Chart of the Day – Eaton (ETN) Rides Electricity Wave
Bespoke’s Morning Lineup – 5/16/24 – Bright Lights on Wall Street
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“The sports page records people’s accomplishments, the front page usually records nothing, but man’s failures.” – Barbara Walters
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Equity futures remain in modestly positive territory even after a slug of economic data that was more of the same. Initial and continuing jobless claims came in slightly ahead of forecasts, Housing Starts and Building Permits were both weaker than expected, the Philly Fed Manufacturing report missed forecasts, and the only area of strength was in Import Prices. Essentially, every data point went the opposite of what you would want to see in a strong economy. To be fair, outside of Housing Starts and Import Prices, the deviation from consensus forecasts wasn’t very large.
The snapshot below from our Trend Analyzer shows the performance of each S&P 500 Sector SPDR ETF so far this year and where each one is trading relative to its trading range. The ETF for the Utilities sector (XLU) tops the list with its gain of over 15% on the year. Even more amazing is that while no other ETF closed more than 4.2% above its 50-day moving average (DMA) yesterday, XLU finished more than 10% above its 50-DMA. Outside of one day in April 2022, the last time the sector traded further above its 50-DMA was in 2003!
The chart for XLU looks parabolic with a heavy helping of green. At one point last week, the sector closed higher than it opened in 16 out of 17 trading days, and on a 15-day rolling basis, the only time there was anything near that level of consistently higher closes than opens over three weeks occurred in January 2020.
With the sector performing so well lately and outperforming the S&P 500, you would think finding winners would be like shooting fish in a barrel, but that’s not the case. The chart below shows the YTD performance of the 31 stocks in the S&P 500 Utilities sector, and outside of three stocks, there hasn’t been much in the way of outstanding performance in the sector. While Vistra (VST), Constellation Energy (CEG), and NRG Energy (NRG) have all surged more than 60% this year, only five other stocks in the sector have outperformed the S&P 500 YTD. An additional way to show the disparity in performance this year can be seen in the fact that stocks in the sector have rallied an average of 16.2% this year, while the median gain has been just 8.1%.
Along the lines of Barbara Walters’s comment above, while VST, CEG, and NRG would be on the back page of the NY Post under a headline like “Nuking the Competition”, more stocks from the Utilities sector would likely find themselves on the front page under a headline like “Dim Bulbs”.
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Bespoke Baskets Update — May 2024
No New Orders and No Spending in the Empire State
Among this morning’s data releases was another weak NY Fed manufacturing report. The Empire State Manufacturing Survey’s headline reading came in at -15.6. That compares to -14.3 for April and expectations of an improvement to -10. That miss relative to forecasts means the indicator has been weaker than expected three months in a row. The last streak of weaker-than-expected readings that lasted as long was in the first quarter of 2022.
The negative reading in the headline index indicates a contraction in the Northeast’s manufacturing economy that came with weak breadth among the report’s categories. Only three categories for current conditions are currently expanding: Prices Paid and Received and Inventories. Most other categories are in the bottom quintile of historical readings.
One of the weakest areas of the report has been New Orders. The January report saw this category fall to one of the weakest readings on record. While things have improved since then with little change in May, the current reading remains in the sixth percentile of all months. Perhaps more impressive is that this was the eighth month in a row with a contractionary reading in this index. As shown in the second chart below, that is one month away from tying the record of nine months in a row set in 2008/2009 and again in 2015/2016.
In addition to the ugly new orders picture, one area that is just as bad is spending plans. Overall, expectations indices are a bit more of a mixed bag, but the indices for number of employees, capital expenditures, and tech spending are historically low with readings ranging in the 3rd to 12th percentiles. Averaging across these three indices shows that the region’s manufacturers have some of the most pessimistic spending plans for labor or capital in the survey’s history. The reading edged up only slightly in May and sits roughly 0.1 point above the post-pandemic low set one year ago. On the whole, that reading is in the bottom 6% of readings.
Chart of the Day – Copper “Cornered”
Bespoke’s Morning Lineup – 5/15/24 – Light CPI
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“The world has been very well served with low tariffs and free trade.” – Darren Woods
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
April CPI was just released, and the headline reading came in at 0.3% which was lower than consensus forecasts for an increase of 0.4%. Core CPI was right in line with forecasts as were both the year/year readings for headline and core. That’s the good news. The less good news was that both Empire Manufacturing and Retail Sales came in weaker than expected. Equity futures have rallied sharply in reaction to the news and treasury yields are lower.
On the same day that CPI came in lighter than expected, copper prices, which we will discuss in a report later, are just the latest commodity to rally to an all-time high after prices have gone parabolic in the last few weeks.
