Daily Sector Snapshot — 11/15/22
B.I.G. Tips – Tech Takes a Back Seat to Old Economy Sectors
Bespoke Stock Scores — 11/15/22
Chart of the Day – 1,000 Days Later
Bespoke’s Morning Lineup – 11/15/22 – The Day Trader Turns 155
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“Hunches and the mysterious ticker-sense haven’t so very much to do with success.” – Edwin Lefèvre, Reminiscences of a Stock Operator
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
We’re now in the thick of retailer earnings season, and this morning’s two big reports were from Home Depot (HD) and Walmart (WMT). The former is trading modestly lower after reporting better-than-expected EPS and sales while reaffirming guidance. WMT, meanwhile, is surging over 6% after a better-than-expected report and announcing a $20 billion stock buyback. More importantly, inventory levels at the company appear to be coming under control as management guided last quarter. It’s been a roller-coaster ride for WMT this year. After plunging this summer on a profit warning, the stock has recovered all of its losses, and based on where it is trading in the pre-market is now up on the year.
WMT’s positive report has contributed to a positive tone in the futures market. Equities are firmly higher, led by the Nasdaq which is up well over 1%, crude oil is marginally lower, and the ten-year yield is lower. This could all change at 8:30 with the release of the October PPI, but for now, rising stock prices accompanied by lower rates and lower oil prices are more than any bull could ask for.
The spread of the internet during the mid to late 1990s is traditionally regarded as a key catalyst behind the birth of day trading in the stock market. The internet spawned online investing which enabled anyone with available funds to set up a brokerage account and point and click their savings away. Day trading became popular during the dot-com bubble (and again during the COVID lockdowns when consumers flush with cash and nothing to do started trading on their mobile phones on apps like Robinhood), but day traders have been around much longer than that. The founding of the Nasdaq in 1971 and its electronic platform facilitated the practice of more rapid trading, but day trading traces its roots all the way back to the late 1800s following the invention of the ticker tape which was first unveiled on this day 155 years ago.
Prior to Edward Calahan’s invention of the ticker tape, the only way stock prices were disseminated was by word of mouth, through the mail, or by messenger, and you can’t really day trade when you’re getting stock quotes through the mail (even FedEx didn’t start until 1971). Calahan’s invention unlocked the opportunity for anyone with a telegraph line and enough money to pay for a feed to set up a ticker tape and get ‘real-time’ stock quotes (actually delayed by a minimum of 15 minutes but still real-time in 1800s terms). The ticker tape sped up the flow of information and enabled investors to make more well-informed decisions, but it also spawned the creation of bucket shops and other types of venues in cities across the country where traders could go and bet on the direction of stock prices intraday.
Throughout society and culture, we use all sorts of common phrases without even thinking about them (bite the bullet, hands down, etc). In the investment sphere, ‘don’t fight the tape’ is one of them. Without the invention of the ticker tape, there would have been no tape to fight for the last 155 years! Instead, investors would be ‘fighting the mail’ or the messenger (although from a messenger’s perspective being fought with certainly sounds a lot better than being ‘shot’).
When it comes to sentiment lately, consumers don’t seem to be fighting the tape. The latest example we can cite came in yesterday’s monthly update to the NY Fed’s Survey of Consumer Expectations. You may have seen some headlines highlighting the fact that both short-term and long-term inflation expectations ticked higher, but sentiment toward the stock market remains right near the lowest levels in the history of the survey (2013). As shown in the chart below, barely more than a third of investors expect the stock market to be higher one year from now. The only month with a lower reading was in June when it ticked down to 33.8%.
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Daily Sector Snapshot — 11/14/22
Brazil (EWZ) Remains a Black Sheep
As we noted in an earlier tweet, in tandem with the S&P 500 (SPY) here in the US, equities have surged around the globe over the past week. Countries like Taiwan (EWT), Germany (EWG), and Sweden (EWD) have posted some of the most impressive gains with double-digit percentage moves. However, these are also some of the countries currently trading the furthest below their 52-week highs and are down the most since the start of the year.
Relative to the rest of the world, the S&P 500’s one-week performance has actually been middling at just over 5%. Of the 23 major global economies shown below (those which we track in our Global Macro Dashboard), there are only six other countries that have experienced smaller gains. Then there is Brazil (EWZ), the sole country in the red. Inverse to what have been the top performers in the past week, Brazil generally has been a massive outperformer since the start of 2022. Alongside Mexico (EWW), Brazil is the only country to have moved higher year to date with an impressive 10.5% gain. After last week’s decline, though, EWZ is now back below its 50-DMA.
Below we take a look at the 100-day rolling correlation of the daily moves of the Brazil ETF (EWZ) versus the average of all the other country ETFs listed above. That correlation has rolled over quickly in the past several months as Brazil has turned into the black sheep of global equities. In fact, that correlation is currently approaching the low end of the past couple of decade’s range. In fact, currently it is at the lowest level since December 2019 and prior to that the fall of 2018 was the only other recent example of Brazilian equities being this disconnected from other global stock markets. Click here to learn more about Bespoke’s premium stock market research service.
