The Bespoke Report – 9/15/23 – Following the Script
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Bespoke’s Morning Lineup – 9/15/23 – Almost There
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There’s still 20% of the trading week left, but we’re almost at the finish line. With all the hemming and hawing over how this week’s inflation data would be higher than expected given the surge in oil prices, the major averages are all on pace for a positive week. In September no less!
Equity index futures are generally higher, although the Nasdaq is basically unchanged, even as yields are higher again. The 2-year yield is back above 5% while the 10-year is above 4.3%. There’s a decent chunk of economic data to deal with even after the release of Import Prices and Empire Manufacturing which were both higher than expected. At 9:15, we’ll get Industrial Production and Capacity Utilization, and then at 10, Michigan Sentiment will be the final release of the week..
Over in Europe, major benchmark indices in the region are sharply higher adding to what has been an already strong week. The STOXX 600 is on pace for a gain of over 2% despite an ECB rate hike that some said was a surprise but shouldn’t have been. The key reason for the optimism in Europe, though, is that there’s a very strong likelihood that the ECB is done for the current cycle after taking the benchmark rate to a record high.
As crude oil topped $90 per barrel for the first time since last November, it’s interesting to see how prices of natural gas have seen little movement. It used to be that the two commodities moved somewhat in unison with each other, but that has not been the case this year. As shown in the chart below, since crude oil really started to take off at the end of Q2 it has rallied more than 28%. Nat gas meanwhile not only hasn’t rallied, but it’s down over 3%!
As a result of the recent divergence between the two, the ratio of crude oil to natural gas has surged this year and currently sits at over 30. Besides earlier this year, the only time since 1990 that the ratio between the two was as high or higher was back in the period spanning late 2011 through early to mid- 2013.
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Continuing Claims Flatten Out
As was expected this week, jobless claims data deteriorated with seasonally adjusted claims rising to 220K from 216K. However, that was better than expectations which were calling for claims to rise by another 5K up to 225K. As shown below, claims continue to sit at the low end of the past several months range, indicating a still healthy labor market.
At the moment, claims prior to seasonal adjustment are at an interesting point of the year. Unadjusted claims totaled 174.5K this week. That is only a couple thousand claims higher than last year and near the slightly lower readings from 2018 and 2019. Overall, those remain some of the strongest readings on record when comparing the like weeks of the year. Additionally, we would note that claims are likely at or near their seasonal low. Historically, the current week of the year has been the annual low a quarter of the time (that being the case in 2018 and 2019) whereas the following week has marked the low another 35.7% of the time. In other words, as we have frequently mentioned in recent weeks, seasonal tailwinds will begin to shift to headwinds in the coming weeks.
Seasonally adjusted continuing claims likewise came in below expectations this week, rising to 1.688 million compared to forecasts of 1.69 million. Again like initial claims, continuing claims are far from worrisome as they sit at historically strong levels, however, the past few months downtrend in claims has begun to bottom out as it has been eight weeks since the last near term low.
Bulls Slump While The Put/Call Ratio Surges
The S&P 500 has managed to rise 1.15% in the past week, but sentiment has barely reflected the positive tone. After climbing to 42.2% last week, AAII bullish sentiment dropped right back down to 34.4% this week. That is the largest one week drop in a month although it doesn’t leave bullish sentiment at any sort of new low.
The bulls didn’t move to the bearish camp, however. In fact, bearish sentiment fell to 29.2%, which is the lowest reading since the week of August 10.
Because the declines in bullish sentiment outpaced the drop in bears, the spread between the two dropped to +5.2.
Given both bulls and bears dropped, neutral sentiment picked up the difference. As shown below, neutral sentiment rose to 36.4% this week, which was the highest reading since the week of May 18th when it was slightly higher at 37.4%.
While the AAII sentiment survey did not see any sort of particularly noteworthy moves this week, the equity put/call ratio did notch a new high yesterday. As shown below, over the past couple of months, the ratio has begun to turn higher with yesterday seeing the highest reading since March 10th. At 1.35, that ratio also measures in the top 1% of all readings since 1995. Remember, a reading above 1 means there are more put buyers (negative bets) than call buyers (positive bets).
Chart of the Day – Presidential Approval: An Inflation Referendum
Bespoke’s Morning Lineup – 9/14/23
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US equity futures are up slightly this morning as investors digest a surprise rate hike from the ECB and await a slug of economic data at 8:30 AM ET, including August Retail Sales, August PPI, and weekly Jobless Claims.
Markets continue to trade heavy and small-caps continue to underperform as we work our way through what has historically been the worst month of the year for stocks. As shown below, the Russell 2,000 closed below its 200-day moving average yesterday for the first time in months as a short-term head and shoulders pattern has formed.
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CPI Gains Come and Go
The S&P 500 managed to rise 0.12% on Wednesday in the wake of the CPI release. That is the fifth month in a row in which the S&P 500 rose in response to a CPI print, and only two months over the past year (February and April) have seen negative reactions. Although the S&P has consistently risen on CPI days, the size of the moves have been less substantial than they were previously. As shown below, taking a rolling 10-day average of the S&P 500’s daily change on days that CPI is published shows the average performance remains positive but has turned lower versus a couple months ago when the average move was above 1.2%, which was some of the strongest reactions in a decade and a half.
Although S&P 500 performance has been positive on the day of CPI releases over the last year, looking one week out, the results have been less positive. As shown below, the S&P has consistently fallen in the week after CPI releases. Again taking a rolling 10-day average, one week performance has been negative for 20 months in a row, or every month since the start of 2022.
The Triple Play Report — 9/14/23
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 15 new stocks. To sign up, choose either the monthly or annual checkout link below:
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Zscaler (ZS) is an example of a company that reported an earnings triple play recently back on the evening of September 5th. As shown below, ZS’s stock struggled in 2022 but since its low in May, ZS has gained about 80%. Despite a negative reaction to the triple play news, ZS is now trading above both its 50-day and 200-day moving averages.
As shown in the snapshot from our Earnings Explorer below, ZScaler (ZS) has now posted 22 straight EPS and revenue beats since its IPO in 2018! This quarter’s triple play adds to the list, and is now its sixth trip in a row. Although the stock didn’t move in a favorable direction following the earnings report after the close on September 5th, ZS had lots to celebrate in a strong quarter that featured rapid growth of its data protection offerings. You can read more about ZS and the 14 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.
Chart of the Day – IPO Pipeline Buildup
Bespoke’s Morning Lineup – Inflation Focus Shifts to Core – 9/13/23
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“You can spend minutes, hours, days, weeks, or even months over-analyzing a situation; trying to put the pieces together, …or you can just leave the pieces on the floor and move…on.” – Tupac Shakur
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Equity futures are taking a cautious tone heading into today’s CPI report for August where headline inflation is expected to rise by 0.6% m/m (largest increase since June 2022) and 3.6% on a y/y basis. European equity market performance hasn’t helped as most indices in the region are down by about 1% as the ECB is likely to hike rates this week by another 25 bps due to stubbornly high inflation. Not helping matters is the fact that economic data in the region including UK GDP and German Industrial Production both came in weaker than expected.
As we’ve noted numerous times in the past, the easy job has been done when it comes to headline inflation and getting it back down to levels more in line with the pre-COVID range will take time. In this morning’s report, the focus will shift to core which is expected to rise by just 0.2% m/m taking the y/y reading down to 4.3%. If the report comes out in line with expectations, it would be the lowest y/y reading in Core CPI since September 2021, and it would also represent the largest decline in the y/y reading from a 12-month high since the early 1980s.
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