The Bespoke Report — Equity Market Pros and Cons — Q1 2024
This week’s Bespoke Report is an updated version of our “Pros and Cons” edition for Q1 2024.
With this report, you’re able to get a complete picture of the bull and bear case for US stocks right now. It’s heavy on graphics and light on text, but we let the charts and tables do the talking!
On page three of the report, you’ll see a full list of the pros and cons that we lay out. Slides for each topic are then provided on page four and beyond.
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Bespoke Market Calendar — February 2024
Please click the image below to view our February 2024 market calendar. This calendar includes the S&P 500’s historical average percentage change and average intraday chart pattern for each trading day during the upcoming month. It also includes market holidays and options expiration dates plus the dates of key economic indicator releases. Click here to view Bespoke’s premium membership options.
The Bespoke 50 Growth Stocks — 2/1/24
The “Bespoke 50” is a basket of noteworthy growth stocks in the Russell 3,000. To make the list, a stock must have strong earnings growth prospects along with an attractive price chart based on Bespoke’s analysis. There were 21 changes to the list this week.
The Bespoke 50 is available with a Bespoke Premium subscription or a Bespoke Institutional subscription. With Bespoke Premium, you’ll receive a number of daily market updates from us along with our weekly newsletter and a portion of our investor tools. With Bespoke Institutional, you’ll receive everything that’s included with Premium plus additional daily macro analysis and more stock-specific research.
To see all 50 stocks that currently make up the Bespoke 50, simply start a two-week trial to Bespoke Premium or Bespoke Institutional.
The Bespoke 50 performance chart shown does not represent actual investment results. The Bespoke 50 is updated weekly on Thursday unless otherwise noted. Performance is based on equally weighting each of the 50 stocks (2% each) and is calculated using each stock’s opening price as of Friday morning each week. Entry prices and exit prices used for stocks that are added or removed from the Bespoke 50 are based on Friday’s opening price. Any potential commissions, brokerage fees, or dividends are not included in the Bespoke 50 performance calculation, but the performance shown is net of a hypothetical annual advisory fee of 0.85%. Performance tracking for the Bespoke 50 and the Russell 3,000 total return index begins on March 5th, 2012 when the Bespoke 50 was first published. Past performance is not a guarantee of future results. The Bespoke 50 is meant to be an idea generator for investors and not a recommendation to buy or sell any specific securities. It is not personalized advice because it in no way takes into account an investor’s individual needs. As always, investors should conduct their own research when buying or selling individual securities. Click here to read our full disclosure on hypothetical performance tracking. Bespoke representatives or wealth management clients may have positions in securities discussed or mentioned in its published content.
Chart of the Day – Sahm Rule for Stocks
High Share Prices vs. Low Share Prices
It shouldn’t matter, but we saw a huge disparity in the performance of stocks with high versus low share prices in January. Here are the numbers:
As shown below, in the large-cap Russell 1,000, the 100 stocks that began 2024 with the lowest share prices fell an average of 7.4% in January, while the 100 stocks that began the year with the highest share prices rose an average of 2%.
There are 25 stocks in the Russell 1,000 that began 2024 with a sub-$10 share price, and these stocks fell an average of 11% in January. Conversely, the 41 stocks in the Russell 1,000 that began the year with a share price of more than $500 rose an average of 3.2% during the month.
What gives?
January 2024 Key ETF Performance
The first month of 2024 is already complete, and below is a look at the performance of various asset classes during January using key ETFs that we track closely. The S&P 500 (SPY) finished the month up 1.59% even though the average stock in the index was down 0.84%. While large-cap ETFs like SPY and QQQ finished the month higher, the small-cap Russell 2,000 (IWM) was down 3.9%.
At the sector level, Real Estate (XLRE) and Consumer Discretionary (XLY) both fell 4%+, while Communication Services (XLC) saw the biggest move to the upside at 4.4%. International equity ETFs were all over the place in January with India (PIN) and Japan (EWJ) solidly higher and China (ASHR) and Hong Kong (EWH) sharply lower. Oil (USO) was actually the best performing area of the entire matrix in January with a gain of 6.4%. On the flip side, natural gas (UNG) and silver (SLV) both fell 3%+.
