The Closer – Fedspeak, Residential Construction, 20y Turnaround – 3/19/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we lead off with an update on Fedspeak (page 1) followed by a dive into today’s residential construction figures (pages 2 and 3). Staying on the topic of real estate, we then pivot over stressed metrics for commercial real estate (page 4). We close with a recap of today’s solid 20 year bond reopening (page 5)
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Daily Sector Snapshot — 3/19/24
Bespoke Stock Scores — 3/19/24
B.I.G. Tips – Old School Powell Fed Days Are Back
Chart of the Day – Housing Starts Turn Higher
Bespoke’s Morning Lineup – If at First You Don’t Succeed
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“Destiny is not a matter of chance, it is a matter of choice; it is not a thing to be waited for, it is a thing to be achieved.” – William Jennings Bryan
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 not a pretty morning for risk assets as two of the areas of the financial universe that had been the subject of the most investor enthusiasm – AI and crypto – are getting hacked this morning. In the AI space, after Jensen Huang’s keynote speech yesterday, investors are taking a sell-the-news reaction. Despite countless companies issuing press releases that they were “working”, “collaborating”, or “partnering” with Nvidia (NVDA), the stock is down just over 2% in the pre-market. The sell-the-news reaction also applies to Super Micro Computer (SMCI) which just announced that it was selling 2 million shares of stock. Based on yesterday’s closing price, that works out to $2 billion or just under 4% of the company’s market cap. In crypto, bitcoin is trading down over 6.4% in what would be its worst day in just over a year. Bitcoin is currently trading at just over $63,000, but overnight on one exchange (BitMex), it crashed down to $8,900 due to a large number of sell orders totaling $55.5 million. For an asset class that is worth over $1 trillion, a $55 million sell order causing a crash of that magnitude certainly doesn’t suggest a lot of liquidity.
On the economic calendar, Building Permits and Housing Starts were just released and both reports exceeded forecasts. Along with that, January’s reports were also revised higher. These better-than-expected housing numbers also follow yesterday’s better-than-expected homebuilder sentiment report.
For Williams Jennings Bryan, his destiny was clearly not to become President of the United States. Along with Henry Clay, Bryan is one of only two people to unsuccessfully run for President of the United States on the ticket of a major political party three different times (1986, 1900, and 1908). Do you know the other person? Benjamin Franklin (who it wasn’t) once said that “energy and persistence conquer all things” but for Bryan, his political career ended with “three strikes and you’re out”.
Like Bryan, the emerging markets ETF (EEM) is currently making its third attempt since the start of 2023 for a breakout above $42. There’s still time, but the last couple of days have seen the ETF’s momentum start to slow putting its ‘destiny’ of a move into the high 40s in question.
Whether or not EEM breaks above resistance will be dictated in large part by the performance of Chinese stocks which account for more than a quarter of the ETF’s holdings. Chinese stocks have been in a steady downtrend for most of the last year. For much of that period, the 50-day moving average acted as consistent resistance, but after breaking above that level after the Lunar New Year holiday, the Shanghai Composite made a beeline right for the 200-DMA. It successfully closed above that level on Monday for the first time since last August, but the ‘breakout’ didn’t last long. Last night, the Shanghai Composite fell over 0.75% and back below its 200-DMA. Unfortunately, the Shanghai Composite’s one-day above its 200-DMA wasn’t even long enough to qualify as a streak.
At 143 trading days, the Shanghai Composite’s streak of closes below its 200-DMA was the longest since November 2022 and the tenth time since China entered the World Trade Organization (WTO) in late 2001 that it closed below the 200-DMA for six months or more. While the break above the 200-DMA may sound like a positive technical development, historically it hasn’t been. In the year that followed those nine prior streaks, the Shanghai Composite’s median performance was a gain of 4.0% with gains 56% of the time.
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The Closer – Fed Narratives, AI Impact, Inflation Returns – 3/18/24
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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 rate cut estimates as well as the impact of AI stocks on the broader market (page 1). We then provide a look into equity market returns based on inflation levels (page 2). We then preview this week’s upcoming Treasury reopenings (page 3) before closing with our weekly rundown of positioning data (pages 4 – 7).
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Daily Sector Snapshot — 3/18/24
Homebuilder Sentiment Back to Expansion
Earlier today, the National Association of Home Builders published its March reading on homebuilder sentiment. The headline index rose back above 50 and into expansionary territory. Albeit back in expansion, the index is only at the highest level since last July, and that is well below much of the past decade’s range.
The only sub-index of note was for future sales. This reading has risen month-over-month in four consecutive releases, which brings it up to match the June 2023 high.
On a regional basis, homebuilder sentiment is showing as much healthier in the Northeast and in the Midwest. While in the Northeast the index pulled back from a nearly two year high, the Midwest leaped 11 points month over month to the highest level since July 2022. That one month jump is tied for the fifth largest one month increase on record. The only larger recent increases were in June and July of 2020. As for the West and South, homebuilder sentiment rose and fell, respectively.
As homebuilder sentiment improves, the chart of the homebuilders, proxied by the iShares US Home Construction ETF (ITB), remains in its long term uptrend. Currently, the group remains overbought in spite of recently pulling back from its highs.
Finally, we would note that although homebuilders have been mostly headed higher, on a relative basis versus the S&P 500 (SPY), ITB has weakened a bit. Taking the ratio of ITB versus SPY, the homebuilders have been on an impressive string of outperformance over the past few years. However, that ratio has made a couple of lower highs since the end of 2023. While that is not to say the longer term trend is reversing, it has at least pumped the brakes so far this year.
