The Bespoke Report – 9/20/24 – We Did It
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Utilities Reacting to Reactor News
Although the S&P 500 finished in the red on the day, there is one sector reaching fresh 52-week highs: Utilities. The Utes are one of only two sectors higher today (the other being Communication Services), and its leadership is by a wide margin. Whereas Communication Services is only up 0.17%, the Utilities sector is flying with a 2.58% gain.
That big gain is thanks to news that Constellation Energy (CEG) will sell power to Microsoft (MSFT) in order to power its data centers. To generate that power, CEG will be restarting one of its nuclear reactors at Three Mile Island in Pennsylvania. As shown below, given the news, CEG is the top performer in the sector today with an impressive 21% gain. Vistra (VST) has also benefitted and is up 14.3%. Those two stocks are now top performers on the year with total returns of 79.35% for CEG and 142.2% for VST. Of course, the Utilities sector is often considered an income friendly area of the market, but the surges in the price of CEG and VST have dramatically lowered their yields below 1%. That compares to an average yield of over 3% for all members of the sector. The only other Utilities stock with a lower yield is PG&E (PCG) which recently reinstated its dividend after a few rough years dealing with the fallout of being to blame for wildfires in the back half of the 2010s.
As previously mentioned, Constellation Energy (CEG) is at the center of attention today. As shown below, the over 20% gain today erased all of the declines since the spring, leading to a fresh record high. Additionally, today’s gain is the largest one on record since the stock’s inception following a spinoff of Exelon (EXC) in 2021.
Vistra (VST) has likewise returned to new all time highs on today’s surge, surpassing the previous record close from this past May. The 14.5% single day gain as of this writing is remarkable as there is only a single time that the stock rose by more, and that was on July 31st when it rose 14.8% as news of higher energy prices bolstered the Utilities sector.
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Bespoke’s Morning Lineup – 9/20/24 – Closing Out the Week on a Down Note
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“Winners train, losers complain. Give me twelve players that want to win, and they will find a way to win.” – Red Auerbach
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
It’s been a strong week for equities, so the modestly negative tone in futures to start the last day of the trading week isn’t going to concern anyone. There’s also zero on the economic or earnings calendar this morning either, so we’re not quite sure what traders will latch onto to push prices in one way or the other, but they always seem to find something!
Overnight in Asia, traders closed out the week on a positive note as the Nikkei was up over 1.5%, Hong Kong finished 1.4% higher, and even China was up over 1%. The key event in the region was the BoJ keeping rates unchanged with a ‘hawkish hold’. In Europe, the tone isn’t as positive as the STOXX 600 is modestly lower as German PPI came in higher than expected while UK Retail Sales rose more than expected.
The Russell 2000 did not hit an all-time or even 52-week high yesterday, but it did manage to take out its late August high. The chart is forming what looks like a “W-formation” with the first half comprising the massive rally from earlier this summer when the index traded at the most overbought level on record for a major US index. We honestly have no idea what a W-formation means, but if the Russell 2000 manages to break out above the summer highs, it would be a positive development from a technical perspective.
The latest rally in the Russell 2000 has also been impressive given that yesterday was the seventh straight day of gains for the index which is the longest winning streak for the index in three and a half years. Seven-day winning streaks are by no means uncommon or extreme in the Russell 2000’s history. As shown in the chart below, since 1980 there have been 110 other winning streaks of at least seven trading days, and the longest was more than three times longer at 22 in March 1988. What is interesting about the chart below, however, is how common 7-day winning streaks were from 1980 through the dot com bust (86 from 1980 through the end of 2022) and how uncommon they have been since (24 since 2003).
In today’s Morning Lineup, we looked at how the Russell 2000 tends to perform following prior seven-day winning streaks. To see the rest of the analysis, sign up for a trial today!
The Closer – Day After the FOMC, Home Sales & Affordability – 9/19/24
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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 the historically strong performance for the day after a rate decision (page 1). We then review the latest economic data (page 2) including in depth looks at the current account (page 3), existing home sales (page 4), and affordability (page 5). We finish with a rundown on today’s 10y TIPS reopening (page 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 – Full Service Dispersion
Best and Worst Performers Since 8/5
The large-cap S&P 500 and Russell 1,000 are both now up more than 10% since the summer low made on August 5th. They’re also trading back to new all-time highs today.
Within the Russell 1,000, the average stock in the index is up 10% as well, meaning breadth has been strong. This is different from what we saw in the first half of the year when the mega-caps pretty much drove all of the market’s gains.
We’ve seen some pretty massive moves higher in individual stocks since August 5th. There are 137 stocks in the Russell 1,000 up more than 20% since then (just 32 trading days), and there are 21 stocks up more than 40%. Below is a list of those 40%+ gainers.
