Bespoke’s Morning Lineup — 9/29/23
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“I didn’t know you were Catholic.” – Nancy Pelosi
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Futures have added to earlier gains following the latest batch of economic data which included Personal Income, Personal Spending, and PCE Inflation data. There were no notable surprises, but if there’s one headline to take from the data it was that the PCE Core Deflator finally dropped below 4% (3.9%), although the move was expected.
News headlines for the last 24 hours have been focused on the fact that Congress has been unable to pass a measure to keep the government from shutting down this weekend, which is fitting given the fact that it was fifteen years ago today that Congress couldn’t get its act together and pass the $700 billion bank bailout plan. The bailout bill ultimately authorized and led to the creation of the Troubled Asset Relief Program, otherwise known as TARP. In the days leading up to the Congressional vote on the plan, then-Treasury Secretary Hank Paulson reportedly got down on one knee in front of House Speaker Nancy Pelosi and begged her not to “blow it up”, leading Ms. Pelosi to reply with the quote above.
Whatever your views towards TARP are in retrospect, when Congress failed to pass the measure, an already ugly market turned Medusa-like. As shown below in the intraday chart of the S&P 500 from that day, you don’t need a label to show you when it was that the bill failed to pass. Just as the market was starting to stabilize from a morning swoon, the bottom fell out of the bottom, and by the time the closing bell rang, the S&P 500 was down 8.8% for its largest one-day decline since the 1987 crash on 10/19/87. Since then, there have been four other days that were worse with two more in 2008 and then two more during the COVID crash. Ironically, it was probably the market’s reaction to the bill getting voted down that enabled passage a few days later.
Historically, the last trading day of September has had a negative bias. Over the last 50 years, the S&P 500’s median change on this day has been a decline of 0.18% with gains just 44% of the time. Trading has been particularly weak in the last two years with declines of over 1% on the last day of September each time. Thankfully on Wall Street this morning, the only problem traders are dealing with is flooding rains getting to and from New York City (if they’re even leaving their houses in the first place).
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Chart of the Day – Gravity
Home Prices Charging Back to New Highs
Case Shiller home price data published by S&P CoreLogic was released earlier this week for July 2023 (it comes out on a two-month lag). As shown below, 19 of 20 cities posted month-over-month gains, with the National index up 0.6% MoM and up 0.98% year-over-year. Las Vegas saw the biggest monthly gain at 1.12%, while Portland was the only city to see a monthly decline.
The big news from the report was that the National index and ten of twenty cities once again hit new all-time highs, erasing declines seen from mid-2022 through early 2023. The National index saw home prices fall 5% from its prior high last June to its low this January, but it has bounced back by 6% since then to notch new highs. The ten cities to also make new highs were: New York, Minneapolis, Miami, Detroit, DC, Cleveland, Chicago, Charlotte, Boston, and Atlanta.
Four cities remain 5%+ below their prior highs: Phoenix (-6.7%), Las Vegas (-7.2%), Seattle (-10.1%), and San Francisco (-10.8%).
Below is a look at how much home prices have jumped from their lows made either at the end of 2022 or earlier this year. As shown, San Diego, Detroit, and Chicago have seen home prices rally the most at 9%+, while Tampa, Las Vegas, and Phoenix have rallied the least at just 4%.
Below we show the actual home price index levels for the twenty cities plus Case Shiller’s three composite indices. Cities highlighted in green are the ones that are back to all-time highs. With interest rates rising so far so fast from very low levels, existing mortgage holders have frozen up, which has frozen the market of homes for sale. The extreme lack of supply has caused prices to increase, not decrease, thus far, but barring a pretty big drop in mortgage rates. we don’t see this as sustainable in the months and years ahead.
Bespoke’s Morning Lineup – 9/28/23 – Ted Williams Month
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“Baseball is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer.” – Ted Williams
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Futures are getting a bit of a boost this morning as revised GDP for Q2 was slightly weaker than expected coming in at 2.1% versus forecasts for a reading of 2.2%. Other data saw some larger moves. Personal Consumption was more than cut in half from 1.7% down to 0.8% while the GDP Price Index was revised down to 1.7% from 2.0%. Initial Jobless Claims rose 3K from 201K up to 204K, but that was still more than 10K below the consensus forecasts. Overall, this data was market friendly pushing equity futures higher and yields lower. The 10-year yield which touched 4.65% earlier is now slightly below 4.61%.
In a meaningless doubleheader to close out the MLB season 82 years ago, Ted Williams got six meaningful hits in eight at-bats pushing his average to .406 becoming the first player since 1930 and the last player since then to hit .400 (Williams also hit a home run on his last career at-bat on this day 19 years later in 1960). Hitting .400 is next to impossible in baseball (hence the quote above), but in the stock market it isn’t very good. Heading into today’s trading, the S&P 500 has traded higher on just eight out of eighteen sessions which works out to 44.4% of all trading days, but if the last two trading days are negative, September will finish off as a .400 month. If that happens, we’ll just call it Ted Williams month!
There hasn’t been a lot of good news to speak of lately, but maybe the image from our Seasonality snapshot below will brighten your mood a bit. While the upcoming week ranks in just the 29th percentile of all one-week periods throughout the year, the next month ranks in the 89th percentile, and the next three months rank in the 100th percentile. History doesn’t always repeat itself, but from a seasonality perspective, it doesn’t get much better than that!
