It may sound completely illogical now, but another Middle-East conflict involving Iran looks like it’s going to stop a crude oil rally in its tracks. After last Friday’s drone strike in Iraq that killed Iranian General Soleimani, crude oil prices originally surged 6% rising from $61.18 up to $64.72.  Since that peak, though, prices have given up 60% of their gains and are now up just 2.4% since last Thursday’s close.  While prices are still higher relative to where they were last Thursday, the current pattern is beginning to look a lot like the pattern we saw following other Iran-related issues in the Middle East over the last year.

Back in April 2019, crude oil capped off a 30% rally with a gain of 2.5% after the US announced it would end any waivers to countries importing Iranian oil.  Cutting off Iranian oil from the market would cut supply which should have led to higher prices, but after that short-term move higher, prices reversed lower falling more than 20% in less than two months.  In September, crude oil prices saw an even larger one-day move of nearly 15% after Saudi oil fields were attacked by what was widely believed to be Iranian drones.  The rally from that attack lasted all but a day and within two weeks all of the gains (and more) were erased.  The latest surge in crude oil prices also followed what was a steady uptrend (like the one in April), and like that rally, will Friday’s rally end up marking another blow-off top?  Join Bespoke Premium to receive our best investment research on a daily basis.  Click here to receive half off for the first three months.

Below is an updated look at home price changes across the country using the most recent S&P Case Shiller home price indices.  As shown, the National index rose just 10 basis points month-over-month and 3.34% year-over-year.  Notably, the number of cities that saw rising and falling home prices month-over-month was evenly split at ten apiece, so we’re no longer seeing broad-based, nationwide increases like we were a few years ago.  Mid-west cities like Detroit, Cleveland, and Chicago were three of the four biggest decliners month-over-month, while the West Coast and Northwest cities like Portland, San Francisco, Seattle, and San Diego all declined as well.

After seeing an epic surge in home prices for years during the current expansion, San Francisco is now the only city that is down year-over-year with a decline of 0.43%.

Below is a chart showing the change in home prices from their peak level at the top of the housing bubble in mid-2005.  This allows you to see which areas have fully recovered from the housing crash and which have not.  Denver and Dallas are both more than 50% higher now than they were at their peaks in the mid-2000s, while the National index has eclipsed its housing bubble highs by 15%.

On the downside, Las Vegas is the farthest below its prior highs at -17%, followed by Chicago at -14%, Phoenix at -13%, and Miami at -12%.  DC, Tampa, and New York are the three remaining cities that have still not recovered all of their losses from the housing crash/financial crisis.

Below is a look at how much home prices have risen from their housing crash lows that were mostly reached in 2012.  The National index is now up 59% from its lows, while San Francisco and Las Vegas are both up more than 110%.  Remember, though, that while San Francisco has easily eclipsed its prior highs from the mid-2000s, Las Vegas is still 17% below its prior highs even though prices have more than doubled off of their post-crash lows.

On the weak side, New York home prices are up the least of any city at just 29%.  (Note that the 20 cities are usually based on the city and its surrounding areas.  For the New York region, it includes New York City, Long Island, the mid-and lower Hudson Valley, Newark, Jersey City, Paterson, Elizabeth, and Edison, NJ, and Bridgeport, New Haven, Stamford, Waterbury, Norwalk, and Danbury, CT.)

Below are historical charts of all the home price indices tracked by S&P Case Shiller.  Cities with green shading are ones that have made new highs this cycle above their highs at the peak of the housing bubble in the mid-2000s.  These indices are all indexed to 100 as of January 2000.  Join Bespoke Premium to receive our best investment research on a daily basis.  Click here to receive half off for the first three months.

Unlike the manufacturing sector which continues to find itself stuck in contraction, the Services sector (Non Manufacturing) continues to show growth.  The latest release of the ISM Services sector highlights this trend as the headline index bounced from 53.9 up to 55.0 this month versus expectations for a bounce to 54.5.  If we combine this month’s Services reading with this month’s Manufacturing reading and weight them based on their share of the overall economy, the overall December ISM bounced from 53.3 up to 54.1.  In the case of both the Services (first chart below) and the combined ISM readings, we have seen a nice bounce from lows last fall which threatened to take out the prior lows from 2016.

Unlike the commentary section for the manufacturing sector which was almost universally negative, commentary in the Services sector was much more positive.

Looking at trends within the December ISM Services report, breadth was skewed moderately positive on a m/m basis in this month’s report with five categories showing growth, four declining, and Prices Paid unchanged.  Relative to last year, though, declines were much more widespread. Looking ahead to this Friday’s Non-Farm Payrolls report, unlike the manufacturing sector where the employment component dropped to its lowest level in nearly four years, the decline in the employment component of the Services sector was much smaller and is still comfortably in the range of growth at 55.2.

The biggest move in this month’s report, though, was in Business Activity which surged from 51.6 up to 57.2. Looking at the chart for this category over the last several months shows a volatile ride. After hitting its highest level in over a decade last February, it dropped to its lowest level since December 2009 last month but then saw a considerable bounce from 51.6 up to 57.2.  Start a two-week free trial to Bespoke Institutional to access our quarterly Equity Market Pros and Cons report, economic calendar, and all of our other research tools.

Tensions in the Middle East caused equities to experience a sell-off last Friday, and while markets opened lower to start the new trading week this morning, the bulls managed to take charge by day’s end with gains across all of the major indices.  Below is a snapshot of the percentage of stocks above their 50-day moving averages in the S&P 500 by sector.  We’ve included one-year charts of this reading for each sector as well.

