Bespoke’s Morning Lineup – 12/11/24 – CPI Right on Target
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“I certainly wouldn’t invest in the stock market. I never believed in it. Most people lose money because of the emotional difficulty involved.” – Bernie Madoff
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Equity futures and international markets were little changed headed into the November CPI report. The STOXX 600 was unchanged, and overnight the Nikkei was also unchanged. The CPI report continued the narrative that inflation remains sticky, but it wasn’t any worse than expected. For both the headline and core readings, the m/m and y/y readings were right in line with expectations. At 3.3% y/y, though, core CPI remains too high for the Fed’s liking. The lack of any upside surprises, though, has provided a boost to pre-market futures, bond yields have pulled back slightly, and Bitcoin has gotten a bump higher. The fact that the numbers were right in line with expectations, though, all but locks in a rate cut at next week’s meeting.
Remember when CPI reports were the only thing the market cared about? Back in late 2022 and early 2023 right in the middle of the Fed’s rate hiking cycle, the monthly release of CPI was to economists and traders what a Taylor Swift concert was to teenage and twenty-something girls (and a lot of other people). It was an event, and the S&P 500 regularly rallied or declined 1% or more in reaction to the monthly “drop”. As shown in the chart below, in late 2022 and early 2023, the 12-month average daily change in the S&P 500 on the day of CPI reports was a gain or loss of just under 2%. Dating back to the turn of the century, the only other time that market reactions to CPI reports were more volatile was during the financial crisis, but that was a period when overall volatility was a lot higher too, so moves of more than 1% were the norm on any day during that period.
As inflation data has become less ‘exciting’, the market’s infatuation with it has subsided. As shown in the chart below, the average daily change of the S&P 500 on CPI days has plummeted below the long-term average of 0.86% down to 0.71%.
The S&P 500’s daily change on CPI days since the start of 2022 when the Fed’s last rate hiking cycle kicked off, shows the declining importance of CPI data on the market. Over the previous six months, there has only been one month where the S&P 500 moved 1% on a CPI Day, and following last month’s report, the S&P 500 finished the day unchanged rising by just 0.02% or 2 basis points (bps). That was the smallest daily move on a CPI Day since 2019 and was a far cry from two years earlier when the S&P 500 rallied 5.54% in reaction to the October 2022 report which was the largest upside move in reaction to a CPI report since 2008 and the third largest since 1999.
One reason for the more muted reactions to recent CPI reports is that the data has become more behaved and less ‘exciting’. Whether that changes or not remains to be seen, but the recent stickiness of Core CPI relative to headline has economists speculating that there could be a second act.
The Closer – Productivity Cycle, Sentiment, Allotments – 12/10/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at estimates for real output and the productivity cycle (page 1). We then check in on the latest earnings news and price action so far this week (page 2). Next, we cover investor sentiment (page 3), Treasury allotment figures (page 4), and a recap of today’s 3-year note auction (page 5).
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SMU vs PSU – The Graham and Dodd College Playoff Ticket
The inaugural year of the 12-team College Football Playoff kicks off next Friday night (12/20) with the intra-state matchup of Indiana and Notre Dame. The number 7 and 10 seeds are just a three-hour car ride apart, so you can imagine that demand for those tickets is off the charts. Notre Dame Stadium has a capacity of just under 78,000, and according to Ticketmaster, if you want to see the game in person, it will cost you just under a grand per ticket before fees.
The first game of the Playoffs is the most expensive get-in price of the four first-round games, but the cheapest will be the next afternoon on 12/21 at noon when SMU travels to Happy Valley to face Penn State. The game isn’t even sold out yet, so you can get in for just $100, or a tenth of the cost of getting into the Notre Dame game. Not only that but for the same price as the worst seat in South Bend, you can currently sit in the ninth row on the 50-yard line to see the Nittany Lions take on the Mustangs. While neither SMU nor PSU has quite the cache of Notre Dame, the discrepancy in ticket prices looks extreme. The fact that Beaver Stadium has a capacity of nearly 107,000, or 37% more than Notre Dame could also help to explain the difference in ticket prices, but if this game is anywhere close to as as exciting as SMU’s ACC Championship game, this would be the Graham and Dodd game of the College Football Playoff with Notre Dame – Indiana being priced like more of a wallstreetbets type of stock. Here’s an idea; the drive from South Bend to Happy Valley is just seven hours and a flight (private of course) is less than two. Who’s up for a doubleheader next weekend?
Small Business Facts vs. Feelings
Early this morning, the National Federation of Independent Business (NFIB) released its November survey for small business sentiment. As shown below, the headline Optimism Index surged by 8 points month-over-month for its biggest jump since 1980 and up to the highest level since June 2021. The main catalyst for the surge in optimism was the election. As we often discuss with this indicator, this release has increasingly been politically sensitive in recent election cycles. Republican administrations have tended to correlate with stronger small-business optimism and vice versa when Democrats have been in power. That means that while the indicator is useful, there is a political caveat that needs to be acknowledged.
