Bespoke’s Morning Lineup – 5/31/23 – Debt Deal Moves to the House
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“These are the days that must happen to you.” – Walt Whitman
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After opening right near their highs of the day and reversing lower throughout the trading day yesterday, equity futures are staring at a weak open this morning. Treasury yields are lower along with crude oil even as the debt ceiling deal moved out of Committee and is set for a full vote. Investors will be watching the Chicago PMI and JOLTS reports later this morning, but overnight, we had some weak economic data out of China and lower-than-expected inflation data out of Germany where the y/y increase in CPI dropped to 6.1% which was actually the lowest reading since last March. Some of these tech stocks have had a huge run in the last several days/weeks, so a pause should surprise no one.
The last 12 months haven’t been the best of times for crude oil, and the last two days have been no different. After a decline of nearly 4.5% to kick off the week yesterday, WTI is trading down over 2.5% this morning putting it within $1 of a 52-week low. A year ago, prices were coming off a peak of just over $130 per barrel after Russia invaded Ukraine but were still firmly in triple-digit territory. Bulls made another attempt to run crude back near the March 2022 high but came up short, and things only got worse from there. Since then, it’s been a steady march lower, and the price of a barrel of crude has nearly been cut in half.
For crude oil bulls, the last two months specifically have been a major disappointment especially when you consider the fact that China’s reopening was supposed to be a major catalyst. First, on 4/2, OPEC announced a surprise production cut. While the news caused a brief spike in prices, the rally stalled out right at the 200-day moving average (DMA) and prices were back at 52-week lows in a month. Then last week, a Saudi minister publicly noted that oil speculators who were betting against crude oil should ‘watch out’. In a bull market, those comments would have caused a buying frenzy, but in a bear market, jawboning has a very short half-life, and it wasn’t even enough to get WTI back above its 50-day moving average.
With crude failing its attempt to break above the 200-DMA back in April, the extended streak of closes below the 200-DMA has extended further. At 190 trading days through today, the current streak is the longest since the 427 trading day streak ending in April 2016. It would take nearly another year to challenge that streak, but the current streak already ranks as the fifth longest since 1984. Not only that but if the current streak lasts another month, it will move into third place overall.
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The Closer – Another Trillion Dollar Stock, Low Tax Lags, Final 5 Fed, Positioning – 5/30/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, with NVIDIA (NVDA) the latest company to reach a trillion dollar market cap, we begin by taking a look at the performance of other stocks once they reach that milestone (page 1). We follow up with a look at the rebound in home prices (page 2) and a final update of our Five Fed Manufacturing Composite for the month of May (pages 3-5). We close out with a rundown of the latest positioning data (pages 6-8).
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Fixed Income Weekly: 5/31/23
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.
In this week’s report, we discuss the performance of securitized credit in various asset classes.
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 free for the next two weeks!
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Daily Sector Snapshot — 5/30/23
Bespoke Stock Scores — 5/30/23
Some Good Inflation News
While the market prices in a much higher likelihood of a rate hike at the June meeting, there was actually some decent news on the inflation front today. Starting with the Conference Board’s Consumer Confidence report, in this month’s update, the inflation expectations component fell to 6.1% from a peak of 7.9% fifteen months ago in March 2022 (first time reading touched 7.9%). Looking at the chart below, this reading was also at 6.1% fifteen months before that first peak. In other words, for all the talk about how inflation has been stickier, the pace of decline in this indicator on the way down has been the same as the pace of increase on the way up.
Another notable report was today’s release of the Dallas Fed Manufacturing report. The Prices Paid component of that report showed a decline from 19.5 down to 13.8 which was the lowest reading since July 2020. For the month of May, two of the five components (Empire and Philadelphia) showed modest m/m increases from multi-month lows, and three showed significant declines to multi-month lows. The chart below shows a composite of the Prices Paid component using the z-scores for each of the five individual components going back to 2010. The peak for this component was 19 months ago in November 2021. Unlike the inflation expectations of the Conference Board survey, this reading hasn’t declined quite as fast as it increased in the 19 months leading up to the peak, but at -0.2, it is still below its historical average dating back to 2010 and back down to levels it was at right before the COVID shock hit the economy in early 2020.
