Bespoke’s Weekly Sector Snapshot — 9/5/24
WTI Into the $60s
Alongside equities, it’s been a rough week for crude oil. On catalysts of assumed weaker demand and supply news out of the Middle East, front month WTI futures are already down 5.56% month to date with the steepest declines occurring on Tuesday. As shown below, crude has been falling throughout the past year and these most recent declines have brought the price of black gold to the low end of its range. Whereas last fall it was in the mid-$90 range, this week it moved into the $60 range (today prices are rebounding back above $70). The only other times in the past year that WTI was below $70 was briefly back in December. As we noted in Monday’s Closer, although front month futures are hitting the low end of the past year’s range, those prices are actually at a premium compared to out-month futures as crude markets are currently in backwardation.
Expanding the timeframe out, below we show the price of crude over the past five years. Again, the most recent prior instance of WTI having a $60 handle was last December, and there have been a handful of other brief periods of price being as low. Since Q2 2021 as crude prices recovered from the pandemic, the high $60 range roughly has marked a notable level of support .
That decline in crude oil has resulted in lower gas prices. Seasonally, it is typical for prices at the pump to roll over during the summer months with declines accelerating in the fall. This year, however, prices have been falling since mid-spring. According to AAA, the national average for a gallon of gasoline yesterday was at $3.31, which is the lowest price since late February. That is the lowest price of gas on 9/4 since 2021 ($3.19).
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Mega-Cap AI Mentions Still Strong
The following charts were included in our daily Closer report on 9/4/24. You can receive our Closer in your inbox with a two-week trial to Bespoke Institutional.
The table below is our mega-cap “AI” mentions tracker, which counts the number of times “AI” gets mentioned on quarterly earnings conference calls by the six $1+ trillion Tech companies: Apple (AAPL), Amazon.com (AMZN), Meta Platforms (META), Microsoft (MSFT), Alphabet (GOOGL), and NVIDIA (NVDA).
NVDA was the last to report Q2 earnings, and while its highly-anticipated results triggered share price declines, AI mentions ticked up for the first time since Q3 2023 when it mentioned AI a whopping 154 times on its call. As shown, NVDA mentioned “AI” 115 times on its Q2 call compared to just 93 in Q1.
The 115 AI mentions from NVDA topped its peers in this list again, followed by META, which has really come on strong these last two quarters with a consistent 93 mentions. GOOGL wasn’t far behind at 90, but MSFT took a step back to 61 after Q1’s 78. AMZN improved modestly to 43 and AAPL brought up the rear with just 12 mentions despite more buzz around its AI plans and ChatGPT integration after an unusually high 25 the previous quarter. The total mega-cap AI mentions for Q2 summed to 414, just four off the all-time high from Q3 2023.
Taking another view, the mean (average) and median AI mentions in quarterly conference calls between these six names has really skyrocketed since the release of ChatGPT. This quarter, median mentions grew to 76 to match the all-time high two quarters ago. The mean of 69 this quarter was an improvement from last quarter but not enough to meet Q3 2023’s high of 70. Over the past four quarters, the clearer trend upward in the median vs. a flatter picture in the mean suggests a broader adoption of AI and the discussion of it on earnings conference calls.
Q3 is poised to bring more highly anticipated AI updates from some of the biggest tech names. We’ll check back in then to see if AAPL can break out from its lackluster numbers compared to competitors, if NVDA can sustain 100+ mentions, and if the middle of the pack can help lift the quarterly total to a new high.
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Bespoke’s Morning Lineup – 9/5/24 – Mixed Jobs Data
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“Do right and risk the consequences.” – Sam Houston
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 equity market weakness that kicked off September has continued into the third trading day of the month, but the magnitude of the losses has been restrained. In the fixed-income market, treasuries have gotten off to a strong start this month, but this morning, rates are little changed as the 2s10s yield curve has moved into positive territory…if you go out to four decimal places (0.0001%).