In the table below, we show readings for each category in the report both for the most recent month and the previous month, the month-over-month change, and how those rank in percentile terms versus all periods in the survey’s history since it began releasing on a monthly basis in 1986. Under the hood, expectations for the economy to improve shared in seeing a record month-over-month gain, rising 41 points from -5 up to +36. Capital expenditure plans, expectations for higher real sales, and viewing now as a good time to expand were not far behind with some of the largest increases in their respective histories. Positive moves were observed far and wide with only one category declining on the month: credit availability.
As previously noted, the index for economic outlook saw a record increase rising an astonishing 41 points from a negative reading up to the highest since June 2020.
Given the strength in the economic outlook, the highest share of firms see now as a good time to expand since June 2021. While the reading is surging, it has plenty of ground to make up to return to levels seen during the last Trump administration.
Fortunately, the survey provides a detailed breakout into the reasons why firms are either positive or negative, and the results are perhaps the most clear sign of responding firms’ political biases. For those firms that did give a negative expansion outlook, economic conditions and political climate have been the two most commonly offered reasons in the past several years. However in November, in addition to fewer firms offering a negative outlook, fewer firms reported economic conditions or political climate as the culprit. For other categories, there was only a marginal uptick in financials & interest rates. Conversely, for those that gave a positive expansion outlook, the highest percentage of firms pointed to the political climate for their optimism.
In reviewing the data, it may have become clear that a number of the categories that observed major improvements have the basis in answering a question of how a firm is feeling rather than how it is actually doing. For example, while there was a six point increase in plans to increase capex, there was no change in actual capex spending. In other words, there has been a divergence in the survey’s soft and hard data.
In the charts below, we have taken each category of the report (standardizing using a z-score) and averaged whether they are based on hard or soft data. As shown, although November did see stronger hard data, the jump in soft data was much larger. In other words, businesses did see improvements, but their expectations and feelings are much more rosy than more substantiated data may imply. Taking a spread of the two, soft data now leads hard data to the widest degree since the end of the last Trump administration. Looking back historically, that’s normal. On average, the spread has tended to be modestly positive (+0.07) during Republican administrations versus a firmly negative (-0.23) average reading when the Democratic party was in power.
Chart of the Day – Indices and Sectors Telling Different Stories
Q4 2024 Earnings Conference Call Recaps: Oracle (ORCL)
Bespoke’s Conference Call Recaps use AI to summarize lengthy earnings calls. The commentary below is AI-generated and then edited by Bespoke for quality control. As always, none of these summaries should be construed as recommendations to buy or sell any securities, and investors should do their own research and/or consult with a financial professional before making any investment decisions.
Our latest recap available to Bespoke subscribers covers Oracle’s (ORCL) Q2 2025 earnings call.
Renowned for its flagship Oracle Database and Oracle Cloud Infrastructure (OCI), Oracle (ORCL) powers critical operations for clients ranging from multinational corporations to government agencies. ORCL’s strengths lie in its cloud capabilities, cutting-edge AI integrations, and multi-cloud partnerships with major players like Microsoft, Google, and AWS. This quarter was reportedly driven by cloud services, which now make up 77% of total revenue. Cloud revenue grew 24% to $5.9 billion, with infrastructure-as-a-service (IaaS) up 52%, supported by record AI demand. GPU consumption surged 336%, aided by partnerships with AI leaders like OpenAI and Meta. ORCL’s multi-cloud strategy gained traction, with database-at-cloud services live in 17 regions and 35 more planned. The company emphasized its modular data center strategy, doubling FY25 capex to meet demand efficiently. Remaining Performance Obligations (RPO) grew 50%, highlighting longer customer contracts. OCI’s scalability and AI supercomputers solidify ORCL’s leadership in generative AI and enterprise cloud solutions, positioning it for continued growth in FY25. Although it was an upbeat an optimistic call, ORCL’s results came in below what Wall Street analysts had anticipated, and the stock dropped 9% at the open on 12/10…
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Efficient Market?
Shares of Alphabet ($GOOGL) are trading up over 4% this morning, and outside of an earnings report, it would be the largest upside gap for the stock since March. This morning’s gap higher is also poised to take out short-term resistance from the post-election highs, putting the stock at its highest level since mid-July. So what’s the news driving the stock higher this morning?
There are only two notable stories out regarding the stock. The first is an analyst report from Piper Sandler naming GOOGL the top mega-cap stock to own in 2025. The analyst cited a product-driven resurgence and survey data showing that the company leads among its peers in AI. A bullish analyst report can always boost a stock, but a 4%+ rally in a company with a market cap of over $2 trillion? That seems a little excessive.
The only other catalyst being cited is a breakthrough the company announced in quantum computing where its Willow chip was able to solve a problem in five minutes that “would take one of today’s fastest supercomputers 10 septillion (that is, 1025) years — a number that vastly exceeds the age of the Universe.” The math problem the chip solved has no commercial applications as of yet, but it still marked a major breakthrough in quantum computing and seems to be a promising start. Besides the fact that GOOGL stock is trading higher this morning, other stocks involved in the quantum computing space are trading lower, indicating that this news is the more likely driver of the rally in GOOGL shares versus the Piper report.
