Chart of the Day – 60/40 As Positively Correlated As Ever
Bespoke’s Morning Lineup – 1/3/24 – Blame Europe
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“There are two days in my calendar: This day and that Day.” – Martin Luther
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
It’s not for another month, but it’s starting to feel a bit like Groundhog Day as futures are once again pointing to a lower open on the day. If you’re looking for a scapegoat, the other side of the Atlantic may be a good place to start. The charts below show overnight market action combining intraday trading in Asian and European markets along with US futures. The chart on the left shows overnight trading from Monday night into Tuesday while the chart on the right shows trading overnight into this morning. In each case, the pattern has been the same. Up until Europe opened, there wasn’t much going on, and while stocks on the continent briefly rallied to start the day, sellers quickly came in and overwhelmed any positive sentiment.
This morning in the US, several catalysts could either break the trend or accelerate it. At 10 AM, we’ll get the December ISM Manufacturing report which is expected to come in below 50 for the fourteenth straight month and is the longest streak in over 20 years. Along with that report, the release of JOLTS for November is expected to increase modestly after last month’s much weaker-than-expected report. Besides those two reports, we’ll get the FOMC minutes at 2 PM.
Yesterday may not have been an especially positive start to a year, but it probably wasn’t as bad as the headline declines in the S&P 500 and Nasdaq would suggest. While the Nasdaq’s 1.63% decline was the fourth worst start to a year for the index on record, and the S&P 500’s 0.57% decline was steep in its own right, overall breadth on the S&P 500 was slightly positive (+19), and the equal-weighted S&P 500 was barely down on the day (-0.03%).
At the sector level, things weren’t so bad either. You probably wouldn’t believe it, but four sectors rallied over 1% and two other sectors were up on the day. Outside of Technology (-2.62%) and Industrials (-1.01%), no other sector ETF declined more than 1% on the day.
Yesterday’s best-performing sector was Health Care as the sector ETF rallied 1.76%. While the sector was a big laggard in 2023, it appears to be making up for lost time in the new year as the stock convincingly broke out above the upper end of its 2023 trading range.
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Chart of the Day: What Drove Performance in 2023?
2023’s Biggest Losers in the Russell 1,000
While broad swathes of the equity market rose in 2023, that is not to say there were not areas of weakness. Of course there were some major spotlight stocks that investors would have completely lost their shirt on like Silicon Valley Bank had they been invested in the beginning of the year, but for those stocks still standing, below we show the 35 Russell 1,000 members that fell by at least 30% during the year. 2021 short squeeze and meme stock darling AMC Entertainment (AMC) was the worst performer on the year in 2023. Price action in the stock was actually pretty flat throughout the year up until the summer. That’s when prices plunged on news that the company would be approved to convert its one year old preferred shares to common stock and a 1-for-10 reverse split. Ultimately, AMC would go on to finish the year with an 85% loss.
One theme popping up in the biggest losers is clean energy. As EV sales decelerated last year, prices of stocks like ChargePoint (CHPT) and Lucid (LCID) hit major speedbumps, falling by 75.55 and 38.36%, respectively. Other clean energy names like Enphase (ENPH) also faced large losses.
A handful of various retailers also made the list like Petco (WOOF), Advanced Auto Parts (AAP), and Dollar General (DG). Dollar General possesses the largest market cap of those stocks, but of all the biggest losers, the vaccine makers were the largest in size. Both Pfizer (PFE) and Moderna (MRNA) fell by over 40%. In the case of PFE, the stock is now below pre-pandemic levels.
2023’s Biggest Winners in the Russell 1,000
In last Wednesday’s Closer, we noted how there was a somewhat elevated share of the S&P 500 experiencing gains of over 100%. Expanding to the Russell 1,000, there were 34 stocks with total returns of more than 100%. Two members of the Financials sector topped the list, Affirm (AFRM) and Coinbase (COIN), with gains of 408% and 391%, respectively. Two mega caps also found their ways into the top of the list in the five and seven spots: NVIDIA (NVDA) and Meta Platforms (META). One of NVIDIA’s largest competitors Advanced Micro (AMD) was also an over 100% gainer, though it falls a bit further down the list with a 127.8% gain. Other large caps like Broadcom (AVG) and Tesla (TSLA) also posted 100%+ gains.
