Bespoke’s Morning Lineup – 7/17/24 – Better Housing Data
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“Mercy to the guilty is cruelty to the innocent.” – Adam Smith
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 fun couldn’t last forever, could it? Futures are sharply lower this morning with tech leading the way to the downside as the Nasdaq is indicated to open 1.5% lower. S&P 500 futures aren’t faring much better with an indicated decline of 1%, but the Russell 2000, while lower is down a more respectable 0.40%.
There are two catalysts for this morning’s weakness. First, Bloomberg reported that the Biden Administration is considering tighter trade restrictions on companies that provide chips with US-based technology to China. On the other side of the aisle, former President Trump told Bloomberg that Taiwan should pay the United States for providing defense of the country against China. If there’s one thing both Biden and Trump can agree on, it appears that China is the issue.
Normally, the impact of these types of headlines isn’t long-lasting, but in this case, we would note that semis have been underperforming the broader market for the last couple of weeks now, so that’s something to watch.
It’s a busy morning for economic data as well. At 8:30 we got the release of June Building Permits and Housing Starts, and then at 9:15, we’ll get Industrial Production and Capacity Utilization. Today’s housing-related data was important from an economic perspective as each of the last three reports on Building Permits and Housing Starts have all come in weaker than expected and in some cases by a wide margin. This morning’s release provided some relief as both headline readings came in moderately better than expected while last month’s readings were revised higher.
After a five-day rally of more than 11%, the Russell 2000 closed 4.42 standard deviations above its 50-day moving average yesterday. Yesterday’s close was the most overbought level for the small-cap benchmark index since…Ever. The prior record was 3.72 standard deviations on 6/27/23 and before that 3.40 standard deviations in January 1991.
Looking at the chart of the Russell 2000’s daily OB/OS reading, you’ll notice that three of the four most overbought daily readings have all occurred since November 2021. One potential explanation for this phenomenon could be that as the overall market has become much more concentrated at the top, the rest of the market has become smaller and more prone to extreme moves. It was only a couple of years ago when we marveled that the largest company in the S&P 500 was larger than the entire Russell 2000 small-cap index. Before yesterday, though, the Russell 2000 still had a market cap of less than $3 trillion which was less than the market caps of Microsoft (MSFT), Apple (AAPL), and Nvidia (NVDA). Therefore, a 3% shift in the market cap of just those three companies would translate into a 10%+ rally for the Russell 2000!
Not only was yesterday’s close for the Russell 2000, the highest in its history, but of the four major US indices (S&P 500, Nasdaq, DJIA, and Russell 2000), it was the most overbought closing level on record.
Starting with the Nasdaq, in its history dating back to 1971, the most overbought reading based on standard deviations above the 50-DMA was 3.59 in November 1991.
The S&P 500 dates back to 1928, and its most overbought reading on record was 4.06 standard deviations above the 50-DMA on 8/3/1984.
The Dow goes back even further than the S&P 500, and while the chart below only extends back to 1928, since 1900, its most overbought reading on record was 4.36 standard deviations above the 50-DMA also on 8/3/1984.
B.I.G. Tips – Retail Sales Rebound
Daily Sector Snapshot — 7/16/24
Bespoke Stock Scores — 7/16/24
Bespoke’s Morning Lineup – 7/16/24 – Better Than Expected Retail Sales
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“It’s funny. All you have to do is say something nobody understands and they’ll do practically anything you want them to.” – J.D. Salinger
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Futures were in the green ahead of the June Retail Sales report this morning as reactions to some of the more high-profile earnings reports were mixed. Shares of Bank of America (BAC) were modestly higher, but both Charles Schwab (SCHW) and Morgan Stanley (MS) were lower. Treasury yields and oil were both lower as gold rallied to what would be a record high on a closing level. In the crypto space, Ethereum is moving modestly lower even as the greenlight was made for ETFs tracking the world’s second-largest crypto to start trading next week.
Retail Sales hit the tape, and the top-lin numbers were better than expected. Overall, sales were unchanged versus an upwardly revised May reading of 0.3%. Ex Autos, sales jumped 0.4% compared to forecasts for a gain of just 0.1% while Ex Autos and Gas, total sales were up 0.9% which was 0.7 ppt better than the consensus forecast. Building Materials saw a large rebound, rising by 1.4% after May’s decline of 0.7%. Nonstore retail (online) saw the largest increase, though, as sales jumped 1.9% on top of May’s increase of 1.1%. As you would expect, yields moved higher on the news, but not by a lot as the 10-year yield is only 2 bps higher than its pre-release level. Still on the calendar for today, we have Business Inventories and Homebuilder Sentiment at 10 AM.
While yesterday’s breadth in the S&P 500 wasn’t strong (+59), it was the fourth straight day where the S&P 500’s net advance/decline line was positive. That’s only the tenth such streak this year, and when you consider that the S&P 500 is up over 18% this year, you would expect to see more similar streaks of positive breadth. The three days that preceded yesterday did show relatively strong breadth, especially compared to other days this year, and all three of them rank in the top eleven in terms of single-day breadth readings.
