Bespoke’s Morning Lineup – 1/12/24 – It’s Earnings Season
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“He not only made me believe—he made us all believe.” – John Dockery, on Joe Namath’s performance in Super Bowl III
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Earnings season kicked off this morning as the major banks along with Delta (DAL) and UnitedHealth (UNH) have all reported earnings this morning. Concerning bottom-line results, five of the eight companies reporting have exceeded results, but only four of the eight managed to exceed top-line results. Of the companies reporting, only JP Morgan (JPM) is trading higher, and the biggest loser has been UnitedHealth (UNH) which is down over 5%, and given its high share price, that is having a large impact on Dow futures this morning.
Futures for the S&P 500 and Nasdaq are also lower this morning, and that’s partly a result of earnings news but also rising tensions in the Middle East as a US-led group launched airstrikes in Yemen on Houthi targets. As you might guess, oil prices have spiked higher in response, and as of this morning are trading up just about 4%.
In economic news, PPI for December was just released, and unlike yesterday’s CPI, the numbers were weaker than expected. At the headline level, PPI declined 0.1% on a m/m basis (+0.1% expected) and rose 1.0% on a y/y basis (1.3% expected). Core PPI was also weaker with the m/m reading coming in unchanged (0.2% expected) and rising 1.8% y/y (2.0% expected).
Everyone loves a three-day weekend, right? While you would think that, there is not much to like about the equity market’s historical performance during the holiday-shortened week coinciding with Martin Luther King Jr Day. While President Reagan signed the holiday into law as a Federal Holiday in 1983, it wasn’t until 1998 that the stock market started to close in observance of the holiday. The chart below shows the performance of the S&P 500 from the Friday before MLK Jr Day through the Friday after. As shown, the median performance has been a decline of 0.32% with gains just 38% of the time. The worst of those weeks was just two years ago when the S&P 500 declined 5.7% in the four-trading day week. While the holiday week has historically been weak, it is worth pointing out that the period leading up to the holiday has typically been better. On a month-to-date basis through the Friday before MLK Jr Day, the S&P 500’s median performance since 1998 has been a gain of 0.88% with positive returns 59% of the time.
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Chart of the Day – Japan Ripping Early
Claims Ratio Spiking
Overshadowed by the hotter than expected CPI print, initial jobless claims at least came in healthier than expected this morning. Initial claims came in at 202K, down 1K from last week’s upwardly revised level of 203K. At current levels, initial claims are down near some of the lowest levels of the past year. Zooming out, those are also some of the lowest levels since the late 1960s which could paint a historically rosy picture for the labor market.
Taking a look at claims before seasonal adjustment, one of the first couple weeks of the year have often marked the annual peak in claims. Assuming this week does in fact mark that seasonal high, it would measure roughly inline with other years since 2018 save for 2021 when claims were working off extremely elevated pandemic levels. Looking forward over the first half of the year, unadjusted claims face seasonal tailwinds.
In addition to initial jobless claims posting a strong reading, continuing claims came in below expectations falling to 1.834 million compared to expectations of an uptick to 1.87 million. That also marks back-to-back weekly declines in continuing claims as current levels are now down 91K versus the mid November high of 1.925 million. That level is also back below last spring’s highs. That means there has been at least some respite in what more generally has been an upward trend in continuing claims over the past year and a quarter.
In all, both initial and continuing claims have come off their best levels put in place in the fall of 2022 but have each seen steady improvement in recent weeks after a lackluster 2023. However, that does not exactly put the two in parity, and there is at least one way of chopping up the data which comes off as less optimistic than the historically strong levels.
Below we take the ratio of the four week moving averages of continuing claims versus initial claims. While far from a perfect recessionary indicator, it has generally spiked during, albeit particularly in the later stages of, past recessions. Given initial claims have returned to historically low levels while the pivot lower in continuing claims has been less pronounced and more recent, this ratio has rocketed higher over the past six months. In fact, it has risen 31% in that span. Prior to 2020, each instance of an increase of that size occurred at the tail ends of recessions, namely those of the 1970s and early 1980s. However, in the post pandemic period, swings of that size have greater precedence with three other even larger increases occurring over the past few years.
Bespoke’s Morning Lineup – 1/11/24 – CPI High, Claims Low
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“I hear ya, Ton’, but that was before inflation” – Christopher Moltisanti
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Futures are modestly low this morning, but it could be worse given the stronger-than-expected CPI reading for December where both headline and core CPI topped consensus forecasts. Jobless claims, meanwhile, showed strength with initial claims falling to 202K from last week’s level of 209K and continuing claims falling to 1.843 million from 1.855 million in the prior week.
“Did you see The Sopranos last night?” 25 years ago today, if someone asked you this question at work on Monday morning, you probably had no idea what they were talking about. With each passing week, though, The Sopranos became a show Americans planned their Sunday nights around, and by the time “Made in America” aired eight years and five months later, 12 million people made sure they were in front of their TVs at 9 o’clock eastern to watch it. It seems so arcane now, but this was a time when there were no DVRs, and the term binge-watching didn’t exist. The Sopranos, like Seinfeld, Friends, and a host of other shows before it, was “Must See TV”. If you weren’t in front of your TV to watch them, you missed them, and the next morning you were in the dark. Raise your hand if you remember desperately trying to get home from wherever on a Sunday night only to get stuck in traffic or delayed by a train or bus and missing the first half hour.