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Home Prices Bounce in Hardest Hit Areas
March data on home prices across the country were released today with updated S&P CoreLogic Case Shiller numbers. Case Shiller home prices had been falling rapidly in many of the twenty cities tracked, but in March we actually saw a pretty big month-over-month bounce in some of the hardest-hit areas like San Diego, San Francisco, LA, Denver, and Phoenix. Some cities still saw declines, however. Las Vegas saw a m/m drop of 0.93%, while Miami fell 0.41%, and Seattle fell 0.28%.
On a year-over-year basis, Miami is still up the most with a gain of 10.86%. As shown in the table below, Miami home prices are up 59.87% from pre-COVID levels in February 2020, and they’re only down 2.9% from post-COVID highs. Only Tampa is up more than Miami from pre-COVID levels (+61.04%), but Tampa prices are down more from their post-COVID highs (-4.70%) than Miami (-2.90%).
Four cities are down more than 10% from their post-COVID highs: San Diego (-10.12%), Las Vegas (-10.95%), San Francisco (-16.35%), and Seattle (-16.50%). New York is down the least from post-COVID highs of any city tracked at just -2.9%.
Below we include charts of home price levels across all 20 cities tracked by Case Shiller along with the three composite indices. We’ve included a vertical red line on each chart to highlight pre-COVID levels. When looking through the charts, you can see this month’s small bounce back in most cities after a 6-9 month pullback in prices from peaks seen early last year.
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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.
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Chart of the Day – Seventeen Months And Counting
Bespoke’s Morning Lineup – 5/30/23 – More of the Same
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“I hate the idea of trends. I hate imitation; I have a reverence for individuality.” – Clint Eastwood
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.
House Speaker Kevin McCarthy and President Biden have reached an agreement on the debt ceiling that they can get through the House and Senate and onto the President’s desk within the June 5th deadline. Futures are higher this morning in reaction, but the continued run in tech stocks on the back of NVIDIA’s (NVDA) monster gains last week has the Nasdaq leading the way. NVDA is up about 4% in the pre-market putting it on pace to be the first semiconductor company to reach the trillion dollar valuation threshold. Dow futures are actually modestly lower as anything not tech-related continues to trade heavily.
With Monday being a holiday, we’re kicking off the week with a relatively large data slate this morning as Case Shiller housing data will be released at 9 AM, followed by Consumer Confidence at 10 AM, and the Dallas Fed report at 10:30. The rest of the week will also be busy capped off with the jobs report on Friday.
This morning’s trading is an exact continuation of last week which was an exact continuation of the ‘haves and have nots’ trade that’s been in place all year as the sectors which have been leading this year continued to lead while everything else lagged. The only three sectors that traded higher last week – Technology, Communication Services, and Consumer Discretionary – are also the only three sectors that are up more than 1% on the week (they’re all up over 15%), and the only three sectors trading above their 50-day moving average (DMA). Besides being above their 50-DMAs, all three are also trading in overbought territory with the Technology sector trading at its most overbought levels since 2004!
