Chart of the Day – Direction Changes, Decile Dynamics Don’t
Fixed Income Weekly — 4/3/24
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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Bespoke’s Morning Lineup – 4/3/24 – And Then There Were Six
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.
“Don’t fight the problem, decide it.” – George C. Marshall
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Before getting to this morning’s note, we wanted to alert subscribers to our latest B.I.G. Tips report highlighting some of the more interesting charts of companies that have reported earnings Triple Plays so far this year. In our experience, we have found that earnings triple-plays have been a great starting point to find potential new ideas.
Stock futures are modestly lower this morning which would set the market up for its third straight day of declines. The just released ADP Payrolls report for March came in higher than expected (184K vs 150K), and futures experienced a modest bounce in the initial reaction. Still on deck, we have the S&P and ISM PMI indices for the Services sector, and both are expected to show a modest uptick relative to February.
After the close last Wednesday, the S&P 500 and all eleven sector ETFs were trading at overbought levels. The S&P 500 was at a record high, and the long-awaited broadening appeared to be playing out. Except for Real Estate, every sector was up YTD. Besides that, not only was every sector back above their respective 50-day moving averages, but they were also all trading at overbought levels (one or more standard deviation above their 50-day moving averages).
Three trading days later, we’ve seen some deterioration in the market. The S&P 500 still closed at overbought levels yesterday, but nearly half of all sectors have moved out of that range, including Real Estate, which is back below its 50-day moving average, and Health Care, which is barely hanging on to that level. For both sectors, the selloffs have had specific catalysts. In Health Care, it was Monday’s announcement from the Centers for Medicare and Medicaid Services (CMS) that 2025 payment rates for Medicare Advantage plans would effectively be equal to a 0.16% decline relative to this year. The decline in Real Estate stems from concerns over “higher for longer” interest rates threatening the ability of property owners to refinance loans at feasible rates. Just this morning, the FT reported that 2023 cash flows at a $60 bln property fund operated by Blackstone (BX) weren’t enough to cover its annual dividend payments.
To be sure, the declines of the last two trading days are peanuts in the grand scheme of things. The S&P 500 is down less than 1% from its record closing high last Thursday, and most sectors are still overbought. In a bull market, these are exactly the types of rotational moves you would expect to see, and even more short-term weakness in the low to mid-single-digit percentage range shouldn’t be a surprise. The timing is also good. The last thing you would want to see heading into earnings season is a market trading at overbought or extreme overbought levels and setting the bar unrealistically high.
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B.I.G. Tips – Triple Play Charts
The Closer – Mester Musings, Tesla Whiffs, Rivian Recovers – 4/2/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a recap of today’s musings by Cleveland Fed President Mester (page 1). We then dive into the latest EV delivery and production numbers from the likes of Tesla (TSLA) and Rivian (RIVN) as well as provide a valuation comparison of various auto OEMs (pages 1 and 2). Next, we review the latest JOLTS data (page 3). We finish with a look into the latest supply chain figures (page 4).
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Daily Sector Snapshot — 4/2/24
Bespoke Stock Scores — 4/2/24
“A Big F-ing Deal”
After Monday night’s announcement from the Centers for Medicare and Medicaid Services (CMS) that 2025 payment rates for Medicare Advantage plans would effectively be equal to a 0.16% decline relative to this year, managed care stocks plummeted in after hours trading and into the trading session on Tuesday. By the time the closing bell rang on Tuesday, the S&P 500 Managed Care sub-industry fell more than 6.5% compared to the S&P 500’s decline of less than 1%. On a relative basis, managed care stocks underperformed the S&P 500 by 5.6 percentage points for the day. As shown in the chart below, today’s underperformance of the industry relative to the S&P 500 was one of the largest since the Affordable Care Act was signed into law on 3/23/10.
Tuesday’s weakness in managed care stocks is hardly the beginning of a new trend. Since hitting a peak in late October 2022, just as the broader bull market was getting started, the managed care industry has been moving in the opposite direction. Just this year, as the S&P 500 has essentially closed at 52-week highs multiple times per week, the managed care industry is right near 52-week lows.
We can’t think of a better way to illustrate the inverse correlation of managed care stocks relative to the S&P 500 over the last 18 months or so than the chart below. While it has been 370 trading days since the S&P 500’s bear market low in October 2022, the managed care sub-industry has gone 355 trading days without trading at a 52-week high, which is the longest such streak since the ACA was signed into law. As then Vice President Biden “whispered” to President Obama at the time, “This is a big F____ing deal.”
Streaks of the S&P 500
In last Thursday’s Closer, we spotlighted how the S&P 500 has consistently traded at overbought levels this year. Through early afternoon on Tuesday, the S&P 500 was on pace for its 52nd straight trading day of closing at least a full standard deviation above its 50-DMA which ranks as the longest streak since April 1998 (60 trading days).
Not only has the S&P 500 been extended versus its 50-DMA, but it has also traded overbought relative to its 200-DMA. Through early afternoon Tuesday (4/2), the index was also on pace for its 95th straight day of closing more than a standard deviation above its 200-DMA. Interestingly, compared to the 50-DMA streak the current streak of overbought closes versus the 200-DMA stands out much less. Since 1928, there have been 34 streaks of at least 95 days with three of the longest lasting for over a year (1955, 1959, and 1996).
That is not to say the current run of longer-term overbought readings is unremarkable. For much of that current streak, the S&P 500 has been extremely overbought (at least 2 standard deviations above its 200-DMA). Yesterday’s close marked the 41st day in a row with a 200-DMA extreme overbought reading. That is the longest such streak since early 2018, and before that, there were only eight other similarly long or longer runs. That being said, the S&P 500 decline of more than 1% in early afternoon trading today puts the index on pace to close 1.9 standard deviations above its 200-DMA, ending the current streak.
The S&P 500 being consistently overbought is not the only notable current streak. As shown below, we are also nearing 100 days in a row in which the S&P 500 has been higher month-over-month (21-trading day rate of change). At 97 trading days, this streak of month-over-month gains ranks as the ninth longest on record after surpassing a 96 trading day streak that ended on September 5th, 1980.
