The Closer – Fedspeak, Mid-Cap Comeback, Retail Sales – 6/18/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with an update on the latest Fedspeak including an update of our Fedspeak Monitor Index (page 1). We then dive into the outperformance of mid-caps today (page 2) before reviewing the latest retail sales report (page 3). We finish with a recap of the strong 20-year bond reopening (page 4).
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Daily Sector Snapshot — 6/18/24
Bespoke Stock Scores — 6/18/24
View From The Top: 1999 vs. Now
Breadth has been the topic of the week with the market cap weighted S&P 500 pushing to new highs, leaving behind cumulative AD lines and equal-weight measures of the same index. This means the index’s largest stocks are providing an outsized boost to performance, so in the charts below we take a look at the weighting of those largest stocks over the years. As shown below, the combined market cap of what are currently the 30 largest stocks in the S&P 500 account for almost 53% of the index. Looking back to the comparable point of the year 5, 10, 15, 20, and 25 years ago, it has been common for the 30 largest stocks to account for around 40% of the S&P 500’s total market cap. However, the current reading is over 10 percentage points higher than even June 1999 when the 30 largest accounted for 42.18%.
As we have mentioned in the past, even though one stock may be a giant at one point in time, it is not guaranteed to hold its dominance. In the chart below we show the number of stocks that currently rank as one of the top 30 largest S&P 500 members and also ranked in the top 30 in years past. As shown, only around half of the current mega-caps were also mega-caps of a decade ago. Setting the calendar back a quarter century, a third of the 30 largest S&P 500 stocks were also in the top 30 in 1999.
Below we show the 30 S&P 500 members that currently have the largest market caps. Of these, there are only a couple, Tesla (TSLA) and Johnson and Johnson (JNJ), that have provided a negative return in the past year. Granted, TSLA has also been a ten bagger over the past five years. The only other stock that boasts such an outstanding gain is, of course, NVIDIA (NVDA).
Below is a look at the 30 largest stocks in the S&P 500 as it stood twenty-five years ago in June 1999. As previously mentioned, there are ten stocks in the current top 30 that were in the top 30 in June 1999 (highlighted in grey below). At the top of the list is the familiar face of Microsoft (MSFT) with an inflation adjusted market cap (in 2024 prices) of $816 bn back then. Like TSLA and NVDA now, MSFT had also been a ten bagger over the previous five years. However, one difference between 1999 and now is that stocks with such large gains had much more company back then. Whereas currently there are only two of the 30 largest stocks that are up 1,000%+ in the last five years, in 1999 there were five: MSFT, Cisco (CSCO), WorldCom, Time Warner, and Dell (DELL). Again, only one of those is still a mega-cap today while others like WorldCom had more dramatic falls from grace following bankruptcies only a few years later.
In comparing 1999 to today, currently the S&P 500 is in fact more concentrated at the top. Just the top three stocks today—MSFT, AAPL, and NVDIA—account for over 20% of total S&P 500 market cap compared to around 9% for the comparable three—MSFT, GE, and Exxon—in 1999.
B.I.G. Tips – Breadth Divergences in Perspective
B.I.G. Tips – Retail Sales Weak at Home
Chart of the Day: Price and Breadth Diverge
Bespoke’s Morning Lineup – 6/18/24 – Breadth Bounces (For a Day)
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“The greatest danger occurs at the moment of victory” ― Napoleon Bonaparte
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
It’s only Tuesday, but futures are little changed ahead of what may feel like a Summer Friday as markets are closed tomorrow in observance of Juneteenth and the northern parts of the country bake in the first heatwave of the summer season. Between now and the closing bell, investors will still have to contend with Retail Sales at 8:30, Industrial Production and Capacity Utilization at 9:15, and then Business Inventories at 10 AM. How these reports come in relative to expectations will go a long way in determining whether the Nasdaq can stretch its current winning streak to a lucky seven. The first wave of these reports was just released as Retail Sales came in weaker than expected across the board, and April’s numbers were revised lower.
Overnight in Asia, Japan bounced from yesterday’s 1%+ decline with a gain of 1% while most other major indices in the region rallied by smaller amounts. In Australia, the RBA left rates unchanged at 4.35%, and Chinese Premier Li wrapped up his visit to the country and expressed optimism that the two countries could improve their ties. The tone in Europe is also positive this morning with the STOXX 600 up about 0.5%. CPI for May came in at 0.2% which was in line with expectations and down from April’s reading of 0.6%, but the ZEW Economic Sentiment Index showed a much smaller than expected improvement.
Just when the conversation over the divergence between the S&P 500’s price and breadth reached a fever pitch, the S&P 500 kicked off the week yesterday with a gain of 0.77% and a breadth reading of positive 214, the strongest daily breadth reading of the month! The lack of strong breadth readings would have been understandable in a steadily declining market. This month hasn’t been weak, though; more than half of all trading days have seen record highs!
Even after yesterday’s positive breadth reading, there have still been seven trading days over the last four weeks (20 trading days) where the S&P 500 traded higher on a day when more stocks finished lower than higher. That’s one of the largest number of negative divergences in four weeks since at least 1990, and the most since August 2020 when there was a record of eight days where the S&P 500 traded higher and breadth was negative. Back then, the narrative was that the mega-cap tech stocks would benefit the most from the lockdowns and the new world of working from, learning from, eating from, socializing from home, etc. Four years later (can you believe it’s already been four years?), these same (and some different), mega-caps are now seemingly the only ones with the scale to benefit from AI.
To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.
The Closer – Mexic-ow, Upcoming Reopenings, Positioning – 6/17/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a dive into the pain in Mexican assets (pages 1 and 2) followed by a preview of the upcoming Treasury reopenings slated for this week (page 3). We finish with our weekly recap of positioning data (pages 4-7).
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