Bespoke’s Morning Lineup – 10/13/23 – Lucky Friday the 13th
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“In politics, if you want anything said, ask a man. If you want anything done, ask a woman.” – Margaret Thatcher
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Equity futures are flat as a pancake this morning as investors and traders try to digest what has been some positive earnings results and lower yields along with higher oil prices as Israel gears up to launch a counterattack into Gaza and the US looks to impose harsher sanctions on Russia.
Today marks the unofficial kickoff to earnings season with the major banks and financial companies reporting, and so far, the results have been promising. Between the reports of Blackrock (BLK), Citigroup (C), JPMorgan (JPM), PNC, and Wells Fargo (WFC), they’ve all topped EPS forecasts, and only BLK reported weaker-than-expected sales. In terms of stock price reactions, BLK is the only one trading lower in the pre-market while all the others are trading up over 1%. A lot can change between then and now, but the immediate first impression is positive.
On the economic calendar, Import and Export Prices will come out just as you are reading this while the University of Michigan Sentiment will be released at 10 AM. The headline index is expected to decline modestly from last month’s reading, but a key item to watch will be inflation expectations. Lastly, with the geo-political landscape extremely uncertain heading into the weekend, it will be interesting to watch how the market trades in the hours leading up to the weekend. How willing investors are to hold stocks into the weekend will say a lot about market sentiment.
Friday the 13th is considered the unluckiest of days, but don’t tell that to the stock market. Since the first full year that the current iteration of the five-day trading week started in 1953, the S&P 500’s average daily change was 3.4 basis points (bps) with positive returns 53% of the time. Fridays have been much stronger with an average daily gain of 6.1 bps and positive returns 55.9% of the time. Even the 13th day of the month has been better than average with an average gain of 5.2 bps and positive returns 53.6% of the time. With both Fridays and the 13th being better than average, you can imagine that Friday the 13th would be better than average as well, and historically, they have been much better than average with the S&P 500 gaining an average of 14.5 bps with gains 58% of the time. That’s more than four times the average for all days!
While Friday the 13th has generally been lucky for the market, it depends on the month it falls on. The chart below shows the median Friday the 13th change of the S&P 500 by month, and while October occurrences haven’t been the worst, they’re far from the best either. With a median daily gain of 9 bps, October Friday the 13ths are right in the middle of the pack in a tie for 6th place amount the 12 months. The best months have been the summer months of June, July, and August with median gains of 49 bps, 30 bps, and 21 bps, respectively.
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Chart of the Day – Copper/Gold & The 10 Year Yield
Continuing Claims Come in Worse
While CPI was the main focus of the morning’s economic data, jobless claims were the other major release of the morning. Last week’s reading on seasonally adjusted initial claims was revised up by 2K to 209K and this week’s reading was unchanged from that level. That was slightly below forecasts which were calling for claims to rise further to 210K. Overall, claims have seen a rebound in the past few weeks, but that is still well below the range of readings from earlier this year.
Being the fourth quarter, seasonal tailwinds will shift to headwinds over the next few months. Prior to seasonal adjustments, initial claims saw a sizeable 22.8K week-over-week jump. Claims rising in the current week of the year is very normal as it has occurred 85.7% of the time historically. Given that increase, that would confirm last week as the likely annual low in unadjusted claims (at least for the time being). As we noted last week, that is a bit later than normal, but not exactly without precedence.
Relative to initial claims, continuing jobless claims have maintained a more consistent trend over the past several months. This year has seen continuing claims consistently grind lower, but that trend is not as strong as it once was as claims have appeared to round out a bottom. Continuing claims topped 1.7 million this week. That is the highest reading since the week of August 19th and was well ahead of expectations of 1.675 million. While claims are by no means weak (outside of the few years prior to the pandemic, current readings remain around some of the lowest since the early 1970s), both initial and continuing claims have seen modest deterioration recently.
