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“It’s a proprietary strategy. I can’t go into it in great detail.” – Bernie Madoff

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One day short of 14 years after Bernie Madoff surrendered to authorities for his Ponzi scheme, Bahamian authorities arrested Sam Bankman-Fried yesterday in connection with his massive fraud in the cryptocurrency markets. Now that he’s behind bars, we can only hope that the nonstop media tour he has been on will come to an end.

We’ve got two very important days ahead for the markets with today’s November CPI and tomorrow’s FOMC rate decision. Futures are sharply higher heading into this morning’s release after a strong day yesterday, but hopefully, the markets haven’t set the bar too high.

While there is optimism among investors that the worst of inflation is behind us, the sentiment from two sectors that stand to benefit the most from inflation – Energy and Materials – has been mixed. The charts below show the relative strength of the S&P 500 Energy (XLE) and Materials (XLB) sectors versus the S&P 500 over the last ten years (top chart) and just the last year (bottom two charts).
Starting with the long-term picture, after years of underperformance, both Energy and Materials made a trough relative to the S&P 500 in 2020.  While they have both stopped the bleeding, the rebound in Energy has been much stronger than the improvement in Materials (which never underperformed as much in the first place).

Over the last year, both sectors have significantly outperformed the market.  Starting with Materials, its outperformance peaked in the spring and then came crashing back down to earth in the summer.  The sector started outperforming again this fall, but in recent weeks it has started to run out of steam again.

The Energy sector has seen a much steadier trend out of outperformance this year, and its relative strength actually peaked in early November.  While the sector has been under pressure relative to the market for the last month now, its relative strength uptrend has remained intact.

In the case of both sectors, their relative strength in recent weeks hasn’t been nearly as strong and steady as it was in the first half of 2022, but they are also far from collapsing reflecting the fact that while inflation pressures have not been as intense as they were earlier in the year, they still haven’t gone away.

Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals.  We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!

Start a two-week trial to Bespoke Premium to read today’s full Morning Lineup.

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.

“The best is yet to come.” – Frank Sinatra

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.

Futures are in the green to start the week, but with less than 15 trading days left in 2022, any hopes for anything but a bad year in the stock market can be put to bed.  The bulls have pretty much run out of time.  This week is starting out on a quiet note with little in the way of economic or earnings-related news, but it’s a major week for global central banks, including the FOMC, and the tone of these meetings will also likely be dictated at least in part by Tuesday’s CPI report for the month of November.

We’ve never fully adhered to the idea that small caps lead the broader market.  When an entire index like that Russell 2000 is only 22% larger than the largest single company in the S&P 500 (Apple – AAPL), it’s hard to say that it leads the entire economy.  Whether they are a leading indicator or not, though, small-cap stocks are widely followed, and recent trading in the space hasn’t been particularly bullish.

Starting with the Russell 2000, the IWM ETF has been range bound now since early November, but in Friday’s decline it barely closed out the week above its 50-DMA after closing below the 200-DMA earlier in the week.

Trading in micro-cap stocks has been even weaker.  Not only did the Micro-Cap ETF (IWC) never trade above its 200-DMA in the last several weeks, but on Friday, it opened and closed below its 50-DMA as well.

Looking at all US index ETFs in our Trend Analyzer, the indices that track the largest market cap companies are generally the farthest above their 50-DMAs, and then as you go down the market cap scale, the closer they get to their respective 50-days with the micro-cap ETF (IWC), the only one actually trading below that level.

Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals.  We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!

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