Daily Sector Snapshot — 10/22/24
Chart of the Day – High Yield Spreads Go Low
Bespoke Stock Scores — 10/22/24
Trump’s Odds Pass 60%
We are now only two weeks away from Election Day. As the day draws near, polls have flipped between marginally favoring one candidate or the other over the past few months. In other words, according to polling, the election outcome is a coinflip. Meanwhile, betting markets have seen some significant moves and are projecting more of a decisive outcome. We discussed how these have related to equities’ performance in last week’s Bespoke Report. Moving deeper on the odds themselves, below we show data from ElectionBettingOdds.com which now puts former President Trump at an over 60% chance of winning the November election. That is the highest odds for him since July 22nd following news that President Biden officially dropped out of the race and when Vice President Harris assumed the candidacy. Trump’s gains have of course come at Harris’ losses as her odds are down to 39%. With that being said, at those levels, Harris’s odds remain stronger than the median reading for Biden during his time in the campaign. In fact, during the current election cycle up until dropping out, Biden only had stronger odds than Harris currently does from March through early June of this year.
As with any election, the past year has been eventful and in turn, there have been massive swings in betting markets’ predictions of the November winner. Below, we show how the odds have changed since various events like the debates, Biden dropping out, and the first assassination attempt on Trump’s life. While the event didn’t perfectly line up with the latest peaks and troughs in odds, the time after the second debate has seen a particularly big swing. President Trump has seen his odds rise close to double digits since then. That hasn’t been a full recovery from the peak in his odds when Biden dropped out, but it does make things unchanged since the first assassination attempt on July 13th.
In the chart below, we show each party’s odds at 14 days out from the election for each of the past three cycles. As shown, 2016 and 2020 saw heavy favoritism for the Democrats at a comparable point in time. 2016 in particular was predicting a landslide with Democrats being given an 84% chance. 2020 was a closer race, but still favored Democrats with a 63% chance of winning. This time around, those odds are flipped with Republicans now favored. Additionally, this is still the tightest race of these years albeit only by a few percentage points (relative to 2020). As for where the odds might move to in the next couple of weeks, we would note that in 2016 and 2020, there were only a few points difference between the odds at 14 days out versus the day before Election Day.
For another comparison to those previous elections, below we show how Republican betting odds shaped up over the year before election day in 2016, 2020, and this year. As noted in the chart above, there are examples of odds being much more elevated in each of the prior elections with Democrats being given a better than 80% chance to win at the comparable time in 2016. However, for Republican odds, outside of this past summer, the only other time where Trump was given a 60%+ probability of winning was briefly in February 2020. Of course, like polling, betting market predictions are no sure thing. While the outcome predicted in 2020 was correct, results in 2016 were wildly off.
Bespoke’s Morning Lineup – 10/22/24 – Yields Keep on Truckin’
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 trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“aggressive conduct, if allowed to go unchecked and unchallenged ultimately leads to war” – John F Kennedy, 10/22/1962
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Just when it seemed nothing could go wrong for the market, yesterday we had a weak day underneath the surface in terms of breadth. That weakness has continued into this morning as US futures are firmly lower following a decline of over 1% in the Nikkei. In Europe, despite positive earnings from SAP and Logitech, the STOXX 600 is down close to 1%.
Treasury yields remain the culprit as the relentless rise in longer-term interest rates continues since the Fed cut rates in September. The 10-year yield has risen above 4.2% for the first time since the summer as the market continues to experience one of the sharpest increases in yields following a rate cut in at least the last 30 years.
The S&P 500 was only down 0.18% yesterday, but breadth was terrible with a net advance/decline reading of negative 338. The weak breadth was also evident in the equal-weighted S&P 500 which was down 0.85%. The 4% rally in NVIDIA (NVDA), which is now within 2% of Apple’s (AAPL) market cap, was a big factor behind the big performance spread between the cap and equal-weighted indices. The scatter chart below compares the S&P 500’s daily percent change versus the net A/D reading, and the shaded area highlights days when the net A/D reading was between -350 and -300 (yesterday was -338). On those days, the S&P 500’s average decline has been 1.23%. To put yesterday into perspective (red dot in lower chart), it is one of just two days since 1997 that the net A/D reading was between -350 and -300 and the S&P 500 was down less than 0.25%!
Can you believe it? The day is almost here. Two weeks from today is the last day we can vote in the 2024 Presidential Election, and then we’ll finally get a break from all the politics. Right?
Like what we did two weeks ago, the chart below shows the performance of the S&P 500 in the two weeks leading up to Election Day for all years since 1948, and we have noted Presidential Election years in dark blue. While you might expect volatility leading up to Election Day, the S&P 500 has historically performed better in the two weeks leading up to Presidential elections (1.62%) than it has in non-presidential election years (0.87%), but it has been slightly less consistent to the upside at 68.4% during Presidential election years versus vs 73.3% in non-election years. The biggest gains and losses for the S&P 500 during these two weeks have also been during non-presidential election years (9.1% in 1962 and a decline of 4.4% in 1973). During Presidential election years, the largest gain was 5.4% in 1960 and the largest decline was 2.6% in 1988.