As shown, buy-now-pay-later stock Affirm (AFRM) is up the most since 8/5 with a gain of nearly 88%. App-maker AppLovin (APP) is up the second-most at +83.8%.
Language-learning app Duolingo (DUOL), online real estate search site Zillow (ZG), and fast-casual Mediterranean menu company Cava (CAVA) round out the top five with gains of more than 56%.
Other notables on the list of big winners recently include Palantir (PLTR) with a gain of 53%, Five Below (FIVE) at +45.4%, SharkNinja (SN) at 44.9%, and RH at 41.1%.
While more than 87% of stocks in the Russell 1,000 are up since 8/5, there are 123 stocks that are in the red, including the 26 listed below that are down more than 10%.
Trump Media (DJT) is the Russell 1,000 stock down the most since 8/5 with a drop of 44.7%. Wolfspeed (WOLF), elf Beauty (ELF), New Fortress (NFE), and Dollar General (DG) round out the list of the five biggest losers, and other notable names on the list include Dollar Tree (DLTR), Sirius (SIRI), Celsius (CELH), Moderna (MRNA), Walgreens Boots (WBA), Ally Financial (ALLY), and Birkenstock (BIRK).
Below is a look at the average performance of Russell 1,000 stocks since 8/5 broken out by sector. Four sectors have seen average gains in a tight range between 12.3-12.8%: Real Estate, Technology, Financials, and Consumer Discretionary. On the weaker side, the average Energy stock is up just 3.1% since 8/5.
Below is a look at the average year-over-year percentage change of Russell 1,000 stocks by sector. Over the last year (since 9/19/23), the average Russell 1,000 stock is up 23.8%, but stocks in the Financials sector have done by far the best with an average gain of 34.5%. Notably, the AI-heavy Technology sector ranks third behind Financials and Industrials. Energy stocks, on the other hand, are only up an average of 1.9% YoY.
Going Ex-Dividend
Just over a tenth of the stocks in the S&P 500 are going ex-dividend in the next two weeks, and below is a list of the stocks going ex that have dividend yields that are higher than the yield of the S&P 500 (~1.28%).
As a reminder, to capture a quarterly dividend payment, investors need to own shares as of the close on the day prior to the ex-dividend date. If the ex-dividend date is 9/20/24, for example, you’d need to own shares as of the close on 9/19/24 to capture the dividend.
Some of the highest yielding stocks going ex-dividend in the next two weeks include Eversource Energy (ES), Philip Morris International (PM), Franklin Resources (BEN), US Bancorp (USB), Host Hotels (HST), and Realty Income (O).
Some of the largest, most well-known stocks going ex-dividend in the next two weeks include the aforementioned Philip Morris International (PM), Medtronic (MDT), Mondelez (MDLZ), Deere (DE), Cisco (CSCO), and Comcast (CMCSA).
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Bespoke’s Morning Lineup – 9/19/24 – Breaking Powell’s Law of Gravity
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“We did everything adults would do. What went wrong?” – William Golding. Lord of the Flies
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Historically, when the Fed started a rate-cutting cycle, equity market performance on the day of the first cut was very positive with an average one-day gain of 1.30%. Even that positive bias, however, wasn’t enough to counter the negative pull of the market on Fed days during current chair Powell’s tenure since 2018. As shown in the chart below, on Fed days under Powell, there has been a clear negative bias for equities in the final hour of trading, which was again on display yesterday. Even after rallying as much as 0.8% after the statement’s release communicating a 50 bps rate cut, stocks drifted lower and finished with a decline of 0.24% right near the day’s lows.
The negative pull of Powell’s law of gravity may have pulled stocks lower yesterday, but this morning, the S&P 500 is indicated to open sharply higher with the S&P 500 ETF trading up over 1.5% in early trading. If these gains hold through the opening bell, it would be the 16th time since 1994 that SPY has gapped up over 1% on the day after a Fed meeting (scheduled or unscheduled). In the chart below of SPY, we show each of those prior occurrences using blue (when there was no change in rates on the Fed day) and red dots (when there was a cut in rates). Of the 15 prior gaps higher, just four followed a day when the FOMC cut rates. Three of those were after the 2007 peak and through the Financial Crisis while the fourth was in early March 2020 during the early days of the Covid Crisis.
The Closer – FOMC, Residential Construction, EIA – 9/18/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin by discussing today’s Fed decision (page 1) and the market reaction to the rate cut (page 2). We then dive into the latest residential construction figures (page 3) before closing out with a recap of today’s EIA release (page 4).
See today’s full post-market Closer and everything else Bespoke publishes by starting a 14-day trial to Bespoke Institutional today!