In the broad S&P 500, 72.3% of stocks remain above their 50-day moving averages, which is a very healthy reading.  Communication Services has the strongest breadth right now with 92.3% of stocks above their 50-DMAs.  Another four sectors have readings of 80% or higher — Utilities, Energy, Health Care, and Technology.  On the flip side, Materials has the weakest breadth with just 35.7% of stocks above their 50-DMAs.  At the end of 2019, this reading stood at 85.7% for Materials, so the sector has seen a steep drop to start 2020.  Real Estate, Consumer Discretionary, and Financials are the remaining sectors with breadth readings below the overall reading of 72.3% for the S&P 500.  Start a two-week free trial to Bespoke Institutional to access our Morning Lineup and Closer which includes our Daily Sector Snapshot.  Our Daily Sector Snapshot includes the charts below along with a number of other technical, fundamental, and relative strength indicators for the eleven major S&P 500 sectors.

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.

While you’re here, join Bespoke Premium for 3 months for just $95 with our 2020 Annual Outlook special offer.

The Times They Are A-Changin’

A Decade of Urban Transformation, Seen From Above by Emily Badger and Quoctrung Bui (NYT)

An incredible survey of the changing landscape of America, detailed with breathtaking satellite pictures of towns, cities, and the shifting physical environment of the country. [Link; soft paywall]

New York is losing residents at an alarming rate by Carl Campanile (NY Post)

Annual Census estimates saw New York State’s population fall 0.4% with over 180,000 residents shipping out for other states over the course of the year. [Link]

Market Calls

Dennis Gartman Says Goodbye With One Last Stock Market Warning by Mark Hulbert (Barron’s)

After 30 years of publishing, the widely read Gartman Letter is no more, and its publisher has a parting shot at markets which have defied numerous bearish predictions from Gartman over the years. [Link; paywall]

Almost Everything Wall Street Expects in 2020 by Sam Potter and Jeremy Scott Diamond (Bloomberg)

Your one stop shop for almost everything analysts and strategists are saying about what to expect from the markets and economy in the coming year. [Link; soft paywall]

College Football

Who’s Highest Paid In Your State? by Charlotte Gibson (ESPN)

A rundown of the highest-paid public employees by state, which in most parts of the company is the coach of the college football team at a state college. [Link]

Rise of the inverted Tampa 2: Clemson goes B12 on Ohio State by Ian Boyd (Sports Treatise)

An extremely detailed and well-informed rundown of the critical defensive adjustment that Clemson made at halftime which allowed it to stop the bleeding against Ohio State and ultimately shut down the Buckeyes’ offense in the second half. [Link]

Iran

How a Chase Bank Chairman Helped the Deposed Shah of Iran Enter the U.S. by David D. Kirkpatrick (NYT)

Amidst the current international conflict between the Islamic Republic and other regional powers, this critical piece of history deserves attention: an American banker engaged in a plot designed to prevent the re-election of the sitting President by sparking confrontation with Iran. [Link; soft paywall]

Online Flight Tracking Provides A Look At The US Build Up In Middle East Following the Attack on US Embassy In Iraq by Stefano D’Urso and David Cenciotti (The Aviationist)

Using publicly sourced data from flight tracking websites, enthusiasts have been tracking the logistics of US troop deployments into the Middle East and Persian Gulf. [Link]

The Sentence That Enabled Our Endless War Turns 17 Today by Gregory D. Johnsen (Buzzfeed News)

War powers are supposed to be the domain of Congress, but broad language open to interpretation passed by the House and Senate in the wake of the 9/11 attacks have given three administrations basically unconstrained power to wage war without asking for permission from Congress. [Link]

Medicine

Google AI Beats Doctors at Breast Cancer Detection—Sometimes by Brianna Abbott (WSJ)

While doctors still beat machines in some cases, Google’s health research unit has developed a system that can double-check their work and reduce errors. [Link; paywall]

China pneumonia outbreak raises spectre of SARS as number infected jumps to 44 by Laurie Chen, Christy Leung, Zhuang Pinghui, and Josephine Ma (SCMP)

A rising number of patients in China are exhibiting symptoms of a new viral strain that causes pneumonia and may be fatal. Human-to-human transmissions have not been confirmed so far. [Link]

Personal Essays

I ignored warnings from friends and family not to marry my husband. Was I making a big mistake? by Nancy French (WaPo)

A personal essay that finishes with an incredible twist, sure to get any reader laughing. [Link; soft paywall]

Pokemon Go

How Canada’s military reacted to seeing Pokemon Go players trespassing on its bases by Brett Ruskin (CBC)

Canadian enthusiasts of the Pokemon mobile game accidentally trespassed on military bases in an effort to catch rare finds, per new documents released by the Canadian Armed Forces; a uniquely Canadian military drama. [Link]

Renewables

Floating Wind Farm Starts Generating Power Off Portugal’s Coast by Will Mathis (Bloomberg)

A new project in the relatively shallow waters off Portugal is a test case for a form of wind power that could be more widely used around the world as countries race to develop zero-carbon electrical generation capacity. [Link; soft paywall]

Incarceration

Violence at Parchman, other Mississippi prisons: What we know by Harold Gater (Clarion Ledger)

Mississippi prisons have entered a prolonged lockdown as a series of inmate deaths caused by understaffing and gang activity prevents the orderly function of a prison system bursting at the seams and under-funded. [Link; soft paywall]

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Have a great weekend!