Just for kicks, we were curious to see which current members of the S&P 500 have been the best-performing stocks since the first episode of The Sopranos on January 10, 1999. Perhaps the most interesting aspect of this analysis is that 30% of the index’s components didn’t even exist in their current form back in January 1999. Of the ones that did, the list below summarizes the 25 top performers. It’s also worth noting that 25 stocks in the index are down since the first episode of The Sopranos, including AIG, Ford (F), Citigroup (C), and Carnival Cruise (CCL).
Looking at the list of winners, there are a lot of unexpected names. With a gain of over 46,000%, Apple (AAPL) has been the second-best performing stock (and probably the most expected name) in the index, but its gain has been less than half of Monster Beverage’s (MNST) rally of over 108,000%. Then, at number three, shares of Old Dominion Freight (ODFL) have gained over 40,000%. Given all the trucks that Tony and his crew jacked over the years, ODFL must have been paying quite a substantial pizzo to avoid any trouble!
What’s also interesting about the list below is the names that aren’t on it. While mega-cap stocks like Meta (META), Alphabet (GOOGL), and Netflix (NFLX) weren’t public yet, Amazon.com (AMZN) and Microsoft (MSFT) were, but with gains of ‘only’ 3,700% and 920%, respectively, they didn’t make the list. Ironically enough, Nvidia (NVDA) wasn’t public yet either as its IPO wasn’t until 12 days after the Sopranos premiere. “Oh, poor baby. What do you want, a Whitman’s Sampler?”
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The Closer – Greenhouse Gas, Wage Growth Slowing, Products Building – 1/10/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we start out with an update on House voting and Fedspeak (page 1) followed by a dive into greenhouse gas emissions (page 2). We then check in on the Atlanta Fed’s measure of wage growth (page 3). Next, we recap another weak demand 10 year note reopening (page 4) before finishing with a review of the massive build in petroleum product inventories (page 5).
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Junk Bonds Crushing Long-Term Treasuries
Since the bond market peaked in late 2021 just before the Fed embarked on its attempt to tame inflation by hiking rates, it has been painful to be an investor in “risk-free” Treasuries at nearly all points on the curve. The most pain has been felt at the long-end of the Treasury curve on notes expiring in 10-20+ years.
While the 20+ year Treasury ETF (TLT) is down 28% on a total return basis over the last two years, you may be surprised to see that the high-yield (junk) bond ETF (HYG) is actually now up on a total return basis over the same time frame. HYG has also easily outperformed the aggregate bond market ETF (BND), which is down 7.4% over the last two years.
Going back five years instead of two, had you decided to go with the “safety” of long-term Treasuries (TLT) over the higher-risk junk bond space (HYG) back in early 2019, you’re still kicking yourself as HYG is up 18.3% over the last five years compared to a 10.6% decline for TLT over the same time frame.
As shown below, TLT was actually up nearly 50% YoY versus a decline of more than 10% for HYG at the time of the COVID Crash in early 2020 when the Fed cut rates to zero while riskier assets like stocks and junk bonds were tanking. But ever since the COVID Crash lows, long-term Treasury yields have been trending higher (meaning lower bond prices).
Because the high-yield bond ETF has a lower average duration than TLT, it has been spared the massive drop in price that long-term Treasury bonds have experienced. Couple that with high yield spreads being in a relatively good place, and HYG is currently trading close to a five-year high on a total return basis. TLT investors are jealous.
Just as longer duration worked against TLT as rates were rising, it reaps the rewards during periods when rates decline. Since the 10/19/23 peak in the 10-year yield, for example, TLT has rallied 16.3% while HYG is up less than half that (7.8%).
Chart of the Day: S&P 500’s Most Overbought Stocks and Sectors
Bespoke’s Morning Lineup – 1/10/24 – Big Rally in Small Stocks
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“Time makes more converts than reason.” – Thomas Paine
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
We’re looking at another flat morning for US equity futures this morning. Last we looked, S&P 500 futures were exactly unchanged, and both the S&P 500 and Dow were little changed. While there’s been little move in equities, US Treasury yields are lower as the 10-year yield has dipped back below 4%.
In terms of economic data, it’s a quiet morning. Mortgage applications surged over 9%, but the only other report on the calendar is Wholesale Inventories at 10 AM. The next major report will not be until tomorrow when the CPI for December is released. While it’s not economic data, investors will also be on the lookout for an announcement from the SEC regarding potential approval for a bitcoin ETF after yesterday’s disastrous turn of events where it was seemingly approved only but then taken back as the SEC claimed its X account was compromised.
In Asia, the Nikkei surged 2%, but most other major benchmarks in the region were lower, and in Europe, equities are just like US futures – flat as a pancake.
It’s now been 50 trading days since US markets made their Q4 lows on 10/27/23. One of the more impressive rallies has been the 20%+ gain in the small-cap Russell 2000. That move ranks as the largest 50-day rally in the index since 2020 and one of only 21 periods in the index’s history since 1979 that it rallied that much or more in a 50 trading-day period. Before the experiences during the early days of COVID, there was one occurrence in March 2019, but before that, you have to go back to 2012.
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Bitcoin Getting Back Up There
While most areas of financial markets are lower one week into the new year, bitcoin is already up double-digit percentage points. Since bottoming in late 2022, bitcoin has now rallied just under 200%, and as shown in the chart below, its price is starting to get back up to levels that have only been seen for a brief period of time back in 2021. In fact, at $46,800, bitcoin has only traded higher on 6.14% of days since the start of 2017 when it first crossed above $1,000.
