The Bespoke Report – 8/4/23 – “Summer of Overbought”
We have just published this week’s Bespoke Report which looks at the end of the “Summer of Overbought” and discusses the outlook for the market in the rest of the year.
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Bespoke’s Morning Lineup – 8/4/23 – Jobs Friday
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“We all go Do, Re, Mi, but you’ve gotta find all the other notes yourself.” – Louis Armstrong
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
Futures are mixed heading into the July jobs report, as positive earnings from Amazon.com (AMZN) and a lackluster reaction to Apple (AAPL) earnings offset each other. None of this will matter once the jobs report hits the tape, though, and after what has already been a tentative start to August, the market is hoping for a soft number.
Employment report Fridays are known for being important market days with heightened volatility. While the recent focus on inflation has relegated the monthly jobs to more of a backseat role, it’s still an important report. The chart below shows the rolling 12-month average of the S&P 500’s average daily percentage move (up or down) on Non-Farm Payroll report days going back to 2000. Exactly a year ago, the 12-month average was near a historical extreme on the low side as the S&P 500’s average daily move on employment report days had slid below 0.5%, but since then, we’ve seen a steady move higher. Back in June, the average daily move peaked at a post-COVID high of 1.3%, and while that seems high, there were other periods (early 2000s, during the Financial Crisis, and in early 2019) when the average daily move was even higher. As much as investors would like a nice quiet Friday heading into the weekend, history suggests otherwise.
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Sentiment Swings Higher Despite Declines
Equities have rolled over in the past week with selling hitting a pinnacle when the US government’s credit rating was downgraded by Fitch on Wednesday. In spite of this, sentiment has not taken a hit. The latest survey from the AAII showed 49% of respondents reported bullish sentiment which compares to 44.9% the prior week. With nearly half of respondents reporting as optimists, bullish sentiment sits handily above its historical average of 37.5%. In fact, this week marked the ninth in a row with a bullish sentiment reading above the historical average for the longest such streak since one that ended at 13 weeks long in May 2021.
The increase in bullish sentiment resulted in bearish sentiment to drop down to 21.3% which marks a 2.8 percentage point decline on the week and resulted in the lowest bearish reading since June 10, 2021 when it was 20.7%. Similar to bullish sentiment, that is the ninth week in a row with a reading below its historical average, and that is the longest streak since July 2021.
As a result to the increased optimism, the bull-bear spread ticked up from 20.8 last week to 27.7. That is still below the recent high of 29.9 from two weeks ago, but reiterates how investors have an elevated degree of optimism.
Not all of the gains to bulls came from bears. Neutral sentiment also declined this week falling from 31% to 29.7%. That is in the middle of the past few years’ range.
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Small Dent to Claims
Initial jobless claims have been trending lower over the past couple of months, reaching a nearly six month low of 221K last week. This week, claims rebounded rising 6K to 227K. Albeit off the strongest readings from last fall, that remains a healthy reading on joblessness.
On a non-seasonally adjusted basis, claims are at historically solid levels even if they have come off their best levels. This week, claims dropped to 205K. That is slightly above the readings from the comparable weeks of the year of the past few years (excluding 2020 and 2021 when claims were much more elevated).
At this point of the year, claims falling is normal as shown in the second chart below. The current week of the year has only seen claims rise week over week 10.7% of the time. That is the sixth most consistent week of declines of the year. Claims will continue to face seasonal tailwinds in the weeks ahead, but that will begin to reverse as summer turns to fall.
Continuing claims also ticked higher in the latest week’s data, reaching 1.7 million. Although higher than 1.69 million the previous week, continuing claims have much more consistently been trending lower recently, and this week’s reading did in fact come in below forecasts of 1.705 million.
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Chart of the Day – Don’t Panic Over State & Local Taxes
Bespoke’s Consumer Pulse Report — August 2023
Bespoke’s Consumer Pulse Report is an analysis of a huge consumer survey that we run each month. Our goal with this survey is to track trends across the economic and financial landscape in the US. Using the results from our proprietary monthly survey, we dissect and analyze all of the data and publish the Consumer Pulse Report, which we sell access to on a subscription basis. Sign up for a 30-day free trial to our Bespoke Consumer Pulse subscription service. With a trial, you’ll get coverage of consumer electronics, social media, streaming media, retail, autos, and much more. The report also has numerous proprietary US economic data points that are extremely timely and useful for investors.
We’ve just released our most recent monthly report to Pulse subscribers, and it’s definitely worth the read if you’re curious about the health of the consumer in the current market environment. Start a 30-day free trial for a full breakdown of all of our proprietary Pulse economic indicators.
Bespoke’s Morning Lineup – 8/3/23 – Tentative into Peak Earnings
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“You can never cross the ocean unless you have the courage to lose sight of the shore.” – Christopher Columbus
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
The change in the calendar has brought with it a change in the mood of investors as stocks have traded lower on each of August’s first two trading days and are currently indicated to open lower today as well. The weakness hasn’t just been confined to US stocks either as most global benchmarks are all down on the month. Stocks in Europe have been especially weak with declines in excess of 3% in the first three trading days after more broad-based weakness this morning.
