Chart of the Day – Semis Back on the New High List
Bespoke’s Morning Lineup – 5/25/23 – Nvidia’s Wild Night
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“The age of AI is in full throttle.” – Jensen Huang
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The above quote from NVIDIA (NVDA) CEO Jensen Huang wasn’t from last night’s conference call, but the keynote speech of the company’s GTC conference in 2020 – three years ago. If AI was in full throttle back then, where is it now?
While we’ve been on recession watch for the US economy, this morning, we got news that the German economy has now moved into recession territory as Q1 GDP was revised to a decline of 0.3% following Q4’s contraction of 0.5%. Despite the recession in Europe’s largest economy, ECB policymakers are out this morning calling for more rate hikes to combat rising wages. Equity markets in Europe are lower across the board, but only fractionally.
In the US, the debt standoff continues, and Fitch weighed in this morning by placing the AAA rating of US debt on credit watch for a possible downgrade. It’s been a busy morning for economic data, including GDP, jobless claims, Personal Consumption, and Core PCE, and they all came in higher than expected except for jobless claims which were both lower than expected. All of these reports suggesting stronger-than-expected growth aren’t good if you’re hoping for the Fed to pause, but as of now, futures haven’t reacted much. Dow futures are lower while Nasdaq futures are surging thanks to the surge in NVDA.
The overnight move in NVDA reminds us of the Lenin quote, “There are decades where nothing happens; and there are weeks where decades happen.” Words really can’t describe the move in NVDA overnight. While the company has been public for well over 20 years now, a quarter of its entire market value has come in the last 17 hours!
With the stock trading up over 27% in the pre-market, it isn’t on pace to be the best performer in reaction to earnings this season. However, it would be just one of 18 (out of thousands of stocks that have reported) to rally 25% in reaction to its earnings report. What is remarkable, though, is how NVDA’s market cap compares to the other stocks that have surged 25% in reaction to their earnings reports.
As shown in column four of the table below, NVDA had a market cap of $755.24 billion before reporting earnings yesterday. Of the 17 other stocks that rallied over 25% in reaction to earnings, none has a market cap of even $10 billion, and those market caps include the impact of the 25%+ move. At the opening today, NVDA will have a market cap of closer to a trillion! The combined market cap of the 16 other companies that rallied 25% in reaction to earnings is $27 billion, but this morning alone, NVDA’s market cap will increase by more than 9 times that.
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Chart of the Day – More Participation Trophies Ahead?
Bespoke’s Morning Lineup – 5/24/23 – European Hangover
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“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.” – John Maynard Keynes
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You may be looking at the drop in futures and think that there has been some bad news regarding the debt ceiling. Since there has been no breakthrough agreement on that front, the lack of progress is probably playing a partial role, but the real culprit appears to be the hotter-than-expected inflation reading in the UK. That report has both the FTSE 100 and Europe’s STOXX 600 down sharply and trading below their 50-day moving averages.
Here in the US, investors will continue to watch DC for signs of where negotiations over the debt ceiling are going, but other than the Fed Minutes at 2 PM, there are no significant economic data releases on the calendar, so given that European stocks have been leading things lower, it will be hard for bulls to make any headway while those markets remain open for trading.
Getting back to the UK inflation report, economists were forecasting headline inflation to rise 8.2% which would have been a nearly two-percentage point decline relative to March’s reading of 10.1%. The actual reading, however, came in 0.5 percentage points higher at 8.7%. Outside of the last year when every other reading was higher than April’s, it was the highest y/y reading since May 1982 and came up just shy of falling below the peak of 8.4% from June 1991. If there could ever be a way during a period when high inflation was the market’s major concern that a 52-week low reading in inflation would not be considered a good thing, this was it.
Regarding the UK, we wanted to look at how UK stocks have performed relative to the US over the long term. Even though it’s spring, the first thing that comes to mind is skiing. The chart below shows the relative strength of the MSCI United Kingdom ETF (EWU) versus the S&P 500 SPDR ETF (SPY) over the last ten years. For much of this period, it has been a straight downhill for UK stocks relative to the US. Over the last two years, though, the slope has flattened out, and the two ETFs have essentially performed in line with each other (lower chart). While bulls on international stocks may be hoping the last two years have been the early stages of a base to rally from, more inflation prints like today’s could signal more downhill ahead.
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Fixed Income Weekly: 5/24/23
Searching for ways to better understand the fixed income space or looking for actionable ideas in this asset class? Bespoke’s Fixed Income Weekly provides an update on rates and credit each week. We start off with a fresh piece of analysis driven by what’s in the headlines or driving the market in a given week. We then provide charts of how US Treasury futures and rates are trading, before moving on to a summary of recent fixed income ETF performance, short-term interest rates including money market funds, and a trade idea. We summarize changes and recent developments for a variety of yield curves (UST, bund, Eurodollar, US breakeven inflation and Bespoke’s Global Yield Curve) before finishing with a review of recent UST yield curve changes, spread changes for major credit products and international bonds, and 1 year return profiles for a cross section of the fixed income world.
