Chart of the Day: Retail Investors Back Down and S&P 500 Flies
B.I.G. Tips – Trading Tomorrow
Bespoke’s Morning Lineup – Weak ADP, Strong Russell 2000
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“It is not heroes that make history, but history that makes heroes.” – Joseph Stalin
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Futures have caught a bid this morning following overnight strength in Asia and also in Europe this morning. The just-released ADP report didn’t do anything to alter that positive mood either, as the headline report came in modestly weaker than expected (103K vs 128K). Non-farm productivity and Unit Labor Costs are just hitting the tape as we type this. It looks like Productivity was higher than expected (5.2% vs 4.9% estimate) and the best since Q3 2020 while Unit Labor Costs fell more than expected (-1.2 vs -0.9%).
Outside of equities, mortgage applications were up for the fifth week in a row, gold is slightly higher, crude oil is slightly lower, bitcoin is above $44K, and Treasury yields have a positive bias with the largest moves at the shorter end of the curve.
After a two-day rally north of 4%, the Russell 2000 gave back about 1.4% on Tuesday but still managed to close above both its 50 and 200-day moving averages for the third day in a row – something we haven’t been able to say since early August.
Whenever a major equity index trades at ‘extreme’ overbought or oversold levels (two or more standard deviations above or below the 50-DMA), it tends to be a sign of overwhelming bullishness or bearishness in the market. These types of readings are mutually exclusive and rarely occur close to each other. The last six weeks for the Russell 2000 have been an exception to that norm. As shown in the trading range chart below, after closing at extreme oversold levels on 10/27, the Russell surged over the next five weeks and closed at extreme overbought levels last Friday (12/1). With just 24 trading days separating the most recent extreme oversold reading from the first extreme overbought reading, it was the quickest that the Russell shifted between the two ranges since June 2021.
In the Russell 2000’s history since 1978, there have only been 16 other times that it went from the oversold extreme to the overbought extreme in 30 trading days or less, and in today’s full post for subscribers, we provided an analysis of the index’s performance following these prior periods. Sign up for a two-week trial to Bespoke Premium to view the full report.
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The Closer – High Yield Rally, JOLTS, LMI – 12/5/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at the rally in high yield bonds and the new record high for German stocks (page 1). We then dive into the latest JOLTS data (pages 2 and 3) in addition to the latest supply chain data (page 4). We finish with a look into farmer sentiment (page 5).
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Daily Sector Snapshot — 12/5/23
Sideways
The S&P 500 Equalweight index, which gives each stock in the index an equal 0.2% weighting, is currently trading at the same level it was at back in April 2021. Investors used to getting the standard 8-10% per year in the US stock market have gotten far less than that over the last two and a half years.
Below is a five-year price chart of the S&P 500 Equalweight index showing the sideways range it has been in for the last few years.
The spread between the S&P 500 Equalweight’s highest and lowest closing price over the last three years currently stands at 31%. As shown below, 31% is an extremely low 3-year high/low range; well below the average of 75.5% seen across all rolling 3-year periods going back to 1992. The tight spread now, though, comes after a period in which the high/low range had gotten well above its historical average. And the pendulum continues to swing…
Gamers Now Play the Waiting Game
Take-Two Interactive’s (TTWO) subsidiary, video game publisher Rockstar Games, has created some buzz in the past 24 hours. Originally scheduled for this morning, the company released the first trailer for the next installment of their popular Grand Theft Auto (GTA) series early last night after the video was leaked on X (formerly Twitter). The game will be set for a 2025 release and will be titled Grand Theft Auto 6 (GTA VI). The trailer has already broken the record for the most views of a YouTube video in under 24 hours (as of this writing it 77.3 million), and mind you, it hasn’t even been a full 24 hours since the video was put up.
There is a lot of interest in GTA VI, especially seeing as the previous installment from over a decade ago ranks as the second best-selling video game of all time; grossing over a billion dollars in sales in the first three days of its release. Additionally, the upcoming game follows the publisher’s last major title release, Red Dead Redemption 2, in 2018 which has earned the rank of the eighth best-selling game of all time. Despite any excitement from gamers, investors have been less receptive to TTWO’s trailer as the stock is trading down 1.7% today. Below we show the performance of the stock surrounding other debuts of Rockstar Games’ trailers and title releases going back to GTA: San Andreas in 2004 (this was the earliest example of a debut trailer for a game that we could find).
The GTA VI trailer targeted a 2025 release date for the game, which follows the formula of other recent releases with a roughly two-year lag time between a trailer and a game’s debut. As shown, performance in the year following a trailer debut has been somewhat mixed, but TTWO has often traded higher between a Rockstar game’s first trailer and when the game was released. So with the trailer out, investors and gamers alike will now be playing the waiting game until 2025.
