Bespoke’s Morning Lineup – 10/2/23
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“At night a candle’s brighter than the sun” – Sting
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It’s a new week, a new month, a new quarter, and hopefully a new chapter for the market as we get ready to kick off the first day of trading for October. Unfortunately, the story doesn’t appear to have changed much from September as futures, which were higher earlier in the morning, have erased all of their gains and more as interest rates have crept higher. At current levels, the 10-year yield is on pace to close at its highest level of the current cycle in what has been a seemingly endless run higher. Maybe the only thing different this morning is the fact that bitcoin is rallying and trading back above $28,000.
On the economic calendar, the only reports scheduled for today are the ISM Manufacturing reports and Construction Spending. Construction Spending is expected to increase 0.6% m/m versus an increase of 0.7% last month. Similarly, consensus forecasts for the ISM Manufacturing report currently stand at 47.7 which would be slightly higher than August’s reading of 47.6. Regional Fed manufacturing reports have shown some improvement recently, so we’ll see if that translates to the broader national index.
Just as the brightness of a candle looks very much different depending on the amount of light surrounding it, the luster of the market these days looks very much different depending on your perspective. Let’s start with the dim picture. The last two months of trading have been lousy for bulls. It’s been about nine weeks now since the market peaked, and that top coincided with the start of what has seasonally been the weakest time of the year and came just as individual investors finally started to turn more bullish based on various sentiment surveys. As shown in the intraday chart below, since that peak, the S&P 500 has been stuck in a steady downtrend, and September closed out right at the bottom of that channel.
While the last two months have been weak for stocks, the longer-term uptrend for the S&P 500 has remained intact as illustrated in the chart below. It successfully tested that uptrend line in the last week or so, and how it reacts in the days ahead could go a long way in determining the overall tone of the fourth quarter.
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Brunch Reads – 10/1/23
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.
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On This Day in History:
Thrilla in Manila. On October 1, 1975, Muhammad Ali and Joe Frazier settled the score in their third and final boxing match. The battle took place in Quezon City, Philippines, and the two heavyweights came together to create what is still widely regarded as one of the greatest boxing matches of all time. Leading up to the fight, there was plenty of trash-talking between the two greats. Frazier described the rivalry between the two by describing it as “real hatred. I want to hurt him. I don’t want to knock him out. I want to take his heart out.” Ali, meanwhile, who was always known for his more colorful talk predicted that “It will be a killa and a chilla and a thrilla when I get the gorilla in Manila.”
Having one victory apiece between each other going into the fight, the “Thrilla in Manila” went a murderous 14 rounds before Frazier’s corner stopped the fight as his cornerman Eddie Futch told the fighter “Sit down son, it’s all over. No one will ever forget what you did here today.” Ali won by TKO, and his own cornerman Angelo Dundee described it as “the toughest fight I’ve seen in my life. Ali, even gave Frazier a half-hearted pat on the back by saying that Frazier “could have whupped any fighter in the world, except me. He is great – greater than I thought. He is one hell of a fighter and it was one hell of a fight.”
Given its waning popularity in mainstream sports, it’s highly unlikely that we’ll ever see a rivalry quite like Frazier-Ali again in our lives. It was one of the biggest entertainment events in sports history, but more importantly, it epitomized the impact of sports and the competitive rivalry between two all-time greats.
Technology and Natural Disasters
The High-Tech Drones Tracking the World’s Most Dangerous Storms (WSJ)
NOAA (National Oceanic and Atmospheric Administration) is using hurricane tracking drones, some that work under the ocean’s surface, some that sail, and newer models that fly, in order to gain information about the paths and intensity of severe storms. The technology also uses satellite imagery and other measurements like water and atmospheric temperatures, and the drones are capable of withstanding the harsh conditions of the air and water that accompany these storms. The WSJ details the story in an interesting video here. [Link]
AI predicts how many earthquake aftershocks will strike — and their strength (Nature)
Three new studies have explored the use of deep-learning models to improve earthquake forecasts, with promising results. These models outperformed conventional models in assessing the risk of aftershocks following significant earthquakes. While these findings are preliminary, they represent a step forward in leveraging machine learning for seismic risk reduction. Agencies such as the US Geological Survey may consider integrating machine-learning models into their earthquake forecasting. [Link]
Environment
This is what Earth’s continents will look like in 250 million years (Nature)
Researchers predict that most of Earth could become uninhabitable for humans and other mammals in 250 million years due to the formation of a supercontinent. The forming of the supercontinent, Pangaea Ultima, is expected to drive volcanism and increase CO2 levels, leading to extreme temperatures and desertification. Increased solar radiation from the aging sun will exacerbate the heating too. Just about 8% of the Earth’s surface, mainly coastal and polar regions, would be suitable for human life, possibly leading to a mass extinction event. Do you really want to live forever now? [Link]
Japanese scientists find microplastics are present in clouds (Al Jazeera)