After some weak data to kick off the month and yesterday’s Beige Book, investors have returned to worrying over the state of the US economy. That means weak labor data will not be positively received from the equity market. The first of those labor reports was the ADP Employment report which showed monthly growth of just 99K relative to forecasts for an increase of 142K – the smallest monthly increase since January 2021. That was the bad news. The good news was that initial and continuing jobless claims came in lower than expected.
In addition to those two reports, Non-Farm Productivity was in line with forecasts (+2.5%), and Unit Labor Costs rose just 0.4% versus forecasts for an increase of 0.8%. The only other reports on the calendar for today are PMI readings for the Services sector from S&P and ISM both of which are expected to decline slightly from their prior readings.
It may sound hard to believe, but with the S&P 500 now 2.6% off its mid-July high, long-term US Treasuries, as measured by the iShares 20+ US Treasury ETF (TLT), are closer to a 52-week high than the US stock market. As shown in the chart below, TLT’s current 52-week high was back in late 2023.
The chart below shows the historical spread between TLT’s closing price and its 52-week high (on a closing basis), and as of yesterday, the ETF finished the day 1.5% from a 52-week high which is as close as it has been since late 2020.
2000 was a long time ago, and the current spread of 1,027 trading days without closing at a 52-week high is by far the longest drought since the ETF first started trading in the early 2000s. For fixed-income investors, the 52-week high list has been a foreign concept, but if concerns over the economy start to increase, they may start spending a lot more time together.
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The Closer – Beige Book, Jobs, AI Mentions – 9/4/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at the drop in rates and the latest update of the Beige Book (page 1). We then dive into today’s JOLTS report (page 2) and the latest job openings data from Indeed (pages 3 and 4). We also review the latest trade data (page 5) before closing out with a look into AI mentions in conference calls (page 6).
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Daily Sector Snapshot — 9/4/24
Fixed Income Weekly — 9/4/24
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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Chart of the Day – Winners Lose & Apple (AAPL) Announcements
Bespoke’s Morning Lineup – 9/4/24 – It’s September
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”Obsolescence is the very hallmark of progress.” – Henry Ford II
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
What started as a weak start to September in the US spread to Asia overnight, followed through to Europe this morning, and is now back in the US this morning. That’s September for you! The big reports overnight and this morning were PMI readings for the services sector, and they mostly came in weaker than expected but still showed growth. Today’s major economic reports in the US are JOLTS for July and Factory Orders at 10 AM.
Yesterday’s 2.12% decline for the S&P 500 was the worst opening day for a month since May 2020, and the worst start to September since 2015. September is no stranger to big down days to start the month. Since 1953, the first full year of the five-day trading week in its current form, the S&P 500 has declined 1%+ on the first trading day of the month 14 times now, which works out to just under 20% of the time. The next closest months are October and January with eleven each.
In the table below, we summarize the performance of the S&P 500 following 1%+ declines to start the month grouped by month. Over the following day, week, and month, the S&P 500 tends to see steady gains overall, although returns when the decline occurs in September have been below average. One day and one week later, the S&P 500 was positive but up by just an average of 0.13% and 0.14%, respectively. Four weeks later, though, 1%+ declines to start the month of September have been followed by an average decline of 1.36% which is the worst four-week performance of any month except June.
The chart below shows the four-week performance following 1%+ declines by month. Here you can really see the weakness that follows these types of declines during the summer months, but outside of the June to September period, 1%+ declines to start the month have been followed by an average four-week performance of 1% or more.
While the four-week performance of the S&P 500 following a 1%+ decline to start September has been weak, performance following recent 1%+ declines have been positive. The chart below shows the performance of the S&P 500 in the four weeks following the last 20 1%+ declines to start the month, and after each of the last eight occurrences, the S&P 500 has been up four-weeks later every time for a median gain of 4.6%.
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The Closer – Semis Slammed, AI Falls Apart, Crude Collapses – 9/3/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we kick off with a look into the pattern forming in the semis and what performance for the group and Tech more broadly looks like following severe drops like we saw today (page 1). We also note the big drop in AI names (page 2) and crude oil’s collapse (page 3). We then check in on the latest PMIs (page 4) and LMI (page 5) before closing out with weekly positioning data (pages 6 – 9).
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