Bespoke’s Morning Lineup – 9/14/22 – Holding For Now
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“He who fears being conquered is sure of defeat.” – Napoleon Bonaparte
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Futures were modestly higher relative to yesterday’s decline for a little while this morning, but those gains have evaporated almost as fast as yesterday’s decline erased the prior four days of gains. Yesterday was pretty much a bloodbath in the equity market as not a single stock in the S&P 1500 was up 5%, and only 18 stocks in the entire index of 1500 stocks were even up on the session. Strangely enough, though, only 12 stocks in the index declined 10%+. For a day when the index was down over 4%, that’s a surprisingly low number. we’ve seen more stocks down by 10%+ on days when the broader market was only down 1%.
After yesterday’s hotter-than-expected CPI report, the August PPI was right in line at the headline level with a 0.1% m/m decline and an 8.7% y/y increase. Stripping out food end energy, the m/m reading was 0.4% compared to expectations for a gain of just 0.3%. The y/y reading was also higher than expected at 7.3% versus forecasts for an increase of 7.0%. This report certainly wasn’t as bad as the CPI report, but levels remain stubbornly high.
At the open yesterday, the S&P 500 erased the prior two days of gains, and by the close, it had basically erased the gains of the two days before that. How’s that for efficiency? As bad as the sell-off was, the one thing bulls have working in their favor is that the uptrend line off the June lows has held for now. If that trendline – currently around 3,920 – doesn’t hold today, it won’t be much of a positive backdrop for a time of year that has historically already been among the weakest times of the year.
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Chart of the Day: Breadth Doesn’t Get Much Hotter
COTD Bullet Points:
- The past week (before Tuesday) has seen outright impressive breadth from the S&P 500 as the 5-day advance/decline line has risen to one of the highest levels of the past decade.
Chart of the Day:
Although equities are pulling back sharply in the wake of the CPI release, leading into today the S&P 500 had taken a straight shot higher since coming back from the Labor Day holiday with the index moving higher each day save for last Tuesday. Even more impressively, it wasn’t just a handful of FANG-type mega caps driving the index higher. Breadth has been impressively strong. Typically, we track short-term breadth using the 10-day advance/decline (A/D) line which we update daily in our Sector Snapshot. While that line was basically neutral heading into today, the 5-day A/D line was at the extreme side of historically positive readings. Reaching a reading of 52.8% as of Monday’s close, the reading ranked in the 99.7th percentile of all days since 1990 when our data begins. As for some other most recent examples of breadth reaching such extended levels, there have been two occurrences in the past year: one near the end of 2021 and one this past May.
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Pain in CPI
With investors expecting consumer prices to fall month-over-month heading into the day, this morning’s higher-than-expected headline and core CPI reports caused an instantaneous reversal in market sentiment heading into the opening bell. While equity index futures were indicating a gain of around 75 basis points heading into the print, after the release, indications were for a decline of 2%. When the opening bell finally rang, the S&P 500 gapped down 2.27% as indicated by the tracking ETF – SPY.
Going back to 1998, today marked just the sixth time that SPY gapped down in excess of 2% on the day of a CPI release. As shown in the top of the table below, on four of the five prior 2%+ gaps down on CPI days, SPY not only gapped down by over 2%, but it continued lower throughout the trading day. While that doesn’t necessarily bode well for today, we would note that on many of those prior occurrences, there were other overriding factors impacting the market. From the Russian debt default and collapse of Long-Term Capital Management (LTCM) in 1998 to the Financial Crisis in 2008, the US debt downgrade in 2011, and then COVID in 2020, on most of these other days, investors had other issues besides inflation to worry about. The only time that there wasn’t another major issue impacting the market was on 5/14/99 when headline CPI exceeded forecasts by 0.3 ppts and core CPI exceeded consensus estimates by 0.2 ppts.
