Resistance Causes Hesitation in Sentiment

Since its recent low on December 24th, the S&P 500 has seen a significant rally that, while slowing in its momentum as it closes in on resistance, has held up in the past week.  But optimism, as seen through the AAII individual investor survey, has cooled as these resistance levels are reached. Bullish sentiment fell this week to 33.5% after hitting the highest level since early November last week (38.5%).  The decline this week brings bullish sentiment back below the historic average but still well above lows hit in mid-December.

As optimism has declined, pessimism has picked up. Bearish sentiment has moved within a wide range in the past couple of months with it settling on the lower end this week at 36.3%.  That is up from last week’s level of 29.4%, Even with the increase, though, it still has a ways to go before getting back to the 50% peak from only a few weeks ago.  The increase in bearish sentiment could be a result of investors not trusting in the market’s ability to surge past the technical points of resistance we have recently highlighted that have been hit this week.

Like bullish sentiment, neutral sentiment also took a minor hit this week, falling from 32.7% down to 30.2%. This comes only a few weeks after investors became increasingly polarized when neutral sentiment collapsed all the way down to 18.2%.

Claims Continue to Decline

The labor market keeps humming along just fine as seen through this week’s Initial Jobless Claims report. Claims printed below expectations of 220K and lower than last week’s 216K.  At 213K on a seasonally adjusted basis, claims are at their lowest since the beginning of December and back within the range that we saw for most of the late summer/early fall of 2018.  With further strength this week, the impressive streaks we have noted in the past continue unthreatened.  The seasonally adjusted reading has now stayed below 250K for 67 straight weeks.  Claims have also come in below 300K for 202 consecutive weeks.  Any major shocks to initial claims aside, these streaks look likely to stay healthy for some time.

Whereas the seasonally adjusted number has more or less returned to where it was in the latter half of 2018, the 4-week moving average has hovered off of, but somewhat near, recent highs.  This week’s release for the moving average came in at 220.75 which is only 1K lower than last week.  Since the beginning of December claims by this measure has firmly held within a range of 219K to 222K.

Taking a look at the non-seasonally adjusted numbers, claims fell to 344.9K from revised lower 348.1K last week. As seasonal factors, which typically cause large upticks around this time of year, begin to wear off, non-adjusted claims will also continue to decline.  This week’s data also comes in at the lowest level for the current week of all years since 2000 and over 200K below the average for the same time frame.

Philly Fed Rebounds

After two straight months of weaker than expected readings and three straight months of declines, the Philadelphia Fed Manufacturing Survey for January came in stronger than expected and increased on a month/month basis. While economists were collectively expecting the headline report to come in at 9.5, the actual reading was 17.0.  While the headline index is well off its highs from early/mid-2017, it has now been above zero for 32 months, which is tied for the second longest streak on record.  One thing to note about the prior streaks of above zero readings is that in the four prior periods where the Philly Fed dropped below zero after at least 24 straight months of positive readings, it was not a warning of an imminent recession.  In fact, the soonest a recession arrived after one of these streaks ended was 15 months.  So while the Philly Fed continues to indicate a slowdown in the pace of economic growth, it is not flashing warnings of an imminent recession.

Looking at the internals of this month’s report, more components showed m/m declines than gains.  Of the nine categories listed below, just three were up m/m (New Orders, Delivery Time, and Average Workweek), while the remaining six were down.

On the upside, the biggest gainer this month was New Orders which rebounded by eight points after hitting its lowest level since September 2016 last month.

While the drop in Shipments was clearly not the sharpest of the six components that declined, it was notable in that it took that reading down to its lowest level since September 2016.

Morning Lineup – Rally Drivers

After a nice rally in reaction to earnings reports from the major banks, the Financials sector is taking a breather today after Morgan Stanley earnings disappointed the street.  In economic news, both Jobless Claims (213K vs 220K) and Philly Fed (17.0 vs 10.0) came in better than expected.  Read today’s Bespoke Morning Lineup below for major macro and stock-specific news events, updated market internals, and commentary.

Bespoke Morning Lineup – 1/17/19

In last night’s Closer report, we dissected the factors driving the market during the rally off the Christmas Eve lows using our decile analysis.  While some factors seemed to play little or no role in terms of performance, two that did were valuation and performance during the decline.

