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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Daily Sector Snapshot — 8/21/23
Chart of the Day – Real Yields At New Highs
Bespoke’s Morning Lineup – 8/21/23 – Stuck in a RUT
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“Learn to deal with the valleys and the hills will take care of themselves.” – Count Basie
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.
After a rough night in Asia as issues in China continue to weigh on growth prospects for the region (more on this in page five of today’s Morning Lineup), European stocks pivoted right at the opening bell and are now firmly in positive territory to start the week. US futures are following the European lead and currently point to a 0.5% gain at the opening bell. While the S&P 500 was down on Friday ending what was its third negative week in a row, we would note that stocks pretty much opened at their lows of the day and drifted higher throughout the trading session.
For all the drama in markets on a day-to-day basis, the moves in the small-cap Russell 2000, often abbreviated as the ‘RUT’, have primarily been noise as the index has been stuck in a trading range for the last year. The ‘valleys’ of each sell-off have found support right around the pre-COVID highs in the 1,650/1,700 range multiple times since last summer, but each ‘hill’ has run out of steam right around 2,000. After the latest rally that began to take hold in late May petered out at the end of July, the Russell has pulled back just over 7% and finds itself smack dab in the middle of the 12-month range.
Looking at the Russell on a shorter-term basis, the pullback off the latest failed rally has been relatively swift, but one encouraging aspect so far has been that Friday’s 1.5% rebound off the intraday low occurred right around the 50-day moving average and at support from the uptrend off the early May low. Let’s see if that bounce can hold in the days ahead and mark a higher valley for small caps and ultimately break the small cap index out of its rut.
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Bespoke’s Brunch Reads – 8/20/23
Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market-related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
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On This Day in History:
On the Clock. On August 20th, 1920, a small group including Jim Thorpe, joined together in Canton, Ohio to create the first professional football league known as the American Professional Football Conference. Later succeeded by the NFL we know today, week one of the 104th season will begin in just a couple of weeks. What was once a violent intramural game played on college campuses in the late 1800s and early 20th century, American football has evolved into a multi-billion business at the cornerstone of entertainment all over the country.
Artificial Intelligence
The $900,000 AI Job Is Here (WSJ)
US companies are engaged in a fierce race to hire AI talent, offering annual salaries close to $1 million to secure skilled professionals in fields like data science and machine learning. The high demand coupled with supply imbalance is driving up compensation. Some companies are hiring and training talent whereas others are considering the acquisition of smaller AI startups. [Link]
What if Generative AI turned out to be a Dud? (Gary Marcus)
Generative AI with soaring valuations in the trillions compared to its actual revenues in the hundreds of millions, largely from code assistance and text generation, is raising doubts about the sustainability of these valuations. As wider user disillusionment is observed, questions arise about whether generative AI truly represents a precursor to AGI due to persistent challenges and limitations. [Link]
Market and Economic Trends
Long-Term Shareholder Returns: Evidence from 64,000 Global Stocks (Financial Analysts Journal)
A study of 64,000 global equities and their performance dating back to 1990 showed that the majority of US and international stocks underperformed one-month US Treasury bills. Furthermore, the top-performing 2.4% stocks in the US accounted for 100% of the gains in US market capitalization. [Link]
Cash-Strapped Collectors Offload Prized Memorabilia. ‘Literally Like Selling Away My Life.’ (WSJ)
With budgets squeezed by inflation and mounting debts at higher rates, memorabilia collectors are being forced to sell the collections they’ve spent decades amassing. Despite having to give up prized items, sellers are comforted by the fact that the collectibles market is thriving and is projected to continue to grow. [Link]
Democrats’ climate law set off a wave of energy projects in GOP districts. A backlash followed (POLITICO)
The Inflation Reduction Act has led to a surge in clean energy investment across various U.S. states. While criticized by some Republicans, the law’s benefits are primarily benefiting conservative and Republican-leaning communities, boosting renewable energy projects and job creation. Chinese involvement in these clean energy projects has raised concern about the use of federal incentives to support Chinese companies and government. [Link]
