The Closer – Loose Bolts – 1/23/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with some commentary on headwinds for airline businesses (page 1) followed by a dive into industrials, Netflix (NFLX), and Siemens earnings (pages 2 and 3). We then look into union membership (page 4). We finish with a recap of today’s 2 year note auction (page 5) and the latest Treasury allotment data (page 6).
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Daily Sector Snapshot — 1/23/24
Bespoke Stock Scores — 1/23/24
S&P 500 Percent of Time at New Highs
The S&P 500 is flat on the session today as of this writing, but that doesn’t take away from the fact that it has traded at record highs in each of the past three sessions. As shown below, the S&P 500 has seen several significant drawdowns in its history, but it has always eventually recovered, and it has traded at or within 1% of an all-time high just as often as it has been down 20%.
Below we break down the percentage of time the S&P 500 has traded within various ranges of an all-time high (ATH) since 1952 when the five-day trading week began. This week joins the 7% of days that have seen the S&P 500 hitting record highs. That is the third largest share behind the 12% of days in which the index has been within 1% of a record high and the 8.5% of days when it is 1% to 2% below a record close. Expanding out a bit more, the S&P 500 has spent 44% of trading days since 1952 within 5% of an ATH compared to just 40.5% of the time when the index has been down 10% or more from an ATH.
Chart of the Day – Not a Lot of Positive Energy for the Energy Sector
Bespoke’s Morning Lineup – 1/23/24 – How ‘Bout That Dow?
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“The more they actually know, the less confident they become.” – Charles Dow
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
It’s been a very quiet morning in the futures market as the Dow is indicated to open higher by less than 20 points while the S&P 500 is expected to gain less than three points. The Nasdaq is looking stronger, as it has all year, and is currently looking at a gain of 45 points. Europe has been just as quiet as things here in the US are as most major averages in the region are up or down less than five basis points (bps). The economic calendar is quiet again this morning as the Richmond Fed Manufacturing survey is the only report on the calendar.
On the earnings front, the pace of reports has picked up this morning with several Dow components reporting (discussed in the commentary section of this morning’s report), and after the close, we’ll hear from Baker Hughes (BKR), Intuitive Surgical (ISRG), Netflix (NFLX), Steel Dynamics (STLD), and Texas Instruments (TXN).
Just 40 days after crossing 37,000 for the first time in the first half of December, the Dow Jones Industrial Average, “America’s stock market index” never looked back and crossed 38,000 yesterday for the first time. The path from 37,000 to 38,000 was certainly smoother than the run from 36,000 to 37,000 which took almost 20 times longer than the latest 1,000-point run. Even though the run from 36,000 to 37,000 was a move of less than 3%, it was the longest period between 1,000-point thresholds since the 2,119-day gap between 14,000 and 15,000 (a move of over 7%) and the sixth longest ever. Meanwhile, this latest 1,000-point move was the eighth fastest. Lastly, while it’s entirely possible and even likely that the DJIA will at some point pullback below 37,000, at this point the only other 1,000-point threshold that has never been crossed to the downside is Dow 5,000.
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The Closer – United & Crude, Apartments, Fed Forecasts – 1/22/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look into the earnings of United Airlines (UAL) and rise in crude prices (page 1). We then dive into a survey of apartment operators (page 2) before reviewing FOMC forecasts (page 3). We finish with a preview of this week’s Treasury auctions (page 4) and the latest positioning data (pages 5-8).
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Daily Sector Snapshot — 1/22/24
Chart of the Day: AI Stocks and ETFs
A Lot of Debate For 10 Basis Points
In what is a disparity you don’t see very often, just as the S&P 500 hit an all-time high (ATH) on Friday, the small-cap Russell 2000 remains mired in a bear market as it’s still more than 20% from its record high in late 2021.
For the Russell 2000, the magnitude of the index’s drawdown from its record high eclipsed 30% during this current bear market, which is a level it also eclipsed during the Covid crash and then several other times in the index’s history before that.
While the Russell 2000 lost as much as a third of its value during the most recent bear market, the S&P 500’s drawdown was less severe at around 25%. While the S&P 500 also fell over 30% during the Covid crash, declines of 30%+ from an ATH have been much less frequent which makes sense as you would expect more established companies to have less volatility.
The fact that the S&P 500 hit an ATH even as the Russell 2000 remains down over 20% from its record high has created what is an unusually large disparity between the gaps over where they’re currently trading relative to their ATHs. In the history of the two indices, there has never been another time where the S&P 500 was at an ATH while the Russell was still down at least 20%, and there is only one other period (October 1998) where more than 20 percentage points separated where the S&P 500 was trading relative to an ATH versus where the Russell 2000 was trading. The current period, where the gap widened to more than 20 percentage points (ppts), is extreme. When you pull a rubber band, you never know exactly when it’s going to snap, but you can always tell when it’s getting close enough that you don’t want to be pulling on it anymore.
What’s interesting to note about all the debate throughout the years concerning small versus large caps is that since the Russell 2000’s inception starting in 1979, its cumulative performance (not including dividends) has been a gain of 4,732%, which works out to 9.0% annualized. Over that same period, the S&P 500 has rallied 4,936%, which works out to 9.1% annualized. That’s a difference of just 10 basis points annualized.
Large caps currently have the long-term lead over small caps, but the lead has shifted at multiple points over time. In just the last year, for example, the lead on a cumulative basis has changed eleven times with the most recent change occurring less than three weeks ago.
