Key ETF Performance Through July 2023
The S&P 500-tracking ETF (SPY) finished July up 3.27%, leaving it up 20.62% YTD on a total return basis. The mega-cap Tech-heavy Nasdaq 100 (QQQ) gained only slightly more than SPY in July, but it’s up more than twice as much as SPY on a YTD basis at +44.5%. The small-cap Russell 2,000 (IWM) did better than large-caps and mid-caps in July with a gain of 6.11%, but IWM is up less than large-caps on a YTD basis at +14.7%. Value and dividend stocks held up well in July and actually outperformed growth for the month, but value is lagging YTD and the DJ Dividend ETF (DVY) is actually down 0.5% on the year.
Looking at US sectors, Energy (XLE) and Financials (XLF) — which lagged in the first half of 2023 — did the best in July, while Health Care (XLV) and Real Estate (XLRE) were up the least. Technology (XLK) and Communication Services (XLC) are currently neck and neck on a YTD basis with XLK up 43.94% through July and XLC up just three basis points more at 43.97%.
Outside of the US, we saw China (ASHR) and Israel (EIS) gain the most in July, while France (EWQ) and Spain (EWP) gained the least. YTD, it’s Mexico (EWW) that’s currently atop the list of country ETFs with a gain of 42.85%.
Oil (USO) gained 15%+ in July, while natural gas (UNG) fell 4.2%. Gold (GLD) saw a small monthly gain of 2.3% versus a gain of 8.6% for silver (SLV). Finally, with yields rising again during the month, Treasury ETFs were in the red. Aside from natural gas, the 20+ Year Treasury ETF (TLT) is down more than any other asset class in our matrix on a YoY basis with a total return of -12.3%.
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Bespoke’s Morning Lineup – 8/1/23 – Touch of Red
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“Live life expecting the worst, hoping for the best, and living for the future” – Jerry Garcia
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As if on cue, the calendar flipped to August and futures are pointing to a lower open this morning. Things started off well enough overnight in Asia where Japan, South Korea, and Australia all traded higher, but Europe picked up the baton and has headed south since the open. The catalyst for weakness there has been some lackluster manufacturing PMI data, but at this point the declines are relatively modest. While the headline PMI reading for the Eurozone was right in line with expectations, it remained deep in contractionary territory at 42.7.
In the US today, the focus remains on earnings, but fifteen minutes after the opening bell, we’ll get the S&P US Manufacturing PMI followed by Construction Spending, ISM Manufacturing, and JOLTS at 10 AM.
With a rally of over 28% from its bear market lows in late 2022, equities have really come a long way in a short period of time, but if you widen out your view from the extreme lows of last year and look on a calendar basis, the gains don’t look quite as impressive. In the case of the S&P 500, over the last 12 months, it’s still up over 11%, but on a two-year basis, performance looks much less attractive at just 4.4%. That hardly looks like a market that has become unanchored from reality.
The Nasdaq is a similar picture. It has rallied more than 40% from its bear market lows and is up nearly 16% over the last year. Over the last two years, though? Down 2.2%.
Lastly, the Russell 2000. It’s been a laggard off the lows and over the last year as well with gains of 21.4% and 6.3%, respectively. The two-year performance looks downright depressing with a decline of 10%. When you have big gains in a short period of time, yet longer-term returns are still flat to down, all you can say is “What a long strange trip it’s been.”
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Chart of the Day: August Seasonality, Five-Month Win Streaks
Dogs of the Dow for the Dog Days of Summer
With the Dow coming off of a historic winning streak last week, below we check in on performance of the index versus the Dogs of the Dow. The Dogs of a Dow is a stock-picking strategy that invests in the index members with the highest dividend yields at the end of a year holds them through the end of the next year. On a total return basis, the Dow’s recent winning streak has been a benefit to both the overall index and the Dogs alike. That said, the gains to the former have brought the index up near 2022 highs on a total return basis while the Dogs of the Dow has much further to go given the overall weakness of dividend-oriented equities recently.
In the table below, we show the returns of this year’s Dogs of the Dow and all other individual Dow members. The Dogs of the Dow are host to some of the stocks with the worst performance this year like Verizon (VZ) and Chevron (CVX), however, there are also a couple of big winners like Intel (INTC) which has returned nearly 42% YTD or JPMorgan Chase (JPM) which has nearly posted a 20% return. However, the biggest gains in the index have come from non-Dogs. In fact, the largest gains this year have been from those with the lowest or no dividend yields at the end of last year like Boeing (BA), Salesforce (CRM), or Apple (AAPL).