Those semi conductor names were certainly boosted by the emergence of AI during the year, but other themes were also present among the year’s biggest gainers. For starters, cruise liners like Royal Caribbean (RCL) and Carnival (CCL) put big dents in their post pandemic recoveries with RCL even closing in on pre-pandemic highs. In spite of high rates tamping down demand, housing inventories are historically tight meaning there is an increasing importance on new inventories hitting the market. As we showed in our Annual Report, like AI, housing was also a major theme across earnings calls last year. That offers a potential boon to the homebuilders and it showed in stock performance in 2023. The homebuilder industry had strong representation with names like Builders FirstSource (BLDR), Top Build (BLD), PulteGroup (PHM), and Toll Brothers (TOL) posting over 100% gains.
2023 Russell 1,000 Average Stock Performance by Sector
2023 turned out to be a fantastic year for stocks after a horrible 2022. Below we show the average total return of all stocks in each sector of the Russell 1,000 in 2023. While most areas of the market moved higher during the year, the one area of equity markets that actually provided a negative return was Utilities. That sector’s stocks lost an average of 4.1% compared to a 20.5% average gain for the whole of the Russell 1,000. As a reminder, Utilities has the highest dividend yield of any sector, but even after factoring in those relatively high dividend yields, the average stock in the sector posted a negative total return in 2023. Consumer Staples just barely netted out an average gain, while Health Care, Energy, Real Estate, and Materials all also underperformed the broader index. That leaves Communication Services, Financials, Consumer Discretionary, Industrials, and Technology each with the average stock gaining more than 20% on the year. Given the emergence of AI in 2023, Tech was the top performer. In fact, the average Tech stock was up 43.8%, which was more than twice that of the average Russell 1,000 stock.
Bespoke’s Morning Lineup – 1/2/24 – Introducing 2024
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“Intelligence is an accident of evolution, and not necessarily an advantage.” – Isaac Asimov
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
2024 is not picking up where 2023 left off as futures are sharply lower with the Nasdaq indicated to open the year down over 1% and the S&P 500 down 0.8%. Things weren’t as bad overnight, but the sellers appeared to step in just after Europe opened for trading. While an earthquake in Japan over the weekend and geo-political concerns in the Middle East haven’t helped concerning this morning’s market picture, they wouldn’t account for such a large decline at the open. The more likely culprit is simply a round of profit-taking after a monster rally to close out 2023.
The economic calendar in the US is light today with the S&P Markit Manufacturing PMI at 9:45 and Construction Spending at 10 AM. PMI readings for the rest of the world that have already been released were generally slightly better than expected even as the manufacturing sectors for Europe’s largest economies remain in contractionary territory.
One area of the market not feeling the pressure this morning is Bitcoin. After a rally of over 150% in 2023, the world’s largest cryptocurrency isn’t skipping a beat in 2024 as it’s already up over 7% YTD and above $45K. Bitcoin traded in a bit of a sideways range from early December through the end of the year, but a rally in the first two days of the new year has helped it to clear resistance and reach new 52-week highs.
From a longer-term perspective, bitcoin is still well off its record highs from late 2021, but it has also essentially erased all its losses from 2022. There’s still plenty of overhead resistance above, but with $45K cleared, $50K, a level it has only crossed above or below 16 times, will be the next area to watch.
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The Triple Play Kings of 2023
Another earnings season is on the horizon, and throughout the reporting period, as we do each quarter, we’ll be on the lookout for opportunities from companies reporting earnings triple plays. While we’re waiting for the fresh batch of reports, we wanted to provide a quick update on triple-play trends from 2023. As a reminder, an earnings triple play is a company that reports earnings and manages to 1) beat analyst EPS estimates, 2) beat analyst sales estimates, and 3) raise forward guidance.
