Shorts Keep Falling
After the close yesterday, the first update on short interest readings of the new year with data through January 12th was released. As we noted at various points earlier this year, breaking down the Russell 1,000 into deciles shows that by far the worst performing stocks this year have been those that entered the year with the highest short interest levels. As shown below, the 10% of stocks in the Russell 1,000 that began the year with the highest short interest as a percentage of float are down an average of 8.18% YTD. That compares with an average gain of 1.11% for the decile of the least shorted names. While all other deciles have also fallen so far to kick off the new year, their losses are not nearly as large; mostly in the low single digits (across all Russell 1,000 members, the average year to date decline is currently 1.6%).
Breaking things down by industry further illustrates the story. As shown in the first chart below, the industry groups that currently have the highest degrees of short interest through mid-month are retailers, autos, and durables and apparel stocks. Those are also three of the sectors that have averaged some of the largest declines year to date. In fact, autos is down the most with an impressive 11% decline.
Meanwhile, insurance, utilities, and banks typically have the lowest levels of short interest. Performance is a bit more mixed here, but the group with the lowest average short interest reading, Insurance, is also the industry whose stocks have averaged the largest move higher so far this year. In fact, it is actually one of the few areas of the market to be sitting on a gain. As for Utilities, while also possessing low levels of short interest, the average stock has posted a large 5.3% decline.
Between this first short interest report of the year and where things stood at the end of last year, the average Russell 1,000 member did in fact see short interest rise marginally. In the table below, we show the 25 members that saw the largest increases. At the top of the list is recent IPO Instacart/Maplebear (CART). At the end of last year, short interest was already elevated at almost 29% of float. Since then, shorts have continued to pile in. Now over 40% of float is short, the most of any Russell 1,000 member. Ironically, in spite of the general underperformance of highly shorted names year to date, CART is actually headed into the final days of January up 5.67% in 2024. The next largest increase came from mobile game maker Playtika (PLTK). Short interest for this company has risen from just under 9% up to 15.4%. Unlike CART, this stock has experienced worse performance this year with a 13.5% decline. Of the list below, that is some of the weakest performance albeit there are far worse declines and higher current levels of short interest. Lucid (LCID) and Medical Properties (MPW) have seen declines of 30%+ YTD and more than a quarter of their float is shorted.
Bespoke’s Weekly Sector Snapshot — 1/25/24
Chart of the Day – China’s Lost Decade
Bespoke’s Morning Lineup – 1/25/24 – The “Cullinan Six”
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“No pressure, no diamonds.” – Thomas Carlyle
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
The market is currently digesting the economic equivalent of a Thanksgiving dinner in terms of the sheer quantity of reports. Like Thanksgiving, most of the platters were good. Headline GDP came in much higher than expected, inflation readings were in line with or better than forecasts, and Durable Goods were weaker than expected at the headline level but stronger after stripping out transportation. The only “yams” on the table were jobless claims, but even they weren’t that bad as both initial and continuing jobless claims came in only modestly higher than forecasts. In reaction to the reports, futures have rallied as the S&P 500 is indicated to open up by about 35 basis points versus just modest gains ahead of the data.
119 years ago today, in a mine 18 feet underground, workers came across what was and still is the largest diamond ever discovered. Weighing in at 1.33 points, the 3,106-carat Cullinan diamond was immediately sold to the local government who then gifted it to Britain’s King Edward VII. The stone was ultimately cut into nine major stones (the Cullinan IX) and dozens of smaller ones, but the two largest, at 530 and 317 carats, respectively, remain on display in the Tower of London along with the other crown jewels.
The equity market’s version of the Cullinan IX is the Magnificent Seven, and while TSLA has had some trouble of late, the remaining “Cullinan Six” of Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon.com (AMZN), Nvidia (NVDA), and Meta Platforms (META) have continued to hum. Through yesterday’s close, the stocks were collectively 22.5% above their 200-day moving averages (DMA) with AAPL the closest at 7.1% and NVDA a seemingly outrageous 43.3% above its 200-DMA. While that may sound crazy, back in the summer NVDA was trading at more than double its 200-DMA.
