The Bespoke Report — Equity Market Pros and Cons — Q2 2024
This week’s Bespoke Report is an updated version of our “Pros and Cons” edition for Q2 2024.
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 — 4/12/24
All Good Things Come to an End
The rally from the October lows through the end of March was enough to make any bull giddy, but April has brought a decidedly different market mood. Stocks have hit the pause button, and in many cases the rewind button. While the S&P 500 was comfortably above its 50-day moving average (DMA) from early November through the end of March, it has been creeping towards that level all April, and as of Friday afternoon, it even dipped slightly below.
If the S&P 500 closes around these levels this afternoon, it will snap a streak of 109 trading days of closing above its 50-DMA. This streak, though impressive, wasn’t record-breaking, but since 1953, only ten were longer, with the last exceeding it coming in 2011. (See chart below for historical context)
The chart below shows where each sector, the S&P 500, Nasdaq, and Russell 2000 are trading relative to their 50-DMAs now versus where they were trading on 3/28 when the S&P 500 last closed at a record high. Not surprisingly, every sector and index is less extended now. Nearly half of the eleven sectors have also broken below their 50 DMAs, while three others (Industrials, Materials, and Technology) are precariously close. While corrections, or what in this case has merely been a pullback, can be unsettling, they are a natural part of any market, even a bull market, environment.
Bespoke’s Morning Lineup – 4/12/24 – Not So “Golden”
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“The difference between fiction and reality? Fiction has to make sense.” – Tom Clancy
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Another earnings season has arrived as the big banks kicked off the reporting period this morning, and the results have been stronger across the board. All six companies reporting beat expectations on both the top and bottom lines. While JP Morgan (JPM) is down nearly 3% and Wells Fargo is down fractionally, the other four stocks are all up by at least 1%.
Despite what have been positive results, futures are lower this morning as the market digests yesterday’s gains and headlines that Israel is gearing up for an imminent direct strike from Iran. That would have major implications in the energy space, but there have been similar Friday headlines in recent weeks that never amounted to anything.
As for the economic calendar, Import Prices were just released, and they increased by 0.4% m/m which was higher than the 0.3% forecast. Ex petroleum, though, they were unchanged which was less than the 0.1% forecast. The only other report on the calendar for the week is Michigan Confidence, and the specific area of focus will be inflation expectations. For the next year, economists are expecting one-year expectations to remain unchanged at 2.9%.
Gold prices have continued their blistering rally this morning, notching their eighth consecutive daily gain in the past ten days. The yellow metal has surged 17% since the start of March, pushing it more than 20% above its 200-day moving average (DMA) and 12% above its 50-DMA. Both spreads rank in the top 3% historically, a clear signal of gold’s recent strength.
This surge in gold has fueled a similar rally in gold mining stocks. The NYSE Arca Gold Miners Index (GDX) has spiked 30% since late February, even outpacing gold itself. However, unlike the commodity, the miners remain in negative territory year-over-year. That being said, the GDX did experience a bullish “golden cross” yesterday, where the 50-DMA crossed above the rising 200-DMA. While technicians often view these patterns as a positive sign, they have a mixed historical record.
In the case of the GDX, not only have golden crosses had a mixed historical record, they’ve been more of a bearish indicator than anything else. Since the inception of the index back in 1994, there have been 13 prior golden crosses, and in the table below we summarize the median performance of the index following each one along with the frequency of positive returns. While the GDX’s median performance over the following week was a gain of 1.7% which is well above the average 0.2% gain for all periods since 1994, median performance over the following one, three, six, and twelve months was not only weaker than the average for all periods, it was flat out negative! One year later, for example, the GDX’s median performance was a decline of 12.3% with positive returns less than 40% of the time.
Read today’s entire Morning Lineup.
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Bespoke’s Weekly Sector Snapshot — 4/11/24
Chart of the Day: No More New Highs
The Bespoke 50 Growth Stocks — 4/11/24
The “Bespoke 50” is a basket of noteworthy growth stocks in the Russell 3,000. To make the list, a stock must have strong earnings growth prospects along with an attractive price chart based on Bespoke’s analysis. There were 7 changes to the list this week.
The Bespoke 50 is available with a Bespoke Premium subscription or a Bespoke Institutional subscription. With Bespoke Premium, you’ll receive a number of daily market updates from us along with our weekly newsletter and a portion of our investor tools. With Bespoke Institutional, you’ll receive everything that’s included with Premium plus additional daily macro analysis and more stock-specific research.