In 2023, there were a total of 560 earnings triple plays during the year, and the average one-day performance of the companies reporting them was a gain of 6.10%. Within those 560 reports, 32 companies managed to report three or more triple-plays, six of which had four triple-play reports in the calendar year. Below is a complete list of all the companies that fit the bill of at least three triple plays in 2023. It’s important to note that just because a company beats estimates and raises guidance doesn’t necessarily mean its stock will rally. As shown, several names in this list are down on the year, regardless of their strong earnings relative to expectations. In total, 130 of the 560 triple plays were accompanied by negative returns on the stock’s earnings reaction day.
Tech stocks had the biggest turnout on the list, accounting for over 40% of the names listed. Consumer Discretionary followed but had only half as many names as Technology (7) followed by Health Care (4), Consumer Staples (3), Industrials (3), and Financials with one. Of the fourteen tech stocks listed, four had triple plays every earnings season this year.
Two notable names on this list include DraftKings (DKNG) and Duolingo (DUOL). Both stocks were up more than 200% in 2023, and both beat EPS and revenue estimates in every earnings report of the year. If not for inline guidance once each, they’d both be joining the club of four 2023 triple plays too.
Zooming in on the six companies to report triple plays every earnings season in 2023, the triple play kings, all but one significantly outperformed the S&P 500 in 2023. Excluding Clear Secure (YOU), each of the five others at least doubled the performance of the S&P. The most impressive of course has been NVIDIA (NVDA) which ripped 239% in 2023, followed by e.l.f Beauty (ELF) which also doubled. Collectively, on an equal-weighted basis, the six stocks were up just over 100% on the year.
The chart below features points to mark each earnings report of the six triple play kings, and below that we have included a table showing each stock’s earnings reaction day performance to their report. The second quarter was particularly strong in terms of earnings day reactions as triple plays from NVDA and ELF led to gains of 24.4% and 20.5%, respectively on 5/25. Again, it’s worth mentioning that strong earnings don’t necessarily guarantee share price gains. Zscaler (ZS), although more than doubling in 2023, reported a triple play in March that resulted in an 11% pullback. On a broader scale, YOU fell more than 20% on the year despite reporting four triple plays. Not even NDVA could avoid a negative reaction to a triple play when it fell 2.46% following its last earnings report. In fact, besides ELF every one of the ‘triple play kings’ listed had at least one down day in reaction to a triple play earnings report this year.
Those were the triple-play kings of 2023. Will they retain their crowns in 2024? Or will a new crop of earnings royalty emerge to form a new empire? We’ll start to find out in the next few weeks. Happy New Year!
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Bespoke’s Brunch Reads – 12/31/23
Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market-related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
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On This Day in History:
The Panama Canal: On New Year’s Eve, 1999, the Panama Canal, previously in US control, was handed over to Panama. The canal was originally completed in 1914 and revolutionized global trade. Cutting across a narrow section of the country, the Panama Canal became a crucial shortcut for ships traveling between the Atlantic and Pacific Oceans, reducing both time and distance for trade and military reach.
France had originally taken a shot at the project but failed before the United States under the administration of Theodore Roosevelt took over and facilitated its completion along with its management for most of the 20th century. The canal’s transfer to Panama was part of the Torrijos-Carter Treaties signed in 1977, which laid out a gradual transfer over a multi-year period. On New Year’s Eve 1999, Panama symbolically celebrated a new era of sovereignty, and the US shifted its stance on foreign policy away from direct control over international infrastructure. Since then, Panama has managed the canal and oversees upgrades and expansion projects to enhance its accommodations for larger ships and greater traffic.
