Bespoke’s Sector Snapshot — 6/14/18

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.

Below is one of the many charts included in this week’s Sector Snapshot, which shows the YTD percentage change of the eleven S&P 500 sectors.  As shown, Technology and Consumer Discretionary are currently in a race for first place, with Tech currently in the lead and Consumer Discretionary right on Tech’s heels.

To find out what this means and to see our full Sector Snapshot with additional commentary plus six pages of charts that include analysis of valuations, breadth, technicals, and relative strength, start a two-week free trial to our Bespoke Premium package now.  Here’s a breakdown of the products you’ll receive.

Four-Month High In Bullish Sentiment

Bulls are on the offensive this week as AAII Bullish sentiment jumped to 44.78% from 38.93% last week, which is the highest level since mid-February.  Bullish sentiment had been gradually trending higher in recent weeks, but this week’s jump represents a breakout from that pace.

While bullish sentiment spiked higher, bearish sentiment did not see as big of a move to the downside.  As shown in the chart below, negative sentiment declined from 26.72% down to 21.70%. That’s only the lowest reading since mid-May.

the Bespoke 50 — 6/14/18

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 98.8 percentage points.  Through today, the “Bespoke 50” is up 201.2% since inception versus the S&P 500’s gain of 102.4%.  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 Closer — Fed Hikes, PPI Spikes, EIA Improvement — 6/13/18

Log-in here if you’re a member with access to the Closer.

Looking for deeper insight on markets?  In tonight’s Closer sent to Bespoke Institutional clients, we recap the Fed’s second hike of the year and the outlook now for four hikes across the next six months of 2018. We also review PPI and weekly EIA data.

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

Not Your Typical FOMC Day

Without even getting into the crazy intraday swings we saw in emerging market indices like Brazil’s Ibovespa, today’s market action was not the type normally seen on days when the Fed hikes rates.  The chart below compares today’s intraday performance of the S&P 500 to all other Fed rate hike days since 1994.  As shown with the blue line in the chart, the S&P 500 has seen an average gain of 0.27% on historical rate hike days.  On those days, the S&P 500 typically trades higher leading up to the announcement, then sees some volatility following the announcement, but ultimately finishes the day slightly higher than it was right before the decision was announced.

Today’s action was completely different.  While the S&P 500 was up early in the trading day, it began to lose steam well before the 2 PM announcement and then saw a sharp intraday decline right after the announcement.  From there, it looked like we were going to see a similar move to the typical FOMC hike day as the S&P 500 went back into the green shortly after 3 PM.  Right after the S&P 500 moved into positive territory, though, the sellers stepped in, and we finished at the lows of the day with a decline of 0.40%.  It’s never a good feeling to go out at the lows of the day, but tomorrow is another day!

Fixed Income Weekly – 6/13/18

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.

Today we review the recent uptick in spreads for investment grade credit.

Sample

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!

Bespoke’s Global Macro Dashboard — 6/13/18

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!

Bespokecast Episode 25 — Jim O’Shaughnessy — Now Available on iTunes, GooglePlay, Stitcher and More

Our newest episode of Bespokecast is now available!  Be sure to subscribe to Bespokecast on your preferred podcast app to gain access to our full collection of episodes.  We’d also love for you to provide a review as well!

In this episode of Bespokecast, we talk to Jim O’Shaughnessy of O’Shaughnessy Asset Management. Jim is an investor and market commentator who has published numerous books (including the seminal What Works On Wall Street) and papers on the market. He is the founder, chairman, and CIO of OSAM. Jim holds a degree in economics from the University of Minnesota, having also studied at the University of Georgetown. His career includes time spent in venture capital, as a consultant for institutional investors, and as a portfolio manager.

In our wide-ranging conversation, we discuss the rational expectations theory of economics, his approach to building portfolios, the behavioral foibles of investors large and small, how to replicate and even improve upon the portfolios of managers that outperform, and Jim’s love of chamber music. You can follow Jim on Twitter here. During our conversation, Jim mentions a talk he gave at Google, which you can watch here.

This is a must-listen (as are all of our podcasts!) for anyone looking to become a better investor.  (That should mean everyone reading this!)

To listen to our newest episode or subscribe to the podcast via iTunes, GooglePlay, OvercastFM, or Stitcher, please click the button or links below. Please note that third-party podcast feeds may update at a lag of a few hours to this blog post.

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Small Business Going Gangbusters

Small business optimism saw a big jump in May, with the NFIB’s index of small business optimism rising to the second highest level in the history of the survey going back nearly 50 years.  And if you think the NFIB isn’t excited about the recent uptick in its sentiment index, check out the size of the font on the home page. It’s huge!

The commentary of this month’s report was also quite positive and deservedly so given the strength.  As NFIB President Juanita Duggan noted in the report, “Main Street optimism is on a stratospheric trajectory thanks to recent tax cuts and regulatory changes.” There were also a number of additional record readings in this morning’s report, including increases in compensation, positive earnings trends, positive sales trends, and expansion plans.  The biggest challenges faced by small business owners these days is no longer tied to government regulations, red tape, or taxes, but instead to finding qualified workers.

The chart below shows historical readings of the NFIB Small Business Optimism Index dating back to 2000.  After first breaking through its 2004 high back in November, the index has now made two new marginal new highs and is way above its historical average of 96.7.  While the initial surge following President Trump’s election was originally seen by some as being just a temporary move, it has had plenty of staying power at this point.

One section of the NFIB report that we like to follow closely is the issues that small businesses consider to be their number one problem.  The table below lists the percentage of small businesses that cited each issue as their most important problem.  Topping the list once again this month is the issue of Labor Quality, which was specifically called out in the commentary of the report.  At 23%, this reading tied for its highest level on record and at a level not seen since late 2000.  Behind Labor Quality, Taxes are still a decent sized problem cited by 17% of small business owners, but it it down considerably from where it was in recent history.

As shown above, when it comes to monthly changes in the issues small business owners see as their most important problems, there tends to be little in the way of change, but over time these issues see big shifts.  A case in point is labor issues and government red tape and taxes.  The chart below compares the combined percentage of small business owners who cited Taxes and Government Requirements as their most important problem to the combined percentage who cited Cost and Quality of Labor as their biggest problem.  As shown, the roles of the various problems have really shifted over time.  As recently as early 2015, nearly half of all small business owners complained about taxes and red tape while very few business owners had any issues with labor issues.  Now, though, we are in an environment where Labor is increasingly becoming the most important problem for business owners.

Earnings Report Stock Price Volatility Surprisingly Stable Over Time

The screening features available with our popular Earnings Screener are pretty much limitless.  Last week when Warren Buffett and Jamie Dimon together called for companies to end the practice of issuing quarterly guidance, we immediately thought about the impacts that it might have on stock prices.

The end to quarterly guidance would have its pluses and minuses, but one theory is that it would cause a spike in individual stock price volatility when earnings reports are released.  Less info provided by companies heading into their quarterly reports would cause greater surprises when the actual numbers are released (on both the positive and negative side).

From our Earnings Screener, users are able to see how much stocks typically move (on an absolute basis) on the first trading day following their earnings report each quarter.   Below is a chart showing the average absolute percentage change for US stocks on their earnings reaction days by year going back to 2001.

As you can see, the average stock typically experiences a one-day move of +/-5% on its earnings reaction day each quarter.  The two outlier years came during the Financial Crisis in 2008 and 2009 when stocks moved more than +/-7% on their earnings reaction days.

Should companies collectively decide to end the practice of issuing forward guidance, we think you’d at least initially see a jump in the average move up towards and maybe even above +/-6%.

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