Bespoke’s Morning Lineup – 5/30/24 – Slumping Sales(force)
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“Finally, The End of Software is here.” – Marc Benioff, 2008
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
If you’re just looking at futures on the major indices, things look a lot worse than they seem. That’s because a 15% decline in Salesforce (CRM) following its earnings results after the close yesterday makes its presence felt, especially on the Dow (more on that below). Outside of that report, investors remain defensive following a surge in rates earlier this week. Rates are lower this morning, but until we get through this week’s inflation data, it will be hard for investors to breathe any easier. In Europe this morning, stocks are generally higher led higher by Spain while the overnight tone in Asia was weaker with both the Nikkei and Hang Seng down over 1%.
A lot of economic data just hit the tape including GDP, Personal Consumption, PCE, and Jobless Claims. Overall, there were no major surprises, and on a positive note, the inflation aspects of the data were generally lower than expected.
Earnings season may have unofficially ended two weeks ago when Walmart (WMT) reported earnings on 5/16, but there have still been plenty of notable reports. Yesterday’s report from Salesforce (CRM) may have been one of the most notable. While the company reported better-than-expected earnings, it had a rare revenue miss and lowered guidance. The revenue miss was the first time the company missed since 2006! That was enough to send the stock plunging after hours, exacerbating what has already been a steady downtrend since its peak in early March. With the stock down over 15% in the pre-market, CRM is poised to close the gap higher from when it reported earnings late last November.
Within the S&P 500, CRM’s weight is just under 0.60%, so even with a decline of 15% in the pre-market, its impact on the index will be a negative hit of around 0.1%. Where CRM’s decline hurts, though, is on the performance of the Dow where its 4.6% weighting will cause a negative hit of around 275 points, or around 0.7%. As we noted yesterday, the DJIA is already underperforming the S&P 500 by a historically large margin YTD, so today’s move will widen the gap even more.
With today’s decline, CRM is also on pace to have its second-worst one-day reaction to earnings as a public company. The worst drop occurred in response to an earnings report in August 2008. Furthermore, the stock has only declined by 10% or more in reaction to earnings four other times in the last 20 years.
While it is not uncommon to see smaller companies react poorly in reaction to earnings, it’s unusual among large-cap companies in the S&P 500. Since the start of April, CRM will be just the 24th S&P 500 company to decline more than 10% in reaction to earnings and just the tenth to fall more than 15% if its current declines hold into the close. Of those companies listed below, though, CRM would be just the fifth to gap down more than 15% on its earnings reaction day.
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 – Beige Book, Crude Production, AI Earnings – 5/29/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with our quantitative look at the Beige Book and update of our Five Fed Manufacturing Composite (page 1). Next, we check in on crude production (page 2) followed by a recap of the latest earnings, including those of a handful of members of our AI baskets (pages 2 and 3). We finish with a recap of today’s 7 year note auction (page 4).
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Daily Sector Snapshot — 5/29/24
Fixed Income Weekly — 5/29/24
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.
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A Tale of Two Indices
Even after today’s decline, the S&P 500 still sits on a year-to-date gain of over 10% indicating just how strong the first five months of 2024 have been. The Dow, however, has followed a much weaker path as it’s barely holding onto gains for the year at 2.2%.
The scatter chart below shows the YTD performance of the S&P 500 and the Dow in the first five months of the year, and they tend to track each other very closely. Even though the construction of the two indices is very different and 500 stocks comprise the S&P 500 compared to just 30 for the Dow, the performance of the two indices has been very similar over time. If one index is up in the high-single-digit percentages, the other usually is too. That’s what makes this year and last year so unique.
The S&P 500 is on pace to outperform the Dow by over eight percentage points in the first five months of this year, and that follows last year when the performance gap was even wider! As shown in the chart below, the last two years have seen the widest margin of outperformance between the S&P 500 over the Dow. In 1999, the Dow outperformed the S&P 500 by a similar magnitude, but the last two years have been unprecedented in terms of the S&P 500 outperforming the Dow.
The table below shows the YTD performance and weightings of the 30 Dow components (sorted by weighting). Overall, the average stock in the index has rallied 4.25%, so on an unweighted basis, the performance gap isn’t quite as wide, but one of the bigger drags on the Dow this year has been UnitedHealth (UNH). The stock’s weight in the Dow is over 8.5%, and shares have slipped nearly 4% on the year. Boeing (BA) doesn’t have as large of a weight in the index, but its 30%+ decline has been a big drag as well, while other notable losers have been McDonald’s (MCD) and Home Depot (HD).
Technology has been a large contributor to the S&P 500’s YTD gain, but within the Dow, the sector has a weighting of over 19%, which isn’t small. The only problem is the Technology stocks that comprise the index (shaded in gray). Regarding tech stocks in the DJIA, outside of Microsoft (MSFT), which has rallied over 14% this year, some of the sector’s other representatives – (we’re looking at you Cisco and Intel) aren’t what most investors would consider cutting edge!
Chart of the Day: Weak Breadth
Bespoke’s Morning Lineup – 5/29/24 – Crossing the Summit or Still Climbing?
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“It is not the mountain we conquer, but ourselves.” – Edmund Hillary
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Tech led the way higher for the S&P 500 and Nasdaq yesterday, but the tone is more subdued this morning as futures move lower across the board. While no particular catalyst can be cited for the weakness, higher rates and higher oil prices never help. Following yesterday’s weak Treasury auctions, traders will have their eyes glued to the $44 bln offering of 7-year notes to see how that gets received.
Seventy-one years ago today, Edmund Hillary and Tenzing Norgay became the first known people to reach the summit of Mount Everest. Given the anniversary, it’s only fitting that yesterday was the first ever day that the Nasdaq “conquered” 17,000. Despite the Nasdaq’s achievement, if it was a mountain, measured in feet, 17,000 doesn’t even crack the world’s tallest 100 peaks and would be less than two-thirds the height of Everest.
The table below lists each 1,000-point threshold that the Nasdaq has crossed in its history. Yesterday’s cross of 17,000 was just a 6.3% gain relative to 16,000, but the 921 days that elapsed between the first cross of each threshold was the third longest span between 1,000-point thresholds in the index’s history. Besides the 8,928 days it took from inception to cross 1,000, the only two others that were longer were the 1,095 days between 1,000 to 2,000 and the 6,256 days between 5,000 to 6,000. You can argue that the Nasdaq has reached lofty levels, but since 11/19/21, it has rallied less than 6.3% which works out of 2.3% annualized. Cherry-picking? Maybe. But it does help to put things in perspective.
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The Closer – Securitized Innovation, KISS Update, Positioning – 5/28/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at wholesale business ABS (page 1) followed by an update of our “Keep It Simple, Stupid” basket (page 2). Next, we review today’s 2 and 5-year note auction (page 3) then close out with our weekly recap of positioning data (pages 4 – 7).
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