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“Judges, lawyers and politicians have a license to steal. We don’t need one.” – Carlo Gambino

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

September is making quick work of living up to its reputation as equity futures are steadily moving lower as we approach the opening bell. The S&P 500 is on pace to open down just over 0.5% while the Nasdaq is down over 1%. The driver is twofold, as yields and oil prices are both moving higher. The 10-year US Treasury is up to 4.8% while crude oil prices rally 2.5%, taking WTI up to just under $88 per barrel. Gold and Bitcoin prices are both moving lower on the risk-off sentiment moving through markets. The market hasn’t even opened for trading in the US in September, but wake me when September ends.

Asian equities experienced mixed returns overnight with a bias towards the downside. The Nikkei and onshore Chinese stocks both fell 0.2%, while Hong Kong traded down 0.9%. South Korea bucked the downside bias with a gain of 0.2%. Just like here in the US, rising yields have cast a cloud over equity market sentiment.

European equities aren’t faring nearly as well as Asia. The STOXX 600 is down 0.7%, led lower by 1%+ declines in Germany, Italy, and Spain, while France outperforms with a decline of just 0.3%. The region’s August Manufacturing PMI accelerated to 52.7 from 51.9 but was slightly below consensus forecasts of 52.8. German PMI came in slightly ahead of forecasts, but Retail Sales unexpectedly fell 3.4% versus forecasts for an increase of 0.4%.

In the US this morning. S&P’s Manufacturing PMI will hit the tape at 9:45, followed by the ISM’s gauge at 10 AM. Both are expected to show little change relative to July. Along with those two reports, we’ll get Construction Spending and JOLTS for July.

It seems to happen faster with each one, but with another month passing overnight, we wanted to take a quick look at how current market performance stacks up against history. Starting with the S&P 500, in the 12 months ending yesterday, the index rallied 20.4% on a total return basis, which is more than eight full percentage points greater than the historical average of 12.1%. Over the last two years, the S&P 500 rallied 18.1% annualized, or more than seven full percentage points more than the 10.9% two-year average. Extending our look back five, ten, and twenty years, performance has also been above average but not to as extreme of a degree.

The chart below shows where the current returns of the S&P 500 over each time frame stack up to the historical average on a percentile basis. Of the five periods, the 10-year annualized gain of 15.4% ranks as the best on a percentile basis at 77%, but all of them are better than average, even if the five-year and twenty-year returns are much closer to average than the other periods.

Moving from equities to fixed income, the chart below compares the returns of the BofA/Merrill 10+ Year Treasury Index to its historical average. Not only are returns well below the historical average for all five timeframes, but in most cases they’re negative. Think about it for a second: long-term US Treasuries, long considered among the safest of all investments, have posted an annualized decline of 1.6% over the last ten years. That means that for every $100 you put into the index in August 2016, you have $85.43 now.

The chart below shows the rolling 12-month return of the 10+ Year Treasury Index since 1978. After a record streak of negative readings in the years after Covid, the reading occasionally peeked above zero beginning in late 2023, but it hasn’t had a “big year” of 20%+ gains in quite some time.

As shown in the chart below, the current streak of 73 months without a 20%+ reading in the 12-month total return of the 10+ Year Treasury Index ranks as the longest streak since at least 1979. What has been a lost decade for long-term US Treasuries increasingly looks like it’s turning into a lost generation.

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