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“Democracy is beautiful in theory; in practice it is a fallacy.” – Benito Mussolini

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

The mid-July seasonal headwinds have come in right on schedule this year. Earlier this month, we noted that the three-month period from mid-July through mid-October has historically been the weakest three-month period of the year, and since its closing high on 7/16, the S&P 500 is down over 4% in a little over a week!  We usually stress the inadvisability of investing based solely on seasonal trends, but as the last week has illustrated, these trends are important to be aware of.

This morning, futures are lower again as international markets have been under pressure overnight and this morning. Japan was down over 3%, and major European benchmarks are down over 1%.  Crude oil and gold are also firmly lower with declines of well over 1% while copper is on pace for its ninth down day in a row. The only asset trading higher is treasuries where yields are firmly lower.

It’s a big day for economic data this morning as we just got the first read of Q2 GDP, Personal Consumption, and PCE. In addition to those reports, weekly jobless claims, and Durable Goods were also released. GDP and jobless claims came in better than expected, and while headline Durable Goods Orders were much weaker than expected, taking out Transportation, the report was better than consensus forecasts. Additionally, the GDP Deflator rose less than expected, so overall, this was a good batch of data. The only other report on the calendar for today is the KC Fed Manufacturing report at 11 AM Eastern.

As equities have come under pressure in the last several days, yields have declined with the two-year yield trading down to its lowest level since February 1st and the 10-year yield in a well-defined short-term downtrend since its yield peaked at 4.70% in late April. This morning, the yield is down to 4.22%, or nearly 50 bps below that peak.

As shown in the chart above, 2-year yields have been falling at a faster pace than the 10-year yield as the market prices in rate cuts in the months ahead.  As a result of that faster decline at the short end of the curve, the spread between the two has narrowed quickly. The 10-year vs 2-year yield curve is now inverted by less than 15 basis points (bps), the flattest it has been in more than two years.

At the very short-end of the curve, we’ve also seen some large moves in the last two weeks. The chart below shows the 3-month US Treasury yield plotted with the mid-point of the Fed Funds target rate. As of this morning, the 3-month yield is now further below the mid-point of the Fed target rate than it has been at any point since the Federal Reserve’s last rate hike of the cycle last July.

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.

“They were building a Ferrari for every launch, when it was possible that a Honda Accord might do the trick.” – Elon Musk

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

The kickoff to earnings season for the Mag 7 didn’t start well last night as Alphabet (GOOGL) and Tesla (TSLA) traded lower in reaction to earnings. GOOGL is currently down just over 4% while TSLA is down around 8%. In terms of ‘typical’ reactions to earnings, the 8% decline in TSLA is more ‘normal’ as the stock typically moves up or down around 8% in response to earnings while GOOGL’s average one-day move in reaction to earnings is a bit over 5%. The weakness in these two stocks has dragged futures lower with the Nasdaq leading the way with a decline of just over 1% while the S&P 500 looks to open down by about 0.70%. For now, small caps are holding up better with the Russell 2000 looking to open down by 0.40%.

Given the weakness in equities, treasury yields are lower with the biggest moves at the short end of the curve. Oil and gold, however, are higher, along with bitcoin which is back above $66K. On the economic calendar this morning, we’ll have Wholesale Inventories at 8:30 followed by flash PMI readings from S&P 15 minutes after the open, and New Home Sales at 10 AM Eastern.

Many of the equity market trends in place for months reversed in the last couple of weeks. Small caps took over the leadership from large caps, value outperformed growth, homebuilders outperformed semis, etc. Along these lines, since international stocks have underperformed the US for what seems like forever, we would have expected to see them get a lift during this turnaround period. That hasn’t been the case.

The chart below shows the relative strength of the S&P 500 versus Europe’s STOXX 600 (on a dollar-adjusted basis) over the last twelve months. In the chart, a rising line indicates outperformance on the part of US stocks and vice versa for a falling line. While US equities aren’t quite at their highest levels in a year relative to the STOXX 600, they are very close, and there hasn’t been any reversal of the trend of outperformance that has been a place. A pause? Maybe. But not a reversal.

