Bespoke’s Weekly Sector Snapshot — 7/14/22
The Bespoke 50 Growth Stocks — 7/14/22
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. The Bespoke 50 is updated weekly on Thursday unless otherwise noted. There were no changes to the list this week.
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The Bespoke 50 performance chart shown does not represent actual investment results. The Bespoke 50 is updated weekly on Thursday. 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 each week. 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.
Bulls Back Above 25%
In spite of the S&P 500’s consistent declines in the past week as it failed to take out its late June highs, investor sentiment has turned around (relatively speaking) with this week’s reading from the AAII showing 26.9% of respondents reporting as bullish for the first time since early June. The 7.5 percentage point increase in the percentage of bullish responses this week was a large week-over-week increase by historical standards, although there have been multiple even bigger larger weekly increases over the past few months.
With the increase in bullish sentiment, over a quarter of respondents reported as bullish for the first time in five weeks. Such extended streaks with as depressed readings have been few and far between with the last five-week streak occurring all the way back in the summer of 1993. Overall, there have now only been six streaks in which bullish sentiment remained below 25% for at least 5 consecutive weeks. The longest of these was in December 1990 when it went on for 9 weeks in a row. Albeit a small sample size, historically the end of these streaks have not been raging buy signals for the S&P 500 in the short term with inline performance versus all periods and somewhat weak returns one month out. However, three, six, and twelve months later the S&P 500 has been higher almost every time with slightly stronger than normal performance (six months out from the March 1990 occurrence was the only decline).
The increase in bullish sentiment was met by bears falling back below 50% to 46.5%. Mirroring bullish sentiment, that made for the lowest reading since the first week of June.
As a result of those moves, the bull-bear spread remains firmly in favor of bears. With the percentage of bearish responses outnumbering bulls by 19.6 points, for the 15th week in a row the bull-bear spread remains negative. That steak has grown to be the third largest on record behind a 22-week streak ending in late 1990 and a 34-week streak ending in October 2020.
Neutral sentiment has managed to avoid major shifts in sentiment in recent weeks and this week was no exception. This reading fell modestly from 27.8% to 26.6%. That is well within the range of the past couple of years’ readings and is only the lowest since three weeks ago. Click here to learn more about Bespoke’s premium stock market research service.
Seasonal High is Here for Claims
Jobless claims have continued to rise hitting the highest level since November this week. Claims rose from an unrevised 235K up to 244K this week. With consistent increases in claims over the past few months, the reading has gone from multi-decade lows to levels that would have been the highest since late 2017/early 2018 pre-pandemic.
As we have noted each week recently, the current week of the year has historically marked a seasonal peak in claims. As such, the current week of the year has also seen a sequential rise in claims 80% of the time including a rise this week. NSA claims now are at 241.3K which is inline with the comparable readings for the three years prior to the pandemic. Although part of the recent increase in claims is likely seasonal in nature, given evidence of a slowing economy including weakness in other labor market data like under the hood of Friday’s nonfarm payrolls report, how much that seasonal uptick unwinds in the weeks ahead will be something to watch.
As for continuing claims, there has not been as notable of an increase recently when compared to initial claims. Continuing claims have only risen marginally from the low of 1.306 million in the week of May 20th to 1.331 million in the most recent reading as of July 1st. That most recent reading also saw a sizable improvement from the prior week with claims falling from 1.372 million. Click here to learn more about Bespoke’s premium stock market research service.
Chart of the Day: Bank Reports Kick Off
Volatile Stocks in Reaction to Earnings
With earnings season kicking off, we wanted to highlight Russell 3000 stocks that in recent history have been the most volatile in reaction to earnings (over the last ten quarters). In order to be included in this list, a stock must have reported at least ten quarters since going public and must also have a market cap over $1 billion. The list includes tech companies, e-commerce players, food producers, and more. On average, these stocks are down 35.1% on a YTD basis (median: -44.1%), which is notably worse than the overall market. We measured volatility by the median absolute percent change on earnings reaction days over the last ten quarters, and these names averaged a move of 13.6% in either direction on their earnings reaction days. The most volatile name has been Bill.com (BILL), followed by companies like Fastly (FSLY), New Relic (NEWR), Dycom (DY), and Pinterest (PINS). Only one of the stocks outlined below is in the S&P 500 (Etsy), and none have a market cap of more than $21.4 billion.
Of course, volatility does not imply direction. Of the 15 stocks outlined below, two – BILL and PINS – have seen seven of their last ten reports result in gains on their earnings reaction day. On the other end of the spectrum, four stocks have seen positivity rates of 40% or less over the last ten reports: Fastly (FSLY), New Relic (NEWR), United Natural Foods (UNFI), and Ambarella (AMBA). If you own any of these names, be prepared for a potentially sharp reaction to earnings (in either direction) when they report this earnings season. Click here to learn more about Bespoke’s premium stock market research service.
