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“I don’t play small. You have to go out and play with what you have. I admit I used to want to be tall. But I made it in high school, college, and now the pros. So it doesn’t matter.” – Spud Webb

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

After getting within pennies of 5,000 yesterday, will today be the day?  Futures are mixed this morning, but the changes are small on either side of the unchanged line.  The only economic data on the calendar was jobless claims, and both initial and continuing claims came in slightly lower than expected.  Like equities, treasury yields are little changed, but the bias is to the upside.  Outside of the US, international markets are biased to the upside, and Japan rallied over 2% following some dovish commentary from the BoJ deputy governor suggesting that he doesn’t see a path of continuous rate hikes.

Before the NFL Season stretched out until mid-February, the NBA All-Star game used to take place in late January to early February (it’s now been pushed out to the second half of the month with this year’s scheduled for 2/18). One of the most exciting aspects of All-Star weekend for a lot of kids was the slam dunk contest where the tallest and most athletic players would show off their skills on an undefended rim (you could argue that defense doesn’t exist for the whole weekend, but that’s another story). Depending on when you grew up, you probably remember MJ going airborne from the foul line flying through the air to the rim, and finishing it off one-handed.  For younger fans, maybe it was Zach Lavine in 2016 going through his legs while in the air.

But back on this day 38 years ago in 1986, the unlikeliest of contestants, one Spud Webb, who clocked in at 5 feet, 7 inches (generously) stunned the crowd to win. Going against players over a foot taller, including his teammate Dominique Wilkins, Webb wowed the crowd with a 360-degree midair jam to bring the trophy home.

If only small caps could get some inspiration from Spud Webb. Over the last five weeks, the Russell 2000 has underperformed the S&P 100 (largest stocks in the S&P 500) by over ten percentage points, a margin of underperformance that has only been exceeded in a few periods.  That said, it was less than two months ago that the Russell 2000 had outperformed the S&P 100 by more than ten percentage points in the prior five weeks.  Given the gyrations in performance between the two indices in the post-COVID period, there’s been a lot of indecision on the part of investors, although the bias has been to mega-caps.

From a longer-term perspective, the Russell 2000 has been in a consistent period of underperformance relative to the S&P 100 for ten years now, and the ratio of the prices of the two indices is down to its lowest level in 20 years.  As long as this period of underperformance has been, though, from the mid-1980s through 1999, small caps pretty consistently underperformed mega caps for a period of nearly 16 years.

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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.

“If your work is so smart that only smart people get it, it’s not that smart.” – Chris Rock

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

US equity futures were flat to modestly lower up until about an hour ago, but have seen a nice bounce, and all three major US indices are indicated to open higher on the day.  Once again, there’s not much economic data to steer futures, and the pace of earnings since yesterday’s close has been mixed.  On the upside, Ford (F) has been one of the bigger winners as it trades 5% higher after better-than-expected earnings and announcing a special dividend of 18 cents per share. To the downside, shares of Snap (SNAP) have lost nearly a third of their value this morning following a weaker-than-expected report, putting the stock on pace to fall in reaction to earnings for seven straight quarters.

In international markets, it was a mixed session in Asia overnight as Japan saw a stronger-than-expected report on Leading Indicators. Europe has taken a modestly negative tone in early trading as most major indices in the region trade down fractionally. In Germany, Industrial Production fell more than expected while a payrolls report in France was slightly better than expected.

After Tuesday’s rally in mainland China, the KraneShares CSI China Internet ETF (KWEB) had its best day since last July as it rallied 6.7%.  Investors were excited about the prospects for a major round of stimulus from the Chinese government to prop up its stock market and economy, but it’s important to realize that there have been more than a few false alarms over the last few years. Already this morning, KWEB reversed some of yesterday’s gains with a decline of over 2% in the pre-market.

The chart below shows the performance of KWEB since its inception in 2013, and the red dots indicate each time the ETF rallied more than 5% in a single day. It’s easy to see that there have been a lot more occurrences since the ETF’s peak in February 2021 than before it. Of the 58 occurrences in the ETF’s history, 42 (72%) have been in the last three years.

After big rallies in a bear market like Tuesday, it’s tempting to think that it’s the start of something bigger, but in KWEB’s case, it has not. We saw a similar dynamic at play in the US during the dot-com bust and then during the financial crisis where the response to every big move was “Is this it?” Eventually, one of the rallies does take hold, but there are a lot of false alarms along the way. In KWEB’s case, Tuesday’s rally only took the ETF back to where it was less than two weeks ago.

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