B.I.G. Tips – Which Does a Better Job Leading? Curves, Jobs, or the Market?
Bespoke’s Morning Lineup – 4/6/22 – Hard Time to be a “Vampire”
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“Bond investors are the vampires of the investment world. They love decay, recession – anything that leads to low inflation and the protection of the real value of their loans.” – Bill Gross
It’s looking like it’s going to be one of those days. Futures were just modestly negative overnight but then started to really weaken as Europe opened for trading and things haven’t stabilized since. The S&P 500 faces losses of around 1% at the open with the Nasdaq down over 1.5%. If equities were looking to rally coming into the week, yesterday’s Fed commentary put at least a temporary stop to that. Interest rates are higher across the curve and the 2s10s yield curve has steepened well out of inverted territory, but that comes along with yields on the 10-year above 2.6% to its highest level in just over three years.
The economic calendar is light today as weekly mortgage applications were the only release, and they fell 6.3% following a 6.8% last week and an 8.1% decline the week before that. Besides that, Energy inventories will be released at 10:30 and the Minutes from March’s FOMC meeting will be released at 2 PM. Philly Fed President Harker and Richmond Fed President Barkin will also be speaking this morning.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
For bond investors, these days are tough indeed. With inflation rampant around the world and central banks finally putting the brakes on the gravy train of liquidity, the increase in interest rates has been relentless with bond prices seeing some of their largest declines in years. A case in point is the iShares 20+ Year US Treasury Bond ETF (TLT). It’s already down 13% YTD and indicated to open lower today by another 1%. The chart below shows historical drawdowns from record closing highs in TLT since its inception in late 2002. Based on where the ETF is trading this morning, it has now declined 26% from its last record closing high back in early August 2020. Throughout its history, there have only been a handful of other periods where TLT ever experienced a peak to trough decline of more than 20%, and the only other time it dropped more was coming out of the Financial Crisis.
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The Closer – Markets Wake Up Toa Screeching Hawks, Real Yield Surge, Trade Insight – 4/5/22
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin tonight with an overview of today’s Fedspeak and the price action in response. We then take a look at real rates followed by the US trade deficit before finishing with an update on delinquency data for the month of February.
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Daily Sector Snapshot — 4/5/22
Chart of the Day: Google Search Trend “Reopening” Update
Bespoke Stock Scores — 4/5/22
Bespoke’s Morning Lineup – 4/5/22 – Fed Speakers Step Up to the Plate
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 meek shall inherit the Earth, but not its mineral rights.” – J. Paul Getty
Outside of the drama surrounding Twitter (TWTR) and Elon Musk, who is now a board member of the company, there’s not a lot of newsflows this morning centered on US stocks. The only economic report on the calendar is the ISM Services report at 10 AM eastern, but there are also a number of Fed speakers scheduled. At 10 AM, we’ll hear from Minneapolis Fed President Kashkari, and then at 11:05 AM Fed Governor Lael Brainard will likely shed additional light on whether the Fed moves 50 bps at its next meeting. The final speaker of the day will be New York Fed President Williams at 2 PM.
Equity futures are modestly lower today, but the most noteworthy development of the morning is the fact that the 2s10s curve has steepened and has nearly ‘unverted’.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
With a month-to-date gain of more than 4% in just two trading days, the run higher in Brazilian stocks has continued into the second quarter. Year to date, the iShares MSCI Brazil ETF (EWZ) is now up over 40%, and given that gain, we don’t know what’s more noteworthy. Is it the fact that since its inception in 2000, this represents the best YTD start for the ETF (through 4/4) on record? Or is it that even after this year’s rally, the ETF is over 6% relative to its high in 2021?
Starting with YTD starts, the chart below shows the YTD gain for EWZ going back to 2001. This year’s 40.8% gain easily ranks as the strongest YTD gain for the ETF since its launch.
As mentioned above, the last year has been a roller-coaster for EWZ. Even after this year’s sharp rally, which began on 1/5, EWZ remains more than 6% below its June 2021 high.
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Background Checks Rise, But Still Compressed
Although not a commonly used indicator, US background checks for firearm purchases can be interpreted as a gauge of sentiment and the view of Americans on the current state of the geopolitical environment. At times of ease, background checks can be expected to decline, whereas a volatile situation (ie the onslaught of COVID, the summer of riots, etc) or concerns over more stringent gun legislation often lead to increased firearm purchases. In March, background checks ticked higher by 20.6% month over month. However, on a y/y basis, background checks are still down by 34.3%, as illustrated in the chart below. On a year-to-date basis, background checks are down a similar 33.9%. In March, a total of 3.1 million background checks were run for Americans looking to purchase firearms.
Monthly background checks remain well above their historical trend, despite the y/y compression. In the near term, it is possible that checks bottomed out last month at 2.6 million. Long story short, although checks are down significantly y/y, the long-term uptrend that was in place prior to the COVID surge is still largely in effect.
Although we like to think that the market is forward-looking, the price action of gun manufacturer Sturm Ruger (RGR) tends to be highly correlated with the number of background checks over the prior twelve months. Since the turn of the century, total trailing 12-month total of background checks and the monthly price of RGR have held a correlation coefficient of 0.90, which indicates a strong positive relationship. Should background checks tick higher, RGR has room to benefit.
Looking at the two different publicly traded firearms manufacturers, the chart patterns for each look quite different. Whereas RGR has been in a short-term uptrend, Smith and Wesson (SWBI) has been trending lower for several months now, despite a positive federal court ruling in regards to turning over research data and advertising research to the NJ Attorney General just three weeks ago. Nonetheless, this goes to show that, even though these companies are exposed to the same secular trends, near-term performance can and will diverge due to company-specific exposures. Click here to try out Bespoke’s premium research service.
