The Closer: End of Week Charts — 2/22/19

Looking for deeper insight on global markets and economics?  In tonight’s Closer sent to Bespoke clients, we recap weekly price action in major asset classes, update economic surprise index data for major economies, chart the weekly Commitment of Traders report from the CFTC, and provide our normal nightly update on ETF performance, volume and price movers, and the Bespoke Market Timing Model.  We also take a look at the trend in various developed market FX markets.


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The Bespoke Report — Equities Still Truckin’

Markets continue to rally as equity investors take an optimistic view of earnings results and look past weakening global economic data. Here in the US, along with a relatively solid earnings season, the Federal Reserve has stepped its foot off the brakes. Oil prices are rallying, despite very robust US production numbers, and other industrial commodities are getting in on the same game. Abroad, Chinese stocks have led the way higher even as data in a range of global economies has deteriorated.

Along with in-depth earnings season coverage, we review what’s been happening in markets around the world from equities to commodities to credit.  We cover everything you need to know as an investor in this week’s Bespoke Report newsletter.  To read the Bespoke Report and access everything else Bespoke’s research platform has to offer, start a two-week free trial to one of our three membership levels.  You won’t be disappointed! 

“Has Buffett Lost His Touch?” – Here We Go Again

Shares of Kraft Heinz (KHC) are down nearly 30% today following a big earnings miss and the disclosure that the company has been subpoenaed by the SEC. KHC accounts for more than 7% of Berkshire Hathaway’s’ equity portfolio, and that stock is trading down close to 2% ahead of this weekend’s earnings report on a day when the broader market is firmly in positive territory.  Following this weekend’s report, Warren Buffett himself will be all over financial television on Monday to talk about all things Berkshire and its portfolio of companies.

Given the confluence of events, though, the question of whether or not Buffett has lost his touch is once again making the rounds.  Remember, it was just a week ago that Coca-Cola (KO), which accounts for over 10% of the Berkshire equity portfolio, dropped over 8% after it reported earnings.  In the case of KO, last Thursday’s decline was the most negative reaction to earnings the stock has had since 2002!  With two stocks comprising 18% of Berkshire’s total equity portfolio getting demolished on earnings, you can’t blame traders for being a little more skeptical and taking some profits in their Berkshire positions.  Year to date, the stock is one of less than 35 in the S&P 500 that are actually in the red YTD.

While both KHC and KO have been earnings disasters for Berkshire, the rest of the equity holdings in the portfolio have been performing just fine so far this year.  The table below lists the top 20 equity holdings of Berkshire Hathaway as of the end of 2018, and for each stock, we include its weight in the portfolio as well as the YTD change.  Of the top 20 holdings, KHC and KO are the only two in the red YTD, while stocks like Moody’s (MCO), Charter (CHTR), Verisign (VRSN), General Motors (GM), and Bank of America (BAC) have all been big winners.  Only the top twenty names are listed below, but the weighted average YTD performance of Berkshire’s entire equity portfolio has been a gain of 7.77%.  Granted, that’s over three percentage points less than the S&P 500, but it’s hardly a disaster and actually quite impressive when you take into account the big declines in KHC and KO.

Country Stock Market YTD Performance So Far in 2019

Below is a look at the performance of 75 country stock markets around the world so far in 2019.  These numbers show each country’s year-to-date percentage change (not total return) in local currency.

It would be hard to imagine a better start to a year for global equities.  Of the 75 country stock markets in our table, 64 (85.3%) are in the green, and the average gain across all countries stands at +6.38%.  Bermuda and Argentina are the two best performing stock markets so far with gains of north of 20%, while Oman has been the worst with a YTD decline of 6.2%.

Notably, the G7 countries are performing very well in 2019, with all 7 outperforming the average.  Canada is up the most of the G7 countries with a YTD gain of 11.94%, and the US is not far behind at +11.33%.   Three of the four “BRIC” countries are up more than 10%, with China leading the way at +12.44%.  India is the only BRIC country in the red for the year.

Broad Based Breadth

One aspect of the rally in stocks this year that we can’t stress enough is how strong breadth has been.  Besides the fact that the equal-weighted S&P 500 is outperforming the market cap weighted index by close to three percentage points YTD, the vast majority of S&P 500 Industry Groups are also either right at or very close to YTD highs.  The table below lists S&P 500 Industry Groups that, along with the S&P 500, hit YTD highs so far today.  Of the 60 Industry Groups, 26 hit YTD highs today and five of them are already up 20% YTD!

In addition to the 26 Industry Groups above, another 16 Industry Groups traded within 1% of a YTD high today and three of those are also up over 20% YTD.  Adding both lists together, 70% of S&P 500 Industry Groups either traded at or came within 1% of hitting a YTD high this morning.  That’s broad!