How to maximize Series I bond redemptions amid falling inflation (CNBC)
Amid declining Series I bond yields as inflation falls, investors who flocked to these bonds due to their high yields are now considering an exit for higher-interest alternatives such as Treasury bills, CDs, or money market funds. The “best time” to sell depends on factors like when the bonds were purchased and individual investment goals. There is also an interest penalty to be aware of. [Link]
Wall Street Is Ready to Scoop Up Commercial Real Estate on the Cheap (WSJ)
Big firms are raising funds to acquire distressed commercial real estate properties, including office buildings and apartments, at reduced prices compared to a few years ago. Between rising interest rates and vacant office spaces, these firm are aiming to take advantage of declining priced. Values are expected to fall further as regional banks under pressure from recent bank failures let go of loan portfolios at discounted prices. [Link]
Streamflation Is Here and Media Companies Are Betting You’ll Pay Up (WSJ)
Streaming services are raising their prices almost 25% in about a year, prompting a “streamflation” trend. Disney, Peacock, Max, Paramount+, Apple TV+, and others are hoping that users will either accept the higher costs or switch to more affordable ad-supported plans, aiming for profitability after years of losses in pursuit of fast growth. [Link]
Fast Food
Fast-food chains adopt futuristic designs: What’s behind the new look from Wendy’s and others (AOL)
Several fast-food chains are redesigning their kitchens to enhance digital sales capabilities and cater to on-the-go customers. The new layouts are intended to increase speed, output, and overall profitability given recent trends in digital orders and delivery. The move reflects the growing influence of technology on fast-food and fast-casual restaurants, as COVID-era dining habits persist. [Link]
Chick-fil-A to release new riff on its iconic chicken sandwich with pimento cheese, jalapenos (CNBC)
Beginning at the end of the month, Chick-fil-A is adding the Honey Pepper Pimento Chicken Sandwich to its menu. The chicken chain’s menu is one of simplicity, and this move reflects a shift in strategy as the chain expands nationwide. In development for five years, feedback on the product is highly anticipated. [Link]
Ancient History
Spartans Were Losers (Foreign Policy)
This article criticizes the glorification of ancient Sparta in modern culture, arguing that the popular image of Sparta as a symbol of military excellence is misleading. The article discusses military mediocrity, political struggles, and reliance on slavery. [Link]
Environmental Concerns
Hawaiian Electric Knew of Wildfire Threat, but Waited Years to Act (WSJ)
Following commentary from our Closer on Thursday and newest Bespoke Report published Friday, information is surfacing surrounding Hawaiian Electric’s role in the deadliest U.S. wildfire in more than 100 years. Stretching back to 2019, the company knew it needed to enhance fire prevention measures and invested much too little into the work in the period leading to Hawaii’s blazing wildfire. [Link]
Burning mangrove trees for a living: ‘I’d quit tomorrow if I could’ (BBC News)
Indonesia accounts for 20% of the world’s mangrove tree population and is facing a crisis as the trees are being cut down, turned into charcoal, and exported. Despite being a resource-intensive process with little financial return, the growing demand for charcoal is leading to deforestation and environmental degradation. The local government’s efforts to provide alternative livelihoods, such as honey farming and palm sugar production, have faced challenges due to the deeply rooted tradition of charcoal production. [Link]
Social Media Trends
The content moderation problem that isn’t going away (Platformer)
A second major contractor in the content moderation business is closing its operation. Sama and Cognizant previously offered social networks staff to review the oceans of content that violates their rules and are often beset with extreme employee burnout that rises to the level of Post-Traumatic Stress Disorder thanks to the horrifying extremes that users try and post. [Link]
Bama Rush Has Students Showcasing $20,000 Outfits on TikTok (Bloomberg)
A new viral TikTok trend is bringing attention to college students participating in sorority recruitment, showcasing their expensive outfits, sometimes in the tens-of-thousands of dollars range featuring luxury brand jewelry. The trend is often shocking, seeing young people with such expensive items. More importantly, the trend comes at a time when economic disparities and struggles among Americans are becoming more apparent, prompting discussions about consumer spending and priorities. [Link]
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Have a great weekend!