Bulls Pile Back In
The S&P 500 has been in rebound mode over the past week, having now rallied 3.45% off the October 3rd low. In turn, sentiment has taken a distinguished bullish turn to start out the month of October. That compares to last month when sentiment took a more bearish tone as we discussed in Tuesday’s Closer. On top of a 2.2 percentage point increase in bullish sentiment last week, this week saw the percentage of respondents to the AAII survey climb another 9.9 percentage points. That brings bulls up to 40%, the highest since the first week of September, and back above the historical average (37.5%).
Bearish sentiment saw a corresponding pivot lower. Bears are now down to 36.5% versus the recent high of 41.6% last week. While that is only the lowest level since the week of September 21st, it was the largest week-over-week drop since June 8th. Additionally, that decline has not been enough to bring bearish sentiment back to normal levels as it is still 5.43 percentage points above the historical average.
That has resulted in the bull-bear spread tipping back into positive territory for the first time in a month.
Of course, the drop in bearish sentiment was not nearly as large as the increase in bullish sentiment. That was because there was a notable decline in neutral sentiment. That share of respondents reporting that they expect unchanged prices fell by 4.8 percentage points this week. Not only was that the fourth week-over-week decline in a row, but it was also the biggest one-week decline since July. Now at 23.5%, neutral sentiment registered its smallest share in just under one year.
Bespoke’s Morning Lineup – 10/12/23 – Happy Anniversary
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“You can never cross the ocean unless you have the courage to lose sight of the shore.” – Christopher Columbus
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Inflation data and the upcoming earnings season have been the short-term focus of investors lately, but from a long-term perspective, today markets the one-year anniversary of the bear market low from last year. While the S&P 500 remains below its highs from late July, it is still up over 20% from the closing low a year ago today. Happy Anniversary!
Yesterday’s data was the warmup, but today’s CPI report for the month of September is the main event in a market that has been hypersensitive to inflation data for several months now. As shown in the chart below, the S&P 500’s trailing 12-month average daily change on CPI days has been above 1% since August 2022 and peaked at just under 2% this January. The only other time since 2000, that the S&P 500 was more volatile on CPI days was at the height of the financial crisis from late 2008 and through 2009.
Over the last two months, the S&P 500’s change on CPI days has been much more toned down with a gain of just 0.03% following the July report in August and a gain of 0.12% after the August report last month. Those subdued readings have taken the 12-month average down to 1.11%, and unless the S&P 500 moves up or down 1.25% today, the 12-month average will fall back below 1%.
The September CPI report just hit the tape and the results came in generally higher than expected. Headline CPI rose 0.4% m/m versus forecasts for an increase of 0.3% while core CPI was right in line with forecasts. As you might expect, equity futures have given much of their earlier gains while rates are higher. Obviously, these higher-than-expected readings in yesterday’s PPI and today’s CPI show that the road to lower inflation is a windy one. Jobless claims were also just released, and initial claims were pretty much right in line with forecasts while continuing claims rose more than expected.
Similar to the charts we showed yesterday of the PPI relative to its historical average, below we show how current levels of headline and core CPI on a year/year basis stack up relative to history. At the headline level, the current level of 3.7% is below its 50-year average reading of 4.0% but still above its 25 and 10-year averages of 2.5% and 2.7%, respectively. On a core basis, the picture is even worse with the current level of 4.1% above its 50 (4.0%), 25 (2.5%), and 10 (2.7%) year averages.
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Chart of the Day – CPI Preview
Bespoke’s Morning Lineup – 10/11/23 – “PPHigher” Than Expected
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“The more I see the less I know for sure.” – John Lennon
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US equity futures are pointing to the fourth day in a row of gains this morning as last week’s oversold levels, positive seasonals, and a lack of escalation in the Middle East have all contributed to the positive tone. The fact that US Treasury yields were sharply lower again after some non-hawkish commentary from Fed speakers like San Francisco President Mary Daly and Fed Governor Michelle Bowman has also helped. The only thing left to get through was PPI, but unfortunately, those numbers were on the hot side.
