Searching for ways to better understand the fixed income space or looking for actionable ideas 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.
In this week’s report we focus on European banks.
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In our recap of last week’s retail sales report, we noted how there is evidence of a trend of Americans returning to spending habits prior to the pandemic. Namely, that can be seen through spending at bars and restaurants which was the strongest category in August having grown 4.71% month over month. The past decade has seen spending at bars and restaurants as a percentage of total retail sales gaining share and eventually overtaking spending at food and beverage stores. In other words, Americans began to spend more eating out than eating in; that is up until the pandemic. COVID’s reversal of this trend reached an apex in April, but more than half of that move has since been erased. Now bars and restaurants account for 10.2% of total retail sales versus 13.2% for food and beverage stores. So while bars and restaurants have taken a big hit and are far from out of the woods, recent months have seen improvements.
While aggregate spending data for bars and restaurants is not yet back to pre-pandemic levels, the Russell 3000 Restaurants and Bars group has managed to recover all of its COVID-Crash declines. Since its low in mid-March, the index has been trending higher having rallied 63.8%.
This index includes 35 stocks with a variety of niches ranging from fast food like McDonald’s (MCD) to coffee chains like Starbucks (SBUX) and Dunkin (DNKN) to less grab-and-go oriented chains like Dave and Buster’s (PLAY). Although the index may look like it has held up well at face value and is currently positive on a year to date basis, under the hood the individual stocks of the index are painting a weaker picture. Whereas the cap-weighted index is up 3.35% YTD, the average stock in the index is down 11.31%. In other words, the strength of the index is not so much a factor of broad strength of restaurant stocks, but instead is a result of solid performance of some key large-cap players like Chipotle (CMG), McDonald’s (MCD), and Domino’s (DPZ) to name a few. Click here to view Bespoke’s premium membership options for our best research available.
Bespoke co-founder Paul Hickey appeared on CNBC’s The Exchange yesterday (9/22) to discuss the current setup of Apple (AAPL) and the broader market in general. To view the segment, please click on the image below. Click here to view Bespoke’s premium membership options for our best research available.
Each Wednesday, we publish our Global Macro Dashboard which provides a high-level summary of economic and market indicators of 23 of the world’s largest economies. Included in this report we show the charts of each of these countries’ stock markets and glancing across these charts, the US has not been alone in falling back below its 50-DMA. In the chart below, we show the average distance to the 50-DMA of these 23 countries. At the start of the summer, the global average 50-DMA spread was at the highest levels of the past five years after hitting multi-year lows just months earlier, but through the summer that reading gradually moderated. With weakness in equities around the globe since the start of the month, the average global stock market was 2.43% below its 50-DMA as of yesterday’s close. That is the lowest reading since April. In other words, equity markets around the globe have mean reverted just like the US.
In fact, there are only a small handful of these countries that are currently sitting above their 50-DMAs. Of these Switzerland, Sweden, and Japan are further above at over 1% while Russia and South Korea are a more modest 0.1% and 0.3% above their 50-DMAs, respectively. For the US, this month’s declines only leave the S&P 500 roughly 1% below its 50-DMA which is actually one of the stronger readings (third highest) among countries that are trading below their averages. Currently, nine of these countries are more than 2% below their moving averages.
Although major global equity markets are generally together in sitting below their 50-DMAs, the US is coming from a much different place than most other counties. For starters, other than the US, only South Korea and Taiwan reached new 52-week highs in September while South Africa is the only other country to have seen a 52 week high since the beginning of August.
As shown in the table below, prior to the recent mean reversion (at the last high for the S&P on September 2nd), US equities were 9% above their 50-DMA. That compares to the global average of just 1.4% at the same time. The country that was the next most extended besides the US was South Korea at +4.8%. Since then, US equities have dropped 7.41%, with the month to date decline at 5.3% which is second only to Hong Kong’s 5.7% drop. In other words, equities around the globe have experienced mean reversion, but price action in the US has been some of the most dramatic and perhaps most justified. Click here to view Bespoke’s premium membership options for our best research available.
Not surprisingly, September hasn’t been a bull-friendly month for the Nasdaq 100. After a sharp decline from its record highs earlier this month, the index has made a series of lower highs and lows ever since. On 9/11, the Nasdaq 100 closed below its 50-DMA for the first time in several months, and while it quickly recovered above that level the following Monday, the bounce didn’t last for long. This Monday, the Nasdaq 100 kicked off the week with another lower low, and while it recovered from those lows, the bounce-back ran out of steam just shy of its 50-DMA. As far as technical patterns go, it’s never positive to see an index attempt to bounce back after breaking an uptrend only to see that rally run out of steam just shy of a key moving average. That’s the pattern shaping up for the Nasdaq now, though, and until the string of short-term lower highs and lower lows breaks, the burden of proof remains on the bulls.