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Bespoke’s Morning Lineup – 7/31/23
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“It is dangerous to make everybody go forward by the same road.” -Ignatius of Loyola
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We’re now well past the halfway point of a year that most investors would prefer never to end. That’s a big shift in the way sentiment was to start out the year, but while things are far from perfect, the backdrop looks a lot less ominous now than it did at the start of the year. That’s both a good thing and a bad thing. It’s good because no one wants runaway inflation or a recession. The bad news is that it’s becoming a much more widely accepted view, and when everyone starts to travel the same road, traffic jams are ultimately the least of your problems.
Futures are modestly higher to kick off what will be another busy week for earnings and economic data. In terms of earnings, the two biggest reports will be Amazon.com (AMZN) and Apple (AAPL), which will both be reporting after the close on Thursday. On the economic side of things, the key reports to watch will be ISM Manufacturing (Tues) and Non-Manufacturing (Thu), as well as Non-Farm Payrolls on Friday. Besides those reports, JOLTS and Jobless Claims will obviously be key indicators to watch.
Along with the positive tone in US futures this morning, Asian stocks were broadly higher with gains of more than 0.5% while European stocks are also higher led by France and Italy.
The S&P 500 rallied over 1% last week, but four sectors posted losses led lower by interest rate-sensitive sectors like Utilities and Real Estate which were both down close to 2%. At the other end of the spectrum, more cyclically sensitive sectors like Communication Services, Energy, Materials, and Consumer Discretionary led the way higher. While Real Estate and Consumer Discretionary are no longer trading at overbought levels, they are still well above their 50-day moving averages, and the broader market remains overbought as has been the case since the Friday before Memorial Day.
Regarding seasonality and the last trading day of July and the first trading day of August, there have been some interesting (and not so bullish) trends regarding performance during years when the S&P 500 was up 10%+ YTD versus all other years. Regarding the last trading day of July, there hasn’t been much in the way of differences in performance. In the 24 prior years since 1953 when the S&P 500 was up 10%+ YTD, its median performance on the last trading day of July was a gain of 0.06% with positive returns just over half of the time. As shown, both in terms of median performance (top chart) and consistency of positive returns (lower chart), these numbers are just slightly less than the figures for all other years.
Where things get interesting (and less positive for bulls) is on the first trading day of August. In years where the S&P 500 was not up over 10% YTD, the S&P 500’s median performance was a gain of 0.07% with positive returns 54% of the time. It’s in the years where the S&P 500 was up over 10% YTD, though, that the first day of August has been prone to profit-taking. In those years, the S&P 500’s median first day of August performance was a decline of 0.31% with gains less than 30% of the time.
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Bespoke Brunch Reads – 7/30/23
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:
Oil On the Move. On this day in 1869, the world’s first ‘oil tanker’ the Charles, departed from the U.S. carrying 7,000 barrels of oil. Today oil tankers are much larger carrying millions of barrels of oil. That oil they carry is also a lot more valuable today. The cost of a barrel of oil in 1869 was $3.64. As of July 27, the cost of a barrel of oil was $78.73 meaning a nominal increase of 2,063%. [link]
Girl Power
The Federal Reserve Says Taylor Swift’s Eras Tour Boosted the Economy. One Market Research Firm Estimates She Could Add $5 billion (CBS News)
For many cities across the U.S., Taylor Swift’s Eras Tour is positively contributing to economic activity, allowing some cities to recover from the lingering effects of the COVID-19 pandemic. Experts are comparing the hotel demand like that of the Super Bowl, with other businesses like restaurants and retail shops also reaping the benefits of fans flocking to see Swift perform. Forbes estimates the tour will contribute $1.6 billion to the U.S economy. [link]
Parents Hire $4,000 Sorority Consultants to Help Daughters Dress and Impress During Rush (WSJ)
Mothers and daughters now can receive professional help when it comes to sorority rushing. Trisha Addicks owns a Georgia-based consulting firm that offers a $600 seminar covering basics of rushing and a $3,500 all access plan that gives customers unlimited access to rush mentors. Customers can find out what to wear, what to say, how to act, and social media consultation to be the best candidate for sorority rush events. [link]
Who’s Hungry?
