Chart of the Day – Unexpected New Highs
Bespoke’s Morning Lineup – 10/1/24 – Market Hustle
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.
“Doctors tell me I have the body of a thirty-year-old. I know I have the brain of a fifteen-year-old. If you’ve got both, you can play baseball.” – Pete Rose
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
With Chinese markets closed through October 7th, they didn’t rally last night, but Japan managed to erase some of Monday’s losses with a rally of nearly 2%. However, the country’s manufacturing sector remained in contraction as September PMI fell to 49.7 from 49.8 but still slightly beat expectations.
In Europe this morning, equities are also higher with the STOXX 600 up 0.4%. Like Japan, the manufacturing PMI for September further contracted falling to 45.0 from 45.8, but that was also slightly better than expected. The bigger news, though, was a tame inflation report where headline CPI rose just 1.8% y/y and pushed interest rates in the region sharply lower.
On the economic calendar in the US this morning, we’ll get manufacturing PMIs from S&P and ISM at 9:45 and 10, respectively. Also at 10, we’ll get Construction Spending and JOLTS. Following in the wake of Europe, US interest rates are also falling with the 10-year yield down over 5 bps to 3.74%. Lastly, the East Coast port strike is less than nine hours old, so it isn’t a major concern at this point, but the longer it lasts, the more we’ll have to start factoring in negative impacts on the economy.
A breeze of relief blew through Wall Street after the closing bell as the S&P 500 finished the month with a gain of just over 2%. Based on the calendar, October has been a much friendlier month to bulls from start to finish, but in between it hasn’t been a walk in the park. As shown in the chart below, the S&P 500’s average Intra month peak to trough decline (on a closing basis) has been the largest of any month at 4.6%.
The chart below shows October peak-to-trough declines for every October since 1945. For the last two years, the S&P 500 has experienced an intra-month decline of at least 5%, and there have been four in the last six years. While the average decline has been 4.6%, that magnitude has been heavily skewed by 25%+ declines in 1987 and 2008. On a median basis, October’s intra-month decline has been a relatively more modest 3.4%. Overall, though, there have still been 26 intra-month drawdowns of at least 5% in the last 79 years.
With those 26 intra-month declines of over 5%, October is tied with September for the highest frequency at 33%. From here, though, intra-month volatility tends to abate into year-end. Historically, only 24% of Novembers have experienced 5% intra-month drawdowns while December has had the lowest frequency of drawdowns of that size.
Copper Joins the Volatility Club
While the equity markets keep chugging along, there have been some spectacular/peculiar moves over the last several weeks. It started with the Nikkei in early August when it plunged over 10% in a single day. Over the last several days, we’ve seen extraordinary moves in the opposite direction in China. Just yesterday, even as China had its best day in over 15 years, the Nikkei fell more than 4%. As we noted on X, in less than two months now, the Nikkei has seen its two largest days of underperformance relative to the Shanghai CSI 300 dating back to when China joined the WTO in late 2001.
The crazy moves haven’t been just confined to equities either. On the heels of the big run in Chinese equities on Monday, copper got caught in the current with prices surging over 4% in early trading. Throughout most of the trading day, though, prices steadily gave up the gains finishing down over 1%.
Even for a commodity like copper that type of intraday reversal is uncommon. Since 1990, it’s only occurred six other times. It happened four times during the Financial Crisis in Q4 of 2008, and the only two other times were in June 2006 and November 2016 just after former President Trump won the 2016 election. As for how copper performed following the prior reversals, performance was mixed. In the four occurrences during the Financial Crisis, copper was up over 30% six months later each time, but in the six months after the two non-financial crisis periods, it was lower both times. Forward returns were trendless, but that doesn’t make the volatility any easier to stomach.
The Closer – Powell Disappoints, STLA Swoon, CoT – 9/30/24
Log-in here if you’re a member with access to the Closer.
Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we kick off with an overview of recent Fedspeak including Powell’s comments this afternoon (page 1). We then dive into the news and poor performance from Stellantis (STLA) (page 2) before reviewing the latest positioning data (pages 3 – 6).
See today’s full post-market Closer and everything else Bespoke publishes by starting a 14-day trial to Bespoke Institutional today!
Chart of the Day: Hello October
China Outperforms the Rest of the World
Far and away the most notable market event over the past week has been the historic surge in Chinese equities. As we discussed in today’s Morning Lineup, the Shanghai CSI 300 has gone from a 52-week low to a 52-week high in only a couple of weeks thanks in part to a record over 25% rally in the past five days alone. Significant stimulative monetary policy, which we dedicated multiple pages in Friday’s Bespoke Report to discuss, has sparked the advance
The superlatives, however, don’t stop there. In the matrix below, we show the performance of the ETFs for 22 major global economies featured in our Global Macro Dashboard (which was most recently updated last Wednesday). As shown, Chinese equities, as proxied by the MSCI China ETF (MCHI), are now up close to 26% since September 13th (the date of the CSI 300’s 52-week low). In that same span, Hong Kong (EWH) has risen in sympathy with a 17.5% gain, but the third best-performing country – South Africa (EZA) – hasn’t even seen half of those gains. Other than China and Hong Kong, Australia (EWA) is the only other international market starting the week at a 52-week high. While the run in Chinese stocks is a high bar to be compared to, the rest of the world has at least generally seen positive performance. Only two countries are lower since mid-September: Brazil (EWZ) and Mexico (EWW). As such, most countries are also currently overbought with China and Hong Kong doing so to a record, off-the-chart degree.
