Daily Sector Snapshot — 12/27/24
Bespoke’s Morning Lineup – 12/27/24 – Down the Hatch
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“A bottle of wine contains more philosophy than all the books in the world.” – Louis Pasteur
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Global equities are celebrating the last Friday of 2024 with broad-based gains after US stocks opened lower yesterday but finished around the unchanged level. In Asia, Japanese stocks rallied on reports that the BoJ was willing to be patient regarding its next rate hike. The only decliner in the region was South Korea which declined over 1% as political uncertainty continues. In Europe, stocks were closed for trading yesterday in observance of Boxing Day, and with just one day of trading before the weekend, activity is light. That hasn’t kept stocks in the region from rallying, though, and the STOXX 600 is trading nearly 0.5% higher.
The picture in the US isn’t as optimistic this morning as futures on the S&P 500, Nasdaq, and Dow are all down 0.30%. Treasury yields are higher again as the yield on the 10-year US Treasury tops 4.6%. The high for the year was just above 4.7% back in April, and if we reach that level in the days ahead, it could become problematic for stocks. Thankfully, oil prices have remained contained right near $70 per barrel while gold holds steady near $2,650 per ounce. Finally, Bitcoin has had a massive rally since the election, but for the last month now, it has moved sideways. At today’s level of around $96,700, Bitcoin is the same level now as it was on November 20th.
If a bottle of wine is full of philosophy, Americans have consumed increasingly less wisdom. Alcohol sales surged during Covid but pulled back as the economy reopened and people had to start working again. As if that wasn’t bad enough for sales, several other headwinds have lined up against the sector ranging from the growing popularity, legalization, and acceptance of cannabis, a renewed focus on health and wellness, declining popularity among younger generations, lack of affordability due to inflation, etc. Remember when it seemed like a different celebrity launched their own ‘artisanal’ tequila brand every week? You don’t hear those stories much anymore.
Given the issues facing the industry, it shouldn’t come as a surprise that companies selling booze have had a terrible year. Their weakness stands out even more relative to the overall market. As the S&P 500 closes out the year right near record highs with a YTD gain of over 25%, all six of the major public companies involved primarily in the sale of alcoholic beverages are down YTD, and three of them are right at or near 52-week lows.
Wine and other alcoholic beverages have been around for thousands of years. While recent quarters have seen sluggish sales, it’s unlikely that this will lead to the demise of the alcohol industry anytime soon. However, the factors contributing to these sales declines, don’t show any signs of ending soon. This raises the question: if Al Capone were alive today, would he even find the alcohol business as profitable as it was during Prohibition?
The Closer – Claims, CMBS and CRE, 7y Auction – 12/26/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we lead off with a note on continuing claims relationship to the unemployment rate (page 1) followed by a dive into CMBS and office CRE (page 2). We then finish with a recap of Tuesday’s 5-year note auction and today’s 7-year note auction (page 3).
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Bespoke’s Weekly Sector Snapshot — 12/26/24
Are Continuing Claims a Concern?
With the holidays, today’s economic data slate was light with only jobless claims on the calendar. For initial claims, this week’s reading came in at 219K. That was down 1K from an unrevised reading of 220K the previous week and was a surprise decline versus the forecasted print of 223K. Seasonally adjusted weekly claims have been on the decline in the past few months, but that only returns to levels right in the middle of the past couple of years’ range.
Before seasonal adjustment, initial claims totaled 274.7K. That’s not much different from what has been observed in recent years for this time as it basically unchanged year over year, slightly above 2021 and 2022 levels, and slightly below pre-pandemic levels from 2018 and 2019. As shown in the second chart below, the end of the year has typically seen claims rise before peaking shortly into the new year. Given claims have largely followed standard seasonal patterns, there’s still a couple of weeks to go in which claims will likely continue to rise until what can be expected to be the seasonal and annual high.
With initial claims simply following seasonal patterns and not rising or falling in any notable or concerning way, continuing claims are a bit different. After seasonal adjustment, continuing claims jumped to 1.91 million. In the grand scheme of things, that is still relatively low and ranks in the bottom quintile of the historical range. That being said, the most recent reading narrowly surpassed the highs from November marking the first reading above 1.9 million since November 2021.
