Bespoke’s Morning Lineup – 7/25/23 – The Spinal Tap Streak
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“It’s such a fine line between stupid, and uh… clever.” – David St. Hubbins, This is Spinal Tap
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In case you missed the segment last night on CNBC’s Last Call, here is a link (the only link available at the moment is on Twitter)
Based on where futures are trading now, the current Spinal Tap streak of eleven straight daily gains for the Dow is making a run for The Dirty Dozen. The gains are just marginal at this point, though, so it wouldn’t take much for things to turn south. Like futures here in the US, European equities are higher this morning but just barely so, and that comes following news that the latest survey of banking from the ECB showed that corporate loan demand has plunged to record lows. Not only that, but Germany’s Ifo index which tracks sentiment towards the economy dropped for its third straight month after six straight gains to start the year. Part of the reason European equities have managed to rally off intraday lows despite the weak economic data is China. Following reports of increased government stimulus in that country, Chinese stocks rallied more than 2%.
Here in the US this morning, the only reports of note are the Case Shiller housing numbers at 9 AM followed by the Richmond Fed and Consumer Confidence reports at 10 AM. Consumer Confidence is expected to jump from 109.7 up to 112.0 while the Richmond Fed report is expected to weaken from an already negative reading of -7 to -10.
As just about everyone knows by now, the Dow’s eleven-day winning streak is the longest since 2017 and just the sixth streak of as long or longer of duration since WWII. Just as eleven straight red spins on the roulette wheel would inevitably lead you to start betting on black thinking it was overdue, it’s natural to expect a pullback to even things out. One thing worth pointing out, though, is that following each of the five prior eleven-day winning streaks, the Dow was higher three and six months later all five times.
While the Dow may have posted positive returns for eleven straight days now, not even one of its components has been higher for as many days. The longest winning streak of the index’s 30 components has been in UnitedHealth (UNH) at seven days, followed by IBM and Goldman Sachs (GS) each with six. Behind those three stocks, another three components have been up for five straight days. On the downside, just three components have traded lower for two or more days, and the longest of those streaks has been American Express (AXP) at four days.
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Chart of the Day – Crude Oil on Pace to Finally Close Above its 200-DMA
Bespoke’s Morning Lineup – 7/24/23 – Let the Earnings Deluge Begin
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“We can’t buy one minute of time with cash; if we could, rich people would live longer.” – O. Henry
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Despite a weak session in Europe to kick off the week, US equity futures are modestly higher this morning ahead of what will be a busy week for the markets with a ton of earnings reports and the Fed decision on Wednesday. The economic calendar is also busy and kicks off this morning with preliminary PMI data for the US Manufacturing and Services sectors. Tuesday we’ll get Richmond Fed, Case-Shiller housing updates, and Consumer Confidence, and then Wednesday’s expected rate hike will follow New Home Sales at 10 AM. The pace of data will only pick up in the second half of the week with jobless claims, GDP, Durable Goods, KC Fed, and Pending Home Sales, and then we’ll close out the week on Friday with Personal Income, Personal Spending, PCE, ECI and Michigan Confidence. So much for a slow Summer Friday!
This morning’s weakness in Europe has primarily been sparked by a weak batch of PMI data for the region where the Manufacturing sector slid further into contraction territory while the Services sector clings to growth.
You don’t have to look any further than the Dow’s 10-day winning streak to know that last week was a bit of a reversion to the mean trade for US stocks. At the sector level, the five best-performing sectors last week are also the five worst-performing sectors on a YTD basis. Meanwhile, the two worst-performing sectors – Communication Services and Consumer Discretionary – are two of the three best-performing sectors on a YTD basis. Technology, the best-performing sector YTD, managed to trade higher last week but just barely at 0.08%.
