Daily Sector Snapshot — 4/26/23
Chart of the Day – Consumer Staples Elevated Price and P/Es
Fixed Income Weekly: 4/26/23
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 every Wednesday. 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.
In this week’s report, we look at slowing issuance of a key type of loan.
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 free for the next two weeks!
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Bespoke’s Morning Lineup – 4/26/23 – The More Things Change…
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.
“Unlike some governments which fear change and fear the future, China is beginning to reach out toward new horizons, and we salute your courage.” -Ronald Reagan 4/27/1984
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
Times have really changed in the last 39 years. In 1984, when President Reagan became the third US President, after Nixon and Ford, to visit China, it was a much smaller player on the global economic stage. According to the World Bank, Chinese GDP per capita was $250.7 in 1984, compared to $17,121.2 in the US. Through 2021 (the latest available data), GDP per capita in the US has increased by over 300% to $70,248, which sounds impressive at face value. However, in China, the same figure has grown by 4,900% to $12,556 per capita. US GDP per capita is still much larger than it is in China, but the gap has narrowed immensely, and China is on a much more equal footing with the US than it was then.
What’s also changed in the last 39 years is the relationship between the US and China. Reagan’s visit was a major diplomatic event where he was greeted with a 21-gun salute in Tiananmen Square. Today, it’s hard to imagine a US President even considering a visit to China, as diplomatic relations between the two countries have mostly frozen over. If there’s one bipartisan issue in Washington right now, it’s that China is an enemy rather than a friend.
One thing that hasn’t changed between now and 1984 is the issue of Taiwan’s independence, one of the primary reasons for the now icy relationship. During President Reagan’s visit in 1984, Chinese Premier Zhao noted in a news conference with reporters that “The question of Taiwan remains the major obstacle to stable, sustained development of Sino-U.S. relations”. The more things change…
Moving on to the markets this morning, futures are trading modestly higher as concerns over First Republic (FRC) get pushed back, and positive earnings from several companies, most notably Microsoft (MSFT), drive positive sentiment. Given the concerns over the banking sector and the debt limit, Treasuries are at the short end of the curve. Speaking of how the more things change, the more they stay the same, just as MSFT is trading at 52-week highs, the company finds itself in regulatory crosshairs on antitrust concerns. This time it’s the proposed acquisition of Activision (ATVI) which the UK CMA has blocked citing risks to innovation in cloud gaming. Is this the 2020s or the late 1990s?
Looking ahead, as the FOMC appears almost certain to hike rates another 25 basis points (bps) next week, even as risks of a recession increase, the spread between short and long-term US Treasuries yields continues to widen. As of yesterday’s close, the 10-year vs. 3-month yield curve, the Federal Reserve’s preferred measure of the yield curve as an indicator of a recession, was inverted by 164 bps, which is the most extreme reading since the early 1980s. Every other time in the last 60 years that it inverted by as much or more, the economy was either right on the cusp of or already in a recession.
Even more extreme than the actual level of the yield curve is the pace at which it has flattened/inverted over the last year. As shown in the chart below, the 367 bps pace at which the yield curve has flattened over the last year is the most extreme since just before the onset of the second dip of the double-dip recession in May 1981. Besides that, the only other time that the curve flattened by as much was in 1973, just months before the onset of a recession lasting nearly a year and a half.
Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals. We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!
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The Closer – Earnings, Home Sales, Activity Indices, Speculator Positioning – 4/25/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with earnings recaps of the first of the mega-caps (page 1) followed by a look at other notables (page 2). We then dive into the latest home sales numbers (page 3 and 4) before switching to a look at home prices (page 5). We then show service activity indices (page 6) followed by a 2 year auction recap (page 7). We finish with a look at performance of the S&P 500 given the latest bearish positioning data (pages 8 and 9).
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Daily Sector Snapshot — 4/25/23
Bespoke Stock Scores — 4/25/23
S&P 500 Futures Historically Shorted
As we do each Monday, in last night’s Closer we highlighted the latest futures positioning data from last Friday’s release of the CFTC’s Commitments of Traders report. Of all assets, perhaps the most striking number was in S&P 500 futures. In data as of last Tuesday, a net 15.11% of open interest among speculators was positioned short. That marked the most bearish positioning for this class of investors since September 2007. Prior to that, there have been relatively few instances of speculator positioning exceeding 15% net short. Most of those occurred in the late 1990s and early 2000s when positioning readings were far more volatile on account of open interest being much smaller than it is today. With that being said, we would also note that open interest has been trending lower in the past few years with recent readings being some of the lowest since 2008 on a 52-week moving average basis.
Make sure to check out tonight’s Closer, where we provide an analysis of the performance of the S&P 500 following other historically net short readings.
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Fed Days Flipping Script
The FOMC blackout period is now underway meaning there will be no communications from FOMC members until the day of the May meeting. As we detailed yesterday, performance outside of and during blackout periods has been pretty weak during the current roughly year-long tightening cycle. However, things have been improving more recently. As for Fed days themselves, the opposite has been true.
In the chart below, we show the performance of the S&P 500 on the day of FOMC rate decisions going back to 1994. Earlier in the current tightening cycle, Fed days offered the market a brief respite from selling. In fact, some of the strongest Fed days (in terms of S&P 500 performance) of the past few decades occurred last year as the rolling 10-meeting average hit a more than decade-long high in July. With that being said, that average has been rolling over with weaker reactions to the FOMC in the past few meetings. In other words, to some extent, S&P 500 performance during and outside of blackout periods and on Fed days has begun to flip the script in the past few FOMC meetings.
Have you tried Bespoke All Access yet?
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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B.I.G. Tips – “Buy the Dip” and “Day After” Trends
Discover the fascinating world of “buy the dip” investing and its rollercoaster journey through the years in our newest in-depth analysis. This BIG Tips report delves into the historical action of the S&P 500 tracking ETF (SPY) after up days versus down days and reveals some surprising findings that have shaped the market since 1993. Subscribe to Bespoke Premium now to access the full report!