IPO Activity Slow to Recover
The talk of the day is the debut of Reddit (RDDT) on public markets. The stock priced at the top of its expected range, and at the intraday highs traded 70% above the IPO price of $34. While Reddit’s debut places some attention on new companies, overall IPO activity remains muted. In the chart below, we show the average monthly IPO issuance on a rolling 12-month basis in terms of both the number of companies and the $-value of those stocks. Following record issuance in the first couple of years of the pandemic, IPO activity has cratered to some of the lowest levels since the Financial Crisis. While there has been some recovery in IPO activity and Reddit (RDDT) puts IPOs back into the spotlight, there is still plenty of room to recover to levels observed over the past decade.
While not a perfect measure of recent IPOs, the Renaissance IPO ETF (IPO) seeks to track the space. Even though IPO activity has been weak, the ETF has been trending higher over the past year. With the most popular IPO in some time happening today, the IPO ETF has risen to 52-week highs right off extreme overbought levels.
Chart of the Day – Back To Trend In China
Bespoke’s Morning Lineup – 3/21/24 – A Flock of Doves
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“We live in a world defined by the rapid pace of technological change.” – Jerome Powell
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Since yesterday’s close, we’ve seen multiple important central bank decisions from around the world (all discussed in today’s Morning Lineup), and at the margin, they have all been more dovish than hawkish with the Swiss Central Bank even announcing an unexpected rate cut. This morning’s economic data has also been positive with all three reports (Philly Fed, initial jobless claims, and continuing claims) coming in slightly better than expected. These trends have been good enough to push equity futures near their highs of the morning after stocks around the world rallied overnight.
The positive reaction to yesterday’s Fed decision and subsequent press conference was largely tied to the fact that, despite February data showing that progress on inflation has stalled, Powell showed little concern that the trajectory has changed. Within the dot plots, uncertainty over the Fed’s inflation forecasts appears to be declining, which indicates that the committee is more confident that inflation is still moving towards its 2% target. While a May rate cut, at this point, is out of the question, the market is fine with that if the ultimate direction of rates is still lower.
Yesterday’s reaction to the announcement and subsequent press conference was a complete 180 versus January. Back then, stocks were lower heading into the announcement and only fell further once Powell started talking and essentially took a cut at yesterday’s meeting off the table. Just as we live in a world defined by a rapid pace of technological change, the way the market reacts to Powell Fed meetings may also be starting to shift.
Yesterday’s reaction to the statement (purple) also bucked the general long-term “Powell plunge” on Fed days since he became chair in 2018. As shown in the chart below, whether you look at his entire tenure as Fed chair or break it up into different slices during that period, Jerome Powell has not exactly been a stock market whisperer.
With a gain of 0.89% for the S&P 500 yesterday, it ranked as the 14th best single-day performance on a scheduled Fed Day of the 48 since Powell became the chair in March 2018. Not only that, but it was also the 8th best post-decision performance of his tenure. Ironically, all the other days where the S&P 500 had a better post-meeting reaction have occurred since December 2021, essentially when the Fed started to telegraph the most recent tightening cycle.
To further illustrate how the market tide towards Fed decisions has been shifting, while the post-meeting reaction in January was one of the more negative post-meeting reactions under Powell’s tenure, the two meetings before that in November and December, were greeted warmly by the market (6th and 7th best under Powell’s tenure) and looked very similar to yesterday’s post-meeting reaction. If rate hikes are out of the equation, investors are willing to be patient with the timeline of rate cuts.
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The Closer – Central Banks, SEP, Petroleum Inventories – 3/20/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we start out with a rundown of today’s central bank news including that out of the Czech Republic, Canada, and, of course, the FOMC (page 1). We also review the changes to the Summary of Economic Projections (page 2) and market reaction to the Fed (page 3). We finish with a look at the near record petroleum product trade surplus (page 4).
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Daily Sector Snapshot — 3/20/24
Fixed Income Weekly — 3/20/24
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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Chart of the Day: Bitcoin’s After Hours Strength
Yen Weakness Continues
Following Tuesday morning’s widely anticipated decision from the BoJ to end the era of negative interest rates, BoJ Governor Ueda reiterated his view that it was “important to keep conditions accommodative” due to his view that there is “still some distance for price expectations to hit 2%”. While the move out of negative rates was hawkish at the margin, it was also well-telegraphed in advance. Just as important, officials maintained their plans to keep policy easy. As a result of the actions and comments, the Japanese yen sold off on the news, and even though markets are closed for the Vernal Equinox today, it has continued to sell off in trading today. As shown in the chart below, the yen is once again testing the 152 level, an area where it has run into resistance multiple times in the last couple of years. The chart of the yen is starting to look a lot like a cup and handle formation which, from a technical perspective, is considered a positive pattern. This would imply that any breakout above the 152 resistance level would be followed by a weaker yen.
Taking a very long-term look at the yen, the roughly 152 resistance level has been in place for decades. The yen also weakened (rising price in the chart) towards those levels back in the late 1990s and late 1980s before rallying (falling in the chart). If the yen does manage to take out that 152 resistance level in the weeks/months ahead, there would be very little resistance between here and 200, and that would likely have some pretty major macro ramifications for capital flows in Japan and around the world.
Bespoke’s Morning Lineup – 3/20/24 – Muted Breadth
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“Never give up, for that is just the place and time that the tide will turn.” – Harriet Beecher Stowe
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Happy Fed Day! After opening lower and rallying throughout the trading day yesterday, futures are more contained this morning but indicated to open slightly higher on the day as traders await the latest policy decision from the FOMC. It may sound hard to believe with the S&P 500 closing at a record high yesterday, but given last week’s hotter-than-expected inflation data, the market seems to be more worried about some hawkish commentary from Powell. Therefore, if there is no change in his commentary from prior speeches in the last several weeks, that could pave the way for some further gains.
Overnight in Asia, Japanese markets were closed for the Vernal Equinox, but that didn’t stop the Yen from continuing its post-BoJ slide versus the dollar. Other indices in the region were mostly positive with China up 0.6% and back above its 200-DMA while Korea rallied over 1%. In central bank news, BoJ governor Ueda said that easy monetary policy will remain in place for the bank to reach its inflation target, while in China, the PBoC kept its one and five-year loan rates unchanged.
In Europe this morning, it’s been a mixed back with Germany trading up about 0.30% while France is down 0.5% with most other major countries somewhere in between. There was some good news on the inflation front as both German (PPI) and UK (CPI) data came in below forecasts, and this comes after comments yesterday from ECB Governor Kazaks who said he was comfortable with where the market was on rate cuts this year (three).
The S&P 500’s advance-decline (A/D) wasn’t particularly extreme yesterday, but relative to the last several weeks of subdued readings, it stood out. As shown below, at +269 yesterday’s A/D line was the largest single-day reading in just over a month (2/15). While strong daily breadth readings have been hard to come by lately, significantly weak daily breadth readings have been uncommon in recent weeks. Last Thursday’s daily reading of -281 was also the lowest single-day reading in over a month (since 2/13). As shown in the chart below, while these two daily readings were extreme relative to the last month, they hardly stand out from a long-term perspective. In fact, over the last five years, the S&P 500’s average daily breadth reading was +/-212, so readings in the 200s have hardly been extreme.
The fact that breadth has been subdued on both the upside and downside means that overall market breadth has remained on a solid footing. As shown in the chart below, just like the S&P 500, its cumulative A/D line also made a new high as of yesterday’s close.
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