Chart of the Day: Q2 Earnings Season
Bespoke’s Morning Lineup – 7/10/23 – Buckle Up
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“The pilots I worked with in the aerospace industry were willing to put on almost anything to keep them safe in case of a crash, but regular people in cars don’t want to be uncomfortable even for a minute.” – Nils Bohlin
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There’s not a lot going on in equity futures this morning. Overnight, Asia saw mixed trading as Europe is modestly higher. Notable economic data released overnight included a weaker-than-expected inflation reading in China where CPI was unchanged on a y/y basis versus forecasts for growth of 0.2%. In Europe, the July Sentix Investor Confidence Index fell more than expected. There’s not a lot of US data this morning, but there are several Fed officials scheduled to speak (yay).
The second half of 2023 started a week ago, but with a shortened session Monday and a market holiday Tuesday, it wasn’t much of a week even if there was some important ISM and employment-related data. All that can be considered a dress rehearsal for a big and full week of trading as we’ll get CPI on Wednesday, PPI Thursday, and the unofficial start of earnings season on Friday when the big banks like Blackrock (BLK), Citi (C), JPMorgan (JPM), and Wells Fargo (WFC) all report. In the words of Nils Bohlin, the Swedish engineer who was granted the patent for the three-point seatbelt back on this day in 1962, “Don’t forget to buckle up.”
One area where investors are used to being buckled up is in the bitcoin market where volatility is a fact of life. Over the last couple of weeks, though, volatility in that market has dampened. Over the last two weeks, bitcoin’s maximum intraday high was just over $31,500 versus an intraday low of just over $29,500 working out to a range of 6.7%. As shown in the chart below, that narrow of a range in the price of bitcoin has been somewhat uncommon over the last six years or so. It’s a small sample size, but the only period where a sharp sell-off immediately followed this type of narrow range was in late 2018.
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Bespoke’s Brunch Reads: 7/9/23
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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Markets
Wall Street Soothsayers Have Rarely Been So Bewildered About What’s Next (Yahoo)
After most Wall Street strategists got the first half of 2023 wrong, they are deeply divided about what will happen in the second half. Look on the bright side; while just about all of them got the first half wrong, at least half of them will be right about the second half. [link]
How Tom Brady’s Crypto Ambitions Collided With Reality (New York Times)
Celebrities and superstars like Tom Brady are feeling the effects of the crypto crash almost a year after the downturn. Many celebrities agreed to endorsement deals with various crypto sites and promoted the use of cryptocurrencies and crypto exchanges without conducting proper due diligence. As a result, some are finding themselves named as defendants in lawsuits alleging they misled investors about digital assets. [link]
Government
After Days of Destruction, Macron Blames a Familiar Bogeyman: Video Games (NPR)
After the death of a teenager by police during a traffic stop in June, France has seen riots damaging an estimated $1.1 billion of assets. French president Emmanuel Macron argues that social media and video games have fueled violence and vandalism in response to the death. Politicians have pointed to video games as the cause for increased violence, but studies have refuted this claim. [link]
TSA to Expand Its Facial Recognition Program to Over 400 Airports (Fast Company)
Over the next several years, over 400 airports in the United States will have a facial recognition system to identify travelers when going through security. TSA has conducted a pilot program across 25 airports testing its controversial biometrics technology and have found a 97% effectivity rate and increased efficiency for security wait times. Big Brother is watching! [link]
Commercial-Scale Wind Farm Off New Jersey Coast Approved (New York Times)
13 nautical miles off the coast of Atlantic City, New Jersey is the new home to a 98-turbine wind farm called Ocean Wind 1. This project is the 3rd commercial-scale wind farm approved under the Biden administration and is one step closer to the administration’s goal of generating 30,000 megawatts from offshore wind turbines by 2030. [link]
Intelligence
Here’s When We Hit Our Physical and Mental Peaks (WSJ)
Various researchers explored when humans reach their peaks for physical and mental tasks. For physical tasks that require speed, power, and high oxygen consumption (sprinting), humans peak in their mid-20s whereas physical tasks that are endurance or low-impact (marathons), we peak in their 40s or 50s. For most mental tasks, we peak around their 50s except for quick recall and high processing tasks, where we peak at 18 or their early 20s. [link]
ChatGPT Drops About 10% in Traffic as the Novelty Wears Off (Similarweb)
ChatGPT saw its first month of declining growth since its rise in popularity in 2022. Worldwide visitors dropped roughly 10%, unique visitors dropped 5.7%, and time spent on the website dropped 8.5%. Other AI chatbots followed this trend and saw declines in the month of June as well. [link]
What AI Can Do With a Toolbox…Getting Started With Code Interpreter (One Useful Thing)
OpenAI’s newest feature to the Chat-GPT chatbot is named Code Interpreter and gives Chat-GPT the ability to upload and download information as well as write and execute coding programs. This feature will only be available to Chat-GPT plus subscribers. Read the article to see how a user with a PhD performed advanced data analysis and made a meme using Code Interpreter. [link]
Economy
America’s Retirees Are Investing More Like 30-Year-Olds (WSJ)
After a horrible year for 60-40 portfolios, older Americans are breaking away from the conventional investment strategy, opting for dividend-paying stocks instead. Vanguard and Fidelity report significant increases in the inclusion of stocks in retirement portfolios. Stocks are preferred due to higher returns compared to bonds, which are struggling to keep up with inflation. [link]
Who’s Not Working? Behind the Full-Time Caregivers Leaving the Workforce (Minneapolis FED)
Many adults who are unemployed cite caregiving as the primary reason for a lack of employment. Most caregivers are caring for children, and most are females. Some full-time caregivers are able to work while also fulfilling their caretaking duties, but it is very difficult because young children need constant attention and care resulting in the caretaker leaving their occupation. [link]