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Bespoke’s Brunch Reads – 7/23/23
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:
Typewriters to Terminators: On this day in 1829, William Austin Burt patents America’s first typographer (typewriter). Burt’s invention enabled operators to complete more work than half a dozen clerks with a pen, and the work was better. The benefits of the typewriter’s invention sound eerily like the most recent technological innovation taking the world by storm, ChatGPT. [link]
Technology and Innovation
To Help Cool a Hot Planet, the Whitest of White Coats (New York Times)
Purdue University professor Dr. Xiulin Ruan has developed the world’s whitest paint. The original paint reflected 95% of the sun’s rays, and the new and improved formula reflects 98% of the sun’s rays. Scientists predict that covering 1-2% of the Earth’s surface with this paint will cause Earth to emit more heat than it absorbs and cooling global temperatures in the process. [link]
Groundbreaking Cement-Free Concrete Debuts in Seattle (Greek Reporter)
C-Create Technologies has used its cement-free concrete on a commercial building project in Seattle claiming the new mixture is more environmentally friendly. The innovation is on par or beats the standard Portland cement concrete in the key concrete measures. For every ton of C-Crete binder, CO2 emissions are reduced by 1 ton. Could this be the building material of the future? [link]
How PinkyDoll Mesmerized the Internet With ‘Ice Cream So Good’ (New York Times)
TikTok influencer PinkyDoll’s rise to fame has come with the latest trend on Tik Tok. The 27-year-old woman live streams on her Tik Tok account and reacts to digital gifts fans send her. PinkyDoll is the latest example of an NPC (Non-Player Character) streamer. [link]
Energy and Mining
‘Breakthrough’ geothermal tech produces 3.5 megawatts of carbon-free power
An energy startup (Fevro) in Nevada claims it has achieved a breakthrough in geothermal technology that would enable 3.5 megawatts of electricity or enough to power over 2,500 homes at once. If the technology works as hoped, a site in Utah is expected to generate enough electricity to power 300,000 homes simultaneously, or a quarter of all the houses in the state.[link]
An Asteroid Loaded with $10 Quintillion Worth of Metals Edges Closer to US Reach (Yahoo Finance)
An asteroid located between Mars and Jupiter is the next target for NASA. The asteroid is said to contain vast amounts of gold, iron, and nickel ore with an estimated value of $10 quintillion. NASA is partnering with Space X to send a probe to the asteroid, giving Space X the right to mine the asteroid while NASA studies its origins. [link]
This Arkansas Town Could Become the Epicenter of a U.S. Lithium Boom (WSJ)
A once profitable oil town, Magnolia, Arkansas is on the brink of seeing business boom again. The city sits above a large salty water depository containing lithium ions that could be used for EV (Electric Vehicle) lithium batteries. Many large corporations are exploring the economics of extracting and processing the brine as EVs become more popular. [link]
Company Moves
Tesla’s Texas Factory Has Produced Its First Cybertruck (Engadget)
Tesla has completed the first construction of its new Cybertruck. The company expects to begin volume production of the Cybertruck at the beginning of 2024 in Texas and is planning a Cybertruck delivery event before the end of 2023. [link]
In-N-Out Locations in 5 States to Ban Employees From Wearing Face Masks: Memo (ABC News)
A new memo sent to In-N-Out employees in Arizona, Colorado, Nevada, Texas, and Utah outlined a policy that prohibits employees from wearing masks while on duty. Employees will need a proper medical note to wear a mask in-store and are required to wear an N-95 mask unless otherwise noted by the employee’s medical professional. [link]
Tornado Damages Pfizer Plant in North Carolina, Will “Likely Lead to Long-Term Shortages” of Medicine (CBS News)
This past week, an EF3 tornado ripped through Nash County, North Carolina, and consequently a major Pfizer production plant. The plant is said to produce anesthesia and nearly 25% of all sterile injectable medications used in hospitals around the country. Experts believe this will lead to a shortage while Pfizer relocates or rebuilds production. [link]
Economy
Fed Launches Long-Awaited Instant Payments Service, Modernizing System (Reuters)
The Federal Reserve is rolling out its new service FedNow to 41 banks and 15 service providers which allows customers to send and receive funds on a 24-7 basis in just seconds and free of charge. Analysts expect this service to save consumers billions, but fears have risen that it could facilitate faster outflows increasing the risks of bank runs and collapses. [link]
America Is Barreling Toward a Summer of Strikes (Bloomberg)
While the strikes in Hollywood attract the most headlines, work stoppages due to labor disputes have been surging. “This will be the biggest moment of striking, really, since the 1970s.” The trend hasn’t just been confined to the US either. Cost of living increases are pushing workers in Europe and the UK to also walk the picket lines increasingly. [link]
Markets
This Little-Known Accounting Measure is Ringing an Economic Warning Bell (Marketplace)
Indiana University professor Messod Daniel Beneish created an accounting measure in the 1990s that seeks to detect the manipulation of balance sheets and earnings for corporations. The measure is called the M-score, and earlier this year reached its highest level in 40 years. Ahead of prior recessions, the M-score has also increased. [link]