For the broader market as a whole, the percentage of stocks trading above their 50-DMA has also started to dwindle. The chart below is from our Daily Sector Snapshot and shows the percentage of stocks in the S&P 500 finishing each day above their 50-DMA. Back in the early stages of the rally off the March lows, the percentage surged to just under 100%. From there, it started to drift lower, but even in early September more than three-quarters of stocks in the index were above their 50-DMAs. As September has progressed, however, the ranks of stocks above their 50-DMA have been more than cut in half to the current level of 35% – the lowest level in five months. Nothing goes up in a straight line, and pullbacks are part of the process, but September sure has been rough for many investors, who after the last few months may have forgotten that stocks do in fact move in two directions. Click here to view Bespoke’s premium membership options for our best research available.
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.
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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 free trial to Bespoke Premium. CLICK HERE to learn more and start your free trial.
“Cash combined with courage in a time of crisis is priceless.” – Warren Buffett
It’s not often anymore that you can say the Congress passed a bill on a bipartisan basis, but that’s what happened last night as the House passed a spending bill to keep the government open through December 11th. The way things are going, one couldn’t be faulted for asking if we’d all be better off if they did close, but we already have enough to debate.
US futures are mixed this morning as the DJIA futures lead the way on the back of Nike’s (NKE) strong earnings report after the close last night. With the stock up over 15% in the pre-market, NKE is on pace for its most positive reaction to earnings in at least 20 years. While DJIA futures trade higher, both the S&P 500 and Nasdaq are indicated to open flat to slightly lower.
Over in Europe, equities have reacted positively to some stronger than expected flash manufacturing PMIs in the region. However, while the manufacturing sector shows strength, the flash PMIs for the services sector generally missed expectations. Looking ahead to today, US flash PMIs for both the Manufacturing and Services sectors will be released at 9:45 eastern, and there’s a heavy dose of Fedspeak kicking off at 9 AM and going on through the entire day.
Be sure to check out today’s Morning Lineup for a rundown of the latest stock-specific news of note, market performance in the US and Europe, trends related to the COVID-19 outbreak, and much more.
While growth has been the overall leader YTD, we’re starting to see an epic tug of war between growth and value investors. After a record eleven straight months of the Russell 1000 Growth index outperforming the Russell 1000 Value index, through last Friday, the value index was outperforming growth in September by the widest margin since March 2001. Just when it looked like value investors were going to go on a run, though, growth has come roaring back this week. Over the last two days, the Russell 1000 Growth index is outperforming Value by over 3.6 percentage points. So far this year, there have only been two other periods with a wider performance spread over a two-day period, and before this year the last time there was a wider spread was in October 2008.
The chart below shows the rolling two-day performance spread between the Russell 1000 Value and Growth indices. Since 1995, there have been three distinct periods where the performance spread widened out to extreme levels – the late 1990s/early 2000s, the Financial Crisis, and now.
Prior to the last week or so, Nike (NKE) shares had been pushing to all-time highs on a near-daily basis. Heading into its earnings report after the close today, NKE has pulled back a bit but remains in a strong uptrend channel that formed off of its March COVID Crash lows.
While Nike’s share price is in a strong uptrend, the same can’t be said for the company’s quarterly sales. As was the case with most Consumer Discretionary companies, Nike has seen sales plummet during the COVID lockdowns. When Nike last released earnings back in June, it reported quarterly sales that were down nearly 40% year-over-year. NKE also missed sales estimates by nearly a billion dollars with actual sales of $6.31 billion versus consensus estimates of $7.26 billion.
All of the snapshots in this post come from the interactive section of our website, which Bespoke Premium and Bespoke Institutional members have access to. Below is a snapshot of our earnings gauges for Nike from our Earnings Explorer tool. NKE has historically beaten consensus EPS estimates 89% of the time since 2001, while it has topped sales estimates 73% of the time. In terms of share price reaction to earnings, NKE has historically responded positively to its quarterly report 63% of the time. Our proprietary Bespoke Earnings Score compares how NKE’s share price performs when it beats and misses estimates compared to the average company, and in that regard, NKE leans slightly bullish.
Below is a further breakdown of Nike earnings from our Earnings Explorer tool You’ll see that this quarter, consensus analyst estimates are looking for earnings per share of 42 cents and sales of $8.97 billion. If NKE manages to hit its sales estimate, it will still be down more than $1.6 billion versus the same quarter last year.