The first chart below shows the performance of S&P 500 stocks based on their valuations as of 12/24 with the most attractively valued (lowest P/E ratios) stocks to the left and the most expensive (highest P/E ratios) on the right.  The best performing decile by far was the one containing the stocks with the highest P/E ratios, and for the most part, performance steadily declined as you moved left towards the more attractively valued stocks.  The second chart shows performance since the lows based on stocks grouped according to how they performed during the market decline.  Here, the best-performing stocks were the ones that were originally down the most, while the worst performing stocks were the ones that held up the best during the decline.

In both cases, these performance results make perfect sense.  During market sell-offs, as investors become more risk averse it is typical to see stocks with the most aggressive valuations sell-off the hardest while more reasonably priced stocks hold up better.  However, when the market turns around and investors become less risk-averse, they flock to the more aggressive high growth/high valuation stocks.  Likewise, when the market shifts its tone from a defensive posture (during a sell-off) to a more offensive tone (rally) it is only natural that the stocks that held up the best during the defensive phase (like Utilities) underperform during the next more aggressive phase.  Anything else would be contrary to the norm.

Start a two-week free trial to Bespoke Premium to see today’s full Morning Lineup report. You’ll receive it in your inbox each morning an hour before the open to get your trading day started.


the Bespoke 50 — 1/17/19

Every Thursday, Bespoke publishes its “Bespoke 50” list of top growth stocks in the Russell 3,000.  Our “Bespoke 50” portfolio is made up of the 50 stocks that fit a proprietary growth screen that we created a number of years ago.  Since inception in early 2012, the “Bespoke 50” has beaten the S&P 500 by 88.5 percentage points.  Through today, the “Bespoke 50” is up 178.0% since inception versus the S&P 500’s gain of 89.5%.  Always remember, though, that past performance is no guarantee of future returns.

To view our “Bespoke 50” list of top growth stocks, click the button below and start a trial to either Bespoke Premium or Bespoke Institutional.

The Few, The Proud, The Outperformers

As risks of a global slowdown have broadly mounted, we have highlighted the standout performance of the US relative to the rest of the world. As we show in our Global Macro Dashboard published this morning, including the United States, there are only five nations with positive relative strength versus the MSCI World Index: India, Norway, South Korea, Taiwan, and the United States.

Of these countries, Norway has outperformed the rest of the world by the greatest margin (43.1%) for some time. Like many country indices, the OBX index saw a large pullback in the final half of 2018 but has rebounded since, even exiting its downtrend.  Even through those late year declines, the country’s relative strength has barely faltered continuing its climb as it has much of the past few years.

Behind the US, India has been the third best performer, but that is only a recent development.  The relative strength of the SENSEX fell off a cliff in the late summer following significant declines in the index but since bottoming in early October—a time when most other countries were still declining—relative strength has been back on the rise.  As it currently stands, India is the most rapidly growing country of our dashboard with a GDP at 7.1% YoY. This comes with a cost, though, as this emerging market also has the highest P/E ratio of 24.32 and the lowest dividend of all the economies we track in our dashboard.

South Korea and Taiwan are the only other two countries whose major stock indices are currently outperforming the MSCI World Index.  South Korea’s KOSPI was actually underperforming not long ago.  Likewise, Taiwan’s TWSE’s relative strength fell through 2018 but has rebounded considerably.  Both of these countries are attractive with valuations below average at 10.19 for South Korea and 12.59 in Taiwan.

Fixed Income Weekly – 1/16/19

Searching for ways to better understand the fixed income space or looking for actionable ideals in this asset class?  Bespoke’s Fixed Income Weekly provides an update on rates and credit every Wednesday.  We start off with a fresh piece of analysis driven by what’s in the headlines or driving the market in a given week.  We then provide charts of how US Treasury futures and rates are trading, before moving on to a summary of recent fixed income ETF performance, short-term interest rates including money market funds, and a trade idea.  We summarize changes and recent developments for a variety of yield curves (UST, bund, Eurodollar, US breakeven inflation and Bespoke’s Global Yield Curve) before finishing with a review of recent UST yield curve changes, spread changes for major credit products and international bonds, and 1 year return profiles for a cross section of the fixed income world.