In this week’s report, we discuss the performance of credit in a cross-asset context.
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Chart of the Day – An Alphabet Pattern From the Past
Bespoke’s Morning Lineup – 5/23/23 – Permission for Takeoff
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“You need to get one thing done well, or else you don’t have permission to do anything else.” – Larry Page
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After a strong week, equity futures are taking a breather this morning as they await an agreement progress on the debt ceiling. Interest rates are higher once again this morning, and European stocks are lower following the release of PMI data for May. Those indices for the US will be released at 9:45, and then at 10 AM, we’ll get the releases of New Home Sales and the Richmond Fed Manufacturing reports.
How many times over the last six months have you heard someone say that Alphabet (GOOGL) missed the boat on AI to Microsoft (MSFT)? Things really got bad for GOOGL after the rushed launch of Bard, its answer to ChatGPT, earlier this year. At that point, GOOGL was underperforming MSFT by a high single-digit percentage margin since the launch of ChatGPT at the end of November, and more than a few were questioning the company’s future. At its I/O event two weeks ago, though, GOOGL had a much more impressive presentation related to how it was incorporating AI tools into its services, and the stock has come climbing back nearly erasing all its post-ChatGPT underperformance gaining 24% compared to MSFT’s 26% since the launch on 11/30/22. While Alphabet may not have originally done AI well, after the improved showing at the I/O event, the market is giving the stock, to borrow from the Page quote above, ‘permission’ to rally.
GOOGL’s recent performance hasn’t just been notable in that it has made up much of the ground that separated it from MSFT, but also, over the last ten trading days, it has rallied over 15% taking the stock to 52-week highs. While the stock remains more than 17% below its all-time highs from 2021, when a stock is trading at its highest levels in over a year, ‘missing the boat’ is not the first phrase that comes to mind.
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None of the information in this report 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.
Copper Under the Weather
Earlier Monday in our Morning Lineup post, we highlighted the recent short-term weakness in gold just days after it hit all-time highs. While the declines are disheartening for gold bulls, they can take comfort in the fact that at least gold has been doing better than copper.
Copper prices rallied in the second half of 2022, but that rally stalled out in early January at just over $4.30 per pound, below its highs from last May. Since then, prices have experienced little in the way of positive momentum, falling below both the 50-DMA and 200-DMA. Copper is now down over 15% from its YTD high, and it’s testing the bottom of its longer-term uptrend channel.
On a five-year basis, you can see again how copper prices are currently testing a long-term uptrend after carving out a downtrend that has been shorter-term in length.
A look at the relative strength of copper is where the relationship between the two commodities really gets interesting. From May 2018 through May 2020, copper prices consistently underperformed gold, and this was a period that included what was a US manufacturing slowdown ahead of what became a full-blown economic shutdown during COVID. As governments and central banks flooded the economy with stimulus, the roles of copper and gold completely reversed, and in the span of under a year erased two years of underperformance. Then, from late February 2021 through June 2022, the two commodities performed roughly in line with each other as there was little movement in the relative strength of the two commodities.
In the first half of 2022 as the FOMC started ratcheting up the rate hikes, copper started to lose ground versus gold, and just in the last few weeks, copper’s relative strength has dropped to its lowest level since the start of 2021! If copper’s performance is a sign of the strength or weakness in the global economy, someone better start heating up the chicken soup.
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Chart of the Day – This Indicator is Twenty for Twenty
Bespoke’s Morning Lineup – 5/22/23 – Merger Monday
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“A grain of gold will gild a great surface, but not so much as a grain of wisdom.” – Henry David Thoreau
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There were no advances in the debt ceiling negotiations over the weekend, and some might even argue that they went backward, but President Biden is set to meet with Speaker McCarthy today. That’s leading to hopes that when they’re in the same room together instead of negotiating through press conferences, they may be able to make some headway.
It’s a quiet morning in terms of economic and earnings data, but futures are trading modestly higher perhaps due to a few mergers. This morning alone, Chevron (CVX) announced a deal to acquire PDC Energy (PDCE) for $72 per share in stock. Additionally, two smaller deals were also announced involving Greenhill (GHL) being acquired by Mizuho for $550 million, and VectivBio (VECT) being taken over by Ironwood Pharma (IRWD) for $1 billion.
There may be some doubt over the ability of the US Federal government to pay its debts come June, but gold hasn’t seen any benefit from its haven status. Prices are modestly weaker this morning putting the commodity on pace for its fourth straight day of closing below its 50-day moving average (DMA). As the 50-DMA has the potential to act as short-term resistance, the uptrend from last fall’s low and the high from February in the high $1760s range is a potential support zone.
Gold’s recent weakness comes within just a month of the commodity hitting a record high of $2,085.40 back on May 4th. While the early May peak was a record high, it was only marginally above its prior highs of $2,078.00 in August 2020 and $2,078.80 in March 2022. Given that, unless prices recover relatively quickly from here, chatter of a triple top in the commodity will pick up considerably.
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