As always, one day does not make a trend. Although the massive rally in GME today is impressive, overall, highly shorted stocks have not done much since their heyday from a few years back. Below we show an index comprised of the 100 most highly shorted Russell 3,000 members, rebalanced monthly over the past five years. As shown, while there have been a couple of higher lows in the past six months, the index has been rangebound at best over the past two years. Perhaps more importantly, current levels are still well below those from 2021.
Moving back to the present, today’s outperformance of the most highly shorted names is remarkable. Below we break down the Russell 1,000 into deciles based on their levels of short interest. Decile 1 represents the 100 stocks with the least short interest while decile 10 is made up of the stocks with the most heavily shorted names.
As shown, whereas the average Russell 1,000 stock is up 31 bps today, the average gain of the 100 most shorted members is 3.5%. Of course, that includes GameStop (GME), but even when that one name is removed the average gain is still an impressive 2.75%. Moving down the line, performance gets much less impressive. As shown, stocks in deciles 1 through 6 are all averaging declines today while deciles 7, 8, and 9 are averaging modest gains. The surge in GME, though, has caused traders to pile into other heavily shorted names in hopes of additional squeezes.
Late last week, the latest short-interest data was published with readings through the end of April. Below we show the Russell 1,000 members with the highest levels of short interest per that data. Medical Properties (MPW), Petco (WOOF), and Kohl’s (KSS) top the list as each one has more than a third of its float sold short. Each of those are rallying hard today, but only MPW is up on the year. Moving further down the list, there are multiple clean energy-related names—Lucid (LCID), ChargePoint (CHPT), Plug Power (PLUG), and Sunrun (RUN)—falling in the top ten most heavily shorted names. Right behind those names is, of course, GameStop (GME). Worth noting is that after today’ gain, GME joins MPW and only a handful of others on this list that have year-to-date gains.
Chart of the Day: Playing Offense with Defense
Bespoke’s Morning Lineup – 5/13/24 Meow!
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.
“When stocks are rising for no better reason than that they have risen, the greater fool is at work.” – Seth Klarman
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Stock futures are higher to kick off the week as the S&P 500 looks to build on the last three weeks of gains and fully erase the declines of April. There will be a lot of news and events investors and traders will have to contend with this week, but so far, the pace of news has been slow. Where things aren’t slow is in GameStop (GME). The stock has rallied sharply, but this morning, it is trading up about 40% on headlines that – wait for it – “‘Roaring Kitty’ returns from three-year hiatus!” That’s right, “Roaring Kitty” returning to X for the first time in a long time with a sketch of someone leaning forward in a chair, is enough to push a stock up 40%!
Last week was another strong one for US stocks, but they took a backseat to Europe. As shown in our snapshot below, the S&P 500 tracking ETF (SPY) rallied a respectable 1.87%, but European equities took the pole position and rallied over 3%. While stocks on both sides of the Atlantic gained, performance in Asia and Emerging Markets was more subdued, and, in some cases, certain areas of those regions were even lower on the week.
Not only did Europe outperform the US last week, but the STOXX 600 managed to break out to a record high and fully roundtrip the declines of April.
The S&P 500 remains just shy of its March highs, and with a busy week of inflation data on tap, everything is going to have to go right in order for to follow Europe to new highs.
While the new high in European stocks is tempting, we’d note that on a relative strength basis, Europe still has more to prove than the US. The chart below shows the relative strength of the STOXX 600 versus the S&P 500, and during that time Europe has underperformed the US (as has been the case for well over ten years now). More recently, European stocks have shown slight signs of life after several months of sideways performance versus the S&P 500. While encouraging, less than a year ago we saw a similar pattern playout only to see European stocks pass the baton back to the US. That doesn’t mean Europe is doomed to the same fate again, but it still has more to prove.
Read today’s entire Morning Lineup.
For 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.