Chart of the Day: Holding Out for Jackson Hole
Fixed Income Weekly — 8/23/23
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.
Our Fixed Income Weekly helps investors stay on top of fixed-income markets and gain new perspectives on the developments in interest rates. You can sign up for a Bespoke research trial below to see this week’s report and everything else Bespoke publishes for the next two weeks!
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Bespoke’s Morning Lineup – 8/23/23 – Ending Before it Even Starts
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.
“Things always seem to end before they start.” – Lou Reed
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A few hours ago, it appeared as though we’d be seeing a respectable rally to start the trading day, but much of the gains have faded and there’s still nearly an hour left before the opening bell. The pullback this morning has come in tandem with a sell-off in European stocks which are well of their highs of the day, and one catalyst has been a batch of mixed PMI readings for August. While activity in the manufacturing sector did not shrink by as much as expected, Eurozone services sector activity unexpectedly contracted. In Asia, most major indices were positive during the session, but China was a notable laggard as the CSI 300 fell 1.64% taking its MTD decline to just under 8%.
Weakness in China has really acted as a drag on the performance of Emerging Markets as an asset class as the country accounts for 30% of the entire index, but closer to home, Mexico, which has a much smaller representation in the index, has been moving in the exact opposite direction. The chart below shows the performance of the iShares China (MCHI) and Mexico (EWW) ETFs over the last ten years. While the two ETFs performed similarly with each other from August 2013 through August 2015, they really started to diverge from late 2015 through the onset of COVID, and as concerns over supply chains intensified during the pandemic, Mexico’s renaissance began. Despite periods in the last ten years where the performance of the two ETFs couldn’t have been more divergent, through yesterday’s close their performances was very similar; the MSCI China ETF (MCHI) was down 2.49% over the last ten years, while Mexico (EWW) was down 4.33%. On the chart, Mexico looks like the reflection of China much as the way a mountain range reflects on a lake.
The chart below shows the relative strength of EWW relative to MCHI over the last decade, and this chart further illustrates the roller coaster of Mexico relative to China. From late 2013 right through the onset of COVID, China steadily outperformed Mexico, but with the onset of COVID, the trend reversed abruptly, and in the span of three years has erased seven years of underperformance.
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The Closer – Auto Wholesale Bloodbath, Existing Home Sales, Indeed Openings – 8/22/23
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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 wholesale used car prices and Toll Brothers (TOL) earnings (page 1). We then turn to the dearth in inventories per the latest existing home sales data (page 2) and weakness in home affordability (page 3). After an update of our Five Fed Manufacturing Composite (page 4) and an similar service sector reading (page 5), we finish with a review of the latest job openings data from Indeed.com (pages 6-9).
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Daily Sector Snapshot — 8/22/23
Bespoke Stock Scores — 8/22/23
Chart of the Day – Best Run For Stocks Versus Bonds…Ever?
Energy Holds The 100% Line
Each day in our Sector Snapshot, among a number of sector level internal metrics, we show the percentage of stocks trading above their 50-DMAs. Yesterday, that reading fell down to 33% for the S&P 500. While last Thursday saw a slightly lower reading and 33% is far from the worst in recent years (as shown in the first chart below), this month has seen a material decline in the percentage of stocks trading above their respective 50-DMAs. One sector has proved to be an exception, though; while just a third of the S&P 500 components are above their 50-days, 100% of stocks in the Energy sector are still above their 50-DMAs.
Going back to 1990, it has been rare to see such a small share of the broader market above their 50-DMA while all the components of an entire sector are above their respective 50-DMAs. In fact, it’s only happened six other times. In the table below, we show each of those previous periods as well as the S&P 500 and each sectors’ reading on the percentage of stocks above their 50-DMAs. As shown, since 2021 there have been multiple similar instances in which every stock in the Energy sector has bucked the general trend of the broader market. One notable difference this time around is some of the most heavily weighted sectors like Tech and Health Care have far stronger breadth readings. In other words, breadth is healthier (relatively speaking) for those more impactful groups.
Prior to the pandemic, 2006, 2014, and 2016 were the only other periods. In 2006 and again in 2016, Utilities was the sector with 100% of stocks above their 50-DMAs while around 30% of the S&P 500 was above. Then in 2014, Communication Services (when it was much smaller – about ten stocks- and before it was reconfigured to include stocks like Alphabet, Meta, etc.) was the sector with strong breath.
Bespoke’s Morning Lineup – 8/22/23 – Bond Buyers Striking Out
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“It’s a funny thing, the more I practice, the luckier I get.” – Nolan Ryan
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On this day 34 years ago, Nolan Ryan came out to the mound in the top of the fifth inning against the A’s, and up to the plate stepped Ricky Henderson. Everyone knows that Ricky was known for his ability to draw walks, but he wouldn’t this time. After working a full count, he struck out swinging giving Ryan his 5,000th strikeout and putting him alone in the 5,000-club of strikeouts. It’s been more than a generation since Ryan notched his 5,000 K, but to this day no other pitcher has reached that level in their career. Randy Johnson (4,875) and Roger Clemens (4.672) got close, but the closest active players aren’t even in the same ballpark. Forever is a long-time, but with 5,714 strikeouts in his career and the way pitchers are coddled now, Ryan’s record may just be unbreakable.
Holders of long-term US Treasuries probably feel just like any of the batters coming up to the plate with the “Ryan Express” on the mound. Earlier this month, we highlighted the fact that the iShares 20+ US Treasury ETF (TLT) traded to its most oversold level in its history when on 8/3 it closed 3.8 standard deviations below its 50-day moving average.
Looking at the price of TLT relative to its trading range over the last year, you can see that it has been in oversold territory all month. While the degree to which it is oversold is nowhere near as much as it was earlier this month, it remains deeply oversold.
As bad as the last month has been, this year hasn’t been nearly as bad for TLT as last year. So far this year, TLT has closed at oversold levels for 48 trading days, which would put it on pace for 75 this year or once about every three to four trading days. That’s high, but it’s still less than half of last year’s total of 158 oversold days, and relative to the 20 prior years of trading for TLT, there have been six other years where TLT notched more than 75 daily closes in oversold territory. So, it’s been bad, but maybe more Don Sutton bad (3,574 career strikeouts) than Nolan Ryan bad.
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The Closer – Labor Wins, Treasury Yield Highs, Semi Sales, US Energy Trade, CoT – 8/21/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with commentary regarding unionization efforts (page 1) followed by a dive into semi sales data (page 2) and the petroleum trade balance (page 3). Next, we preview this week’s Treasury auctions (page 4) before closing with a rundown of the latest positioning data (pages 5-7).
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