Americans Have Quit Quitting Their Jobs (WSJ)
The job market is showing signs of cooling as Americans are staying put in their current jobs after the hiring frenzy during the COVID-19 pandemic. Employees point to increased wages, extra benefits, and uncertain economic conditions as reasons to remain at their current job. [link]
Science & Technology
Scientists See Early Universe in Slow-Motion for First Time (BBC)
Researchers in Australia examined quasars, the brightest objects in the universe, and concluded that the universe is expanding and has been since 1 billion years after the Big Bang. Their findings confirmed the expectation of Einstein’s general theory of relativity regarding the distant universe ‘running much slower than the present day.’ [link]
Sleep Deprivation May Dull Benefits of Exercise on Cognition (Neuroscience News)
University College London researchers studied the impact of inadequate sleep on cognitive abilities in adults aged 50 and above. They discovered that individuals in their 50s and 60s who slept less than 6 hours but exercised had similar cognitive declines as those who slept more than 6 hours but didn’t exercise. However, for adults over 70, lack of sleep showed no distinction between those who exercised and those who didn’t. [link]
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Daily Sector Snapshot — 7/7/23
The Bespoke Report – 7/7/23 – Pause
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B.I.G. Tips – Charts Checkup
Bespoke’s Morning Lineup – 7/7/23 – The Streak is Over
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“A state of war is not a blank check for the president when it comes to the rights of the nation’s citizens.” – Sandra Day O’Connor
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There was little conviction in equity futures heading into the June jobs report this morning. Overnight, Asian stocks were lower as they caught up to the declines from the US yesterday while European stocks attempt to bounce from yesterday’s sell-off. Industrial Production in Germany was weaker than expected falling 0.2% m/m versus expectations for no change, but commentary from ECB officials including de Guindos and Lagarde both implied that more rate hikes are in the cards.
Today’s Non-Farm Payrolls (NFP) report missed expectations by 21K while the Unemployment Rate declined to 3.6% which was right in line with expectations. Average hourly earnings and average weekly hours both came in better than expected, though. As far as revisions go, prior readings were revised lower by over 100K with May’s originally reported level of 339K revised down to 306K. Futures have seen a modest bounce while treasury yields are lower.
The streak is over! With today’s weaker-than-expected report, the record run of better-than-expected NFP reports ended at 14 and came just one month shy of tripling the prior record of five straight better-than-expected reports. It only figures that the streak ended on the same month that the ADP Private Payrolls report crushed estimates and caused just about every investor out there to price in a better-than-expected report as a sure thing. If you’re keeping track, the last three times now that ADP surpassed forecasts by 300K or more, the corresponding NFP report for the same month missed forecasts. On 6/3/21, ADP topped forecasts by 328K, and on the next day, NFP missed forecasts by 116K. On 1/5/22, ADP topped forecasts by 397K, and two days later NFP missed by 251K. Now, this week ADP tops forecasts by 372K, and NFP missed by 21K. Relying on the ADP report as an indicator for the NFP report? What is it they say about insanity and doing the same thing over and over again?
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Bespoke’s Weekly Sector Snapshot — 7/6/23
Chart of the Day – 39, 40, 41, 42…
Bespoke’s Morning Lineup – 7/6/23 – Out Like a Bull, In Like a Bear
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“An absolutely new idea is one of the rarest things known to man.” – Thomas More
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The first three days of Q3 have been an example of stocks not picking up right where they left off in the second quarter. while things started off quiet enough during the shortened session on Monday, yesterday’s session and this morning’s pre-market have traded heavily. This morning the tone has been especially weak as European stocks trade down over 1% on breadth that is skewed 10-1 to the downside. There hasn’t been much data to steer the market, but rising interest rates have been acting as a significant weight.
This morning, there’s much more economic data to contend with. ADP Private Payrolls were just released and came in much higher than expected at 497K versus forecasts for a reading of 220K. Jobless claims were more mixed. Initial Claims came in slightly higher than expected at 248K versus forecasts for 245K and up from a downwardly revised reading of 236K. Continuing Claims managed to come in weaker than expected (1.72 mln vs 1.737 mln). Overall, these reports suggest that any doubts over the health of the labor market can be put to rest, at least for now. Besides these two reports, we’ll get the monthly JOLTS report at 10 AM followed by Non-Farm Payrolls tomorrow. While there’s a lot of employment-related data to contend with don’t forget about the 10 AM release of ISM Services.
With the S&P 500 rallying into bull market territory and new 52-week highs, investors have become bullish. According to the weekly survey of individual investor sentiment from AAII, bullish sentiment jumped up to 46.4% from 41.9%. While bulls are still not in the majority and haven’t been in over two years, this week’s reading was the highest level of bullish sentiment since November 2021. Looking at the chart below, sentiment and the stock market have carved out identical patterns over the last two years indicating that investors’ views of the stock market have been based on how stocks have performed in the moment.
You may think that investor sentiment has always been positively correlated to the stock market’s performance, but that hasn’t necessarily been the case. The chart below shows the rolling two-year correlation between AAII bullish sentiment and the S&P 500 since 2000. While the correlation between the two has usually been positive, the levels have varied widely. In fact, levels like the current reading of +0.50 or more have been uncommon occurring less than 12% of the time since 2000.
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