Chart of the Day – Fourth Largest Weekly Dollar Decline in 50+ Years
Bespoke’s Morning Lineup – 11/14/22 – Slow Monday
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“It is not down on any map; true places never are.” – Herman Melville, Moby Dick
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
After a CPI-fueled monster rally last week where US stocks had one of their best weeks of the year, the tone in equities to kick off the new week has been muted. Futures were lower overnight and remain in the red as we type this, but they have been gradually moving up off their overnight lows. Treasury yields are higher this morning, but the 10-year yield is still below 3.90% for now. If you were looking for signs of a Fed pause after last week’s relatively benign inflation print, Fed Governor Christopher Waller wants you to think again. Bloomberg is reporting that the governor says “we’ve still got a ways to go” not before the Fed starts cutting rates but before it even stops raising rates. He went on to say that last Wednesday’s CPI report was good news but just one data point. We’ll grant the governor that October’s CPI may have been just one data point in the CPI series, but has he noticed the myriad of other pieces of data in the last few months that show inflation pressures have been easing, not to mention the fact that we’ve just seen one of the most aggressive paces of monetary tightening in a six-month span?
After rallying more than 14% off its October lows, Europe’s benchmark STOXX 600 index opened and traded above both its 50 and 200-day moving average for the entire session on Friday and is on pace to do the same thing again today. That’s something we haven’t been able to say since January. Perhaps even more impressive than the 14% rally in local currency is the fact that in dollar-adjusted terms, the STOXX’s performance off the October lows has been a gain of just over 20%. The next level to watch for European stocks is the high from August. Despite their short-term outperformance, European stocks remain in a deep hole relative to the US. Over the last five years, the STOXX 600 is up 32% in dollar-adjusted terms while the S&P 500 has rallied 69%.
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Bespoke Brunch Reads: 11/13/22
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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National Security
Stratcom Commander Says U.S. Should Look to 1950s to Regain Competitive Edge by C. Todd Lopez (Department of Defense)
While the lesson of Ukraine is that many global adversaries are woefully under-equipped for wars the US might become involved in, the Secretary of Defense advocates a return to an era when the US was able to develop and procure weapons on much shorter timelines. [Link]
Canadian intelligence warned PM Trudeau that China covertly funded 2019 election candidates: Sources by Sam Cooper (Global News)
The federal elections in 2019 were targeted by Chinese intelligence networks, per an analysis by Canada’s own intelligence community. Agents were placed in MPs’ offices and campaigns were orchestrated to punish MPs viewed as insufficiently pro-China. [Link]
Wheels Come Off
FTX used $4 billion including customer funds to keep Alameda afloat: Reuters by Inbar Preiss (The Block)
As crypto exchange FTX collapsed this week, reports emerged that customer funds had been used to cover massive trading losses at an affiliated market-making firm. [Link]
Mortgage Fund in Canada Halts Payouts Amid Liquidity Crunch by Layan Odeh (Yahoo!/Bloomberg)
A Canadian mortgage firm is halting redemptions in response to repayment stress and a surge in investor requests to return their capital. [Link]
Appearances Can Be Deceiving
The U.S. Labor Market Is Less Tight Than It Appears by Rand Ghayad, Carl Shan, and Yao Huang (Harvard Business Review)
An analysis of job postings on LinkedIn suggests that much of the huge increase in job openings is a mirage, with roughly half as much true demand for workers as official statistics would otherwise indicate. [Link]
Monetary Policy Stance Is Tighter than Federal Funds Rate by Jason Choi, Taeyoung Doh, Andrew Foerster, and Zinnia Martinez (FRBSF)
When adjusting the path of the Fed Funds rate to account for information from other financial markets, the Fed Funds rate rose above 5.25% by September of this year, much more policy tightening than has actually taken place thus far. [Link]
Social Media
TikTok Secretly Scores Influencers on Metrics Like ‘Cooperation’ and ‘Diligence’ by Thomas Germain (Gizmodo)
Internal scores at TikTok are being used to rank influencers on the platform across a range of metrics that include enthusiasm, willingness to promote products, and other inputs. [Link]
How Australia became the world’s greatest lithium supplier by Royce Kurmelovs (BBC)
After riding the wave of Chinese demand for iron ore and copper in the last commodities bull market, Australia is jockeying for a spot at the top of the decarbonization supercycle as well. [Link]
Auto Industry
A City Fights Back Against Heavyweight Cars by David Zipper (Bloombeg)
Soaring demand for super-sized trucks are creating huge risks for pedestrians and the climate. Washington, DC is attempting to push back, introducing a new $500/vehicle registration fee for vehicles that weigh over 6,000 pounds. [Link; soft paywall]
Polling
The (good) pollsters got the midterms right by G. Elliott Morris (Substack)
High quality polls generally did a good job of predicting the outcome this election; by some measures, Senate polling was tied with 2006 as the most accurate cycle on record. That’s a huge contrast with the 3-4 point errors in polls for the last Presidential election. [Link]
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Have a great weekend!