Chart of the Day – Global Policy Rates Still Rising
Bespoke’s Morning Lineup – 1/4/24 – Better Jobs Data
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“Nature is pleased with simplicity. And nature is no dummy” – Isaac Newton
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Isaac Newton was born on this day in 1643, and markets appear to be celebrating his birthday with their rediscovery of gravity after last year’s rally in the final two months of the year. Analysts have also been getting in on the act as there have been as many downgrades of Apple (AAPL) in the first three trading days of the year (3) than there were in the entire fourth quarter of 2023.
Equity futures have been trading with a modestly positive bias this morning which marks a shift from the last two days where declines in Europe have pushed futures in the US lower. This morning’s economic slate includes the ADP Employment report which came in higher than expected at 164K versus forecasts for an increase of 115K. Jobless claims were also just released and on both an initial and continuing basis, the numbers were better than expected.
With a decline of 0.80% yesterday, the S&P 500 posted back-to-back declines of 0.50% or more to start the year for just the fifth time on record. Wasn’t the start of the year supposed to be strong? As we’ve noted in various seasonality analyses, while the S&P 500’s long-term performance in January has been strong, in more recent history that has not been the case. In any event, regarding the back-to-back declines, you have to go back to 2005 to find the last occurrence and the only three others were in 1980, 1991, and 2000.
In the table below we show the performance of the S&P 500 for the rest of January and the rest of the year in each of those four years. For the rest of January, the S&P 500 bounced back big in 1980 and 1991 and saw just modest declines for the rest of the month in 2000 and 2005. For the remainder of the year, performance varied widely as well. In both 1980 and 1991, the S&P 500 posted gains of more than 29% for the rest of the year while in 2000 it fell nearly 6% while in 2005, it rallied 5%.
A sample size of four is admittedly small, and the fact that there was no clear trend of performance going forward doesn’t shed much light on what to expect for the remainder of the year. Not only that, but whereas each of the declines this year were less than 1%, in each of the four other periods, the magnitude of the decline was much larger.
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A Whole Lot of Nothing at the Surface
The S&P 500 is still within 2% of its record closing high reached exactly two years ago today, but beneath the surface, there have been some big moves. The chart below shows a distribution of two-year returns for every S&P 500 stock that is currently in the index, and while there have been some big winners and losers over this period, the average component’s move has been just a modest decline of 0.54%. So while the S&P 500 is down 1.9% from its high, over that same period, the ‘average’ stock in the index is down even less. For all the talk over the last year about how narrow the market has been, over the last two years that hasn’t been the case.
In the tables below, we show the 25 best and worst-performing stocks in the S&P 500 over the last two years. Starting with the winners, all of the stocks listed have rallied at least 63%, and there are another 14 stocks that are up over 50% that didn’t make the list. Perhaps what stands out most about the list of biggest winners is what stocks aren’t on it. As shown, only three Technology sector stocks (and no Communication Services sector stocks) made the list, and of those three, not even one has a market cap of more than $30 billion. The only mega-cap stock on the list is Eli Lilly (LLY), showing again how while mega-cap tech had a great 2023, on a ‘two-year stack,’ their performance has been unremarkable. While tech stocks weren’t well-represented on the list, Energy and Industrials filled the void with eight and six stocks, respectively.
Among the list of biggest losers over the last two years, 18 are down over 50% led lower by VF Corp (VFC) and Match Group (MTCH) which have both plummeted more than 70%. Both of these stocks now have market caps of less than $10 billion, and of the 25 names shown, only three (Paypal-PYPL, Estee Lauder-EL, and Pfizer-PFE) have market caps above $50 billion.
Bespoke Market Calendar — January 2024
Please click the image below to view our January 2024 market calendar. This calendar includes the S&P 500’s historical average percentage change and average intraday chart pattern for each trading day during the upcoming month. It also includes market holidays and options expiration dates plus the dates of key economic indicator releases. Click here to view Bespoke’s premium membership options.
Chart of the Day – 60/40 As Positively Correlated As Ever
Bespoke’s Morning Lineup – 1/3/24 – Blame Europe
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“There are two days in my calendar: This day and that Day.” – Martin Luther
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
It’s not for another month, but it’s starting to feel a bit like Groundhog Day as futures are once again pointing to a lower open on the day. If you’re looking for a scapegoat, the other side of the Atlantic may be a good place to start. The charts below show overnight market action combining intraday trading in Asian and European markets along with US futures. The chart on the left shows overnight trading from Monday night into Tuesday while the chart on the right shows trading overnight into this morning. In each case, the pattern has been the same. Up until Europe opened, there wasn’t much going on, and while stocks on the continent briefly rallied to start the day, sellers quickly came in and overwhelmed any positive sentiment.
This morning in the US, several catalysts could either break the trend or accelerate it. At 10 AM, we’ll get the December ISM Manufacturing report which is expected to come in below 50 for the fourteenth straight month and is the longest streak in over 20 years. Along with that report, the release of JOLTS for November is expected to increase modestly after last month’s much weaker-than-expected report. Besides those two reports, we’ll get the FOMC minutes at 2 PM.