To see all 50 stocks that currently make up the Bespoke 50, simply start a two-week trial to Bespoke Premium or Bespoke Institutional.
The Bespoke 50 performance chart shown does not represent actual investment results. The Bespoke 50 is updated monthly on Thursdays unless otherwise noted. Performance is based on equally weighting each of the 50 stocks (2% each) and is calculated using each stock’s opening price as of Friday morning after publication. Entry prices and exit prices used for stocks that are added or removed from the Bespoke 50 are based on Friday’s opening price. Any potential commissions, brokerage fees, or dividends are not included in the Bespoke 50 performance calculation, but the performance shown is net of a hypothetical annual advisory fee of 0.85%. Performance tracking for the Bespoke 50 and the Russell 3,000 total return index begins on March 5th, 2012 when the Bespoke 50 was first published. Past performance is not a guarantee of future results. The Bespoke 50 is meant to be an idea generator for investors and not a recommendation to buy or sell any specific securities. It is not personalized advice because it in no way takes into account an investor’s individual needs. As always, investors should conduct their own research when buying or selling individual securities. Click here to read our full disclosure on hypothetical performance tracking. Bespoke representatives or wealth management clients may have positions in securities discussed or mentioned in its published content.
Bespoke’s Morning Lineup – 4/11/24 – Stamp Inflation
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“The road to Easy Street goes through the sewer.” – John Madden
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 higher heading into yesterday’s CPI report and reversed sharply lower once the data was released. This morning, we have the opposite backdrop ahead of the March PPI report. While the report is unlikely to be as big of a market mover as the CPI report, the results didn’t show as much inflation pressure in the producer sector and jobless claims were pretty much right in line with expectations. The ECB just announced its latest rate decision (no change, “inflation continues to fall”) which we break down in this morning’s report, and we’ll get further color during the press conference at 8:45 Eastern. Overall, futures have rallied a bit on the news as Nasdaq futures moved into positive territory while the S&P 500 is indicated to open just marginally lower. We’ll take it!
Yesterday’s CPI report was a disappointment on all fronts, and while the rate of inflation has slowed, it’s still firmly in positive territory which helps explain why consumers are so miserable. When you consider the cumulative impact of these price increases since the lockdowns in March 2020, it adds up. March’s CPI report reached an inauspicious milestone as it was the first time since March 1991 that the four-year rate of change in headline CPI exceeded 20%. We’re still nowhere near the levels from the 1970s and early 1980s, but 33 years is a long time.
If you show the chart above to any consumer and tell them that the cost of living has increased by 20% in the last four years, they’ll probably ask where you’ve been living the last four years and want to know if there’s any room to move in. What we have all experienced seems much larger. Take a bag of Doritos, a subject we have quite an expertise on. In 2019, a 9.75-ounce bag had a suggested retail price of $4.29, but today it costs about $1.50 more and is half an ounce smaller. Ignoring the change in size, that’s still an increase of 35%! These types of examples come up everywhere you look, and while there are some examples where prices haven’t increased by over 20% in the last four years, they aren’t nearly as apparent.
Getting back to the examples of price increases, one we noticed yesterday was postage. The US Postal Service just filed to increase the price of a stamp by 8% to 73 cents in July from 68 cents, The current price, it should be noted, only took effect in January when prices increased by 3%, so this would be the second increase this year and the fourth since the start of 2023! The chart below shows the monthly price levels of a first-class stamp since 1963, and you can see how the pace of increases has picked up steam in recent years. The last time a stamp cost 25 cents was in January 1991. The last time it was 50 cents or less was in late 2018.
In the chart below, we compare the four-year change in the price of a stamp to the four-year change in CPI. If the proposed postage increase takes effect in July, the four-year price change to mail a letter will reach 32.7%, the highest level since the mid-1980s. If CPI increases at a rate of 0.3% per month between now and June (a perfectly realistic, if not conservative rate based on recent CPI reports), the four-year change in CPI will reach 22.2% which would be the largest four-year increase since December 1984. To be fair, the rate of postage inflation still lags the rates from the 1970s, but it’s large and well above the Bureau of Labor Statistics’ official gauge. We should have loaded up on those Forever Stamps four years ago!
Read today’s entire Morning Lineup.
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