B.I.G. Tips – Valuations and One Year Returns
Chart of the Day: More and More of the S&P Above 50-DMAs
Fixed Income Weekly — 7/12/23
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.
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Bespoke’s Morning Lineup – 7/12/23 – CPI
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.
“I don’t mind going back to daylight saving time. With inflation, the hour will be the only thing I’ve saved all year.” – Victor Borge
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We’re already in the middle of the week, but in many ways, it’s just beginning as June CPI is being released as we write this, a number of Fed speakers are on the calendar to speak, and then later in the week, we’ll get PPI, Jobless Claims, Michigan Confidence, and then the start of earnings season. Heading into the release of today’s CPI report, equity futures are higher following a mixed session in Asia, and a strong showing in Europe where most benchmark indices are up 0.5% or more. Interest rates are lower, and crude oil is up back above $75 per barrel.
In Asia, overnight data was positive as PPI in Japan unexpectedly declined 0.2%, and in China, the government pledged support for internet platform companies which could signal some thawing in the tensions between the communist government and the country’s most powerful executives.
There isn’t much in the way of specific catalysts to speak of explaining the rally in European stocks, although Spanish CPI increased 0.6% m/m which was right in line with expectations. What makes that report notable is that the y/y rate of inflation dropped to 1.9% from 3.2% making Spain the first EU member state to reach the 2% inflation bogey. Will the rest of the region follow suit?
The June CPI report was just released, and while economists were forecasting both the headline and core readings to rise 0.3%, the actual readings came in at 0.2% on both a headline and core basis. On a y/y basis, headline inflation dropped to 3.0%, the lowest level since March 2021 while core CPI dropped to 4.8, which is the lowest reading since October 2021. We’re definitely not at Mission Accomplished, but it’s still moving in the right direction. In response to the report, equity futures are higher with the Nasdaq leading the way gaining more than 1%.
Remember back when it seemed we couldn’t get a weaker-than-expected CPI reading? Well, that tide has turned in a big way. The charts below show the rolling 12-month total of the number of months that headline and core CPI came in higher than expected. At the headline level, there have only been two stronger-than-expected readings in the last year which is the fewest in a twelve-month span since November 2019. On a core basis, there have been just three stronger-than-expected monthly readings, and that’s the fewest since November 2020. In markets, just when you think a trend is entrenched, things have a way of turning on a dime, and that’s an important thing to remember for both investors and policymakers alike.
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The Closer – Nasdaq Ex. Mega Caps, CPI Day Due Up, Sentiment Upswing – 7/11/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at the implications of the Nasdaq rebalancing and a preview of CPI day performance (page 1). We then provide an update on investor sentiment (page 2).Next, we take a look at the latest consumer expectations data (pages 3 and 4) followed by the most recent supply chain data (pages 5-7). We close out with a review of today’s 3 year note auction (page 8).
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Daily Sector Snapshot — 7/11/23
Inflation Expectations Still on the Decline
Ahead of Wednesday’s CPI, the New York Fed’s Survey of Consumer Expectations (SCE) was released earlier this week and showed a continuation of the trend where consumer inflation expectations have been falling. Over the next 12 months, the Fed’s survey showed that the median expected rate of inflation fell from 4.07% down to 3.83%. While still above its historical average of 3.4%, consumer expectations for inflation over the next year are down to the lowest level since April 2021. Over a longer time horizon, inflation expectations haven’t fallen nearly as fast, but they didn’t rise anywhere near as much as short-term expectations either. In the June survey, the median expected rate of inflation over the next three years fell from 2.98% down to 2.95%. While that reading barely budged, we would note that current expectations for inflation over the next three years are slightly below the long-term average. Unlike the FOMC, which ditched the term transitory 18 months ago, consumers have remained on team transitory.
One issue which has the potential to push inflation higher is how consumers expect their incomes to change over time. In this month’s survey, the median expected rate of earnings growth increased from 2.80% up to 2.98% which is right around the high end of its range from the last two years. As shown in the chart below, while this series has tested the 3% level multiple times, it hasn’t been able to bust through it. As it pertains to inflation, that’s a good thing, because if consumers expect their incomes to increase, they’re probably also less likely to push back on higher prices. At the same time, the fact that this reading has settled into a new higher range relative to its long-term average suggests that getting back down to and staying at levels of inflation that prevailed before COVID may prove to be difficult.
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Bespoke Stock Scores — 7/11/23
Chart of the Day: Amazon Prime Day
Small-caps Catch a Bid
Small-caps have caught a bid over the last few days with the Russell 2,000 ETF (IWM) rallying more than 3% since last Thursday’s close. Over the same time frame, the large-cap S&P 500 is up just 0.3%.
While large-cap indices have recently traded to 52-week highs, small-caps are still well below 2023 highs made back in Q1. As shown below, though, IWM is currently attempting to break above the top end of the sideways range it has been in over the last month. If it can do that, the highs from earlier in the year will come into sight.
The Russell 2,000 (IWM) chart looks pretty interesting over a multi-year time frame. As shown below, the pre-COVID high made in early 2020 has acted as strong support over the past year. While IWM fell sharply during the mini-banking crisis this March, it stopped going down once it reached this key support level, and then it traded sideways and consolidated throughout much of April and May. Going forward, it appears that the Russell has built a strong base over the past year to springboard off of if the bull market for US equities can continue.
A chart that always captures our attention is the one below that shows Apple’s (AAPL) market cap versus the combined market cap of all of the stocks in the small-cap Russell 2,000. Prior to COVID, Apple’s market cap wasn’t even close to the $2+ trillion market cap of the Russell 2,000. Since late 2021, though, the two have been battling it out. After its huge gain in Q2, Apple is currently in the lead at $2.96 trillion, but the Russell isn’t too far behind at $2.81 trillion.
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Bespoke’s All Access research package is quick-hitting, actionable, and easily digestible. Bespoke’s unique data points and analysis help investors better visualize underlying market trends to ultimately make more informed investment decisions.
Our daily research consists of a pre-market note, a post-market note, and our Chart of the Day. These three daily reports are supplemented with additional research pieces covering ETFs and asset allocation trends, global macro analysis, earnings and conference call analysis, market breadth and internals, economic indicator databases, growth and dividend income stock baskets, and unique interactive trading tools.
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