PPI for the month of September was just released, and the headline reading came in much higher than expected (+0.5% m/m vs 0.3% m/m expectations). The core reading also topped expectations at 0.3% compared to forecasts for a reading of 0.2%. Those readings took the year/year levels to 2.2% (versus 1.6% expectations) at the headline level and 2.7% on a core basis (2.3% expected).
As shown in the charts below, the move higher in headline PPI has sandwiched it right between its pre-COVID average of 1.7% dating back to November 2010 when the current iteration of Final Demand began and its overall average of 2.6%. On a core basis, September’s reading of 2.7% is above its overall average of 2.6% and nearly a full percentage point above its pre-COVID average of 1.8%. There’s still some work to do on the inflation front!
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Aerospace and Defense Take Off
While the conflict between Israel and Palestine is of course still a risk, especially if worries of Iran involvement proves to be more concrete (which we discussed in today and yesterday’s Morning Lineups as well as last night’s Closer), markets appear to be largely looking past the events. Equities have rallied broadly over the past couple of sessions, but some of the best performers have of course been those stocks whose businesses would be most impacted by the conflict. Yesterday, the S&P 1500 Aerospace & Defense Industry rallied 5.45% on the day. That marks the biggest single-day jump in the group since November 9, 2020 and the 20th best day since 1995.
Amazingly, that single-day gain far surpasses other days when war was front and center in the news. For example, last year when Russia invaded Ukraine, the group only rallied 2.21% on the first day of the invasion (although that invasion was more telegraphed so the group rallied ahead of the news). If you look back to various points of the start of the wars in Iraq and Afghanistan, again, the industry did not see nearly as large of gains. For example, on September 20, 2001 when Bush announced the “War on Terror” the group fell 5.93% on the day, and when the US went into Afghanistan (10/7/2001) and later Iraq (3/19/2003), the group gained 1.8% and 0.8%, respectively. When looking to other daily gains of 5%, predominately those have simply occurred during volatile market periods (i.e. Dot Com Era, Financial Crisis, and COVID Crash) rather than times when news headlines would justify the move.
In the table below, we show each member of the S&P 1500 Aerospace and Defense industry as well as their performance from the broad market high at the end of July through last Friday and performance yesterday. Most of these names fell from the end of July through last Friday, and Hexcel (HXL) was the only one to not rise yesterday. Meanwhile, Northrop Grumman (NOC) was the biggest winner with an 11.43% gain. L3Harris (LHX) was also not far from a double-digit daily gain while Huntington Ingalls Industries (HII), Lockheed Martin (LMT), General Dynamics (GD), and Mercury Systems (MRCY) were all up over 5%.
Below we break down each time the Aerospace and Defense industry has rallied at least 5% in a single day without having done so in the prior three months. As shown, yesterday was not the largest jump of those prior 8 instances. Historically, median performance has been stronger than the norm over the next day to three months out with further gains more often than not.
Chart of the Day – Defensives Shredded
Bespoke’s Morning Lineup – 10/10/23 – Does Three Make a Trend?
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“In nine times out of ten, the slanderous tongue belongs to a disappointed person.” – George Bancroft
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Global markets are picking up the rally where the US left off yesterday. Some of that positive tone is following through to US markets this morning, but equity futures are only modestly higher. Small business sentiment was modestly weaker than expected, and as discussed in this morning’s report, has confirmed the message from a number of other indicators that the labor market is moderating. Bond yields are lower relative to Friday’s close, but they have erased just about half of their initial declines.
In last week’s Bespoke Report, we highlighted the fact that through last Thursday, while most equity indices and other assets were all in steady downtrends over the last few weeks, the dollar was moving in the other direction and steadily rallying. Two trading days later (or one and a half if you consider the fact that Monday was a holiday for some), we’ve started to see a reversal of that trend as assets have been rallying and the dollar’s rally has taken a breather. The dollar’s weakness yesterday was even more notable given the geo-political tensions in the Middle East given the dollar’s typical safe-haven status. It’s only been two days, but as the saying goes, once is random, twice is a coincidence, but three times is a trend.
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