Checking Up on the Transports and Semis
The Transports and the Semis are two groups typically viewed as “leading” indicators for the broader market. Below is a check-up on how the two have done since the S&P 500’s bear market low was made on October 12th, 2022. While the Transports (Dow Transportation Index) are now up 15.3% compared to the S&P 500’s gain of 19.5%, Semis (Philly Sox Index) are still up significantly more than both with a gain of 54.1%.
Below is a look at the performance spread between the S&P 500 and the Semis since the 2022 bear market low. While the steepness of the outperformance for Semis faltered a few months ago, we haven’t quite seen the bottom of the uptrend channel significantly break down yet either. It’s getting very close, though, so this relationship is one to watch in the near term.
Crazy Tesla (TSLA) Price Action
Tesla (TSLA) reported Q3 earnings results on Wednesday after the close, and while shares initially had a somewhat sanguine response to the company’s weaker-than-expected results, they ultimately fell sharply on the day in Thursday’s trading. TSLA’s full-day percentage change in response to earnings ended up clocking in at -9.3%.
What’s remarkable to us is that this was the third earnings report in a row where TSLA shares fell 9% in response to the news. You can see TSLA’s quarterly results going back to the start of 2020 in the snapshot from our Earnings Explorer below where we’ve put a red box over the stock’s last three full-day earnings moves:
Below is a look at TSLA’s price chart since early 2023 with its last three earnings reaction days highlighted.
Ironically, even though shares have fallen 9% on Tesla’s last three earnings reaction days dating back to April 20th, the stock is actually up 21% over the entire period since the close on April 19th.
Individual stocks have four quarterly earnings reaction days per year, and while these days are typically much more volatile than the average trading day, as the action in TSLA shows, they’re not everything.
Bespoke’s Morning Lineup – 10/20/23 – For What It’s Worth
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“The deepest urge in human nature is the desire to be important.”– John Dewey
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A negative week is looking to end on a negative note as equity futures are lower following the declines in Asia overnight and Europe this morning (although those were mostly follow-through from yesterday afternoon’s weakness here in the US). Given the likely escalation, or at least a continuation of the war in the Middle East, it’s hard to blame anyone for not wanting to take on added risk into the weekend. If there’s one silver lining, the 10-year yield briefly touched 5% overnight but has since pulled back (for now). The economic calendar is quiet for today, and there are just two Fed speakers scheduled to speak (Harker and Mester)
“There’s something happening here, but what it is ain’t exactly clear.“ Investors have a tendency to take every recent market event and interpret it as “the most important” this or that. When it comes to various asset classes in recent days, though, we have seen some MAJOR moves, and we couldn’t help but think of the above lyrics from Buffalo Springfield’s “For What It’s Worth” after going through them.
First, crude oil. While still off its highs from just a few weeks ago, the 9.1% five-trading day rally in WTI ranks in the 96th percentile of all five-day periods since 1983.
Second, the 10-year US Treasury yield. In what looks like a chart of an internet stock from the late 1990s, yields have been on a one-way move for what seems like forever now. In just the last five trading days, the 10-year yield is up 29 basis points (bps) and right near 5%. Going back to 1983, that ranks in the 97th percentile of all five-day moves in the 10-year yield.
Finally, gold. In the same five trading days through Thursday’s close, gold rallied 5.5% breaking above both its 50 and 200-day moving averages as well as the downtrend that has been in place since the Spring. The magnitude of the rally also ranks in the 98th percentile of all five-day moves since 1983. Not bad for a commodity that was just trading at six-month lows two weeks ago!
By themselves, these moves over the last week are big, but the fact that they’ve all occurred in the same five-day period is extraordinary. Since 1983, when data for all three asset classes is available, there have only been two other periods where gold and crude oil each rallied more than 5% while the 10-year yield jumped more than 25 basis points (bps). The first was in August 1990 following Iraq’s invasion of Kuwait which led up to the first Gulf War, while the second period was during the Financial Crisis when there were three separate occurrences (September 2008, January 2009, and March 2009). Both periods were seminal in US history for years to come, but the market impact varied. 1990 was no walk in the park, but it left a much smaller scar on the market than the Financial Crisis.
Now, just because we’ve had big moves again this time around doesn’t tell us anything about where the market is going in the future, but when you simultaneously see such large moves in different asset classes, it’s hard not to think “there’s something happening”.
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The Closer – Powell Comments, Home Affordability, 5 Fed – 10/19/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with comments on Fed Chair Powell’s remarks today (page 1). We follow up with a look at existing home sales (page 2) and home affordability (page 3). We then update our Five Fed Manufacturing Composite (page 4) before finishing with a review of today’s 5 year TIPS auction (page 5).
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The Most Volatile Stocks on Earnings
Earnings season has begun with the release of quarterly results of the big banks and the first of the mega caps, Tesla (TSLA), this week. However, the slate doesn’t truly ramp up until next week and the week after. That is in terms of both the number of stocks reporting and their collective market caps. In the chart below, we show the cumulative market caps of Russell 1,000 stocks reporting each day from this week through the end of November. As shown, next Tuesday is the single most important day by market cap thanks to both Microsoft (MSFT) and Alphabet (GOOGL) reporting on the same day. That is followed by Meta Platforms (META) on Wednesday and Amazon (AMZN) on Thursday. While AMZN makes up a massive portion of the market cap reporting next Thursday, it is also one of the busiest days of earnings season in terms of number of companies reporting. That day, 126 Russell 1,000 members will release earnings. The only busier day will be the following Thursday with 129 stocks reporting. From there, earnings season will wind down but there will still be a couple more big reports like Berkshire Hathaway (BRK/B) on November 6th then NVIDIA (NVDA) on November 21st.
