The Closer – High Yield Rally, JOLTS, LMI – 12/5/23

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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 rally in high yield bonds and the new record high for German stocks (page 1). We then dive into the latest JOLTS data (pages 2 and 3) in addition to the latest supply chain data (page 4).  We finish with a look into farmer sentiment (page 5).

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The S&P 500 Equalweight index, which gives each stock in the index an equal 0.2% weighting, is currently trading at the same level it was at back in April 2021.  Investors used to getting the standard 8-10% per year in the US stock market have gotten far less than that over the last two and a half years.

Below is a five-year price chart of the S&P 500 Equalweight index showing the sideways range it has been in for the last few years.

The spread between the S&P 500 Equalweight’s highest and lowest closing price over the last three years currently stands at 31%.  As shown below, 31% is an extremely low 3-year high/low range; well below the average of 75.5% seen across all rolling 3-year periods going back to 1992.  The tight spread now, though, comes after a period in which the high/low range had gotten well above its historical average.  And the pendulum continues to swing…

Gamers Now Play the Waiting Game

Take-Two Interactive’s (TTWO) subsidiary, video game publisher Rockstar Games, has created some buzz in the past 24 hours.  Originally scheduled for this morning, the company released the first trailer for the next installment of their popular Grand Theft Auto (GTA) series early last night after the video was leaked on X (formerly Twitter). The game will be set for a 2025 release and will be titled Grand Theft Auto 6 (GTA VI).  The trailer has already broken the record for the most views of a YouTube video in under 24 hours (as of this writing it 77.3 million), and mind you, it hasn’t even been a full 24 hours since the video was put up.

There is a lot of interest in GTA VI, especially seeing as the previous installment from over a decade ago ranks as the second best-selling video game of all time; grossing over a billion dollars in sales in the first three days of its release. Additionally, the upcoming game follows the publisher’s last major title release, Red Dead Redemption 2, in 2018 which has earned the rank of the eighth best-selling game of all time. Despite any excitement from gamers, investors have been less receptive to TTWO’s trailer as the stock is trading down 1.7% today.  Below we show the performance of the stock surrounding other debuts of Rockstar Games’ trailers and title releases going back to GTA: San Andreas in 2004 (this was the earliest example of a debut trailer for a game that we could find).

The GTA VI trailer targeted a 2025 release date for the game, which follows the formula of other recent releases with a roughly two-year lag time between a trailer and a game’s debut.  As shown, performance in the year following a trailer debut has been somewhat mixed, but TTWO has often traded higher between a Rockstar game’s first trailer and when the game was released.   So with the trailer out, investors and gamers alike will now be playing the waiting game until 2025.

Bespoke’s Morning Lineup – 12/5/23 – We’ll Drink to That

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.

“Once, during Prohibition, I was forced to live for days on nothing but food and water.” – W.C. Fields

In case you missed it yesterday, here’s a clip to yesterday’s segment from CNBC Overtime which discussed the broadening of the market rally. CNBC Overtime – 12/4/23

Morning stock market summary

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 looking like another weak start to the trading day following a weak overnight session in Asia after Moody’s lowered its outlook for China’s credit rating citing rising debt levels. Interest rates are lower as the 10-year yield is on the verge of breaking back down through 4.20%. Where it ends the day, though, will be dictated by the upcoming JOLTS and ISM Services reports at 10 AM.

90 years ago today, Utah ratified the 21st Amendment to the Constitution, and the US thereby achieved the three-fourths majority needed to officially repeal the 18th Amendment and end Prohibition on a national basis. While alcohol was technically illegal in the United States for the prior 13+ years, it was always part of the US culture and social scene, and its illegality only gave organized crime groups a wide open field to operate in.  That ended with the 21st Amendment, although even with alcohol being legal on a national basis, several states maintained the Prohibition era through state temperance laws.  Mississippi was a dry state for another 33 years before it finally ended Prohibition in 1966.  We can only imagine what an Ole Miss tailgate would look like if Prohibition was still in place, but probably not this.

Regarding alcohol, we thought it would be a good time to check out how stocks in the sector have been faring lately.  Overall, performance has been mixed.  Molson Coors (TAP) has been the best performer this year, gaining more than 20%, but it’s down about 10% from its summer high. Along with TAP, other beer stocks have seen modest YTD gains this year.  Even the embattled Anheuser-Bush (BUD) has seen a sharp rebound in the last month as the company’s Bud Light brand has been spending big on brand rehab inking deals with Ultimate Fighting (UFC) and NFL legends Peyton Manning and Emmitt Smith. While beer stocks have had a decent year, companies more involved in the spirits business, like Diageo (DEO) and Brown-Furman (BF/b) are both nursing hangovers.

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New Highs in 2024*

The equity market (and most other parts of the financial universe) has been in rally mode for about five weeks now, and while it would be greedy to think that the S&P 500 could rally the 4% needed between now and year-end to get back to its prior highs from the start of 2022, on a total return basis, the market is knocking on the door of new all-time highs. As shown in the chart below, the total return index is within 1.1% of its prior all-time high from 1/3/22.  In addition to nearing its prior highs, the pattern of the S&P 500 looks a lot like a cup and handle which technicians consider to be a bullish formation.

For all the weakness that we’ve seen in the US Treasury market over the last couple of years, high-yield bonds have fared much better.  As shown in the chart below, the iBoxx High Yield Total Return Index, which is the underlying index of the popular ETF (HYG), came into the week just 2.5% below its prior all-time high from 12/28/21. That’s impressive in its own right, but even more noteworthy when you consider the fact that long-term Treasuries (20+ year maturities), long considered the ‘safest’ area of the fixed income sector, or all financial assets for that matter, are still down over 40% on a total return basis from their Summer 2020 peak.

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