Stock Market
What Did Wall Street Get Right About Markets This Year? Not Much (WSJ)
Against all predictions, the stock market had a stellar year in 2023, with major indexes reaching record highs. “I’ll be the first to admit, the stock market exceeded my expectations,” said Leon Cooperman, echoing the feelings of most investors. Factors like strong consumer spending, falling inflation, and unexpectedly resilient companies fueled the rally. While concerns remain about future recessions and high valuations, investors are generally optimistic about 2024. [Link]
Wall Street Diversification Trades Get Crushed as S&P 500 Soars (Bloomberg)
Despite softer expectations, the S&P 500 surged 24% this year as the economy remained resilient, and investors took notice of signals pointing to potential interest rate reductions. Investors have put money into ETFs tracking the S&P and other broad-market equity funds, which have experienced record inflows. In many cases, equity ETFs outperformed more tactical strategies, especially defensive ones as recession fears dominated the conversation in early 2023. [Link]
Economy
Data Quality Is Getting Worse When We Might Need the Numbers Most (WSJ)
Wall Street places a lot of importance on surveys of businesses and consumers for insights into economic trends, but the reliability of these surveys has been increasingly called into question as response rates have plummeted. As an example, the monthly Job Openings and Labor Turnover Survey (JOLTS) had a response rate of 65% in January 2014. In September of this year, the response rate was more than cut in half to 32%. with fewer respondents, comes lower quality results and a potentially misleading picture of how things look. [Link]
How Can Spending Be Up When People Feel Down? (WSJ)
The Misery Index, which combines unemployment and inflation rates, has dropped significantly due to falling inflation and low unemployment. Despite this improvement, consumer sentiment remains low. This disconnect seems to stem from a combination of factors, including political polarization, lingering inflation effects, and the lasting impact of the pandemic. While Americans may still feel downbeat, strong job growth and fading inflation could lead to improved sentiment in the future. [Link]
AI & Technology
Just How Rich Were the McCallisters in ‘Home Alone’? (NYT)
Home Alone, is a Christmas classic. The question that has been stirring on social media as the holiday season rolls around is, what exactly did Mr. McCallister and Mr. McCallister do to afford all that they had? The film takes place in a real house in Winnetka, Illinois, one of the most expensive neighborhoods in the country. The movie suggests Kevin’s mom is a fashion designer and his dad a businessman. The family’s wealth is further implied by their ability to accommodate a large number of people and the luxurious lifestyle they lead, despite not paying for their trip to Paris, which was funded by Uncle Rob. [Link]
The Ancient Origins of the Christmas Wreath (WSJ)
Wreaths are a Christmas Staple. The tradition dates back to ancient cultures, including the Egyptians, Greeks, and Romans, and served various symbolic purposes. The Vikings introduced the Yuletide wreath as part of their winter solstice celebrations, which later evolved into the Christian Advent wreath. The practice of decorating doors with wreaths gained popularity in America in the 20th century, largely influenced by Louise B. Fisher’s creative designs at Colonial Williamsburg, leading to the widespread custom of decorating front doors with festive wreaths during the holiday season. [Link]
Billionaire Endeavors
Jeff Bezos, Elon Musk say human population not nearly big enough: ‘If we had a trillion humans, we would have at any given time a thousand Mozarts’ (Yahoo Finance)
Jeff Bezos and Elon Musk, two prominent billionaires, share a vision for expanding human presence in space. Bezos, with Blue Origin, envisions a future with a trillion humans living across the solar system, facilitated by robust space infrastructure. Musk, leading SpaceX, emphasizes the need for humanity to become a multi-planet species, focusing on Mars colonization. Both stress the importance of population growth and space exploration for the future of civilization. [Link]
Immigration
A run-down motel became an accidental sanctuary for hundreds of migrants. In them, its owner found renewed purpose and meaning. (Denverite)
Yong Cha Prince planned to close her motel in Denver but found a new purpose when she sheltered Venezuelan migrants in need. The Western Motor Inn became a home for about 300 people seeking better lives in the US. It has made Prince happy to be able to care for those living at the motel, but the future of the community is uncertain due to the motel’s deteriorating condition and financial challenges. [Link]
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