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Chart of the Day – Everything’s Oversold
Bespoke’s Morning Lineup – 9/27/23 – Can We Get a Bounce?
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“For those who believe, no proof is necessary. For those who disbelieve, no amount of proof is sufficient.” – Ignatius of Loyola
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As the market declines this month, the number of ‘believers’ is starting to shrink, and while they haven’t necessarily turned bearish yet, former bulls are looking over their shoulders. The prospect of a government shutdown is just one of many concerns weighing on investors this week, and based on the intransigence of both parties, making a deal before the deadline looks increasingly difficult. The quote above from Ignatius of Loyola may be over 500 years old, but it’s just as applicable today as it was back then. With each side of the aisle increasingly locked into their tribal ideology, no amount of ‘proof’ is enough to get the other to see ‘the light’.
Futures have been trending higher all morning as the market looks to regroup from yesterday’s beating. The only data on the economic calendar this morning was Durable Goods orders which came in higher than expected for August (+0.2% vs. -0.5%), but July’s reading was revised down to -5.6% from -5.2%.
With the S&P 500 falling to its most extreme oversold levels of the year yesterday, it should come as no surprise that most of them are also at what we would classify as ‘extreme’ oversold levels. The only sector even above its 50-day moving average is Energy. Declines have been broad-based during the sell-off of the last week. Real Estate and Consumer Discretionary are both down 5.81% followed by Technology, Utilities, and Financials which are all down over 4%. Just to illustrate how bad a week it has been, the two best-performing sectors – Health Care and Energy – are down well over 1%.
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Chart of the Day – The Two-Headed Monster of Rising Rates and Rising Crude
Bespoke’s Morning Lineup – 9/26/23 – Getting Real
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“Humankind cannot bear very much reality.” – T.S. Eliot
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Rising yields and oil prices have been two major headwinds to equity prices over the last two months, but this morning both are lower, and equity futures still don’t care. After some sizable losses overnight in Asia and Europe this morning, investors see little incentive to step up and buy. Especially when the CEO of the country’s largest bank says that the market may not be ready for 7% interest rates. Other drivers of the weakness in Asia were news that Chinese real estate developer Evergrande missed an interest payment, higher-than-expected inflation data out of Japan, and a much weaker-than-expected report on Industrial Production out of Singapore. On the docket this morning in the US, we’ll get July home price data at 9 AM and then New Home Sales and Consumer Confidence at 10 AM.
We’ve talked about the weakening breadth of the US equity market frequently since the summer peak, but things have also been weakening on an international level as the declines from the summer highs start to get real. For example, we’ve seen a winnowing of the number of major international equity benchmarks trading above the 200-day moving averages. The chart below shows the current price versus the 200-DMA spread of the benchmark equity indices of the world’s 25 largest economies. At 3.4% above its 200-DMA, the US ranks relatively well trailing only Brazil, India, Japan, Russia, Turkey, and Argentina. While the double-digit percentage spreads of Argentina and Turkey look impressive, keep in mind that inflation in these two countries is in the range of 60% to 130% on a y/y basis. On the downside, China is the only country trading more than 5% below its 200-DMA, but Belgium and the Netherlands are getting close.
Overall, just over half of the 25 countries shown above are trading above their 200-DMAs which is down from over 100% in late July. Interestingly, while there have been plenty of times when every index was trading above its 200-DMA, there hasn’t been a period since 2000 when all of them were trading below their respective 200-DMAs. Again, though, that’s partially a reflection of the fact that when you have some countries dealing with near triple-digit inflation, it’s hard not to have a rising stock market, unless the country is completely imploding.
What’s notable about the current level of indices trading above their 200-DMAs is that we have now gone 218 trading days with more than half of all indices above each of theirs. As shown in the chart below, since 2000, there have only been seven other periods where the percentage was above 50% for even longer. Unless global markets turn higher in the next couple of days, it’s highly likely that we’ll drop below 50% at some point soon. That probably wouldn’t be looked at as a positive development, but sometimes you need the market to break a little bit before it can get back on track.
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Buy Yom Kippur?
When it comes to seasonal patterns in the market, one less widely known pattern is related to the Jewish calendar regarding Rosh Hashanah (the Jewish New Year) and Yom Kippur (Judaism’s holiest day of the year). The old saying says to sell Rosh Hashanah and buy Yom Kippur as, often, it tends to be a weak time of year for the market. We’ll leave it to others to try and explain the reasons behind the axiom, but the actual results don’t refute the pattern.
The table below shows the performance of the S&P 500 from the close before the start of Rosh Hashanah to the closing price on the day Yom Kippur ends from 2000 through 2022. During that span, the S&P 500’s median performance during this period has been a decline of 0.50% (average: -0.79%) with positive returns less than half of the time (43%).
While equity market returns have been weak during the period between these high holy days of the Jewish calendar, market returns for the rest of the year have been positive. In the twenty-two prior years shown, the S&P 500’s median rest-of-year performance has been a gain of 6.07% with gains 74% of the time. In the table, we have also shaded those years where the S&P 500 bucked the market headwinds and posted positive returns during this period, but it tended to have no impact on performance for the remainder of the year
One word of caution behind the possible explanations for the equity market’s weakness in the period between Rosh Hashanah and Yom Kippur is that they also occur during September which is already a weak time of year for the market to begin with.