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Chart of the Day: Shorts, Small Cap, and Last Year’s Losers Lag
Down at Noon on a Fed Day
The first Fed day of the year has arrived. While there’s widespread agreement that rates will be held steady today, according to the CME’s FedWatch tool, markets are pricing higher probabilities of cuts at other meetings this year. Looking six months out shows the market is giving a greater than 50% chance of rates being cut by at least a full percentage point from the current range of 5.25-5.50%. While time will tell what Powell and company decide, we would note that price action of the S&P 500 intraday on all Fed days since 1994 (when the FOMC first began announcing its decision on the same days as the meeting) when the FOMC holds rates steady has historically been less volatile, particularly post-decision, than when rates are cut or raised.
We would also note that the S&P 500 is currently trading lower by 0.86% as of this writing today in the wake of poorly received mega-cap earnings of Alphabet (GOOGL) and Microsoft (MSFT). While those drags on the market are independent of the Fed, that negative tone could lead to the first decline on a Fed day since the September meeting. As shown below, the meetings of the past couple of months have offered a positive change in tone after the S&P 500 largely fell on Fed days throughout late 2022 and 2023.
Not only have the past couple of meetings seen a more positive response from the S&P 500 but the moves have been particularly pronounced in afternoon trading. Below we show the intraday path of the S&P 500 on recent Fed days. The past two meetings (November and December) have resulted in gains of over 1% by the end of the day. However, in a stark difference to other recent meetings, the bulk of those gains have come from strong afternoon rallies in the wake of the decision. As shown by the red line below, the average if the prior ten meetings (those occurring from July 2022 through this past September) saw the S&P 500 trade higher throughout the session up until the final hour of trading when it gave up the ghost and closed at the lows of the day.
Looking back through all Fed days since 1994 when the FOMC began to announce its decisions on the same day of the meeting, there have been 14 times in which the S&P 500 was down by 0.5% or more by noon. Below we have constructed an intraday composite of those days. While the S&P has tended towards weakness throughout most of the session, it has experienced a rally, eating into those losses post-decision. That being said, the gains were not enough to erase all of the pre-announcement declines and the rally tended to be short-lived. Of those 14 days when the S&P 500 was down 0.5% or more by noon, it only closed higher on the day five times.
Bespoke’s Morning Lineup – 1/31/24 – That Was Fast
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.
“The function of socialism is to raise suffering to a higher level.” – Norman Mailer
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
January often seems like the longest month of the year, but it’s hard to believe it’s already winding down. What’s been a strong month for equities so far looks to be going out on a sour note as earnings from mega-caps like Alphabet (GOOGL), Microsoft (MSFT), and Tesla (TSLA) haven’t impressed investors. Based on today’s pre-market levels, all three stocks have traded down in reaction to their earnings reports. That leaves Apple (AAPL), Amazon.com (AMZN), and Meta (META) on Thursday as the last chances to salvage something from the mega-cap space this earnings season (NVIDIA doesn’t report until late February).
On the economic calendar today, the ADP Employment report for January missed forecasts coming in at a level of 107K compared to forecasts for an increase of 150K. The Employment Cost Index was also just released and showed a smaller-than-expected increase of 0.9% compared to forecasts for growth of 1.0%. The only other report on the calendar for the day is the Chicago PMI at 9:45 which is expected to modestly increase from 46.9 to 48.0. But the most important event of the day is the FOMC’s rate decision at 2 PM, and given expectations for no change in rates, every word of Powell’s press conference thirty minutes later will be dissected down to each syllable.
As mentioned above, the first of the mega caps to report haven’t impressed investors so far this earnings season. Earnings reports are just one day in a quarter, though. While a positive stock price reaction to an earnings report can be nice, it’s only a small part of the picture.
Look at the chart of GOOGL below. With the stock trading down over 5% in the pre-market, it is now on pace to have its fifth negative earnings reaction day in the last six quarters. To put that in perspective, if you had purchased the stock at the close on the day of its earnings report and only held it through the close on its earnings reaction day, you’d be down just over 21% on these six trading days alone. Over the entire period and including these six days, though, GOOGL’s cumulative performance has been a gain of over 51%. Again, not only is a stock’s performance on its earnings reaction day a small part of a bigger picture, but it can also be wildly inaccurate.
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