At the bottom of the table, we have listed every other time since 1998 that core CPI exceeded consensus forecasts by 0.3 ppts or more. Today’s report is just the fourth time that core CPI has topped estimates by such a wide margin, but what stands out most is that every other prior occurrence since 1998 came after COVID. We noted numerous times in the past how COVID has created so many distortions in the economy that the job of forecasting it has become exceedingly difficult, and the fact that every ‘beat’ of this magnitude in core CPI has occurred since COVID only reinforces this point. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Morning Lineup – 9/13/22 – Dun Dun
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“As soon as you become complacent your show gets canceled.” – Dick Wolf
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32 years ago today, a new show called “Law & Order” debuted on NBC. “Law & Order” opened to little fanfare, but it has gone on to become one of the most successful and long-running franchises on TV. At the peak of linear TV, there probably wasn’t a time of day that the show or one of its numerous spin-offs was not airing somewhere on cable TV, and the famous “dun dun” sound effect has become one of the most recognizable sounds on TV.
When “Law & Order” first aired, the reviews weren’t positive. The Hollywood Reporter called the show “a program that fails to properly function.” Based on the initial reviews, it’s hard to imagine that the original episode in 1990 would spawn multiple spin-offs and thousands of hours of content. But like all successful investments, it takes a creative and forward-looking mind to see how something that may look ordinary today can turn into something very valuable down the line. On to the markets…
Inflation is the big indicator to watch today, and consensus expectations had the headline number penciled in at a m/m decline of 0.1% with the core reading rising 0.3%. The actual numbers were stronger than expected with the headline rising 0.1% while the core reading was double expectations. Markets were positioned for a weaker print, so the strong number completely reversed (and then some) the positive tone in equity futures. It’s hard to remember a time when an 8:30 number caused such a sharp and near-instantaneous reversal in futures. After official numbers like these, it’s impossible to say that inflation isn’t a problem anymore, but at the same time, it doesn’t change the fact that the pile of secondary indicators showing softening inflation pressures from peaks just a few months ago has really started to pile up.
Just like inflation, breadth has gone from one extreme to the other but in a much tighter timeframe. Coming off the June lows, we saw extremely positive breadth in the S&P 500. Then, towards the tail end of the late summer sell-off, breadth turned extremely negative. The last four trading days, however, have seen breadth reverse again with four straight days of net positive readings in excess of +250 and two positive ‘all or nothing days’ (days where S&P 500 net daily breadth reading comes above +400 or below -400). Long story short. It’s been a broad rally.
With two all-or-nothing days in the last week, we wanted to update our chart of occurrences by year. With 26 so far this year, 2022 is on pace for 37 all-or-nothing days this year, and if that pace comes in, it will rank as the third-highest total since the end of the Financial Crisis and the 7th highest total for all years since 1990. Although the period before 2000 doesn’t even really count, since all-or-nothing days were so rare back then.
Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals. We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!
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11%+ Annualized – Not Bad for the ‘Worst Trade Ever’
It has now been 14 years since Lehman Brothers’ last day as a solvent company – an event that set off one of the biggest market meltdowns of all time. In hindsight, the events leading up to and after September 2008 may not seem all that bad. How quickly we forget. Three-quarters of a century removed from the Great Depression, most Americans had never given a second thought to the safety of the funds in their savings account or even money-market funds, but shortly after Lehman, these were legitimate concerns on the part of all Americans. People were actually going to ATMs and taking out extra cash to literally put ‘under their mattress’ just in case they woke up and the ATMs weren’t working anymore.
Most of these extremes came after the Lehman bankruptcy, but the period leading up to Lehman wasn’t a picnic either; that’s actually why Lehman went belly-up. From the S&P 500’s peak in October 2007 through 9/12/08, the S&P 500 was down over 20%. But after an early summer sell-off, the S&P 500 rallied from mid-July to mid-August before selling off into Labor Day. Heading into the weekend after Labor Day, the S&P 500 was down 4% from its mid-August high but appeared to be stabilizing at a higher low relative to July. With the S&P 500 still down 20% from its all-time high, you couldn’t have faulted someone heading into the weekend for thinking “maybe I’ll try to buy something on sale.”
