Chart of the Day – Don’t Panic Over State & Local Taxes
Bespoke’s Consumer Pulse Report — August 2023
Bespoke’s Consumer Pulse Report is an analysis of a huge consumer survey that we run each month. Our goal with this survey is to track trends across the economic and financial landscape in the US. Using the results from our proprietary monthly survey, we dissect and analyze all of the data and publish the Consumer Pulse Report, which we sell access to on a subscription basis. Sign up for a 30-day free trial to our Bespoke Consumer Pulse subscription service. With a trial, you’ll get coverage of consumer electronics, social media, streaming media, retail, autos, and much more. The report also has numerous proprietary US economic data points that are extremely timely and useful for investors.
We’ve just released our most recent monthly report to Pulse subscribers, and it’s definitely worth the read if you’re curious about the health of the consumer in the current market environment. Start a 30-day free trial for a full breakdown of all of our proprietary Pulse economic indicators.
Bespoke’s Morning Lineup – 8/3/23 – Tentative into Peak Earnings
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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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The change in the calendar has brought with it a change in the mood of investors as stocks have traded lower on each of August’s first two trading days and are currently indicated to open lower today as well. The weakness hasn’t just been confined to US stocks either as most global benchmarks are all down on the month. Stocks in Europe have been especially weak with declines in excess of 3% in the first three trading days after more broad-based weakness this morning.
Today’s weakness comes despite some weaker than expected inflation data where PPI for the Eurozone declined more than expected (-0.4% vs -0.3% expectation). That was more than offset, though, by general weakness in the Services PMI indices. While Germany experienced better than expected growth France, Italy, and Spain missed forecasts.
Today’s economic slate in the US is jammed packed with Non-Farm Productivity, Unit Labor Costs, and Jobless Claims at 8:30. Then, after the open we’ll get updated Services PMI data from S&P and ISM. Along with those reports, we’ll also get updates on Factory Orders and Durable Goods. Besides all the economic data, don’t forget that both Amazon.com (AMZN) and Apple (AAPL) will report after the close.
531 years ago today, Christopher Columbus set sail heading west from Spain in search of a western route to China. For the next 70 days, Columbus sailed the uncharted seas with no sight of dry land until he reached what is thought to be the Bahamas on October 12th, 1492. For most people, it’s hard enough, even with Waze, to get around their own city, but looking back at Columbus’ voyage, one can only imagine what was going through his mind travelling across the ocean with no cell phone, GPS, or even a map! It makes worrying about which way the market goes from here after a credit downgrade seem trivial, but like the quote from Columbus above, there’s no reward without risk.
Yesterday’s sell-off in US stocks moved both the S&P 500 and Nasdaq out of overbought territory for the first time since May. In the case of the Nasdaq, it was the first time since before Cinco de Mayo that the index didn’t close at overbought levels, and at 60 trading days, that streak was the longest since August 1997. Yesterday’s decline in the Nasdaq was also the worst day for the index since 2/21 and just the fourth one-day decline of 2% this year. For the sake of comparison, last year at this time the Nasdaq already had 33 one day declines of 2% on its way to 46 for the year.
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The Triple Play Report — 8/2/23
An earnings triple play is a stock that reports earnings and manages to 1) beat analyst EPS estimates, 2) beat analyst sales estimates, and 3) raise forward guidance. You can read more about “triple plays” at Investopedia.com where they’ve given Bespoke credit for popularizing the term. We like triple plays as an indication that a company’s business is firing on all cylinders, with better-than-expected results and an improving outlook. A triple play is indicative of positive “fundamental momentum” instead of pure fundamentals, and there are always plenty of names with both high and low valuations on our quarterly list.
Bespoke’s Triple Play Report highlights companies that have recently reported earnings triple plays, and it features commentary from management on triple-play conference calls, company descriptions and analysis, and price charts. Bespoke’s Triple Play Report is available at the Bespoke Institutional level only. You can sign up for Bespoke Institutional now and receive a 14-day trial to read this week’s Triple Play Report, which features 24 new stocks. To sign up, choose either the monthly or annual checkout link below:
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Meta Platforms (META) is an example of a company that reported an earnings triple play recently back on the evening of July 26th. As shown below, META’s share price has been in a steady uptrend since late 2022, trading above both its 50 and 200-day moving averages since February of this year.
As shown in the snapshot from our Earnings Explorer below, Meta Platforms (META) has now reported back-to-back earnings triple plays. This is an important feat for the tech giant as it has never done this since going public back in 2014. With a high focus on AI and the Metaverse, Meta has really rebounded after seeing its market cap fall from over $1 trillion down to $235 billion last year. You can read more about META and the 23 other triple plays in our newest report by starting a Bespoke Institutional trial today.
Bespoke Investment Group, LLC believes all information contained in these reports to be accurate, but we do not guarantee its accuracy. None of the information in these reports or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. This is not personalized advice. Investors should do their own research and/or work with an investment professional when making portfolio decisions. As always, past performance of any investment is not a guarantee of future results. Bespoke representatives or clients may have positions in securities discussed or mentioned in its published content.
Downgrades Overlooked
The bottom has dropped out for the major US indices today with the Nasdaq down over 2% and S&P 500 down 1.25% as of this writing. The catalyst has been the downgrade of the United States’ credit rating by Fitch from AAA to AA+ . That is the first downgrade of U.S. sovereign debt in almost twelve years and just the second ever. In the charts below, we show the performance of the S&P 500, government debt, commodities, and the US dollar in the year before and the year after the 2011 downgrade.