What makes the rally in GOOGL shares this morning somewhat puzzling has to do with the timing of the news release. Below is a post from the company on X, discussing the breakthrough with its Willow chip with a link to the company’s blog post about it. Looking at the bottom left, you can see that it was posted Monday morning at 11:46 AM Eastern time. In other words, when the news of this chip was released, the market still had more than four hours of trading in which to react to it yesterday. During that time, the stock actually traded down marginally from the time of the release through yesterday’s close. Nothing clears the mind like a good night’s sleep, and after sleeping on the news last night, the market likes what it read!
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Bespoke’s Morning Lineup – 12/10/24 – Reversal
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“Having faith is believing in something you just know ain’t true.”– Mark Twain
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Equity futures are mixed this morning with the Dow trading slightly lower while the S&P 500 and Nasdaq futures along with Treasury yields, crude oil, gold, and bitcoin are all modestly higher. In terms of economic news, NFIB’s index of small business optimism saw a monster surge and rose to a 3+ year high in the wake of November’s election. Unit Labor costs for Q3 came in much lower than expected (0.8% vs 1.9% forecast) and Q3 Productivity was inline with forecasts at 2.2%.
Yesterday was a rough day for US stocks relative to the post-election period. With a decline of 0.61%, the only day worse since the election was on 11/15 when the S&P 500 fell 1.32%. In a post yesterday, we noted that the biggest losers of the day were the stocks that had the biggest YTD gains, and that can be seen in the performance of the Momentum ETF (MTUM) which fell 2.13% for its worst one-day decline since the election. Even after the relatively large drop yesterday, the MTUM ETF still managed to hang onto to its uptrend from the summer lows and also remains comfortably above its 50-DMA.
At the sector level yesterday, performance was essentially the opposite of sectors’ direction in the month after the election. As shown in the table and chart below, four of the five best-performing sectors from the election through Friday – Communication Services, Financials, Technology, and Industrials – were also four of the five worst-performing sectors yesterday. Similarly, the only three sectors down in the post-election period through last Friday – Health Care, Materials, and Real Estate – were the only three sectors to trade higher yesterday. The only major exception to yesterday’s reversal theme was Consumer Discretionary (XLY). While it was the best-performing sector ETF after the election through Friday, it only saw a modest decline yesterday.
Turning to individual stocks, the table and chart show the 20 best-performing stocks in the S&P 500 from 11/5 through 12/6 along with their performance yesterday. In the post-election period, these 20 stocks were up an average of 30.3%, and all but one was up at least 20%. Yesterday, though, was not nearly as positive. As shown, 13 of the 20 stocks were down on the day, and the average performance of all 20 stocks for the day was a decline of 1.8% or three times the decline of the S&P 500.
Opposite Day to Start the Week
If you’ve had a good year so far in the stock market, chances are you had a pretty bad day in the market today. On the surface, today’s action wasn’t awful. The S&P 500 (SPY) was down 0.5% while the Russell 1,000 was down 0.7%. Within the Russell 1,000, the average stock was down even less at -0.33%.
So what’s the big deal? Well, what made today noteworthy was the near-perfect performance distribution based on how stocks had performed so far this year heading into today. In the chart below, we’ve broken up the Russell 1,000 into deciles (10 groups of 100 stocks each) based on YTD stock performance through last Friday. Decile 1 contains the 100 best-performing stocks YTD, decile 2 contains the next best 100, and so on until you get to decile 10, which contains the year’s bottom 10% of performers. In the chart, we show the average performance today of the stocks in each decile. As shown, the decile of the best-performing stocks YTD through last Friday was down 2.9% today, while the decile of the worst-performing stocks YTD was up 2%! As you work your way down from the best decile to the worst, today’s performance gets better and better.
At the very top end of the YTD performance spectrum are the 26 stocks in the Russell 1,000 that entered today up more than 100% on the year. As shown below, these stocks fell more than 5% on average today, and every single one was down!
On the flip side are the 25 worst-performing stocks YTD coming into today. These 25 stocks were down an average of more than 50% on the year through last Friday, but they averaged a gain of more than 3% today!
Rarely do we see such uniform performance in one direction based on prior performance in the opposite direction, but that’s exactly what we saw today. Investors were selling winners and buying losers to quite an extreme degree.
Given this type of action, we wouldn’t make any rash long-term investment decisions based on one day’s moves. Sometimes it’s just opposite day in the market where we see downside mean reversion from winners and upside mean reversion from losers.
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The Closer – Freight Rates, Expectations, Refis – 12/9/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we lead off with a look into freight rates (page 1) in addition to commodity prices (pages 2 and 3). We then review the latest New York Fed Survey of Consumer Expectations (page 4 and 5). We also review mortgage delinquencies (page 6), upcoming Treasury auctions (page 7), and positioning data (pages 8 – 11).
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