Putting them all together, the chart below shows the daily historical market cap of the “Mag Six” stocks since the start of 2023 along with the 200-DMA. As of Wednesday’s close, the “Mag Six” had a combined market cap of $12.02 trillion which was more than $1.85 trillion above its 200-DMA. To put that in perspective, that’s the equivalent of over 65% of the Russell 2000’s entire market cap, and if just those six stocks were to experience a correction and pull back to their 200-DMA, it would knock about 5% off the price of the S&P 500.
Sign up for a two-week trial to Bespoke Premium to continue reading more of today’s macro analysis.
The Closer – BoC, TSLA Margins, 5Y Demand Weak – 1/24/24
Log-in here if you’re a member with access to the Closer.
Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with some commentary the Bank of Canada’s rate decision and quantitative tightening (page 1). We then dive into the latest earnings of Tesla (TSLA), CSX (CSX), IBM (IBM), and more (page 2). Afterward, we finish with a review of the horrendous 5 year note auction (page 3) before closing with a rundown on the massive drop in domestic crude production (page 4).
See today’s full post-market Closer and everything else Bespoke publishes by starting a 14-day trial to Bespoke Institutional today!
Daily Sector Snapshot — 1/24/24
Fixed Income Weekly — 1/24/24
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.
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 for the next two weeks!
Click here and start a 14-day free trial to Bespoke Institutional to see our newest Fixed Income Weekly now!
Chart of the Day – The Election Year Begins
Sliding Down on the Market Cap Ladder
There are any number of ways to illustrate the disparate performance of individual stocks based on market cap this year, but the chart below really drives the point home. The blue lines show the YTD performance of each stock in the S&P 500 starting with the largest in terms of market cap on the left all the way down to the smallest companies on the right. YTD, the second-best performing stock in the S&P 500 – Nvidia (NVDA) – is also the fifth largest company in terms of market cap. Besides NVDA, the only two other stocks up at least 15% YTD are Palo Alto Networks (PANW) and Juniper (JNPR). While just three stocks are up over 15%, seven are down over 15%, including Archer Daniels Midland (ADM) and Boeing (BA) which is down nearly 19%.
While the blue line shows the performance of the individual components, the red line shows the rolling 20 stock performance where the leftmost point on the line represents the performance of the 20 largest stocks in the S&P 500. As shown, the group of 20 stocks with the strongest YTD performance this year is right near the top of the market cap list (stocks 5 through 24 which includes NVDA and AMD). While there are exceptions, the main trend this year has been that the further you move down the market cap ladder, the weaker the YTD returns. The 20 smallest stocks in the S&P 500 also have the worst performance of any other point in the series. Not only that, but 17 of the 20 smallest stocks in the S&P 500 are down YTD, including each of the smallest sixteen.
Breaking the S&P 500 into deciles based on market cap further illustrates this pattern. While 78% of the 50 largest stocks in the S&P 500 are up YTD with an average gain of 3.65%, less than a quarter of the 50 smallest stocks in the index are up YTD, and the average performance of those 50 stocks is a decline of 4.18%. If 2024 is going to be the year of broadening, it’s getting off to a slow start.
Nonstop Nasdaq
The mega-cap Tech-heavy Nasdaq 100 is up nearly 1% today as of this writing, which leaves it up 4.5% already in 2024. It’s been about a month now since the Nasdaq 100 took out its prior all-time highs from late 2021, but as shown in the chart below, the index is already 5.9% above those prior highs as the breakout continues.
Two more noteworthy stats:
The Nasdaq 100 is now up 64% during its current bull market that began on 12/28/22.
And, since the COVID Crash low that the Nasdaq 100 made on 3/20/20, the index is up a whopping 150%.
Below is a table showing historical bull markets for the Nasdaq 100 since the index came to be in the mid-1980s. The current bull market is its 16th using the standard 20%+ rally definition, and this bull is now right at the median when it comes to gains and length. As shown, the current bull has seen a gain of 64.3% over 392 days. The median gain for all Nasdaq 100 bull markets is a gain of 64.5% over 407 days.
When it comes to the average bull market, however, the current bull has a ways to go. Because of two very lengthy bulls that saw 600%+ gains in the 1990s and 2010s, the average bull market looks much different than the median bull market. As shown in the table, the average Nasdaq 100 bull market has seen a gain of 163.2% over 799 days — which is basically double the length and 100 percentage points stronger than the median bull.
