Chart of the Day – Riding the Elevator Both Ways
Altria Group (MO)
Altria Group (MO) — formerly Philip Morris — is one of the world’s largest producers and marketers of cigarettes and other tobacco products. However, the company’s current motto is “Moving Beyond Smoking” as it pushes smoke-free products and harm reduction.
Regardless of your stance on tobacco stocks, Altria Group (MO) still does more than $20 billion in annual revenues and has a market cap of just under $90 billion. As shown below, the stock has also been trending steadily higher for the last six months.
While Altria has seen share-price appreciation over the last six months, it is most known for its high-dividend yield. MO currently has a dividend yield of more than 7.5%, which makes it the second-highest-yielding stock in the S&P 500 behind Walgreens (WBA). According to Insider Monkey, Altria has increased its dividend for 54 consecutive years, making it one of the longest-running Dividend Aristocrats.
Hypothetically, had you invested $10,000 in Altria Group (MO) shares at the start of 1990, re-invested dividends, and held to today, your shares would currently be worth roughly $1,041,000. That’s a gain of more than 10,000%!
A huge chunk of those gains since 1990 have come from re-investing dividends. As shown below, MO shares are only up 1,549% (8.4% annualized) in price over this time frame compared to its total return of more than 10,000% (14.3% annualized). It will be tough to find a better example of the compounding effects of re-investing big dividend payments than MO. Using the Rule of 72, with no share price appreciation at all, MO’s annual dividend yield of 7.8% would double your money in just over 9 years.
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Bespoke’s Morning Lineup – 9/16/24 – What a Difference a Week Makes
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“All great and honorable actions are accompanied with great difficulties, and both must be enterprised and overcome with answerable courage.” – William Bradford
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Futures are mixed this morning with the Dow indicated to open higher, the S&P 500 trading slightly lower, and the Nasdaq trading a little deeper into negative territory. The weakness in the Nasdaq is mostly due to Apple (AAPL) which is down over 2% following reports that iPhone orders over the first weekend of sales have been weaker than expected. These reports usually have little more than a temporary effect, but on an otherwise quiet morning, it’s making its impact felt. The only economic report on the calendar today is Empire Manufacturing, which was just released and came in stronger than expected at +11.5 vs forecasts for a reading of -4.0. Believe it or not, that was the first positive reading of the year and the highest level since April 2022.
Don’t let the quiet start to the week lull you into sleep, though. Tomorrow, we’ll get an important Retail Sales report, and then Wednesday morning we’ll get the August read on Housing Starts and Building Permits as an appetizer to the FOMC rate decision at 2 PM Eastern where the only question is whether Powell and Company will cut rates by 25 or 50 basis points.
The market mood heading into this past weekend and into the new week stands in stark contrast to where things stood a week ago. The snapshot below from our Trend Analyzer shows where major index ETFs stood last Friday and a week earlier. After Labor Day and the first week of September, all three index ETFs were below their 50-day moving averages and down between 3.2% and 5.6% as September looked to be living up to its reputation as the cruelest month. A week later, each of the four indices erased nearly all their declines from the prior week and reclaimed their 50-day moving averages.
When the market experiences weekly reversals like the one seen over the last two weeks, the sectors that led on the way down also usually lead on the way up or vice versa. That wasn’t necessarily the case last week. While that trend applied to Technology (best last week and worst the week before) and Communication Services (third best last week, third worst week before) it didn’t to most other sectors. Take Energy; last week it was the only sector to finish lower for the week, and the week before, it performed worse than every other sector except for Technology. Going the other way, Real Estate was one of just two sectors to finish each of the last two weeks with gains.
Brunch Reads – 9/15/24
Welcome to Bespoke Brunch Reads — a linkfest of some of our favorite articles 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.