The chart below shows the relative strength of the S&P 500 versus the STOXX 600 dating back to 2000. Again, there has been no reversal of US outperformance relative to European stocks.  In mid-June, the S&P 500 broke above the prior relative performance peak from September 2022, and as recently as last week, the S&P 500’s relative strength hit a new peak.

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“Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful.” – Bela Karolyi

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

In today’s world, “The Magnificent 7” often refers to the tech giants Microsoft, Apple, Nvidia, Alphabet (Google), Amazon, Meta Platforms (Facebook), and Tesla. However, the original “Mag 7” were a different kind of legend, made up of Borden, Chow, Dawes, Miller, Moceanu, Phelps, and Strug. These were the seven women of the 1996 US Women’s Gymnastics Team, led by coaches Martha and Bela Karolyi. The August 13, 1984 cover of Sports Illustrated had a picture of Mary Lou Retton with the caption, “Only You, Mary Lou”, but the 1996 Women’s Olympics gymnastics team was stacked with a deep roster of talent and high hopes of winning the gold- something never done before in US women’s gymnastics history.

Battling it out with Russia and Romania, on July 23, 1996, it all came down to the vault, and the US needed a solid score to clinch the gold. First up for the US, Dominque Moceanu slipped on each of her vault attempts leaving it to Kerri Strug.  On her first attempt, Strug also slipped and ‘heard something snap’ as she fell to the mat wincing in pain.  Despite the burning in her ankle, Strug swallowed the sting and gathered herself at the start of the mat. Strug sprinted down the 75-foot runway, launching into a round-off back handspring onto the vault before soaring into a one-and-a-half twist. Coming back down from orbit, she stuck the landing (on one foot) and turned towards the judges to finish the routine.  Not a second later, she collapsed to the mat and crawled off the mat in agony.

Strug scored a 9.712 which was enough for gold. The picture of Bela Karolyi carrying Strug to the medal stand because she couldn’t walk has become one of the most memorable pictures in Summer Olympics history. Nearly as iconic is the picture of each of the original Mag 7 standing on the gold medal platform in their warmup suits…except for Strug in the second from the right position who couldn’t get the pants over her brace.

Alphabet (GOOGL) and Tesla (TSLA) will kick off earnings season for the tech-heavy stock market Magnificent 7 after the close today. Heading into the reporting period, the last several days haven’t seen a gold market performance from any of them, as they’ve all stumbled to varying degrees in the last week.  Apple (AAPL) and Amazon.com (AMZN) have both seen declines of at least 4%, while Nvidia (NVDA) isn’t far behind with a decline of 3.8%.  The only one of the seven not down more than 1% during this span is TSLA, but it’s also up the least YTD with a gain of 1.22%. Outside of TSLA, the other Mag 7 stocks remain up at least 15% YTD while GOOGL and Meta Platforms (META) hold on to gains of over 30% and Nvidia (NVDA) leaves the rest of them in the dust with a YTD gain of nearly 150%.

Relative to their trading ranges, AMZN and META have broken below their 50-DMAs which would be viewed negatively in the short term from a technical perspective.  Meanwhile, AAPL and TSLA have remained at overbought levels bucking the trend of the rest of the group and the broader market. The fact that these stocks have experienced weakness leading up to their earnings reports isn’t necessarily such a bad thing as rallies into earnings would only have the potential to set the bar unrealistically high. It doesn’t take a gymnast to know that the lower the bar, the easier it is to get over it.

Looking at the charts of each Mag 7 stock, even after their recent pullbacks, they mostly all remain in uptrends of varying degrees of steepness. While TSLA may not be in an uptrend, it’s still more than 25% above its 50-day moving average even as it deals with resistance from its late 2023 peak.