The Closer – EVs, Metaverse, and Earnings, FOMC, New Home Sales – 7/26/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we start with a look at the news from auto manufacturers and a number of notable earnings reports (page 1) followed by a rundown of the FOMC meeting and subsequent market reaction (page 2). We then turn to the latest new home sales data (page 3), EIA petroleum inventories (page 4), and Indeed job postings (pages 5 & 6).
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Daily Sector Snapshot — 7/26/23
Chart of the Day – Not All Up Days Are Created Equal
Emerging Markets (EEM) Attempts a Break Out
Today we published our most recent Global Macro Dashboard which provides a high level summary of 22 major economies. Taking a look at those same countries’ stock markets via US traded ETFs, 2023 has seen broad rebounds in equity prices across the globe. At the moment, the average country ETF is 4.55% away from a 52-week high after posting a double-digit YTD gain. Based on developed and emerging countries, there has been some divergence. Both last year and again this year, emerging market equities have seen modest outperformance relative to developed markets. That has also been the case in July with an average gain of 5.24% for EM countries versus a 2.85% rise for their developed market peers. South Africa (EZA) is up the most month-to-date with a 10.2% gain, while France (EWQ) is up the least with a gain of just 13 bps so far in July.
From a technical perspective, the gains in emerging markets—proxied by the iShares MSCI Emerging Markets ETF (EEM)—have resulted in a move above resistance at some of the past year’s highs. As shown below, earlier in the spring and again only a couple of weeks ago, EEM attempted to retest the levels from last summer unsuccessfully. Today, EEM is back above those levels with the next resistance to watch being the January high at $42.50.
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Fixed Income Weekly — 7/26/23
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 – 7/26/23 – Not Always As It Seems
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.
“There are no gains, without pains.” – Benjamin Franklin
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
With the Dow up 12 days in a row and every other major US index trading at some sort of short-term extreme overbought level, the recent gains seem like they have pain free, but when you get rallies like these and the major averages are still well below their highs from late 2021 and early 2022, pain was involved at some point!
US stocks are set to kick off the day on a subdued note with mixed earnings overnight weighing on the markets. Futures on the Dow, which has traded higher for 12 days in a row, were firmly lower earlier, but have gotten a modest boost after Boeing (BA) reported a narrower-than-expected loss on stronger revenues and better-than-expected free cash flow. At this point, whether the streak ties the post-WWII record of 13 trading days rests in the hands of Jerome Powell and what kind of tone he takes in today’s post-meeting press conference. A 25-bps hike is a done deal, but how Powell guides markets going forward will dictate which way stocks finish the day.
Mega caps have driven most of the gains in the market this year, and it’s been discussed endlessly over the last seven months. What people seem to forget, though, is how much these stocks underperformed the market in 2022. The chart below shows the relative strength of the S&P 500 versus the equal-weighted index since the start of 2022. For all of 2022, the market cap-weighted index steadily underperformed the equal-weighted index with little reprieve. Early this year, though, with the shift of the calendar, relative strength shifted too.
Just as talk of mega-cap outperformance crowded out nearly every financial-related topic in recent weeks, the trend started to shift again. Since the start of June, the equal-weighted S&P 500 has been outperforming again, and since the start of 2022, the performance of the two indices is essentially the same. For all the noise, ink, and pixels used talking about how the market-cap-weighted S&P 500 has been outperforming lately, did you know that less than a percentage point separates the performance of the two indices since the start of 2022? Things often seem one way at first glance, but if you stop and look a little longer, the picture changes.
Just this quarter, which started a month after the relative strength between the two indices shifted, equal-weighted outperformance relative to the market cap-weighted index has been broad. The chart below compares the performance of the market cap versus equal-weighted S&P 500 sector ETFs since the start of Q3. For every sector besides Consumer Staples and Technology, the equal-weighted indices have been outperforming, and the sectors where the performance disparity has been the widest have been in Energy, Health Care, and Real Estate.
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The Closer – Megacaps Report, Regional Sentiment, Consumers Rebound – 7/26/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we kick off with a rundown of the latest earnings reports, including those of the mega caps: Microsoft (MSFT) and Alphabet (GOOGL) (page 1). We then update our Five Fed Manufacturing Composite (page 2) before switching over to a look at regional Fed service indices (page 3). We finish with updates on consumer confidence and home prices (page 4) as well as a 5 year auction recap (page 5).
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Daily Sector Snapshot — 7/25/23
Most Confident Consumers in Two Years
In case you didn’t see it already, today’s report on Consumer Confidence from the Conference Board showed that consumers are more confident than they have been at any point in the last two years. While there are still no shortage of negative macro headlines, with employment remaining strong, inflation easing, and the stock market in a bull, you can’t fault consumers for being more confident than they have been in recent history.
For some perspective on the current levels of consumer sentiment, the chart below shows historical readings of Consumer Confidence with red dots showing each time that the monthly reading made a new two-year high. As you can see, these types of readings aren’t rare, especially during prolonged economic expansions, and as a corollary to the saying that it’s often darkest before the dawn, sentiment tends to be brightest right up until sunset.
In each of the prior periods where sentiment hit a two-year high just before the economy started to roll over, it was preceded by multiple occurrences of sentiment hitting new two-year highs. If we further filter out occurrences for periods when sentiment hit a two-year high for the first time in at least a year, the picture looks a lot different. In this case, there was never an occurrence just as the economy was on the verge of a recession, and most of them tended to occur early in the cycle rather than late. Interestingly enough, with all the debate over whether or not the economy is in a recession or not, the pattern of Consumer Confidence in the current period looks very similar to the pattern during the double-dip recession of the early 1980s. Like the current period, back then there was a sharp drop and subsequent sharp rebound in confidence followed by another decline that failed to make a lower low. The only difference this time around is that following the initial COVID recession of 2020, there wasn’t another recession in the next two years – at least not an officially declared recession.
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Bespoke’s All Access research package is quick-hitting, actionable, and easily digestible. Bespoke’s unique data points and analysis help investors better visualize underlying market trends to ultimately make more informed investment decisions.
Our daily research consists of a pre-market note, a post-market note, and our Chart of the Day. These three daily reports are supplemented with additional research pieces covering ETFs and asset allocation trends, global macro analysis, earnings and conference call analysis, market breadth and internals, economic indicator databases, growth and dividend income stock baskets, and unique interactive trading tools.
Click here to sign up for a one-month trial to Bespoke All Access, or you can read even more about Bespoke All Access here.