In yesterday’s Chart of the Day, we highlighted some stocks that have historically been the top performers on Q3 earnings. In a similar vein, below we show the Russell 1,000 members with at least three years of earnings history that have historically averaged the largest absolute daily move in reaction to earnings. For each stock, we also show its historical beat rates (% of time the stock has beaten consensus analyst EPS and sales estimates) and the percentage of the time that it has raised guidance.
As shown, BILL.com (BILL) tops the list as the most volatile stock on earnings with an average one-day change of +/-18.1%. Across its 15 quarterly reports as a public company, BILL has beaten revenue estimates every single time and missed EPS estimates just once. It has also raised guidance on 8 of its 15 quarterly reports. In addition to BILL, some other stocks that have been extremely volatile on their earnings reaction days include Roku (ROKU), Trade Desk (TTD), Pinterest (PINS), Unity Software (U), AppLovin (APP), Wayfair (W), Netflix (NFLX), Etsy (ETSY), Under Armour (UAA), Twilio (TWLO), and Zoom Video (ZM). This list is a who’s who of many stocks that both surged during the post-COVID bull market in 2020 and 2021 and then plummeted during the bear market of 2022.
Bulls and Bears Back Down
The S&P 500 has fallen over the past week, and that has given sentiment reason to shift lower. The latest sentiment survey from AAII showed only 34.1% of respondents reported as bullish this week, down from 40% last week. That 5.9 percentage point decline is the largest single-week drop in a month although bullish sentiment is still above levels from two weeks ago.
Even though bullish sentiment dropped, those losses did not flow into bearish sentiment. In fact, bearish sentiment also fell by 1.9 percentage points. On top of the 5.1 percentage point decline in the prior week, at 34.6% bearish sentiment is unchanged versus one month ago.
The larger drop in bulls versus bears did result in the bull-bear spread shifting back into negative territory. While not a wide margin, bears outnumber bulls.
Neutral sentiment came in with the lowest reading in a year last week implying increasingly polarized investor sentiment. However, the declines in both bulls and bears this week resulted in neutral sentiment to climb up to 31.3% which is the highest reading in three weeks and right back in line with the historical average.
Continuing Claims Conflict With Initial Claims
The back half of September into the first couple of weeks of October saw jobless claims rebound off their lows. Last week saw that rebound grow with a modestly upward revision to 211K. However, there was a substantial improvement this week with claims dropping to 198K and back below 200K for the first time since the last week of January. That compares to expectations for a reading of 210K.
On a non-seasonally adjusted basis, that improvement is even more impressive. Claims totaled a meager 181K. For the comparable week of the year, the only years with lower readings were 1967 through 1969. While the one-week move is impressive and indicates claims remain at historically strong levels, this time of year has historically seen claims drift higher into year’s end.
While initial jobless claims had a positive move, continuing claims are sending a conflicting signal. After seasonal adjustment, continuing claims have risen for four weeks in a row and are now at the highest levels since early July.
Chart of the Day – Mortgage Rates Versus Treasury Yields
Bespoke’s Morning Lineup – 10/19/23
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“I am not a politician… I only suffer the consequences.” – Peter Tosh
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With complete dysfunction in Washington, we’re all suffering the consequences of politicians. The continuing resolution keeping the government open expires on 11/17, and besides the geo-political turmoil around the world that needs to be addressed, the longer Republicans in the House go without reaching an agreement on who to elect as speaker, the more likely it is that we reach that mid-November deadline without a budget agreement. As easy as it is to complain about the incompetence in DC, though, Thomas Jefferson was right when he said, “The government you elect is the government you deserve.”
After a disheartening session on Wednesday, things aren’t looking all that positive this morning. Nasdaq futures are the lone bright spot following a positive reaction to Netflix (NFLX) earnings as the stock is poised to gap up over 13%. Tesla (TSLA), however, is moving in the opposite direction as the stock is trading down over 7% following a weak report that showed compressed margins and some downright somber commentary from Elon Musk. S&P 500 futures are essentially flat, and Dow futures are low.
Outside of equities, crude oil is trading down by about 1%, gold is slightly lower, the dollar is mixed, and bitcoin is modestly higher. The real action this morning, however, is in the Treasury market, where yields are higher across the curve with the biggest upside moves coming the further out you go as the 10-year yield is up over 7 basis points to just under 5% (4.98%). 5%!
On the economic calendar, jobless claims will be released at 8 AM, and are expected to remain right around the same levels as last week. Along with those numbers, the Philly Fed Manufacturing report will also be released at 8:30 (expectations are for a modest increase) and Existing Home Sales will hit the tap at 10:00. On the jobless claims front, initial claims were lower than expected while continuing claims came in modestly ahead of forecasts but at the highest level since June. Philly Fed was modestly weaker than expected and came in negative at the headline level for the 13th time in the last 14 months. Besides those numbers, Fed Chair Powell will speak at noon along with five other Fed officials throughout the day. Depending on their messages, it could be a pivotal day.
Admittedly, there’s not a lot of positives out there this morning, but we’ll give you two. First, while today’s date is October 19th, it’s not October 19th, 1987. Second, despite oil prices hovering near $90 per barrel, gas prices have been falling hard. As shown in the chart below, the national average price of a gallon currently sits at $3.565, according to AAA, and that’s the lowest price since July. You know what that means? More money to go inside and grab a bag of Doritos, a Big Gulp, and if you’re really adventurous, one of those things on the hot rollers!
Over the last month, national average gas prices are down just over 8% which is the largest 30-day decline of the year and ranks in in the lowest decile of 30-day returns dating back to 2005.
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