Researchers have found microplastics in clouds on Mount Fuji and Mount Oyama, confirming their presence in the atmosphere. When these microplastics reach the upper atmosphere and are exposed to sunlight, they degrade and contribute to greenhouse gas emissions. The impact of microplastics on climate and ecosystems is not fully understood, but their presence in clouds, after already being discovered inside fish, Arctic sea ice, and in snow, raises concerns about their potential effects on weather patterns and climate change. Some evidence even links microplastics to heart and lung health problems, as well as cancer. [Link]
Business
A Silver Lining From the Pandemic: A Surge in Start-Ups (NYT)
Research suggests that the Covid-19 pandemic led to a surge in Americans starting their own businesses. The pandemic caused a shift in how many Americans live and work, opening doors for entrepreneurs to respond to new business opportunities, often with the help of federal government pandemic assistance. Monthly applications for new businesses that create jobs have increased significantly since 2019, and young companies now account for a larger share of employment and total firms in the economy. It’s even possible that this surge may have contributed to labor shortages experienced by existing businesses in recent years. [Link]
Linda Yaccarino Defends Elon Musk in Tense Interview About Twitter’s Transformation Into X (The Hollywood Reporter)
Linda Yaccarino, CEO of X, defended the company’s stance on free expression and freedom of speech while responding to criticism from former Twitter executive Yoel Roth, who accused the platform of not doing enough to combat harassment. She emphasized that X is a new company and stated that Twitter was operating under different philosophies, which she argues bordered on censorship. She also addressed Elon Musk’s recent announcement about potentially charging users for the platform, without giving a clear stance on the issue. [Link]
Target says it will close nine stores in major cities, citing violence and theft (CNBC)
Target is closing nine stores across the US, as theft, violence, and organized retail crime trends higher in the country. The company mentioned that the safety of its team and guests, as well as business performance, were being threatened. In its most recent earnings report, the company noted higher levels of shrink due to the crime, and the decision to close stores is explicitly blamed on the ongoing retail crime. Target, among many businesses and people around the country, continues to advocate for legislation on the growing issue. [Link]
The World Needs New Antibiotics. The Problem Is, No One Can Make Them Profitably. (WSJ)
Broken business models are affecting the development of new antibiotics to combat superbugs. Six startups that gained FDA approval for new antibiotics since 2017 have all filed for bankruptcy, been acquired, or shut down. The traditional pharmaceutical model, which relies on selling high-priced treatments to recover development costs and reward investors, doesn’t work for antibiotics. New antibiotics are intended for rare and brief use, making them unsuitable for high pricing. The profitability issue continues to deter large pharmaceutical companies despite calls to support antibiotics like rare disease treatments that receive subsidies and tax breaks. [Link]
Markets and Investments
Costco is selling gold bars and they are selling out within a few hours (CNBC)
Costco is selling 1-ounce gold bars to its members, which are reportedly in high demand. They’re only available online to Costco members and are limited to two per customer, selling out within hours of being posted on most occasions. The offering by Costco has coincided with increased demand for dried foods and other survivalist goods which tend to sell well during periods of heightened uncertainty. It’s a clever way to appeal to a certain segment of its customer base, particularly those concerned about financial stability and looking for safe-haven assets like gold. You can read more about Costco on our Conference Call Recap published this past week. [Link]
Wall Street’s Need for Speed in Stocks Is Reshaping the FX World (Bloomberg)
Changes to the way US equity trades are settled are causing ripple effects in the global foreign exchange market. The US is planning to reduce the time it takes to settle equity transactions to just one day, while in the world of foreign exchange, trades typically take two days to complete. This means many foreign institutions buying American assets will need to secure dollars in advance for settlement, potentially causing operational and liquidity challenges. As a result, financial firms are considering shifting jobs and extending trading hours to accommodate these changes. [Link]
Panda Politics
US Won’t Have Any Pandas for the First Time in 50 Years (MSN)
The giant pandas at Washington, DC’s National Zoo, which have been there for over 50 years, will return to China by December. The DC pandas will join the rest of the pandas in zoos across the US in a return to China by the end of the year, leaving no more pandas in the country. This comes amid strained US-China relations, but both sides deny political undertones played any role despite China’s use of “Panda Diplomacy” to build diplomatic relationships in the past. The pandas have been on loan from China, and the move may be temporary or could be revisited in future diplomatic negotiations. [Link]
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Have a great weekend!
The Bespoke Report — Equity Market Pros and Cons — Q4 2023
This week’s Bespoke Report is an updated version of our “Pros and Cons” edition for Q4 2023.
With this report, you’re able to get a complete picture of the bull and bear case for US stocks right now. It’s heavy on graphics and light on text, but we let the charts and tables do the talking!
On page three of the report, you’ll see a full list of the pros and cons that we lay out. Slides for each topic are then provided on page four and beyond.
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Daily Sector Snapshot — 9/29/23
Bespoke’s Morning Lineup — 9/29/23
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.
“I didn’t know you were Catholic.” – Nancy Pelosi
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Futures have added to earlier gains following the latest batch of economic data which included Personal Income, Personal Spending, and PCE Inflation data. There were no notable surprises, but if there’s one headline to take from the data it was that the PCE Core Deflator finally dropped below 4% (3.9%), although the move was expected.