Just to show you what we mean, the graphic below shows BILL’s (the most volatile name on the above list) earnings reactions over the last 10 quarters. As you can see, eight of its last ten reports have been followed by a one-day reaction of 10%+, including four moves of more than 20%! Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Morning Lineup – 7/14/22 – Streaky
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 am struck that so many of our leaders in the U.S. forget how strong our country can be.” – Jamie Dimon
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.
The market has taken on a bit of a streaky vibe in the last few weeks. After four straight down days to close out June where the S&P 500 fell 3.2%, the month of July started out with a four-day win streak where the S&P 500 rallied 3.1%. Since those four days ending last Thursday, the S&P 500 has been down four straight days falling 2.6%. The current four-day losing streak looks like it’s going to extend to five days as futures are indicated another 1.35% lower.
Besides the litany of issues facing the market all year, the catalyst for this morning’s weakness is weak results from Conagra (CAG), JP Morgan (JPM), and Morgan Stanley (MS). CAG is down 2.5% after reporting weaker than expected EPS and lowered guidance, MS is only down fractionally, and JPM is poised to open more than 3% lower putting it on pace to fall in reaction to earnings for the eighth straight quarter.
The commentary from the earnings release for JPM wasn’t particularly uplifting:
“The U.S. economy continues to grow and both the job market and consumer spending, and their ability to spend, remain healthy. But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road. We are prepared for whatever happens and will continue to serve clients even in the toughest of times.”
In economic news, PPI came in higher than expected on both a headline and core basis, while initial jobless claims ticked up to 244K which was the highest level since last November. The rise in jobless claims hasn’t been particularly steep, but it has been consistent ever since, bottoming out in Mid-March.
Today’s Morning Lineup discusses earnings from JPMorgan (JPM) and Morgan Stanley (MS), moves in Asian and European markets, and economic data from around the world.
It’s not just stock prices that have been on the decline this week. Crude oil prices have fallen sharply and WTI briefly traded below its 200-DMA this morning as it trades down near $93. As shown in the chart, while prices did run up in anticipation of the event, all of the increases in crude oil prices since Russia invaded Ukraine have now been erased.
The fact that oil prices are back to levels they were trading at right before Russia invaded Ukraine has been taken as a win by investors, and we wish we could say the same thing about the S&P 500. Unlike crude oil, which has managed to return back to pre-invasion levels, stock prices have kept falling.
Start a two-week trial to Bespoke Premium to read today’s full Morning Lineup.
Daily Sector Snapshot — 7/13/22
Short Interest Keeps Rising
Over the past few days, equities, including the most heavily shorted stocks, have reversed a good amount of the gains seen since the mid-June lows. A basket of the 100 most heavily shorted stocks in the Russell 3,000 is currently little changed versus its levels at the start of 2020 compared to a roughly 16% gain for the Russell 3000. Whereas heavily shorted stocks saw massive outperformance versus the broader market in the second half of 2020 and early 2021, that outperformance has unwound since last fall. More recently over the past two months, though, highly shorted stocks and the Russell 3000 have been performing more or less in line with each other as the relative strength line has trended sideways and is near similar levels to the COVID Crash.
The most recent short interest data as of the end of June was also updated in the past 24 hours. For the whole of the Russell 3000, the average reading on short interest as a percentage of float currently stands at 6.24%. That is up 20 basis points since the prior update for mid-June and a full percentage point higher versus the start of the year.
Across nearly all industry groups, there have been major shifts in short interest levels since the start of the year. While most have made considerable moves higher, there are others that have actually fallen significantly like Food & Staples Retail and Telecommunication Services. Given the big increases this year, Retail continues to have the highest average reading on short interest followed by the Pharmaceuticals, Biotech &Life Sciences, and the automobile industries. Although their levels of short interest are not as elevated, Software & Services and Energy stocks saw the largest increases from the last report while only the Media & Entertainment industry and Food & Staples Retailing stocks saw declines in average short interest between the two most recent reports. That being said, none of those sequential moves were particularly large with the biggest absolute move being the 0.45 percentage point increase in Software & Services.
Switching over to the individual stocks with the highest levels of short interest, Dillard’s (DDS) currently tops the list with a little more than half of its shares sold short. That reading is only half of a percentage point higher versus mid-June but has nearly doubled since the start of the year. Although it continues to sit near the top of the list, Redbox Entertainment (RDBX), has perhaps seen the most notable shift in levels of short interest versus the last bi-weekly report. Throughout the year, the recent SPAC has seen large swings in its reported short interest levels. Click here to learn more about Bespoke’s premium stock market research service.
