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“Don’t fight the problem, decide it.” – George C. Marshall

Morning stock market summary

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

Before getting to this morning’s note, we wanted to alert subscribers to our latest B.I.G. Tips report highlighting some of the more interesting charts of companies that have reported earnings Triple Plays so far this year. In our experience, we have found that earnings triple-plays have been a great starting point to find potential new ideas.

Stock futures are modestly lower this morning which would set the market up for its third straight day of declines. The just released ADP Payrolls report for March came in higher than expected (184K vs 150K), and futures experienced a modest bounce in the initial reaction. Still on deck, we have the S&P and ISM PMI indices for the Services sector, and both are expected to show a modest uptick relative to February.

After the close last Wednesday, the S&P 500 and all eleven sector ETFs were trading at overbought levels. The S&P 500 was at a record high, and the long-awaited broadening appeared to be playing out. Except for Real Estate, every sector was up YTD.  Besides that, not only was every sector back above their respective 50-day moving averages, but they were also all trading at overbought levels (one or more standard deviation above their 50-day moving averages).

Three trading days later, we’ve seen some deterioration in the market. The S&P 500 still closed at overbought levels yesterday, but nearly half of all sectors have moved out of that range, including Real Estate, which is back below its 50-day moving average, and Health Care, which is barely hanging on to that level.  For both sectors, the selloffs have had specific catalysts. In Health Care, it was Monday’s announcement from the Centers for Medicare and Medicaid Services (CMS) that 2025 payment rates for Medicare Advantage plans would effectively be equal to a 0.16% decline relative to this year. The decline in Real Estate stems from concerns over “higher for longer” interest rates threatening the ability of property owners to refinance loans at feasible rates.  Just this morning, the FT reported that 2023 cash flows at a $60 bln property fund operated by Blackstone (BX) weren’t enough to cover its annual dividend payments.

To be sure, the declines of the last two trading days are peanuts in the grand scheme of things. The S&P 500 is down less than 1% from its record closing high last Thursday, and most sectors are still overbought. In a bull market, these are exactly the types of rotational moves you would expect to see, and even more short-term weakness in the low to mid-single-digit percentage range shouldn’t be a surprise.  The timing is also good. The last thing you would want to see heading into earnings season is a market trading at overbought or extreme overbought levels and setting the bar unrealistically high.

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