In terms of earnings seasonality, Nike’s Q3 report has actually been the most bullish for the stock of any quarter. As shown in the Quarterly Earnings Summary section below, NKE has exceeded EPS estimates 100% of the time on its Q3 report, and it has beaten sales estimates 83% of the time. NKE has averaged a one-day gain of 3.82% in reaction to its Q3 earnings report with positive returns 72% of the time, which is the most bullish of any quarter.
Finally, we’d note that recent quarters have seen NKE shares sell-off during intraday trading hours after its initial gap higher or lower at the open. When a company reports earnings either after hours or in the pre-market, shares immediately react either positively or negatively in after-hours trading. This after-hours move causes the stock to either “gap up” or “gap down” at the open of trading. Most of a stock’s official one-day move on earnings happens at the open, but we also track how stocks perform during regular trading hours (9:30 AM ET to 4 PM ET) after they report earnings. In regards to NKE, you’ll see in the third table below that the stock has actually traded lower from the open to the close of trading following its last seven quarterly earnings reports. Start using our Earnings Explorer for the stocks you care about most with a two-week free trial to Bespoke Institutional today!
This morning the Richmond Fed released its September reading on the manufacturing sector which showed continued improvement in the Fifth District. The headline index rose 3 points from 18 in August to 21 in September. Tha’s the fifth consecutive monthly increase in the headline index and the third month in a row of expansionary readings. That leaves the index at its highest level in two years.
The headline index as well as a number of its components is now in the top 5% of all readings. Components with historically high readings include New Orders, Order Backlogs, and Capacity Utilization. Breadth in this month’s report was also strong with every index besides Services Expenditures, Availability of Skills, and Raw Materials Inventories sitting in expansion territory. Most indices also rose this month with the only outliers being the index for Shipments, Prices Received, Wages, and the indices for Finished Goods and Raw Material Inventories.
Although the index for Shipments was lower, it remains at solid levels while other readings of demand like New Orders and Backlog of Orders continue to indicate strong order growth versus the prior month. Given this, inventories are dwindling. As shown below, the indices for Finished Good Inventories and Raw Material Inventories are both in the bottom 1% of historical readings with Raw Material Inventories showing a contractionary reading for only the second month ever. June of 2018 was the only time that Finished Good Inventories were lower and April of 2004 was the only lower reading for Raw Material Inventories.
Meanwhile, Employment continues to improve with the index for Current Number of Employees rising to 23 from 17 this month. That is in the 98th percentile of all readings with the last time the index was this high being June through August of 2018.
Not only are businesses bringing workers back, but they also appear to be raising expenditures elsewhere. Some of the indices that saw the largest month over month increases were those surrounding expenditures. For example, Service Expenditures rose from a contractionary -18 to 0 which was the biggest monthly gain on record. Meanwhile, the index for Capital Expenditure’s 16 point increase was likewise one of the largest on record. That also leaves this index at its highest level since in nearly two years.
In addition to the regional Fed’s look at the manufacturing sector, the Richmond Fed also includes readings on the service sector. As shown below, while there is not an all-encompassing number like the manufacturing composite, September marked a broad pivot into expansion for most indices of the services economy after multiple months of contractionary readings. Some indices, like the one for Equipment and Software Expenditure, even experienced their largest one-month gains on record. The same is even applicable to the indices for future expectations in the services sector. Of those indices, Equipment and Software Expenditure and Services Expenditures, both saw their biggest one-month gains ever while several others were in the 90th percentile or better of monthly moves. Granted, those gains still only leave them at the low ends of their historical ranges. In other words, conditions improved, but not to the same extent as the manufacturing sector.Click here to view Bespoke’s premium membership options for our best research available.
The Silver Trust ETF (SLV) is currently sitting on a year-to-date gain of more than 35% even after falling 16.15% since its early August high. Yesterday’s session had a significant part to play in those recent declines as SLV had a rough start to the week with a decline of 7.6%. As shown below, since SLV began trading in 2006, there have only been 21 days (0.58% of all trading days) in which SLV has fallen greater than 7% in a single day with yesterday marking the 19th worst day on record. In what has been a volatile year, that was the biggest decline since August 11th’s 13.6% drop; one day after its 52-week high. Prior to that, there was a 12.3% decline on March 16th, but before that, you would have to go back to 2013 to find another day with as large of a move.
One other thing that yesterday’s drop marked was a fall back below SLV’s 50-DMA. SLV has been trading above its 50-DMA every day since May 7th (94 consecutive trading days). That brings to an end the second-longest streak on record that SLV spent above its 50-DMA. The only longer such streak was one that lasted exactly 100 days that came to a close on January 13th, 2011. Back during that streak, SLV had risen 59% compared to the 79.1% rally from May through yesterday. Click here to view Bespoke’s premium membership options for our best research available.