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“You can’t be brave if you’ve only had wonderful things happen to you.” – Mary Tyler Moore

Below is a snippet of commentary from today’s Morning Lineup.  Start a two-week trial to Bespoke Premium to view the full report.  

Anyone long the stock market (even small caps after the last two months) will be sad to see this year come to an end, but time moves on, and so do investors.  The year ended on a positive note in Asia and Europe, but here in the US equity futures are looking more subdued.  The only report on the calendar today is the Chicago PMI report for December. You may recall that last month’s report was much better than expected coming in at a level of 55.8 versus forecasts for a reading of 46.0, ending what had been an extended streak of readings below 50. This month, economists are forecasting a level of 50.0 on the nose, but if the reading can top that level it will help lend some credence to the idea that the manufacturing sector is exiting its multi-month slump.

After a rough late summer/early fall stretch, investors have had nothing but wonderful things happen to them over the last two months. At the rate this week is going, both the S&P 500 and the Nasdaq are on pace to close higher for the 9th straight week.  There’s still a day left of trading, and we don’t want to jinx it, therefore, the bar for this week in the chart below is colored in light red. Since the Nasdaq’s inception in 1971, there has only been one other period where both indices had concurrent streaks of nine straight gains,  and that was in late 1985 when a streak of gains lasted eleven weeks.

Looking at each index individually, returns following nine consecutive weeks of gains have generally been better than average.

For the S&P 500, there have been nine prior nine-week winning streaks since 1952 (when the five-day trading week in its current form began), and while performance over the next week was negative on a median basis, and performance was down more often than it was up, median returns for the next one, three, six, and twelve months were better than the long-term average for all periods since 1952.

While the Nasdaq has only been around since 1971, it has had more nine-week winning streaks than the S&P 500, and of the fourteen prior streaks, ten extended to ten weeks.  Looking ahead, median returns over the following one, three, and twelve months were positive and better than the long-term average, but six months later, the median gain of 3.67% was well below the 6.02% average for all six-month periods since 1971.

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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.

“There are no traffic jams along the extra mile.” – Roger Staubach

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 another slow morning in the markets as the pace of data has been slow. The only reports of note on the calendar this morning were Wholesale Inventories, which fell 0.2% on a m/m (right in line with forecasts), and jobless claims.  Initial claims were slightly higher than expected (218K versus 210K) while continuing claims increased modestly to 1.875 million which was in line with consensus forecasts. Equity futures are modestly higher for the S&P 500 while the Nasdaq is indicated to open up 0.26%.   There’s a small positive bias to yields, but nothing indicating conviction. One other item worth noting is that while the S&P 500 is within spitting distance of a record high, individual investor bullish sentiment declined this week falling to 46.3% from 52.9% and the lowest level since 11/23.

With just two trading days left in the year, the market is on the verge of history.  After being written off for dead in the last year, the traditional 60/40 portfolio of 60% stocks and 40% bonds is within a whisker of its best two-month rally since at least 1990.  The chart below shows the rolling two-month performance of a 60/40 portfolio using the S&P 500 total return as the stock portion and the Bloomberg Aggregate Bond Index total return as the bond portion.  With a gain of 12.16% over the last two months, the current period just surpassed the two-month rally coming out of Covid (May 2020), and the only other period that was better for the strategy was the two months ending in April 2009. Back then, the strategy rallied 12.25%, so if the next two trading days even see marginal gains, the current rally will set the record.

What makes the current period so much different than the other two cited above is where the gains have come from.  Let’s start with the stock portion of the strategy.  In the current period, the S&P 500 is up 14.35% over the last two months, which is certainly strong relative to history but not anywhere close to a record. In May 2020, the two-month gain was 18.19% and in April 2009 it was 19.17%.

What has stood out in the last two months is how strong the bond portion of the strategy has been.  Back in 2009, the bond leg was up just 1.87% while in May 2020 it was up 2.25%.  During this current period, bonds have rallied an unprecedented 8.87% which far exceeds any other two-month period since at least 1990.  Since they are meant to act as the ‘insurance’ leg in times of market weakness (although it wasn’t the case in 2022), bonds tend to always underperform stocks during periods when the equity market rallies.  While they still underperformed stocks in the last two months, they have never acted as a smaller drag on the strategy during a period of strength.

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