While breadth readings for the S&P 500 last Wednesday, Thursday, and Friday were strong none of them were strong enough to register as an ‘all or nothing’ day where the net daily breadth reading for the S&P 500 is either +400 or above or -400 or less. That still leaves March 27th (all) and April 12th (nothing) as the only all-or-nothing days this year.
With only two occurrences so far this year, if the current pace continues, 2024 will only have four all-or-nothing days for the entire year. The last time there were fewer was in the extremely placid year of 2017 when there were only three, and before that, you’d have to go back to 2002. While this type of subdued extremes in breadth was normal in the 1990s, most people trading today aren’t familiar with the lack of extremes in day-to-day breadth. While the consistency of low readings in the VIX despite some major geo-political events has been puzzling, the lack of extremes as we have seen in breadth helps to keep the VIX grounded.
Chart of the Day – The Worst Time of the Year
Daily Sector Snapshot — 7/15/24
Chart of the Day: Goin’ Small
Empire Fed Contraction Streak
In a fairly light data slate this morning, the NY Fed released it’s monthly regional manufacturing survey results. The headline reading showed a minor drop down to -6.6. While down 0.6 points month over month, it was a modestly smaller decline than the expected drop to -7.6. Despite that better-than-expected reading, the still negative index would indicate that activity in the region’s manufacturing sector continues to contract. As shown in the second chart below, July marks the eighth straight month of negative readings and matches another 8-month streak from late 2015 through March 2016. The NY Fed survey began in 2001, and the only longer streak was 17 months during the Financial Crisis.
Under the hood, breadth in this month’s report was slightly positive with six indices rising and four declining month-over-month. A small handful of those moves were large as well. For example, unfilled orders moved into contraction after experiencing a significant decline of 12.2 points. Inventories similarly saw a bottom quartile month-over-month drop from expansionary to contractionary readings. Overall, most categories sit in contraction and are at the low end of their historical ranges.
As previously mentioned, the headline index has been in contraction for a long time. Playing into that has been a bad run for new orders. As shown below, the new orders index came in at its highest level since last September but is still negative as it has been for the past ten months making it the longest such streak on record.
Elsewhere in the report, this month’s survey showed mixed results regarding the labor market. For starters, the index reflecting the number of employees is near its weakest levels of the post-pandemic era. However, the average workweek picked up dramatically. The 9.8-point month-over-month increase in July ranks in the top decile of monthly increases leaving the index at its highest level since October. While the current conditions index has perked up, the 6-month expectations index is another story, falling to the lowest level since August 2022.
In addition to negative labor market readings, capital expenditure expectations also remain weak and just barely in expansionary territory. Current readings are in the 5th percentile historically.
Finally, we would note that the price indices are no longer consistent with rapidly rising inflation. Prices Paid rose to 26.5 which is a point below the historical median. Meanwhile, prices received dropped to 6.1. Outside of last July, that would make for the lowest reading since October 2020.
Bespoke’s Morning Lineup – 7/15/24 – X (Twitter) Comes of Age
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.
“Make every detail perfect and limit the number of details to perfect.” – Jack Dorsey
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Bespoke co-founder Paul Hickey appeared on CNBC’s Squawk Box this morning to discuss potential market impacts from this weekend’s events. To view the segment, click on the image below.
Welcome to adulthood Twitter, now X. 18 years ago today, Jack Dorsey launched Twttr, which then became Twitter, and is now known as X. The social media platform has had a moody existence. As this weekend’s attempted assassination of former President Trump illustrated, though, when news breaks, the first place to find it is on X. With the good comes the bad, and there’s also no shortage of incorrect and misleading information on the platform, but that’s the case just about everywhere now. Who knows, maybe now that it’s an adult, the level of discourse on X will show some maturity. Oh, who are we kidding?
Futures are trading higher this morning as markets price in a higher likelihood of a Trump victory in November along with Republican control of the House and Senate. According to the website electionbettingodds.com, the GOP’s odds of winning the Presidential election have jumped from 60.6% early Saturday afternoon to 67.6% this morning. In the House, Republican odds have jumped from just over 50% to 55.5%. Finally, the Senate was already firmly likely to be controlled by the GOP, and those odds remain high at 76.7%. A lot can change between now and November, though. On February 3rd, 2008, the Patriots were 18-0 and looking to finish an undefeated season against the New York Giants in Super Bowl XLII, and we all know what happened. There’s a reason you still have to play the game.
If the GOP takes full control of DC following this November’s election, it will be just the fourth occurrence in the modern era. The three prior periods were the 108th (2003 – 2004), 109th (2005 – 2006), and 115th (2017 – 2018) sessions of Congress, and below we have included charts showing the performance of the S&P 500 and the 10-year yield during each two years. It’s a small sample size, but the S&P 500 and ten-year yield were up each time. The S&P 500’s median gain was 17% while the 10-year experienced a median increase of about 20 basis points (bps).
