Daily Sector Snapshot — 7/22/24
Chart of the Day: The Worst
Streaky
As the S&P 500 attempts to rebound today, Friday’s decline capped off a negative week for the market taking the S&P 500 out of short-term overbought levels. That decline ended a streak of more than six weeks (32 trading days) of the S&P 500 closing more than one standard deviation above its 50-day moving average.
While that sounds like an impressive streak of overbought readings, last summer, the S&P 500 was in the midst of a 44-day streak of overbought closes. After that streak, it experienced its first correction (10%+ decline) of the bull market that began in October 2022, and coming out of that correction, it had another streak of 33 overbought closes to close out 2023 and then quickly started another streak that lasted until early April when it ended at 53 trading days. As shown in the chart below, the most recent streak before the just-ended one was the longest in at least ten years.
Taking a longer-term look at streaks of overbought closes, the 53-day streak that ended in April ranked as the longest since April 1998. The chart below shows historical streaks of overbought closes for the S&P 500 since 1954 which was the first full-year of the five-day trading week in its current form. As shown, there have been many streaks of similar or longer duration. 85 streaks have lasted five or more weeks (25 trading days), and 65 lasted as long or longer than the current streak. The record for the longest streak was 94 trading days in April 1961. Think about that for a minute. 94 trading days works out to more than four months straight of overbought closes. During that stretch, the S&P 500 rallied more than 18%.
As we described at the top, the just-ended streak of 32 straight overbought closes was the fourth streak in just over a year (371 days). While extended streaks of overbought closes may not be out of the ordinary, it’s very uncommon to see them in such proximity to each other. Since 1954 there has only been one other period where there were four streaks of at least 30 straight overbought readings in a shorter period (early 1960s) and one other period where there were as many streaks (2017 into early 2018).
Bespoke’s Morning Lineup – 7/22/23 – Memorable Week
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.
“There are two hundred million idiots, manipulated by a million intelligent men.” – Pablo Escobar
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Last week’s Bespoke Report asked if you would remember “where you were” last Tuesday when the Russell 2000 registered the most overbought short-term overbought reading for a US index ever recorded. Over the weekend, the major news events kept coming when President Joe Biden released a statement saying he would no longer seek re-election. Will I ever forget the BBQ chicken sandwich with melted cheddar cheese that I was having for lunch when my daughter read the statement from TikTok?
As the news filtered out, President Biden’s decision was quickly compared to President Johnson’s decision in 1968 not to seek re-election. Besides the fact that they were both sitting presidents with low approval readings when they decided to drop out, the two scenarios are very different.
Johnson dropped out very early in the primary season in March 1968 as his chances for the nomination looked very uncertain if not unlikely. Biden’s decision came well after the primaries he overwhelmingly won were completed and his nomination was locked up. Additionally, whereas Johnson announced his decision to the American people in a televised address, Biden’s decision came via a statement that said he would “speak to the nation later this week in more detail about my decision.” When looking back to history for comparisons, it’s hard to find a scenario where a political party’s candidate for President who had high approval ratings within their party at one point was forced to withdraw from the election less than a month later.
Despite the major events of the weekend, the equity market seems undeterred. Futures are firmly higher heading into the new week after rocky returns last week. One factor investors need to be prepared for as we head into the end of July and early August, though, is the calendar. As shown on the Seasonality Tool of our website, while historical returns over the next week are middling relative to the rest of the year, the S&P 500’s median one-month performance from the close on 7/22 over the last ten years has been in the bottom third relative to history. The median three-month performance over the last ten years doesn’t get much worse. As shown at the bottom of the image, the S&P 500’s median three-month performance from the close on 7/22 over the last ten years has been a decline of 1.38% and ranks in just the second percentile relative to all other three-month periods during the year.
Breaking out the S&P 500’s three-month performance over the last ten years shows that while overall returns are negative, there has been a lot of dispersion. In the six years over the last ten when the S&P 500 was lower, it declined at least 1.2%. Conversely, in three of the four years when the S&P 500 was higher, it gained at least 4%. Whatever you do, buckle up.