The table below lists the performance of the S&P 500 during the two weeks leading up to each Presidential election since 1948. Along with that, we have also included the number of days that had transpired between the last all-time closing high (ATH) and each Election Day, the number of ATHs in the 50 trading days leading up to Election Day, and whether the part of the incumbent or non-incumbent party won the election.
This year isn’t listed on the table since it’s not Election Day yet but with nine all-time highs already in the 50 trading day window (with ten to go) this year is already tied with 1964 and 1968 for the second most. With the most recent all-time high occurring last Friday, even if there isn’t another closing all-time high between now and then it will rank at least as the fourth fewest number of days between the last ATH and Election Day. The only ones with a shorter gap were 1996 (0 days), 1972 (1 day), and 1968 (8 days).
We also found it interesting that strong markets don’t necessarily help the incumbent party, but short-term weakness in the two weeks before may hurt the incumbent party. In the nine prior periods when the S&P 500 hit an all-time high within 100 trading days of Election Day, the incumbent party only won the Presidency four out of five times. There have been five prior periods when the S&P 500 was down in the two weeks leading up to the election, and in four of those periods, the non-incumbent party won. These are all small sample sizes, and there were other factors at play in each election, but any excuse to talk politics, right?
The Closer – Earnings, Rates, VIX Goes Long – 10/21/24
Log-in here if you’re a member with access to the Closer.
Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we lead off with a look at the latest earnings (page 1) followed by an update on rates (page 2). We then preview this week’s upcoming Treasury auctions (page 3) then finish with an update on futures positioning (pages 4 – 7).
See today’s full post-market Closer and everything else Bespoke publishes by starting a 14-day trial to Bespoke Institutional today!
Daily Sector Snapshot — 10/21/24
Chart of the Day: Remembering Black Monday
Weren’t Rates Supposed to Fall?
Treasury yields are higher this morning as they’ve been seemingly every day since the Federal Reserve cut rates in mid-September. At 4.15%, the yield on the 10-year US Treasury has risen to its highest level since late July, and since the close on 9/17, the day before the Fed’s 50 basis point (bps) cut, the 10-year’s yield has risen on 15 of the 23 trading days (65%). Wasn’t the rate cut supposed to lower rates?
Given the sharp increase in Treasury bond yields since the September rate cut, we were curious how the current increase stacks up to moves in the 10-year yield following prior rate cuts from the Fed. Going back to 1994 when the Federal Reserve first started to announce its policy decisions on the day of their meetings, there have been 35 rate cuts (scheduled and unscheduled). Below, we show the change in the 10-year yield in the 34 calendar days (equivalent to the number of days since the most recent cut) from the close on the day before each cut.
With the 10-year yield now up 51 bps since the close the day before September’s cut, the current period ranks as the third largest since 1994. The only two cuts that were followed by a larger increase in yields were in June 2003 (103.1 bps) and November 2001 (87.1 bps), and the next closest was in March 2001 when the 10-year yield increased 47.5 bps. For all 35 rate cuts since 1994, the median change in the 10-year yield was a decline of 3 bps, and the 10-year yield increased 15 times (43%).
Like this content? We think you’ll love our premium equity market research. Below are two Bespoke membership options to choose from. Start a two-week trial to one of them today!
Bespoke’s Morning Lineup – 10/21/24
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 trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“Unlike the mediocre, intrepid spirits seek victory over those things that seem impossible.” – Ferdinand Magellan
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Last week marked the sixth straight week of gains for the S&P 500, but the tone to kick off this week has been subdued. Pre-market equity futures have been lower all morning and picking up steam to the downside. European shares are down close to 1% with Germany leading the way as PPI fell 0.5% or more than twice the consensus forecast for a decline of 0.2%. Treasury yields and crude oil, which are also both higher, aren’t helping the sentiment backdrop for equities either.
The only economic report on the calendar this morning is Leading Indicators at 10 AM, but it will be a busy week of data in terms of both earnings and economic reports.
Gold is trading up nearly 1% this morning and on pace for its fifth straight daily gain and fourth record closing high in a row. It’s been an amazing year for gold, and one example of that strength is that this current streak of record-closing highs is the longest since a six-day streak at the end of…late September.
If today’s gains hold, it would be the 43rd time this year that the stock closed at a record high. As shown in the chart below, that would rank as the second most record closing highs for a calendar year, trailing only the 57 record closing highs in 1979. With 49 trading days left in the year, that record in 1979 may not necessarily be destined, but it’s certainly within reach.
Along with the surging price of gold, gold miner stocks have been on a nice run this year. While gold is up just under 33% for the year, the S&P 1500 Gold Industry index has rallied even more with a gain of 37.3%.
Logically, it would make sense that gold stocks have been rallying by similar amounts as the commodity, but that has hardly been the case over the long term. Since the start of 1995, the S&P 1500 Gol Industry has rallied 57.1%, but gold is up more than ten times that at 615.3%!