Senators to Propose Ban on U.S. Lawmakers, Executive Branch Members Owning Stock (WSJ)
New bipartisan legislature has been introduced and would prohibit lawmakers and their aides from owning individual stocks. The measure would, however, allow them to own shares of mutual and index funds. The bill is widely supported by the American public but has met some resistance in Congress. [link]
Health
The End of Rapid Population Growth (Federal Reserve Bank of St. Louis)
Last year, the global population surpassed 8 billion people, taking the population 47 years to double from the 4 billion number in 1975. The United Nations currently predicts the global population will peak around 10.5 billion people and then experience a decline. India is projected to become the most populous country this year. [link]
New Report from UNAIDS Shows That AIDS Can Be Ended By 2030 And Outlines the Path to Get There (UNAIDS)
Countries that have committed financial and political capital to combat the spread of AIDS are seeing tremendous results and could be on track for a global end to AIDS. However, some countries still do not have the proper resources and programs in place and have seen case rates rise in recent years. A clear path has been outlined through case studies, but implementing the necessary programs is the next challenge. [link]
Big Tech Goes Old School
Let’s All Start Leaving Voicemails Again! (WSJ)
In Apple’s latest iOS (iOS17), a new feature will be available to users: LiveVoicemail. The once ‘ancient’ concept could make a revival as users are now able to read a caller’s voicemail directly on the screen in real time and decide to answer the call or let the voicemail continue. This idea is good in theory but will require users to build the habit of leaving voicemails again in order to be beneficial. [link]
Google Restricting Internet Access to Some Employees to Reduce Cyberattack Risk (CNBC)
Google is rolling out a pilot program aimed at increasing the cybersecurity of its employees. The program will disable internet access for its employees and even disable the ability to run administrative commands like installing software. The program will allow employees to connect to Google products. This is one of Google’s many efforts to increase its cybersecurity amidst increasing cyber-attacks. [link]
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The Bespoke Report — Equity Market Pros and Cons — Q3 2023
This week’s Bespoke Report is an updated version of our “Pros and Cons” edition for Q3 2023.
With this report, you’re able to get a complete picture of the bull and bear case for US stocks right now. It’s heavy on graphics and light on text, but we let the charts and tables do the talking!
On page three of the report, you’ll see a full list of the pros and cons that we lay out. Slides for each topic are then provided on page four and beyond.
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Bespoke’s Morning Lineup – 7/21/23 – Going For Ten
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“When people talk, listen completely. Most people never listen.” – Ernest Hemmingway
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It’s a slow news morning in financial markets, and that’s reflected in the futures where both the S&P 500 and Dow are just modestly positive. Nasdaq futures are more firmly in positive territory, but that’s just because that index got slammed yesterday declining more than 2%. In overnight international economic data, the most notable report was probably Japan’s weaker-than-expected CPI print. In Europe, UK Retail Sales were stronger than expected. Earnings season started to pick up the pace this week, but it’s all been a dress rehearsal for next week when Alphabet (GOOGL), Amazon.com (AMZN), Meta (META), and Microsoft (MSFT) – four companies representing 15% of the S&P 500’s market cap- will all report. And don’t forget about the Fed meeting either!
With Dow futures essentially unchanged heading into the opening bell, it will be a coin flip as to whether that index can extend its current streak of nine straight daily gains to double-digits. Whether or not the streak goes on, it will be the longest winning streak for the DJIA since 2017. If the streak ends today, it will be the longest streak since September 2017, and if it continues, it will be the longest streak since August 2017. You may recall that 2017 was a good year for US stocks as the Dow rallied over 25% with little in the way of downside volatility. That is reflected in the fact that there were three different streaks during the year where the DJIA was up for at least nine straight days with the longest being 12 trading days in February 2017. The only other year with three or more streaks of nine straight daily gains was 1955 when there were four.
In total, since 1953, which is the first full year where the NYSE had a five trading day week, there have now been 27 different streaks where the DJIA posted daily gains for at least nine trading days. In the 26 prior streaks, the Dow’s average and median performance in the month after the ninth positive day in a row was a gain of 0.8% with gains just barely more than half of the time. Performance over the following three, six, and twelve months, however, was much more consistent to the upside. Six and twelve months later, for example, the Dow’s median performance was gains of 5.3% and 8.8%, respectively, with positive returns over 80% of the time. Extended winning streaks like the Dow is in the middle of right now, don’t usually occur during bear markets.