In the charts below, we again show the chart of seasonally adjusted continuing claims in addition to its six-month rate of change, but with a red dot for each time when the level of claims came in at a 3+ year high. As shown, claims are at an interesting crossroads. On the one hand, similar instances of a multi-year high in continuing claims have only been observed in or immediately surrounding recessions. On the other hand, the current level of claims is much lower than other recessionary periods and other three-year highs in recent decades. Additionally, the uptick in claims over the past six months is the smallest of any of these prior instances of a three-year high in claims.
Chart of the Day: Worst Performers
Bespoke’s Morning Lineup – 12/26/24 – Holiday Hangover
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.
“We’re developing a new citizenry. One that will be very selective about cereals and automobiles, but won’t be able to think.” – Rod Serling
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 bulls may have enjoyed a little too much eggnog yesterday. US equity futures are firmly lower across the board indicating declines of 0.3%. Treasury yields, gold, and crude oil are all fractionally higher while Bitcoin is under the most selling pressure with a decline of 4% as its attempt to bounce back above $100 fails for now.
The only economic report on the calendar this morning was jobless claims. Initial claims came in modestly lower than expected, but continuing claims were higher than expected and bounced back above 1.9 million.
As we noted on Tuesday, the S&P 500’s 1.10% gain was the best Christmas Eve performance for the index since 1974. The Nasdaq’s 1.35% rally was the second-best gain on the last trading day before Christmas and the third time it rallied more than 1%. As shown in the table below, in 2000 the Nasdaq rallied over 7% on the last trading day before Christmas. However, that came well after the dot-com peak when the index was in a stupid phase of volatility that the drawn-out election results only exacerbated. The only other year the Nasdaq gained more than 1% on the last trading day before Christmas was in 1991. Overall, there have been nine years that the Nasdaq rallied more than 0.75% on the last trading day before Christmas. In those years, the median rest-of-year gain from Christmas through year-end was 1.6% with positive returns five out of eight times.
Daily Sector Snapshot — 12/24/24
Market Cap and Equal Weights By Sectors
Call it a Santa Claus rally, but breadth and price action have improved in the past few days following an extremely weak stint in breadth to start the month. At multiple points last week, we discussed the horrible breadth that kicked off this month which was evident through a record streak of declines in the equal weight S&P 500 (RSP). Of course, when looking at the market cap version of the index (SPY), declines were actually not too severe. As discussed in today’s Morning Lineup, whereas equal weight indices have broken uptrends, market cap versions of the S&P 500 and Nasdaq, bolstered by stronger performance in mega caps, still have intact uptrends.
Taking a look at sectors, as shown in the table below, whereas the market cap S&P 500 (SPY) has gained over 85% in the past five years, the equal weight version (RSP) has underperformed by more than 30 percentage points with a smaller gain of 52.7%. There are six of eleven sectors that have similarly seen their market cap weighted versions outperform the equal weight with the largest gap being the Tech sector. The best performer for both market cap and equal weight ETFs is Tech, with the market cap weighted Tech sector (XLK) up 160% in the past five years compared to a still great but much smaller 93% gain in the equal weight sector ETF (RSPT). Conversely, Energy, Industrials, Materials, Real Estate, and Utilities have all seen equal weight outperformance. Of those groups, Industrials have the largest performance gap between the two methodologies with the market cap ETF (XLI) underperforming the equal weight ETF (RSPN) by almost 24 percentage points.
In the charts below we show the long-term performance of the S&P 500 and its sector ETFs on market cap weighted and equal weight methodologies. While there are various sized gaps in performance between market cap and equal weight sectors, we would highlight that there are some sectors with notable divergences when looking at the chart. Since early 2023, Communication Services has seen the market cap version (XLC) take off whereas the equal weight (RSPC) has yet to even surpass mid-2021 highs. Consumer Discretionary is a similar story with a big ramp higher in the market cap (XLY) version especially in the past few months. Consumer Staples is the other sector with one of the most significant divergences as the equal weight ETF (RSPS) has actually been seeing lower lows and lower highs whereas the market cap weighted ETF (XLP) is in an uptrend (albeit roll ling over again in the past few months).