“Meltdown Monday”: On September 15th, 2008, the 158-year-old investment bank Lehman Brothers filed for bankruptcy, marking the largest corporate collapse in US history. The fall of Lehman, once considered “too big to fail,” sent shockwaves across the global financial system, intensifying an already festering crisis. Many wondered how one of Wall Street’s most storied institutions, which had survived the Civil War and the Great Depression, could swiftly unravel. Lehman’s downfall was triggered by its heavy exposure to subprime mortgages, a ticking time bomb that exploded with the collapse of the US housing market. As the value of these risky assets plummeted, the firm drowned itself in debt, unable to secure enough capital to stay afloat. While other struggling banks like Bear Stearns had been rescued through emergency bailouts or acquisitions, Lehman found no lifeline.
In reaction, the Dow Jones Industrial Average plunged over 500 points, its largest single-day drop since the September 11 attacks. Credit markets froze as banks and financial institutions grew fearful of lending, unsure of who might be next to collapse. Across the globe, stock markets tumbled, and governments rushed to contain the growing instability.
Labor
Wall Street Curbs Young Bankers’ Hours After Overwork Outcry (WSJ)
JPMorgan and Bank of America are tightening up on how much junior bankers work after a Wall Street Journal report exposed the intense overwork culture on Wall Street. JPMorgan is now capping hours at 80 per week for junior staff, while Bank of America is introducing a new tool that requires daily tracking of hours and tasks. These changes come after stories of young bankers being pushed to lie about their hours and even a tragic case where a Bank of America associate died after working multiple 100-hour weeks. Though banks have tried limiting hours before, sticking to those rules hasn’t always been easy. [Link]
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The Bespoke Report — 9/13/24 — T Minus 50
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Bespoke’s Morning Lineup – 9/13/24 – A Perfect Week?
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“If you can make it through the night, there’s a brighter day.” – Tupac Shakur
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After the worst week in months to start September, the S&P 500 has already rallied more than 3% this week, and if it can finish the day in the green today, it will have had its second ‘perfect’ week in a month (and second five -day perfect week this year). At this point, futures are cooperating with modest gains as declines in Adobe (ADBE) and Boeing (BA) have been offset by rallies in Oracle (ORCL) and RH. To hold on to those gains, though, they’ll have to get through Import Prices at 8:30 and Michigan Sentiment at 10:00.
Even after the gains this week, the S&P 500 remains down close to 1% this month, so September has already lived up to its reputation for being the weakest month of the year. If the month continues to follow the seasonal trend, bulls should remain on guard. The snapshot below from our Seasonality Tool shows that based on the last ten years, the upcoming one-month period has historically been one of the weakest periods for the S&P 500. Over the last ten years, the S&P 500’s median performance over the next month has been a decline of 1.79% which ranks in just the first percentile relative to all other one-month periods throughout the month.
That’s the bad news. The good news is that despite the next month being so weak, the next three months have historically been among the best periods of the year for the S&P 500. With a median gain of 4.65%, the SP&P 500’s performance over the next three months ranks in the 87th percentile relative to all other periods.
The composite chart below illustrates the pattern. While the back half of September typically experiences sharp declines, the last three months have been strong. To borrow a phrase from Tupac Shakur, who died 28 years ago today, “If you can make it through the night, there’s a brighter day.”
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The Closer – Fedwatching, PPI, Fund Flows – 9/12/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we lead off with a recap of the earnings of Restoration Hardware (RH) and Adobe (ADBE) in addition to the latest FOMC news (page 1). We then recap today’s PPI data (page 2) before turning over to the Flow of Funds (Z1) report (pages 3 & 4). We finish with a recap of the long bond reopening (page 5).
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Chart of the Day – Dividend Dogs
Sentiment Goes According to Seasonality
The typical seasonal September slump for stocks has left the S&P 500 down 1.5% month-to-date. Regardless of the rebound in the past few sessions, the weak start to the month has put a dampener on investor sentiment. In the final two weeks of August, the percentage of respondents reporting as bullish to the AAII Investor Sentiment Survey came in above 50%. Since peaking the week of August 22nd at 51.6%, bullish sentiment has now slid for 3 straight weeks and is down to 39.8%. That is the lowest level of bullish sentiment and the first sub-40% reading since the first week of June.