Brunch Reads – 7/21/24
Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read 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.
Planning Central Park: On July 21st, 1853, New York City legislature dedicated more than 800 acres of land on Manhattan Island to Central Park. Designed by Frederick Law Olmsted and Calvert Vaux who also advocated for the preservation of Niagara Falls, Central Park was intended to provide all citizens, regardless of social class, with a serene environment for leisure and recreation amid the bustling city. Construction of the park was a massive undertaking, involving the displacement of several thousand residents, including African American settlements and Irish immigrant communities. The project did employ thousands of workers though. Key features of the park include the iconic Bethesda Terrace and Fountain, the Ramble, a densely wooded area, and the Great Lawn, a vast open space for sports and events. The park also houses the Central Park Zoo.
Economic Trends
Introducing the Low-Wage Index: A Compositionally-Adjusted Look at Low-Wage Workers Since 1979 (Briefing Book)
Are workers better off now than in the past? The Low-Wage Index (LWI) attempts to measure real wage pressures on low-wage workers by controlling for factors like sex, age, industry, occupation, and education over time. Key findings reveal that since 1979, there have been only two significant periods of upward real wage pressure for the 25th percentile of workers, notably during the dot-com boom and post-2014, with recent growth outpacing that of higher-wage workers since the pandemic. [Link]
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Bespoke Report – 7/19/24 – Where Were You?
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. Below we show our Asset Class Performance matrix covering major ETFs recent returns. We discuss this and much more in the full newsletter.
Daily Sector Snapshot — 7/19/24
Bespoke’s Morning Lineup – 7/19/24 – “Critical Error”
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.
“An emperor’s an entertainer, an empire a super-show.”– Nero
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
If you’re reading this, you are one of the lucky ones as computer systems around the world have been crippled. The culprit is a botched security update issued by CrowdStrike (CRWD) through Microsoft (MSFT) systems which has caused thousands (or even millions) of people to be greeted by the dreaded ‘blue screen of death’. Flights and mass transit systems worldwide have been ground to a halt leaving people temporarily stranded as CRWD looks to roll back the update.
After a lousy couple of days for US stocks, Asian and European stocks are closing out the week on a down note. Major Asian equity benchmarks were down between 0.2% for Japan to 2.0% for Hong Kong’s Hang Seng. The Japanese government lowered its 2024 growth forecast from 1.3% to 0.9% even as inflation has pushed rates higher. In Europe, the STOXX 600 declined 0.5% in early trading and is on pace to finish the week down more than 2%. The only major economic report of note in the region was UK Retail Sales, which came in much weaker than expected, falling by 1.2% versus forecasts for a decline of just 0.6%.
There are no economic reports to speak of in the US this morning, and futures are little changed after trading moderately lower overnight, so the main issue of discussion heading into the weekend will revolve around whether or not President Biden stays in the race, and if not, who will replace him.
In what has been a bifurcated year for the market, the five days ending Thursday have continued to be a two-tier system, except now in the other direction. Through yesterday’s close, the S&P 500 tracking ETF (SPY) was down 0.69% over the last week, but mid-caps were up over 1% while small and micro-cap stocks surged over 3%.
There used to be a segment on Sesame Street called, “One of These Things” where they would show four items with one not looking like the others. The one-year charts of the major indices based on market cap would be a perfect version of that game where micro-caps, small-caps, and mid-caps have all surged and broken out of sideways trading ranges in the last few days. Meanwhile, large-caps have pulled back after reaching record highs.
Even as US large-cap stocks have faltered over the last week, they’ve outperformed every other part of the world. As shown in the snapshot of regional ETFs below, European and Asian markets were down slightly more than the S&P 500 while emerging markets fared even worse with declines of over 2%. It may not have been the best week for US stocks in what was an overdue pullback, but other parts of the world fared even worse as US small caps were the only global bright spot.