This week we review the relationship between fallen angels and credit spreads.


Our Fixed Income Weekly helps investors stay on top of fixed income markets and gain new perspective on the developments in interest rates.  You can sign up for a Bespoke research trial below to see this week’s report and everything else Bespoke publishes free for the next two weeks!

Click here and start a 14-day free trial to Bespoke Institutional to see our newest Fixed Income Weekly now!

S&P 500 Industry Group Breadth Still Weak

Even with the S&P 500 up over 11% from its Christmas Eve lows just three weeks ago, it’s hard to believe that we’re still below the 50-DMA.  That just goes to show you how steep the magnitude of the decline was leading up to this rally.

Not only is the S&P 500 still below its 50-DMA, but the majority of Industry Groups are still below their 50-DMAs as well. In fact, barely a third of them (9) finished the day yesterday above that level.  While that’s significantly better than the 0% level it was at recently, this low reading confirms the fact that most sectors of the market still haven’t even recovered December’s losses, let alone the losses from the September highs.

Looking on the positive side, while overall Industry Group breadth remains weak, many of them are right on the cusp of peeking above their 50-DMAs.  As shown in the table below, five of them are currently within half of one percent of their 50-DMAs, which means just one more day like yesterday would likely put them over the top.  Even the Banks group, which is more than 1% below its 50-DMA, could move above that level today following strong reports from Goldman Sachs (GS) and Bank of America (BAC).  Way down the list, the four Industry Groups that are unlikely to trade above their 50-DMAs anytime soon are Tech Hardware (-8.2%), Food, Beverage & Tobacco (-5.1%), Transportation (-3.1%), and Utilities (-2.6%).

While most Industry Groups have yet to take out their 50-DMAs, the vast majority of them are trading in the black YTD.  The only two that are in the red for the year are Tech Hardware (-0.9%) and Utilities (-0.4%).  Leading the way higher so far this year (it’s still early) are Autos (+12.4%), Energy (8.2%), Consumer Durables (7.2%), and Banks (7.0%), which are all up over 7% on the year.


Bespoke’s Global Macro Dashboard — 1/16/19

Bespoke’s Global Macro Dashboard is a high-level summary of 22 major economies from around the world.  For each country, we provide charts of local equity market prices, relative performance versus global equities, price to earnings ratios, dividend yields, economic growth, unemployment, retail sales and industrial production growth, inflation, money supply, spot FX performance versus the dollar, policy rate, and ten year local government bond yield interest rates.  The report is intended as a tool for both reference and idea generation.  It’s clients’ first stop for basic background info on how a given economy is performing, and what issues are driving the narrative for that economy.  The dashboard helps you get up to speed on and keep track of the basics for the most important economies around the world, informing starting points for further research and risk management.  It’s published weekly every Wednesday at the Bespoke Institutional membership level.

You can access our Global Macro Dashboard by starting a 14-day free trial to Bespoke Institutional now!

Morning Lineup – Bank on It

Positive earnings from the major banks like Bank of America (BAC) and Goldman Sachs (GS) have traders in a modestly positive mood this morning as both stocks are trading higher in the pre-market.  BAC has been especially strong, rallying more than 5%.  If BAC’s gains hold into the open, it will be the stock’s most positive gap opening in reaction to earnings in seven years and the third strongest going back to 2000!  While Goldman is ‘only’ up 3.5%, that would rank as the stocks most positive gap opening in reaction to earnings in over a decade (December 2008).  Read today’s Bespoke Morning Lineup below for major macro and stock-specific news events, updated market internals, and commentary.

Bespoke Morning Lineup – 1/16/19

With the S&P 500 clearing the psychologically important 2,600 level yesterday, it’s sort of hard to believe that the index is still below its 50-day moving average.  Even more surprising is that of the 24 S&P 500 Industry Groups, barely more than a third (9) are over their respective 50-DMAs.  As shown in the chart below, this reading is still severely depressed.  Looking on the bright side, though, one more day like yesterday would boost this reading by a lot as through yesterday’s close there were another five Industry Groups trading within 0.50% of their 50-DMAs.

Start a two-week free trial to Bespoke Premium to see today’s full Morning Lineup report. You’ll receive it in your inbox each morning an hour before the open to get your trading day started.


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