Trend Analyzer – 2/22/19 – One Less Downtrend

As we mentioned yesterday, the Dow (DIA) was the first of the major index ETFs in our Trend Analyzer to finally break out of the downtrend it had been stuck in over the past couple months.  Despite declines on the day yesterday, the Russell Mid-Cap ETF (IWR) is now the second member of the group of index ETFs to have moved out of its downtrend.  Again, while it may not be an uptrend we would prefer to see, the sideways trend is reassuring.

Declines yesterday also yanked the leash on overbought levels as several members of the group of ETFs entered the day very close to 2 standard deviations above the 50-DMA.  Every ETF is still overbought but at more middling levels.  Headed into the final session of the shortened week, small-caps have drastically outperformed with gains of nearly double the other indices.  At the top is the Core S&P Small-Cap ETF (IJR) with a gain of 2.53% over the week.  Right on its heels is the Micro-Cap (IWC) and Russell 2000 (IWM) at 2.44% and 2.20%, respectively.  At the other end of the spectrum, the Nasdaq (QQQ) has been very weak over the past five days only gaining 0.36%.

Morning Lineup – Much Ado About Nothing

We realize that it has been a holiday-shortened week and everything, but you can’t get much more boring than the last three days of trading.  Heading into the final trading day of the week, the S&P 500 is within one point of where it closed out last week.  That could change today, though, as the S&P 500 is indicated to open higher by about 10 points.  That won’t be enough to bring potential resistance levels into play near 2,800, but it’s a move in the right direction.  Today’s catalyst for higher prices?  Optimism on a trade deal with China on news that President Trump will meet with Chinese Premier Lui today at 2:30 PM.  What else is new?

There’s no economic news on the calendar today, but Fed speakers will make up for the void as nine members of the FOMC are scheduled to speak throughout the day.  Nine!  Read all about overnight events around the world and this morning’s news in today’s Morning Lineup.

Bespoke Morning Lineup – 2/22/19

As mentioned above, the opening gap won’t be enough to bring potential resistance at 2,800 into play.  Below are updated S&P 500 and Nasdaq composite charts that we highlighted in last week’s Bespoke Report.  Even with more than 90% of S&P 500 stocks above their 50-day moving averages, it still has yet to make that higher high that we have been waiting for.  The Nasdaq, meanwhile, briefly made a higher high and peeked above its 200-DMA earlier this week, but fell back down below that level yesterday.


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The Closer — Positive Signals, Confusing Housing, Manufacturing Weakness, EIA — 2/21/19

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Looking for deeper insight on markets?  In tonight’s Closer sent to Bespoke Institutional clients, amidst a half percentage point drop in the S&P 500 and weak economic data, we provide some of the more positive signals that markets have been sending. Turning to said economic data, first, we review the weaker, but also mixed, existing home sales print. Next, we look at the manufacturing picture through soft data from the Philly Fed and Flash PMIs as well as hard data from December manufacturing orders and shipments. We finish with EIA data that showed crude inventories continue to rise.

See today’s post-market Closer and everything else Bespoke publishes by starting a 14-day free trial to Bespoke Institutional today!

Bespoke’s Sector Snapshot — 90%+ Breadth

We’ve just released our weekly Sector Snapshot report (see a sample here) for Bespoke Premium and Bespoke Institutional members.  Please log-in here to view the report if you’re already a member.  If you’re not yet a subscriber and would like to see the report, please start a two-week free trial to Bespoke Premium now.

In this week’s Sector Snapshot, we look at 90%+ breadth readings in terms of the percentage of stocks trading above their 50-day moving averages.  The index just ended a streak of 711 trading days without a reading above 90%.  To find out how the S&P performs in the weeks and months after streaks like this come to an end, you’ll need to access our just-published Sector Snapshot.

To gain access, start a two-week free trial to our Bespoke Premium package now.  Here’s a breakdown of the products you’ll receive.

Pizza Pays — Domino’s Delivers Over Google

If you were sent back in time to 2004 and had the choice to buy Domino’s Pizza (DPZ) or Alphabet (GOOGL) at their IPO, which would have been the better choice?  Due to the epic size and influence of its business, impulse would probably have you choose Alphabet.  But DPZ has actually seen significantly better returns than GOOGL since the companies’ IPO dates. Since inception, DPZ has seen a total return of 3,604% even after today’s 9.03% decline in the stock in reaction to an earnings miss this morning.  Not that GOOGL’s 2,490% return is something to turn your nose at, but it is dwarfed by DPZ’s returns.  For the stocks’ first decade, up until 2014, this was not the case though.  GOOGL had actually outperformed DPZ for much of their lifespans as public companies.  From then up until early 2016, the two stocks alternated between being the leader, but in the last two years, Domino’s ran away with things.  Part of the reason for this is DPZ has fairly consistently paid a dividend since 2004 which is why returns for the stock have been considerably better over the long term.

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