The S&P 500 has been rallying in the months leading up to this downgrade, however, back in 2011 the S&P 500 had already begun rolling over by the time S&P downgraded US debt. In the wake of that downgrade, the S&P 500 went on to fully erase all of the prior year’s gains. Fortunately, all of those losses were quickly recouped within three months of the downgrade.
As for Treasuries and other US agency debt, performance over the past few months has been the complete opposite of 2011. Of course, the interest rate environment is also completely different now with Fed Funds 500 bps higher than it was at the time of the last downgrade. That being said, in 2011, Treasury yields were on the decline in the months headed into the downgrade, but contrary to what might have been expected, the downgrade itself did not change that trend. This time around has seen yields on US government debt moving in the opposite direction.
Bloomberg’s broad commodity index has been in a similar boat with the past few months seeing a decline compared to the steady uptrend back in 2011 that was uninterrupted by the downgrade.
Finally, we would note the downgrade only acted as a longer-term turning point for the dollar. As shown in the bottom right hand chart, both this year and in 2011, the trade weighted dollar was in a downtrend in the year before the downgrade. But right as S&P changed its rating, the dollar turned higher and continued to rise throughout the following year. In fact, one year out it had erased the entirety of the previous year’s decline.
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Chart of the Day – A Narrow Range Breaks
Bespoke’s Morning Lineup – 8/2/23 – Downgrade
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“True courage is being afraid, and going ahead and doing your job anyhow, that’s what courage is.” – Norman Schwarzkopf
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
Just as Wall Street brokerage firms have been tripping over themselves to upgrade their views of the US economy and forecast a soft landing as opposed to a recession for the US economy, Fitch came out of the blue last night and downgraded their rating of US debt from AAA to AA+. The rationale behind the downgrade had nothing that couldn’t have been said at any point in the last couple of years, so the timing is curious. Then again, if you’re going to issue a downgrade, maybe it’s better to do it during a period of relative calm rather than in the middle of a period of heightened volatility like S&P did back in 2011.
Market reaction to the downgrade has been muted. Equities did sell-off overnight but have rebounded off their overnight lows and are now pointing to a decline of 0.6% at the open. The only economic report of the day was ADP Employment which blew past expectations once again. Earnings results have also been positive, but stock price reactions to those results remains underwhelming as investors start taking profits following the massive gains from the first half of summer.
While the US debt downgrade should theoretically cause higher interest rates, as we saw back in 2011, that was not the reality. This morning, yields are pretty subdued with little in the way of changes across the curve, and any moves have been to the downside. From a longer-term perspective, though, if the charts of the 10-year and 30-year US Treasury yields were stocks, technicians would likely be bullish.
After tests of the 4% level this year back in early March and early July, the 10—year yield is once again bucking up against 4%. The more often the yield tests this resistance level, the weaker it tends to get, so when and if yields do convincingly break through 4%, they’re likely to immediately test the highs from late last year.
If recent moves in the 30-year are any indication, more upside in the 10-year yield is likely. Yields at this part of the yield curve have already broken through this year’s resistance levels and at just under 4.1% are at the highest level since November.
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Chart of the Day – July Performance Drivers
$10 Trillion Added in Market Cap; 2023’s Best and Worst Through July
The US stock market (using the Russell 3,000 as a proxy) has now seen an increase in market cap of roughly $10 trillion from its bear market low last October through the end of July 2023. As shown below, the peak market cap for the US stock market was $51.5 trillion seen on the first day of 2022. From high to low, total US market cap fell $13.7 trillion during last year’s bear, but since then it has risen back up to $47.7 trillion. To get back to new all-time highs, total market cap would need to rise by roughly $3.8 trillion.
The average Russell 3,000 stock rose 5.74% in July. There were 813 stocks in the index that rose 10%+ in July, including 29 names that rose 50%+ which are listed in the table below. This list is made up of many of the high-fliers during the post-COVID bull that then got slaughtered during last year’s bear. Four names rose 100%: PolyMet Mining (PLM), Quantum-Si (QSI), UroGen Pharma (URGN), and Bridgebio Pharma (BBIO). Other notable names on the list of big July winners include Nikola (NKLA), Upstart (UPST), Carvana (CVNA), QuantumScape (QS), Rivian (RIVN), and Riot Platforms (RIOT). In case you haven’t been keeping track, Riot Platforms used to be Riot Blockchain, and before that, in early 2018 its name was Bioptix and it described itself as a company involved in developing new ways to test animals for disease.
Through July, the average Russell 3,000 stock was up 18.1% year-to-date. Below is a list of the 35 names that are already up 200%+ on the year. Topping the list is Carvana (CVNA) with a YTD gain of 869% after gaining 77.3% in July. Back in December 2022, CVNA had fallen into the $3s, but it’s now back up to the mid-$40s. Next up is Bit Digital (BTBT) with a YTD gain of 638%, followed by Cipher Mining (CIFR), IonQ (IONQ), Riot (RIOT), and Applied Digital (APLD). Similar to the list of July’s biggest winners, the biggest winners YTD are many of the names that got hit the hardest last year, with many falling more than 70% during their bear market drawdowns. Carvana, for example, was actually down 98% from its all-time high when it bottomed in 2022, so even after gaining more than 800% this year, it needs to gain another 700% from here to get back to new highs.
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Bespoke Market Calendar — August 2023
Please click the image below to view our August 2023 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.