Yesterday may not have been an especially positive start to a year, but it probably wasn’t as bad as the headline declines in the S&P 500 and Nasdaq would suggest. While the Nasdaq’s 1.63% decline was the fourth worst start to a year for the index on record, and the S&P 500’s 0.57% decline was steep in its own right, overall breadth on the S&P 500 was slightly positive (+19), and the equal-weighted S&P 500 was barely down on the day (-0.03%).
At the sector level, things weren’t so bad either. You probably wouldn’t believe it, but four sectors rallied over 1% and two other sectors were up on the day. Outside of Technology (-2.62%) and Industrials (-1.01%), no other sector ETF declined more than 1% on the day.
Yesterday’s best-performing sector was Health Care as the sector ETF rallied 1.76%. While the sector was a big laggard in 2023, it appears to be making up for lost time in the new year as the stock convincingly broke out above the upper end of its 2023 trading range.
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Chart of the Day: What Drove Performance in 2023?
2023’s Biggest Losers in the Russell 1,000
While broad swathes of the equity market rose in 2023, that is not to say there were not areas of weakness. Of course there were some major spotlight stocks that investors would have completely lost their shirt on like Silicon Valley Bank had they been invested in the beginning of the year, but for those stocks still standing, below we show the 35 Russell 1,000 members that fell by at least 30% during the year. 2021 short squeeze and meme stock darling AMC Entertainment (AMC) was the worst performer on the year in 2023. Price action in the stock was actually pretty flat throughout the year up until the summer. That’s when prices plunged on news that the company would be approved to convert its one year old preferred shares to common stock and a 1-for-10 reverse split. Ultimately, AMC would go on to finish the year with an 85% loss.
One theme popping up in the biggest losers is clean energy. As EV sales decelerated last year, prices of stocks like ChargePoint (CHPT) and Lucid (LCID) hit major speedbumps, falling by 75.55 and 38.36%, respectively. Other clean energy names like Enphase (ENPH) also faced large losses.
A handful of various retailers also made the list like Petco (WOOF), Advanced Auto Parts (AAP), and Dollar General (DG). Dollar General possesses the largest market cap of those stocks, but of all the biggest losers, the vaccine makers were the largest in size. Both Pfizer (PFE) and Moderna (MRNA) fell by over 40%. In the case of PFE, the stock is now below pre-pandemic levels.
2023’s Biggest Winners in the Russell 1,000
In last Wednesday’s Closer, we noted how there was a somewhat elevated share of the S&P 500 experiencing gains of over 100%. Expanding to the Russell 1,000, there were 34 stocks with total returns of more than 100%. Two members of the Financials sector topped the list, Affirm (AFRM) and Coinbase (COIN), with gains of 408% and 391%, respectively. Two mega caps also found their ways into the top of the list in the five and seven spots: NVIDIA (NVDA) and Meta Platforms (META). One of NVIDIA’s largest competitors Advanced Micro (AMD) was also an over 100% gainer, though it falls a bit further down the list with a 127.8% gain. Other large caps like Broadcom (AVG) and Tesla (TSLA) also posted 100%+ gains.
Those semi conductor names were certainly boosted by the emergence of AI during the year, but other themes were also present among the year’s biggest gainers. For starters, cruise liners like Royal Caribbean (RCL) and Carnival (CCL) put big dents in their post pandemic recoveries with RCL even closing in on pre-pandemic highs. In spite of high rates tamping down demand, housing inventories are historically tight meaning there is an increasing importance on new inventories hitting the market. As we showed in our Annual Report, like AI, housing was also a major theme across earnings calls last year. That offers a potential boon to the homebuilders and it showed in stock performance in 2023. The homebuilder industry had strong representation with names like Builders FirstSource (BLDR), Top Build (BLD), PulteGroup (PHM), and Toll Brothers (TOL) posting over 100% gains.
2023 Russell 1,000 Average Stock Performance by Sector
2023 turned out to be a fantastic year for stocks after a horrible 2022. Below we show the average total return of all stocks in each sector of the Russell 1,000 in 2023. While most areas of the market moved higher during the year, the one area of equity markets that actually provided a negative return was Utilities. That sector’s stocks lost an average of 4.1% compared to a 20.5% average gain for the whole of the Russell 1,000. As a reminder, Utilities has the highest dividend yield of any sector, but even after factoring in those relatively high dividend yields, the average stock in the sector posted a negative total return in 2023. Consumer Staples just barely netted out an average gain, while Health Care, Energy, Real Estate, and Materials all also underperformed the broader index. That leaves Communication Services, Financials, Consumer Discretionary, Industrials, and Technology each with the average stock gaining more than 20% on the year. Given the emergence of AI in 2023, Tech was the top performer. In fact, the average Tech stock was up 43.8%, which was more than twice that of the average Russell 1,000 stock.
