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“aggressive conduct, if allowed to go unchecked and unchallenged ultimately leads to war” – John F Kennedy, 10/22/1962
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Just when it seemed nothing could go wrong for the market, yesterday we had a weak day underneath the surface in terms of breadth. That weakness has continued into this morning as US futures are firmly lower following a decline of over 1% in the Nikkei. In Europe, despite positive earnings from SAP and Logitech, the STOXX 600 is down close to 1%.
Treasury yields remain the culprit as the relentless rise in longer-term interest rates continues since the Fed cut rates in September. The 10-year yield has risen above 4.2% for the first time since the summer as the market continues to experience one of the sharpest increases in yields following a rate cut in at least the last 30 years.
The S&P 500 was only down 0.18% yesterday, but breadth was terrible with a net advance/decline reading of negative 338. The weak breadth was also evident in the equal-weighted S&P 500 which was down 0.85%. The 4% rally in NVIDIA (NVDA), which is now within 2% of Apple’s (AAPL) market cap, was a big factor behind the big performance spread between the cap and equal-weighted indices. The scatter chart below compares the S&P 500’s daily percent change versus the net A/D reading, and the shaded area highlights days when the net A/D reading was between -350 and -300 (yesterday was -338). On those days, the S&P 500’s average decline has been 1.23%. To put yesterday into perspective (red dot in lower chart), it is one of just two days since 1997 that the net A/D reading was between -350 and -300 and the S&P 500 was down less than 0.25%!
Can you believe it? The day is almost here. Two weeks from today is the last day we can vote in the 2024 Presidential Election, and then we’ll finally get a break from all the politics. Right?
Like what we did two weeks ago, the chart below shows the performance of the S&P 500 in the two weeks leading up to Election Day for all years since 1948, and we have noted Presidential Election years in dark blue. While you might expect volatility leading up to Election Day, the S&P 500 has historically performed better in the two weeks leading up to Presidential elections (1.62%) than it has in non-presidential election years (0.87%), but it has been slightly less consistent to the upside at 68.4% during Presidential election years versus vs 73.3% in non-election years. The biggest gains and losses for the S&P 500 during these two weeks have also been during non-presidential election years (9.1% in 1962 and a decline of 4.4% in 1973). During Presidential election years, the largest gain was 5.4% in 1960 and the largest decline was 2.6% in 1988.
The table below lists the performance of the S&P 500 during the two weeks leading up to each Presidential election since 1948. Along with that, we have also included the number of days that had transpired between the last all-time closing high (ATH) and each Election Day, the number of ATHs in the 50 trading days leading up to Election Day, and whether the part of the incumbent or non-incumbent party won the election.
This year isn’t listed on the table since it’s not Election Day yet but with nine all-time highs already in the 50 trading day window (with ten to go) this year is already tied with 1964 and 1968 for the second most. With the most recent all-time high occurring last Friday, even if there isn’t another closing all-time high between now and then it will rank at least as the fourth fewest number of days between the last ATH and Election Day. The only ones with a shorter gap were 1996 (0 days), 1972 (1 day), and 1968 (8 days).
We also found it interesting that strong markets don’t necessarily help the incumbent party, but short-term weakness in the two weeks before may hurt the incumbent party. In the nine prior periods when the S&P 500 hit an all-time high within 100 trading days of Election Day, the incumbent party only won the Presidency four out of five times. There have been five prior periods when the S&P 500 was down in the two weeks leading up to the election, and in four of those periods, the non-incumbent party won. These are all small sample sizes, and there were other factors at play in each election, but any excuse to talk politics, right?