The charts below show MCHI and the degree to which it is overbought by two measures. The first (middle chart) is the 14-day RSI, and the second (third chart below) is the number of standard deviations from its 50-DMA. As shown, after the rally of the last couple of weeks, the ETF has erased all of the losses since February 2023. For RSI, typically any reading above 70 could be considered “overbought”, but today that index is over 10 points higher. The only time the RSI was more extended was in the spring of 2015. Meanwhile, there has never been a point since the ETF’s inception (2011) in which it has been more extended above its 50-DMA. Last Tuesday MCHI traded over 5 standard deviations above its 50-DMA.
Bespoke’s Morning Lineup – 9/30/24 – China’s Unbelievable Rally
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.
“What is time? Swiss manufacture it, French hoard it, Italians squander it, Americans say it is money. Hindus say it does not exist. Know what I say? I say time is a crook.” – Truman Capote
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
US equity futures are modestly in the red to kick off the week. That follows a poor start to the week for European markets as well. In Asia, most major benchmarks were also lower to start the week with one big exception. Chinese stocks have continued their gangbusters rally ahead of the week-long holiday where markets will be closed until October 8th, and it appears as though a rush to cover shorts ahead of that closure sparked a frenzy in that country’s stock market.
Look at the chart below because you may not see one like it again, at least for the stock market of the world’s second-largest economy. As we noted on Friday, China’s Shanghai CSI 300 went from a 52-week low to a 52-week high in less than two weeks, and as unbelievable as that rally was, it followed through on that run with a gain of over 8% to kick off the week. Again, charts like this may not be impressive for an individual small-cap stock, but the CSI 300 has a market cap of over $7 trillion.
Last night’s gain in the CSI 300 was the largest in more than 15 years, and there have only been three other days since China entered the WTO that the index had a larger one-day gain.
As mentioned above, last night’s rally capped off what had already been an impressive run for the CSI 300, and the index has now traded higher for nine straight trading days. That’s tied for the second-longest streak of daily gains on record trailing only the 12 gain in December 2014.
This next chart could be the most unbelievable of them all. The CSI 300 has surged just over 25% in the last five trading days. No other five trading day period since 2002 even comes close.
What’s most ironic about the last five days of gains is how much Chinese stocks still are in the hole. From the post-COVID high in February 2021, the CSI 300 remains in a drawdown of over 30%, and the index is still down modestly relative to where it was two years ago and essentially unchanged over the last five years.
Brunch Reads – 9/29/24
Welcome to Bespoke Brunch Reads — a linkfest of some of our favorite articles 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.
The Sphere:On this day last year, The Sphere officially opened its doors with U2. The iconic 366-foot-tall structure dazzled audiences with its massive 580,000-square-foot LED screen, providing an immersive visual experience unlike anything before it. Inside, the Sphere’s state-of-the-art sound system and 4D effects wowed concertgoers, solidifying its status as a game-changer in live entertainment. In just a quick year, the Sphere has hosted many concerts, films, and even UFC 306, a one-and-done sporting event that changed how sports and entertainment could be blended like never before. We’re excited to see what’s to come after just one year filled with viral moments.
Energy
Powering Up: The Surging Demand for Electricity (KC Fed)
After years of flat growth, US electricity demand has started to climb, growing 1.3% annually over the past three years, more than double the rate from 2010 to 2019. This uptick is largely driven by commercial demand, particularly in states like Virginia, North Dakota, and Texas, where data centers are booming. Projections suggest this surge will continue, with forecasts for 2024 and 2025 showing big jumps. The rise of AI and data center expansions, alongside trends like clean energy investment, are key factors pushing demand higher. As the US economy becomes more electrified, there will likely be a greater need for investments in energy infrastructure to keep up with this demand and ensure sustainable growth. [Link]
Continue reading our weekly Brunch Reads linkfest by logging in if you’re already a member or signing up for a trial to one of our two membership levels shown below! You can cancel at any time.
The Bespoke Report – 9/27/24 – The China Solution
To read our weekly Bespoke Report newsletter and access everything else Bespoke’s research platform has to offer, start a two-week trial to Bespoke Premium. This week we look at AI stock performance after Micron (MU) earnings this week, the huge week for policy in China, central bank activity around the world, a strong backdrop for the consumer despite weak sentiment, falling inflation, developments in commodities, and renewables stocks.
Bespoke’s Matrix of Economic Indicators – 9/27/24
Our Matrix of Economic Indicators provides a concise summary analysis of the US economy’s momentum. We combine trends across the dozens and dozens of economic indicators in various categories like manufacturing, employment, housing, the consumer, and inflation to provide a directional overview of the economy.
To access our newest Matrix of Economic Indicators, start a two-week free trial to either Bespoke Premium or Bespoke Institutional now!
