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“It usually takes me two or three days to prepare an impromptu speech.” – Mark Twain

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Lower-than-expected inflation data in Europe has stocks around the world in rally mode this morning.  Stocks on the other side of the Atlantic are trading higher across the board with the STOXX 600 up 0.5% and just about every country in the region trading higher by about the same amount. Besides the weaker inflation data, employment data out of Germany showed a slightly higher-than-expected level of joblessness.

Here in the US, futures are also higher following positive earnings results from Salesforce (CRM).  Looking at the economic calendar, it’s a busy day with jobless claims, Personal Income and Spending, and Core PCE just coming out at 8:30 Eastern.  Initial jobless claims were right in line with expectations, but continuing claims were significantly higher than expected.  Personal Income and Spending both rose 0.2% which was right in line with forecasts while Core PCE was right inline with expectations.  The only other reports left for today are Chicago PMI at 9:45 and Pending Home Sales at 10 AM.

Small-cap stocks outperformed the S&P 500 and other major US averages yesterday, but by the end of the session, investors long waiting for the rally to take hold, left the table with their stomachs still growling.  While other major averages have all managed to reclaim both their 50 and 200-day moving averages, the Russell 2000 remains sandwiched between the two above the
50-DMA and below the 200-DMA.

The most frustrating aspect of the last two weeks, though, is that on two separate occasions, the Russell 2000 traded sharply higher early in the session and in the process, broke above its 200-DMA.  Both times, though, they sold off more than 1% from their intraday high ending the session back below the 200-DMA. Maybe the third time will be the charm, but for now, there isn’t a US index that has been more frustrating to investors than the Russell 2000. At some point, small caps will break out, and pundits will be out telling everyone that the ‘easy’ money has already been made. But when you hear that, remember that like an impromptu speech by Mark Twain, or anything that looks easy at the surface, a lot of work behind the scenes usually goes into it.

At this point, maybe we’re just delirious, but are those two intraday spikes and subsequent pullbacks starting to look a little like the horns from the old Merrill Lynch bull?

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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.

“Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation,” – Warren Buffett

Below is some introductory commentary of today’s Morning Lineup.  Start a two-week trial to Bespoke Premium to get full access.  

Futures are firmly higher this morning with the S&P 500 indicated to open higher by 50 basis points (bps) as treasury yields continue to decline.  It was barely more than a month ago that the yield on the 10-year peaked above 5%, but this morning it’s back below 4.30%. The catalyst for this morning’s rally appears to be positive inflation data out of Europe which has continued the optimism following some dovish Fedspeak yesterday. Economic data this morning has been generally positive as GDP was revised higher and Core PCE was lower than expected.

Whenever a company announces the death of a high-level executive within the organization, the statement always includes some form of boilerplate about how “so and so” was an integral part of the organization, and it wouldn’t be the same without them.  In yesterday’s statement from Berkshire Hathaway announcing the death of Charlie Munger, Buffett’s statement that “Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation,” may have sounded a lot like those typical platitudes, but in this case it couldn’t have been truer.

In 31 of the 46 years that Munger was at the company, Berkshire Hathaway outperformed the S&P 500. More importantly, though, in the fifteen years that Berkshire underperformed the S&P 500, the average underperformance was 13.2 percentage points whereas in the 31 years that Berkshire outperformed the S&P 500, the average margin of outperformance was 20.9 percentage points.  So, not only did Berkshire outperform the S&P 500 more than twice as often as it underperformed, but when it did outperform, the gap was much wider than when it underperformed.  The chart below compares the growth of $100 invested in Berkshire Hathaway when Charlie Munger officially joined the firm in 1978 to the growth of $100 invested in the S&P 500 on a total return basis. While $100 invested in the S&P 500 in 1978 is worth $16,527 today, that same $100 invested in Berkshire Hathaway is worth nearly $400,000 today! Not bad for two guys who started out in an Omaha grocery store.

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