On 9/12/08, stocks may have been on sale relative to the October 2007 highs, but any buys on that day would quickly go down as one of the ‘worst trades ever.’ After Lehman announced its bankruptcy that weekend, cracks spread all over the financial district from a Wall Street parched of liquidity. September ended with a decline of nearly 10% but continued to get worse from there, and by the following March, the S&P 500 was down just under 46% – or 71% annualized – from its ‘pre-Lehman’ close’. Stocks that seemed cheap less than six months earlier were now down by nearly half, so getting back to even from there would pretty much require a double. Speaking from experience, any investor who bought any stocks in those six months quickly felt like the stupidest investor in the world.
While any equity purchases made 14 years ago just before Lehman collapsed quickly turned into some of the worst trades ever, time is an investor’s best friend. Anyone who had time gradually looked less foolish. From a longer-term perspective, the decline from September 2008 to March 2009 still looks painful, but over time, the market (as it has to this point always done) dug itself out of its hole. The snowball effect of compounding has rewarded investors who were in it for the long haul. Not including dividends, the S&P 500 has rallied more than 228% since the Friday before Lehman’s bankruptcy, and including dividends, it has delivered an annualized return of more than 11%. You’d probably sign the bottom line as fast as you could for an annualized return of 11% between now and 2036!
Not bad for what seemed like the “worst trade ever” at the time. Click here to learn more about Bespoke’s premium stock market research service.
Speculators Short Precious Metals As Miners Surge
The latest CFTC’s Commitments of Traders report with data as of last Tuesday was released on Friday. This report tracks how speculators are positioned among various futures which we show as a net reading in the charts below. Positive readings indicate a net percentage of open interest is long whereas a negative reading indicates a larger share of speculators are positioned short in a given future. Below, we take a look at those readings for a handful of precious metal futures.
As shown, gold has rarely seen more shorts than longs over the past decade and is the only precious metal currently positioned net long (+22.29%). However, that is not to say this reading has not been weakening lately. This past spring, the reading fell outside of the past few years’ range, reaching a low of 18% back in mid-July. While the second half of July and some of August saw it rebound, last week marked three straight weeks of declines. Meanwhile, silver futures have seen positioning turn outright short recently. With a net 9.24% of open interest positioned short, that is the most pessimistic positioning reading since May 2019. Likewise, it has been almost four years since platinum has been as heavily bet against as now. Finally, palladium has also seen speculators turn against it in the past year to a degree not seen at any point of the past decade.
As we do each Monday, in tonight’s Closer we will provide a more in depth rundown of this data for a wide variety of assets.
As speculators turn increasingly bearish, we are actually coming off of a very strong week for metal adjacent ETFs. As shown in the screenshot of our Trend Analyzer below, the best performing ETFs last week in our US Groups screen were gold miners (GDXJ and GDX) as well as the Steel ETF (SLX) that tracks steel producers and suppliers. The Junior Gold miners (GDXJ) rallied double digits over the prior five days, which was a move that lifted it out of extreme oversold territory and almost back up to its 50-DMA.The Gold Miners ETF (GDX) was not far behind with an 8.85% rally. SLX was only a percentage point behind that as it presses into overbought territory for the first time since August 29th. Click here to learn more about Bespoke’s premium stock market research service.
Chart of the Day – Volatile Fridays
Bespoke’s Morning Lineup – 9/12/22 – Starting Off On a Positive Note
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“See things in the present, even if they are in the future. ” – Larry Ellison
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It looked earlier like futures were going to pick right up where they left off last week, but the positive tone in the pre-market has been weakening ahead of the opening bell. There wasn’t much to drive the positive tone earlier, and there has been no apparent catalyst for the weakness in the last half hour. It’s a quiet day for data today as there are no economic reports on the calendar, and the only earnings report of note is Oracle (ORCL) after the close. The big report of the week comes tomorrow, though, when August CPI will be released at 8:30 AM. Economists are currently forecasting the headline reading to show a decline of 0.1%, although, given the trajectory of gas prices and other secondary indicators, so-called whisper numbers are even more negative.