They Took Blockbuster Drugs for Weight Loss and Diabetes. Now Their Stomachs are Paralyzed (CNN)
Two popular drugs for weight loss and diabetes are highlighting extreme side effects in some patients even though their doctors recommended the drugs. Users of Ozempic and Wegovy are reporting extreme nausea and some doctors believe they are suffering from stomach paralysis. The FDA has not been able to conclude the medications caused these symptoms. [link]
Why Cheech & Chong Ads Are Flooding Twitter (WSJ)
With Twitter ad buying traffic on the decline, companies such as Cheech & Chong Global can cheaply buy ad space on the social media platform. The company, named after the two cannabis promoting comedians, sells cannabis products in states where it is legal. Their ads have gained popularity recently on Twitter with some users claiming half the ads they see are Cheech & Chong Global ads. [link]
Regulation
IRS Ends Unannounced Revenue Officer Visits to Taxpayers; Major Change to End Confusion, Enhance Safety as Part of Larger Agency Transformation Efforts (IRS)
Following the new legislature, the IRS announced it is ending unplanned visits for agency revenue officers. The change in practice is a response to an increase in the number of scams related to the IRS and to increase the safety of revenue officers. Now, the IRS will mail letters to schedule meetings with an individual or corporation to resolve cases. [link]
Harvard Faces Federal Civil Rights Probe Over Legacy Admissions (US News)
The U.S. Department of Education is investigating the legality of legacy admissions at colleges such as Harvard University. This investigation follows complaints filed alleging that legacy admissions disproportionately favor white applicants and would violate federal civil rights law. Some colleges across the U.S. have voluntarily ended legacy admissions following the Supreme Court ruling on affirmative action earlier this summer. [link]
AI
Our Oppenheimer Moment: The Creation of A.I. Weapons (New York Times)
Some AI and machine learning developers believe this technology is similar in its impact on society as the nuclear bomb. While AI is not being developed for military purposes (that we know of), some believe it is imperative that the United States pursue development of AI implementation in defense systems. They argue that the United States would not need to use these systems in an act of war, but rather highlight its uses and strengths to prevent future wars. [link]
Oppenheimer Offers Us a Fresh Warning of AI’s Danger (Scientific American)
Taking the opposite view as the article above, some believe governments should come together and determine the best way to regulate this innovative technology. Previous experiments have shown that ChatGPT can give detailed instructions on how to build a regular bomb, create a synthetic pathogen, and construct bioweapons. Thus, some believe governments should ensure big tech companies are developing AI for the best public interest through regulations. [link]
Aided by A.I. Language Models, Google’s Robots Are Getting Smart (New York Times)
Google recently unveiled its latest secret project: robots with large language models as ‘brains.’ Before the success and popularity of large language models like ChatGPT, robots had to be manually programmed to complete the most basic tasks. In the past, a robot could flip a hamburger with the right programming, but it could not flip a pancake unless it received new programming. Now robots can learn and build on their experiences without constant upgrades to their software. [link]
Social
Mark Zuckerberg: Threads Users Down by More Than a Half (BBC)
After seeing 100 million users join the platform in 5 days, Meta’s Threads app has seen more than half of the users leave the platform. The main complaints for users leaving the platform were the lack of content and limited functionality of the app. This should come as no surprise as Threads is in its initial stages of development. [link]
Enjoy Alcohol, Without the Hangover (WSJ)
GABA Labs in London is developing a synthetic alcohol that will give consumers all the pleasures of consuming alcohol without the negatives such as a hangover. If a substance can target only the GABA receptors, the brain can naturally turn on dopamine and serotonin. The company is in early stages and looking to find volunteers to test the product (we’re available!). This is one of many products in development aimed at revolutionizing alcohol consumption and enjoyment. [link]
Bud Light Parent Announces Layoffs in Wake of Brand’s Woes (Washington Post)
Anheuser-Bush InBev recently announced it was laying off 200 employees from its corporate division. These layoffs come roughly 3 months after Bud Light released a controversial promotion leading to brand boycotts. Bud Light was previously the most popular beer in the United States but was dethroned this summer by Modelo. [link]
Science & Technology
It’s Alive! Worms Revived After 46,000 Years in Siberian Permafrost (WSJ)
Scientists have revived worms that had been buried in Siberian permafrost for 46,000 years. The worms entered a state of cryptobiosis, where the metabolism comes to a halt and the organism stops reproducing, developing and repairing itself. Organisms do this in extreme conditions as a survival tactic. This discovery can give valuable insight into a possible third stage between life and death. [link]
Time-traveling pathogens from melting permafrost pose great risk to the Earth (Earth.com)
Melting permafrost has the potential to unleash dangerous pathogens into an environment that hasn’t experienced them in thousands of years. Said one of the scientists involved in a study on the subject, “Our findings suggest that threats so far confined to science fiction could in reality pose serious risk as powerful drivers of ecological damage” [link]
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Have a great weekend!