Today’s weakness comes despite some weaker than expected inflation data where PPI for the Eurozone declined more than expected (-0.4% vs -0.3% expectation). That was more than offset, though, by general weakness in the Services PMI indices. While Germany experienced better than expected growth France, Italy, and Spain missed forecasts.
Today’s economic slate in the US is jammed packed with Non-Farm Productivity, Unit Labor Costs, and Jobless Claims at 8:30. Then, after the open we’ll get updated Services PMI data from S&P and ISM. Along with those reports, we’ll also get updates on Factory Orders and Durable Goods. Besides all the economic data, don’t forget that both Amazon.com (AMZN) and Apple (AAPL) will report after the close.
531 years ago today, Christopher Columbus set sail heading west from Spain in search of a western route to China. For the next 70 days, Columbus sailed the uncharted seas with no sight of dry land until he reached what is thought to be the Bahamas on October 12th, 1492. For most people, it’s hard enough, even with Waze, to get around their own city, but looking back at Columbus’ voyage, one can only imagine what was going through his mind travelling across the ocean with no cell phone, GPS, or even a map! It makes worrying about which way the market goes from here after a credit downgrade seem trivial, but like the quote from Columbus above, there’s no reward without risk.
Yesterday’s sell-off in US stocks moved both the S&P 500 and Nasdaq out of overbought territory for the first time since May. In the case of the Nasdaq, it was the first time since before Cinco de Mayo that the index didn’t close at overbought levels, and at 60 trading days, that streak was the longest since August 1997. Yesterday’s decline in the Nasdaq was also the worst day for the index since 2/21 and just the fourth one-day decline of 2% this year. For the sake of comparison, last year at this time the Nasdaq already had 33 one day declines of 2% on its way to 46 for the year.
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The Triple Play Report — 8/2/23
An earnings triple play is a stock that reports earnings and manages to 1) beat analyst EPS estimates, 2) beat analyst sales estimates, and 3) raise forward guidance. You can read more about “triple plays” at Investopedia.com where they’ve given Bespoke credit for popularizing the term. We like triple plays as an indication that a company’s business is firing on all cylinders, with better-than-expected results and an improving outlook. A triple play is indicative of positive “fundamental momentum” instead of pure fundamentals, and there are always plenty of names with both high and low valuations on our quarterly list.
Bespoke’s Triple Play Report highlights companies that have recently reported earnings triple plays, and it features commentary from management on triple-play conference calls, company descriptions and analysis, and price charts. Bespoke’s Triple Play Report is available at the Bespoke Institutional level only. You can sign up for Bespoke Institutional now and receive a 14-day trial to read this week’s Triple Play Report, which features 24 new stocks. To sign up, choose either the monthly or annual checkout link below:
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Meta Platforms (META) is an example of a company that reported an earnings triple play recently back on the evening of July 26th. As shown below, META’s share price has been in a steady uptrend since late 2022, trading above both its 50 and 200-day moving averages since February of this year.
As shown in the snapshot from our Earnings Explorer below, Meta Platforms (META) has now reported back-to-back earnings triple plays. This is an important feat for the tech giant as it has never done this since going public back in 2014. With a high focus on AI and the Metaverse, Meta has really rebounded after seeing its market cap fall from over $1 trillion down to $235 billion last year. You can read more about META and the 23 other triple plays in our newest report by starting a Bespoke Institutional trial today.
Bespoke Investment Group, LLC believes all information contained in these reports to be accurate, but we do not guarantee its accuracy. None of the information in these reports 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.
Downgrades Overlooked
The bottom has dropped out for the major US indices today with the Nasdaq down over 2% and S&P 500 down 1.25% as of this writing. The catalyst has been the downgrade of the United States’ credit rating by Fitch from AAA to AA+ . That is the first downgrade of U.S. sovereign debt in almost twelve years and just the second ever. In the charts below, we show the performance of the S&P 500, government debt, commodities, and the US dollar in the year before and the year after the 2011 downgrade.
The S&P 500 has been rallying in the months leading up to this downgrade, however, back in 2011 the S&P 500 had already begun rolling over by the time S&P downgraded US debt. In the wake of that downgrade, the S&P 500 went on to fully erase all of the prior year’s gains. Fortunately, all of those losses were quickly recouped within three months of the downgrade.
As for Treasuries and other US agency debt, performance over the past few months has been the complete opposite of 2011. Of course, the interest rate environment is also completely different now with Fed Funds 500 bps higher than it was at the time of the last downgrade. That being said, in 2011, Treasury yields were on the decline in the months headed into the downgrade, but contrary to what might have been expected, the downgrade itself did not change that trend. This time around has seen yields on US government debt moving in the opposite direction.
Bloomberg’s broad commodity index has been in a similar boat with the past few months seeing a decline compared to the steady uptrend back in 2011 that was uninterrupted by the downgrade.
Finally, we would note the downgrade only acted as a longer-term turning point for the dollar. As shown in the bottom right hand chart, both this year and in 2011, the trade weighted dollar was in a downtrend in the year before the downgrade. But right as S&P changed its rating, the dollar turned higher and continued to rise throughout the following year. In fact, one year out it had erased the entirety of the previous year’s decline.
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