The holiday-shortened week started off poorly last week but finished on a strong note with three straight gains including two days where the S&P 500 surged 1%+ on solid (+400) breadth. The rally also helped to bring the S&P 500 back above its 50-DMA. It’s been a roller-coaster summer for US stocks as the monster rally in the S&P 500 tracking ETF (SPY) off the June lows failed right at the 200-DMA and downtrend line from the January highs. The sell-off was arrested last week right at the uptrend from the June lows, and with three weeks of trading left in the third quarter, the S&P 500 finds itself in a bit of no man’s land.
All eleven sectors have turned in positive returns over the last five trading days (which includes the Friday before Labor Day). Materials and Consumer Discretionary have led the stampede with gains of just under 5% while Financials aren’t far behind rallying by 3.65%. Consumer Staples is the only sector up less than 1% and one of just three sectors still below its 50-DMA. The only two other sectors below that level are Communications Services and Technology. They are also both the only sectors down over 20% YTD. Given its size in the market, Technology is usually the sector that leads the ship, but it is nice to see that the broader market can rally even if that sector underperforms.
Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals. We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!
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Bespoke Brunch Reads: 9/11/22
Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
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Tech Dystopia
The Rise of Mobile Gambling Is Leaving People Ruined and Unable to Quit by Maxwell Strachan (Vice)
Problem gamblers used to have to drive to a casino or at least a gas station. Now, smartphones deliver a near-constant barrage of prompts and opportunities to gamble, creating disastrous consequences for personalities who are attracted to risk. [Link]
‘It’s a slippery slope’: Most consumers underestimate monthly subscription costs by at least $100, study says by Sarah O’Brien (CNBC)
Low monthly prices, automatic payments, and easy sign-ups mean that consumers are paying over $100/month in forgotten subscriptions. [Link]
China
China’s COVID-19 Stagnation Has No End in Sight by James Palmer (Foreign Policy)
Political leadership remains anchored to its zero COVID policy. [Link]
China’s Economic Slump Bodes Ill for Birth Numbers by Liyan Qi (WSJ)
Low birth rates mean Chinese deaths are set to outnumber births as soon as this year; models suggest the total population is set to fall from just over 1.4bn to below 800mm by the end of this century. [Link; soft paywall]
Ukraine
‘We have already lost’: far-right Russian bloggers slam military failures by Pjotr Sauer (The Guardian)
Far right military bloggers in China are starting to lose hope that the country’s invasion may eventually succeed as Russian lines collapsed in the country’s east and south this week. [Link]
Russia Is Buying North Korean Artillery, According to U.S. Intelligence by Julian E. Barnes (NYT)
Facing shortages of key inputs for construction of even the most basic military equipment, Russia is turning to minor allies to source warfighting material. [Link; soft paywall]
Loosening Markets
Housing Market Update: Mortgage Rate Spike Further Cools Homebuying and Selling by Tim Ellis (Redfin)
Some markets are starting to see outright price declines as new listings plunge, price cuts abound, and the combination of soaring mortgage rates and sky-high prices destroy demand. [Link]
Ocean Shipping Rates Have Plunged 60% This Year by Costas Paris (WSJ)
After a desperate scramble to book freight capacity amidst an avalanche of demand for goods, retailers are faced with inventory overhangs and the freight market is falling apart with shipping rates collapsing in 2022. [Link; paywall]
Retail Activity
Robinhood Unveils Index to Track Customers’ Favored Stocks by Alexander Osipovich (WSJ)
A new index constructed by free-to-trade brokerage Robinhood weights stocks by their customers’ “conviction” or relative frequency shares are held in customers’ accounts. [Link; paywall]
EXCLUSIVE Deal partner for Trump’s Truth Social fails to get backing for SPAC extension -sources by Svea Herbst-Bayliss (Reuters)
As a deadline to approve the proposed blank check takeover of Trump’s nascent social media company loomed, the transaction looked like it might be in doubt. [Link]
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Have a great weekend!