The Bespoke Report – Disinflationary Boom
This week’s Bespoke Report looks at the combination of data and central bank decisions this week that validate the equity bull market. But despite good news on the economic front and solid earnings, let alone any other risk vectors, it’s hard to not get the sinking feeling that optimism is running a bit too high for the time being. Even if we do see an equity market pullback, growth is solid, consumers are feeling increasingly optimistic, inflation is slowing, and supply chains have healed.
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Bespoke’s Morning Lineup – 7/28/23 – Looking to End on a Positive Note
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What? Over? Did you say ‘over?’ Nothing is over until we decide it is! Was it over when the Germans bombed Pearl Harbor? Hell no!” – John Blutarsky
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.
In case you missed it yesterday, below is a link to yesterday’s segment on CNBC.
Consumers Aren’t Going to Keep Paying High Prices
While Bluto may argue otherwise, the Dow’s streak of daily gains ended at 13 days tying it with the 13-trading day period ending in January 1987 for the longest winning streak in the last 125 years. This morning, the bulls are determined not to make yesterday’s decline the start of a new losing streak, and so far, they’ve been successful as futures on all three major averages trade in the green.
Overnight and this morning, major equity indices are seeing mixed returns. In Asia, the Hang Seng and Shanghai Composite both traded up over 1% to cap off weekly gains of more than 3% while India traded marginally lower and traded down less than 1% for the week. In Europe, German GDP was the big report of the morning. While economists were expecting growth of 0.1% following Q1’s contraction of 0.3%, the actual reading showed zero growth (0.0%). The German economy may no longer be in a recession, but it isn’t growing either.
Earnings data for the week is now behind us, but there’s still a decent chunk of economic data to contend with including ECI (weaker than expected), Personal Income (weaker than expected), Personal Spending (stronger than expected), PCE Deflator (mostly inline with forecasts although Y/Y Core was less than expected at 4.1% versus 4.2% forecast), and Michigan Sentiment.
After hitting new bull market highs early in the session yesterday, stocks sold off and finished near the lows of the day. Technicians call days like yesterday ‘reversal days’, and they are considered negative market signals. As with several technical indicators, though, they sound good in theory, but they don’t always work out in practice. Since the inception of the S&P 500 tracking ETF (SPY) back in 1993, there have now been 83 days where SPY traded to a 52-week high intraday and then reversed lower throughout the trading session to the point where its intraday low was lower than the prior day’s low and the close was below the open.
The chart below of SPY shows every one of those prior reversal days over time. While there were a few times when the market did have a reversal day near a peak, most of them occurred nowhere near market peaks.
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The Closer – Broken Streaks, ECB Recap, GDP Breakdown, Rents Collapse – 7/27/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we start with a look at the latest earnings (page 1) followed by a look at the Dow coming up just short of a new record winning streak (pages 2 and 3). We then check in on European central bank rates and stocks (page 4) before pivoting to today’s GDP data (page 5). We also look at apartment vacancies (page 6) before closing out with a review of the 7 year note auction (page 7).
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Sentiment Staying Bullish
The S&P 500 has continued its rally but sentiment has not exactly reflected that. The latest reading on investor sentiment from the AAII survey showed bullish sentiment dropped back below 50% this week. 44.5% of respondents reported as bullish in the past week which is right in line with the average reading of the past two months.
The 6.5-point decline in bulls was only partially picked up by bearish sentiment which rose from 21.5% (the lowest level in over two years) to 24.1%. Albeit higher sequentially, that remains a muted reading.
Neutral sentiment took home a larger share of the drop to bulls with the reading rising to 31% from 27.1%. That is only the most elevated reading in two weeks as neutral sentiment is the closest of any response to its respective historical average.
While the AAII survey showed some moderation in optimism this week, that was not the case for other surveys. In last Thursday’s Closer, we discussed how alongside the AAII survey, multiple other sentiment readings have tipped in favor of bulls recently. One such indicator that has continued to become more bullish is the NAAIM Exposure index which tracks the average equity exposure of active investment managers. Readings range from -200 to +200. -200/+200 would imply on average money managers are leveraged short/long, readings of -100/+100 would be fully short/long, and a reading of zero would be market neutral. This week the index tipped above 100 for the first time since late November 2021. In other words, active money managers are now fully long for the first time in over a year and a half. That streak of readings below 100 also ends as the fourth longest in the survey’s history at 86 weeks in a row.
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Our daily research consists of a pre-market note, a post-market note, and our Chart of the Day. These three daily reports are supplemented with additional research pieces covering ETFs and asset allocation trends, global macro analysis, earnings and conference call analysis, market breadth and internals, economic indicator databases, growth and dividend income stock baskets, and unique interactive trading tools.
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