News headlines for the last 24 hours have been focused on the fact that Congress has been unable to pass a measure to keep the government from shutting down this weekend, which is fitting given the fact that it was fifteen years ago today that Congress couldn’t get its act together and pass the $700 billion bank bailout plan. The bailout bill ultimately authorized and led to the creation of the Troubled Asset Relief Program, otherwise known as TARP. In the days leading up to the Congressional vote on the plan, then-Treasury Secretary Hank Paulson reportedly got down on one knee in front of House Speaker Nancy Pelosi and begged her not to “blow it up”, leading Ms. Pelosi to reply with the quote above.
Whatever your views towards TARP are in retrospect, when Congress failed to pass the measure, an already ugly market turned Medusa-like. As shown below in the intraday chart of the S&P 500 from that day, you don’t need a label to show you when it was that the bill failed to pass. Just as the market was starting to stabilize from a morning swoon, the bottom fell out of the bottom, and by the time the closing bell rang, the S&P 500 was down 8.8% for its largest one-day decline since the 1987 crash on 10/19/87. Since then, there have been four other days that were worse with two more in 2008 and then two more during the COVID crash. Ironically, it was probably the market’s reaction to the bill getting voted down that enabled passage a few days later.
Historically, the last trading day of September has had a negative bias. Over the last 50 years, the S&P 500’s median change on this day has been a decline of 0.18% with gains just 44% of the time. Trading has been particularly weak in the last two years with declines of over 1% on the last day of September each time. Thankfully on Wall Street this morning, the only problem traders are dealing with is flooding rains getting to and from New York City (if they’re even leaving their houses in the first place).
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Chart of the Day – Gravity
Bespoke’s Weekly Sector Snapshot — 9/28/23
B.I.G. Tips – The Most Oversold
Home Prices Charging Back to New Highs
Case Shiller home price data published by S&P CoreLogic was released earlier this week for July 2023 (it comes out on a two-month lag). As shown below, 19 of 20 cities posted month-over-month gains, with the National index up 0.6% MoM and up 0.98% year-over-year. Las Vegas saw the biggest monthly gain at 1.12%, while Portland was the only city to see a monthly decline.
The big news from the report was that the National index and ten of twenty cities once again hit new all-time highs, erasing declines seen from mid-2022 through early 2023. The National index saw home prices fall 5% from its prior high last June to its low this January, but it has bounced back by 6% since then to notch new highs. The ten cities to also make new highs were: New York, Minneapolis, Miami, Detroit, DC, Cleveland, Chicago, Charlotte, Boston, and Atlanta.
Four cities remain 5%+ below their prior highs: Phoenix (-6.7%), Las Vegas (-7.2%), Seattle (-10.1%), and San Francisco (-10.8%).
Below is a look at how much home prices have jumped from their lows made either at the end of 2022 or earlier this year. As shown, San Diego, Detroit, and Chicago have seen home prices rally the most at 9%+, while Tampa, Las Vegas, and Phoenix have rallied the least at just 4%.
Below we show the actual home price index levels for the twenty cities plus Case Shiller’s three composite indices. Cities highlighted in green are the ones that are back to all-time highs. With interest rates rising so far so fast from very low levels, existing mortgage holders have frozen up, which has frozen the market of homes for sale. The extreme lack of supply has caused prices to increase, not decrease, thus far, but barring a pretty big drop in mortgage rates. we don’t see this as sustainable in the months and years ahead.
Bespoke’s Morning Lineup – 9/28/23 – Ted Williams Month
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“Baseball is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer.” – Ted Williams
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Futures are getting a bit of a boost this morning as revised GDP for Q2 was slightly weaker than expected coming in at 2.1% versus forecasts for a reading of 2.2%. Other data saw some larger moves. Personal Consumption was more than cut in half from 1.7% down to 0.8% while the GDP Price Index was revised down to 1.7% from 2.0%. Initial Jobless Claims rose 3K from 201K up to 204K, but that was still more than 10K below the consensus forecasts. Overall, this data was market friendly pushing equity futures higher and yields lower. The 10-year yield which touched 4.65% earlier is now slightly below 4.61%.
In a meaningless doubleheader to close out the MLB season 82 years ago, Ted Williams got six meaningful hits in eight at-bats pushing his average to .406 becoming the first player since 1930 and the last player since then to hit .400 (Williams also hit a home run on his last career at-bat on this day 19 years later in 1960). Hitting .400 is next to impossible in baseball (hence the quote above), but in the stock market it isn’t very good. Heading into today’s trading, the S&P 500 has traded higher on just eight out of eighteen sessions which works out to 44.4% of all trading days, but if the last two trading days are negative, September will finish off as a .400 month. If that happens, we’ll just call it Ted Williams month!
There hasn’t been a lot of good news to speak of lately, but maybe the image from our Seasonality snapshot below will brighten your mood a bit. While the upcoming week ranks in just the 29th percentile of all one-week periods throughout the year, the next month ranks in the 89th percentile, and the next three months rank in the 100th percentile. History doesn’t always repeat itself, but from a seasonality perspective, it doesn’t get much better than that!
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