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Bespoke’s Brunch Reads: 5/28/23
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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Social (Anti-Social)
How Duolingo Grew Its TikTok to 6.6M Followers (Digital Native)
Duolingo has one of the savviest corporate social presences on TikTok. Here’s a profile of the person who is responsible for it all. [link]
‘Citi Bike Karen’ viral video shows why we shouldn’t rush to judgment (USA Today)
When it comes to viral videos, things aren’t always as they seem. One pregnant woman, who was the victim of a crime, appears to have had her career and reputation tarnished over accusations of racism. [link]
Whistleblower Drops 100 Gigabytes of Tesla Secrets To German News Site: Report (Jalopnik)
“The Tesla files contain more than 2,400 self-acceleration complaints and more than 1,500 braking function problems, including 139 cases of unintentional emergency braking.” For perspective, the files date back to 2015 covering a period where Tesla delivered around 2.6 million vehicles. [link]
Virginia Tech researchers conduct proof-of-concept study on mosquito scent preferences (Virginia Tech)
Just in time for mosquito season, a Virginia Tech study found that the pests are attracted to certain scents of soap. One fragrance they’re not attracted to is coconut. [link]
Economy
Colorado’s cannabis industry has fallen on hard times. What does the future hold? (Denver Post)
Now that marijuana has been legalized in many more states, Colorado is no longer the weed mecca it once was, and the industry there has been falling on hard times. [link]
Nine Rounds of Interviews and No Call Back: It’s Harder Than Ever to Land a White Collar Job (WSJ)
After years of breakneck hiring during the Covid-19 pandemic, white-collar job seekers are feeling whiplash. “Everybody’s being extra-cautious,” she says. “A lot of companies have gotten burned.” [link]
How some people get away with doing nothing at work (VOX)
“I don’t have a problem with being asked to do work; it’s just I’m not really being asked”. This story covers workers who are ‘funemployed’ in that they sit at work all day with little to do. The best part of this article is the url address. Take a look. [link]
Half-Empty a Year Ago, Cruises Are Now Packed Like Sardines (WSJ)
For all the people who said people would never cruise again after COVID, ships are now routinely fully booked to the point where in some cases passengers have to be bumped. Not out at sea we hope! Prices are also higher. The average five-night cruise in an inside cabin is $743 which is up from $551 a year ago. [link]
Retailers Clamp Down on Returns (WSJ)
It costs an average of $26.50 for every hundred dollars worth of goods sold to process a return, which costs retailers millions. Some are fighting back. [link]
Why the Debt-Ceiling Deadline Isn’t Really June 1 (Barron’s)
Not to give politicians any more excuses to delay, this article provides a good explainer for why June 1st may not actually be the X-day that Treasury Secretary Yellen said it would be. [link]
France bans short-haul flights to cut carbon emissions (BBC)
To cut down on greenhouse gases, France will prohibit any flight where the option of a train ride of fewer than 2.5 hours exists. [link]
Fashion
J.N. Shapiro Debuts the First Fully American-Made Watch in Over 50 Years (Robb Report)
The trend of onshoring is even moving into the premium watch industry. J.N. Shapiro is the first watchmaker since 1969 that can say their timepieces are “Made in the USA”. You can get either of the 18-karat gold versions for $85,000. [link]
Science and Technology
JPMorgan is developing a ChatGPT-like A.I. service that gives investment advice (CNBC)
ChatGPT is coming for your financial advisor. The next time you seek out financial advice, it may not be the person that you turn to. [link]
AI Will ‘Exceed Expert Skill Level in Most Domains’ in 10 Years: OpenAI (Decrypt)
ChatGPT has only been around for six months, but some experts believe it will outsmart them and experts in other industries within ten years. [link]
Incredibly Detailed Close-Ups of the Sun From Earth’s Most Powerful Solar Telescope (SciTech Daily)
The National Science Foundation (NSF) released eight new photos of the sun from the Daniel K. Inouye Solar Telescope and they look like molten gold. [link]
Ford EV Customers to Gain Access to 12,000 Tesla Superchargers (Ford)
In a sign that charging protocols for EVs may be starting to standardize, certain Ford EVs will now have access to Tesla Superchargers. Increased adoption of one standard will only accelerate the shift to EVs. [link]
Elon Musk’s Neuralink Says It Has FDA Approval for Study of Brain Implants in Humans (WSJ)
Ever feel like you could use a new brain? Well, those days may not be far off. Elon Musk’s Neuralink has received approval from the FDA to begin testing a brain implant to control computer interfaces and restore vision. [link]
Can multivitamins improve memory? A new study shows ‘intriguing’ results (NPR)
People taking the multivitamin were able to recall about a quarter more words, which translates into remembering just a few more words, compared to the placebo group. “We estimate that the effect of the multivitamin intervention improved memory performance above placebo by the equivalent of 3.1 years of age-related memory change”. [link]
Sports
One of the NFL’s Most Exciting Plays Is Trending Toward Extinction (WSJ)
Baseball isn’t the only league with major rule changes this season. This Fall the NFL will allow kick returners to call fair catch anywhere inside the 25-year line and take the ball at the 25 which will only cut down on the number of kickoff returns even more. [link]
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