With the drop in bulls, bearish sentiment has been on the rise. Bears came in at 31% today which is the highest level in five weeks and right in line with the historical average for that reading since the start of the survey in 1987.
Bulls falling and bears rising would mean that the survey’s bull-bear spread has pivoted lower. The spread fell from a reading above 20 last week down to 8.8. While that is a significant drop, bulls still outnumber bears as has been the case for the past 20 weeks. Through the history of the survey, there have only been 13 other streaks of 20+ weeks of positive bull-bear readings, the most recent of which ended this past April at 24 weeks.
September has historically been a rough month for equities from a seasonal perspective. As such, sentiment has also tended to be weak. The charts below show the average bull-bear spread reading by month for all years since 1987 and so far in 2024. Sentiment is usually strongest at the bookends of the year (January and February) and tends to fall in the late-Summer with September marking the annual low.
This year has to some degree followed that pattern. Sentiment was strong in the first two months of the year and unusually carried through into March. Sentiment slumped in April but began to pick up through July before reversing lower in the past two months.
The AAII survey hasn’t been the only measure of sentiment to moderate lately. This week’s bull-bear spread in the Investors Intelligence survey similarly dropped with the weakest reading since last November. The NAAIM Exposure index was modestly higher but continues to show equity exposure was significantly higher a couple of weeks ago. All combined into our sentiment composite, sentiment favors bullishness, but to the weakest level in a month.
Like the AAII survey, although investor outlooks are not as rosy as they were previously, it has been an impressive streak of net bullish readings. Our sentiment composite has now come in with a positive reading for 20 straight weeks. That immediately follows a 24-week long streak that ended in April with only one week of bearish sentiment in between the two. Before that, there were only seven other streaks that lasted at least 20 weeks. In other words, it has been an impressively long stretch of bullish investor sentiment.
Bespoke’s Morning Lineup – 9/12/24 – Inflation to Employment
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“My business is hurting people.” – Sugar Ray Robinson
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For much of the last three years now in a week with both CPI and PPI, these would easily be the most important reports of the week. Now that the Fed has shifted focus from inflation to employment, though, yesterday’s CPI report had much less than normal fanfare, and most traders probably didn’t even know there was a PPI report today. The flavor of the week now is weekly jobless claims. After trending higher for most of the year and hitting the highest levels in nearly a year in late July, the market (and the Fed) became concerned about jobless claims, so any additional increases raise concern about the economic outlook causing a sell-off in equities and buying in the treasury market.
Leading up to today’s PPI and jobless claims report, equity futures were trading modestly higher and holding on to Wednesday’s gains while treasury yields moved slightly higher. These equity gains follow a positive overnight session in Asia and morning gains in Europe where the ECB just announced a 25 bps cut in the benchmark rate to 3.5% which was in line with expectations.
Getting back to the economic data, PPI came in higher than expected on both a headline (0.2% vs 0.1%) and core basis (0.3% vs 0.2%), but the y/y readings were both in line with forecasts as July’s report was revised lower. Jobless claims, meanwhile, were largely in line with forecasts. Initial claims came in 4K higher than expected (230K vs 226K) while continuing claims were right in line.
What looked like a potentially gruesome day in the morning yesterday took a turn for the better as the day progressed. After trading down 1.6%, the S&P 500 finished the day up by 1.1%. Not only that, but the reversal also took what looked like a downside break of the 50-day moving average (DMA) and turned it into a successful test of that level. In terms of just days where the S&P 500 finished the day higher by over 1% after trading down over 1% earlier in the session, it was the first such positive reversal since 10/13/2022. For you market historians, 10/13/22 was the day after the 2022 bear market closing low.
For these types of 1% positive reversals in general, yesterday was the 52nd such day since 1990, and in the chart below we indicate each prior occurrence with a red dot. While most of these occurrences took place during periods of an upwardly trending market, they weren’t exclusive to that type of environment, and there were more than a handful of them during the bear markets associated with the dot-com crash and the Financial Crisis.
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