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Seasonal Bump Absent in Claims Data
Among the many economic indicators updated this morning, seasonally adjusted initial jobless claims came in stronger than expected, falling to 228K. That reversed the recent jump in claims observed throughout the late spring.
Looking at the non-seasonally adjusted data helps to explain the recent decline in the adjusted number. As shown below, barring the pandemic years of 2020 and 2021, claims remain at one of the higher readings for the current week of the year in recent history. Typically, in late June and early July, seasonal headwinds cause a significant bump in claims. This year, that increase has been relatively modest.
Pivoting to continuing claims, the indicator had been on the decline since early April, but the first two weeks of July have seen a modest turn higher. At those levels, continuing claims remain in the middle of the range from the few years leading up to the pandemic.
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Bulls Dominate
The past week has provided some positive developments on the inflation front that in turn sent equities higher. In response, readings on investor sentiment have shown a dramatic positive turn. The latest AAII survey showed more than half of respondents reported as bullish for the first time since April 22, 2021. As we noted in today’s Morning Lineup, this week’s reading ended an over two-year-long streak without a reading above 50% which was the third longest such streak on record.
Given the elevated reading of bullish sentiment, a minor share of respondents are reporting as bearish. In fact, that reading fell to 21.5% this week which is the lowest reading since June 2021.
Last year saw a record streak of weeks where bearish sentiment outnumbered bullish sentiment. With the total reversal in sentiment, the bull-bear spread now heavily favors bulls. The spread reached 29.9% this week for the highest reading since April 2021.
The gains to bullish sentiment have not entirely come from bears. Neutral sentiment is also reaching new lows, registering just 27.1% this week. Unlike bearish sentiment, that is only the lowest level since the last week of 2022.
In tonight’s Closer we will discuss the surge in other sentiment indicators and what that has historically meant for S&P 500 performance.
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Chart of the Day – NASDAQ 100 Rebalancing
Bespoke’s Morning Lineup – 7/20/23 – Complacency Climbs
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“If trouble comes when you least expect it then maybe the thing to do is to always expect it.” – Cormac McCarthy
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The S&P 500 and Nasdaq have benefited from the performance of mega caps this year, but this morning, a 4% decline in Tesla (TSLA) in reaction to earnings is weighing on futures for both of those indices. At this point, though, the declines are minor. The real test will come in the next couple of weeks when the trillion-dollar club of companies starts to report.
Overnight, Asian stocks were mixed with Japan and China lower while India and Australia rallied as payrolls down under came in better than expected. Stocks are faring better in Europe this morning as major benchmarks are higher across the board as an ECB policymaker suggested that just one more 25 basis point increase in rates could be all that’s needed for the current cycle.
The focus now shifts to this morning’s economic data in the US with jobless claims (initial lower than expected, continuing higher) and the Philly Fed (weaker than expected) at 8:30 and then Existing Home Sales and Leading Indicators at 10 AM. While the earnings calendar has been busy this morning, the lineup after the close is relatively quiet with reports of note including Capital One (COF), CSX (CSX), and Intuitive Surgical (ISRG). Then tomorrow we close out the week with American Express (AXP), AutoNation (AN), and SLB.
With the market rising faster than the temperature this summer, we can’t say we were surprised this morning to see that individual investor sentiment as measured by the American Association of Individual Investors (AAII) has turned bullish. In this week’s survey, the percentage of bullish respondents increased from 41% to 51.4% which is the highest level since April 2021.
That plus-50% reading in bullish sentiment also ended a streak of more than two years (116 weeks) where bulls were never in the majority in the weekly AAII poll. In the history of the survey (since 1987), there have been just three other periods where bullish sentiment went more than 100 weeks without a 50%+ reading, and the just-ended streak ranks as the third longest of all time. What’s notable about this chart is that the three longest streaks without 50%+ readings in bullish sentiment have now all occurred in the last ten years, and during that ten-year stretch, there have only been 17 weeks (out of 520) of 50%+ bullish readings.
With so few weeks where bulls were in the majority, you would think that it was an unsettled time for equities, but during this period, the S&P 500 has put up annualized returns of over 10% (not including dividends). Like the Cormac McCarthy quote above, markets climb a wall of worry, and sometimes, the more issues that investors are worried about, the better the forward returns. Conversely, just when you think things can’t go wrong for the stock market, you get years like 2022. Complacency kills.
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