The Closer – UAW Walkout, Lithium Prices, PMIs – 10/24/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with recaps of the latest European and US earnings (page 1) followed by commentary regarding the latest UAW walkouts and the impacts on auto stocks (page 2). We also provide an update on lithium prices and Markit PMI data (page 3). We finish with a recap of today’s 2 year note auction (page 4).
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Daily Sector Snapshot — 10/24/23
Bespoke Stock Scores — 10/24/23
Chart of the Day – Software is Eating the…Budget
Breadth Bombs
A frequent point of discussion this year has been breadth, or more specifically, the massive impact of mega caps on the market-cap-weighted S&P 500’s year-to-date performance (something we discussed in yesterday’s update of our Sector Weightings report). We often use the 10-day advance-decline (A/D) line to measure how breadth is evolving in the near term; highlighting these readings for the S&P 500 and its eleven sectors daily in the Sector Snapshot. This indicator essentially shows the average net percentage of daily advancers versus decliners in an index over a two-week period.
In the chart below, we show the S&P 500’s 10-day A/D line (expressed as standard deviations to clarify overbought/oversold levels) over the past year. The past week has seen a monumental shift in breadth. Just one week ago, the 10-day A/D line was deeply overbought sitting 1.72 standard deviations above the historical average, but as of yesterday’s close, it has fallen all the way into oversold territory; a 2.9 standard deviation drop in only four days.
Looking back to the start of our data in 1990, that is one of the largest four-day declines on record. In fact, the last time the line fell by such a degree or more was in September 2022 when there was a record decline.
While two-standard deviation declines have been uncommon, even fewer have resulted in the 10-day A/D line going from overbought to oversold. In the table below, we highlight those nine prior instances that have occurred with at least 3 months having passed since the last occurrence. The current period holds one of the higher starting readings in the 10-day A/D line. In fact, only November 2011 saw a higher reading.
As for S&P 500 performance going forward, returns have generally been mixed. One week after big ‘breadth bombs’ the index has actually risen better than three-quarters of the time, however, one month out has averaged a decline with positive returns less than half the time. Three months out to one year on have all averaged positive returns, but those are all weaker than the norm.
Bespoke’s Morning Lineup – 10/24/23 – Bitcoin Breakout
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Equity futures are trading higher for what seems like a change this morning after the S&P 500 has posted five straight days of losses. Positive earnings news seems to be driving the gains. We’re starting to see a heavier flow of larger companies report, and this morning’s batch has been generally better than expected. The real test will come after the close, though, as we’ll hear from Alphabet (GOOGL) and Microsoft (MSFT) after the close. Treasury yields and crude oil are generally behaving this morning, and the only data on the economic calendar is preliminary PMI readings for the Manufacturing and Services sectors, as well as the Richmond Fed Manufacturing Index.
After trading in a relatively tight range over the last six months and seeing its daily volatility converge to levels more in line with a long-term US Treasury, bitcoin prices have been rallying over the last few days, capping it off with a gain of nearly 10% today. Prices briefly surged past $35,000 overnight, and while they have pulled back from those highs, the world’s largest cryptocurrency is on pace for its highest close since May 2022. Optimism over approval for a spot ETF has been cited for the gain, but rising geo-political instability and concerns over sovereign debt loads can’t be ruled out either.
While prices got there briefly overnight, bitcoin is currently on pace to come up just short of a double-digit single-day percentage gain. Heading into today, the current streak without a one-day gain of at least 10% was 224 calendar days (bitcoin trades every day) which ranked as the longest streak since the 229-day streak that ended in November 2018. Before that, the only other streak that was longer was the 272 days ending in March 2017.
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The Closer – Earnings, Yield Reversal, Positioning – 10/23/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a recap of tonight’s earnings reports and the UAW situation (page 1). We then dive into the Chicago Fed’s Survey of Economic Conditions (page 2). We then review the reversal in 10 year yields (page 3) before previewing this week’s Treasury auctions (page 4). We finish with a look into the latest positioning data (pages 5 – 8).
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Daily Sector Snapshot — 10/23/23
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