With respect to the market, the S&P 500 is firmly back at overbought levels and at 1.3 standard deviations above its 50-DMA, it hasn’t been this overbought since April Fools’ Day. Is that a good or a bad sign?
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Bespoke Best of Breed Basket Update — May 2024
Small Businesses Sit Out Growth
Earlier in the day on 5/14, the NFIB published the results of its latest survey of Small Business Optimism. While economists expected a modest decline, the index rebounded from 88.5 in March to 89.7 in April. As shown below, albeit higher month over month, current levels of small business optimism remain historically depressed, even lower than at the height of COVID.
While the optimism index sits in the bottom decile of historical readings, the 1.2 point month-over-month jump ranks in the top quartile of monthly moves, and it was on account of a wide number of categories. In fact, the only categories not rising were expectations for the economy to improve, expected credit conditions, and expansion outlook. As we discussed in today’s Morning Lineup, the six different labor market series in aggregate rebounded following a large drop in March.
As previously mentioned, one of the few areas to decline month-over-month was expectations for the economy to improve. The drop was small at just 1 point, and as shown below, the reading is still progressing in the right direction over the past two years. However, the progress has been painfully slow as the reading remains below anything observed before the past few years. In addition to the weak economic outlook, only 4% of businesses consider now a good time to expand. That was unchanged versus March, and current levels are consistent with the past two recessions and lower than the two before that!
The NFIB provides greater detail into why small businesses are reporting optimism or lack thereof. As shown below, economic conditions are overwhelmingly blamed for the negative expansion outlook. Headed into the final six months before the election, another 11% point the finger at the political climate. Next up, with each at 7% of total responses, are interest rates and the cost of expansion.
Below we plot those reasons for negative expansion outlooks over the past decade. Although it remains the biggest problem, the percentage of respondents reporting a poor economy as a reason for not growing their businesses has come down significantly over the past couple of years. Similarly, interest rates are not as big of an issue as it was only a few months ago. However, as another negative on the inflation front, cost of expansion is back to swinging higher. At 7% in April, the reading matches previous highs of the past decade.
Chart of the Day – Improved Sentiment in Europe
Bespoke’s Morning Lineup – 5/14/24 – Here Come the Inflation Reports
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“He can’t have his own way, so he’s causing chaos” – John Lennon
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
There’s little change in futures this morning ahead of the April release of PPI, and the only action seems to be in the meme stocks where the rally in GameStop (GME) from an X post of a guy sitting in a chair has that stock up more than 100% on the week. The results of April’s PPI showed a hotter-than-expected m/m reading with the headline reading rising 0.5% versus forecasts for a 0.3% increase, while the core reading also increased 0.5% compared to estimates for a 0.2% increase. That’s the bad news. On a y/y basis, though, the readings were much closer to expectations as March’s report was revised down to negative 0.1% on both a headline and core basis. The initial reaction from the market was for equities and bonds to both sell-off, but when you consider the revisions, the report was right around expectations.
Just when you think you have it all figured out, life has a way of changing. A lead story in the Wall Street Journal highlighted how Walmart (WMT) is laying off hundreds of employees in its corporate unit and asking staff in remote jobs and small offices throughout the country to relocate to larger central hubs. If we didn’t all live through and experience it we wouldn’t believe it, but less than four years ago the centralized hub approach to work seemed like a bygone relic of the pre-Covid world and companies couldn’t find enough workers to fill open roles. In June 2020, a story in Forbes titled “The Remote Office Is The New Normal” summed up the zeitgeist of the time. Some companies were even encouraging their employees to move wherever they wanted. That became awkward when the same companies ordered those workers back to California or Seattle (or wherever the corporate headquarters was). When times are good and the money’s flowing, the boss doesn’t care where you work, but when things start slowing down, that’s when it starts to get real.
We’ve all heard about complacency lately; investors are too bullish on the market and banking on a soft landing in the economy. Both those outcomes certainly aren’t out of the question, but don’t tell that to the 1,300 households comprising April’s Survey of Consumer Expectations (SCE) from the New York Fed released yesterday. We covered the report in more detail in yesterday’s Closer, but three charts are worth highlighting.
First, the stock market. Just 38.7% of those surveyed expect the stock market to be higher a year from now. That’s more than one percentage point below the survey’s historical average dating back to June 2013.
Sentiment towards the economy was even worse. Just over half of those surveyed said they could find a new job within three months if they lost their job. That reading hasn’t been this low since April 2021, and before Covid, you have to go back to 2014 to find a comparable reading.
While unemployment remains near historically low levels, consumers aren’t particularly confident regarding their finances. Just under 13% reported that they could not make the minimum payment required to keep current on their debts. It’s just one survey, but the results from this month’s SCE from the New York Fed didn’t show complacency towards the market or a ‘booming’ economy.
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For much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.