Bespoke’s Morning Lineup – 4/2/24 – A Pause That…
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“Know what you are talking about.” – Pope John Paul II
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Is this the beginning of the sell-off the market has been avoiding for the last several months? Equity futures are lower this morning as rates have risen and Bitcoin is getting shellacked. Making matters worse for equities this morning is a sharp sell-off in the health insurers following updated Medicare Advantage reimbursement rates published after the close yesterday. Crude oil is up 1.5% while the breakout in gold continues, and that’s not helping to make the case for rate cuts. While May has been off the table for weeks now, markets are also increasingly starting to price June out of the picture with odds now falling to not much better than a coin flip. The only economic data on the calendar this morning is Factory Orders and JOLTS which will both be released at 10 AM Eastern.
Outside of the US, the Japanese yen continues to trade at an interesting spot. After making a run to the ever-important 152 level two weeks ago, the Japanese yen has stalled over the last two weeks just shy of that resistance level. As shown in the chart below, 152 is a level where each of the prior two sell-offs in Q4 2022 and Q4 2023 were stopped in their tracks.
As a result of the stall, in each of the last ten trading days, the daily close for the yen has been rangebound between 151.26 and 151.69 for a total range of 0.28%. That’s narrow! The chart below shows the rolling 10-day high-low range of the yen’s daily closing levels dating back to 1980. It’s hard to see it in the chart, but over the last 45 years, there have only been two other periods where the 10-day range was less than 0.30% as it is on pace to do today. Since 1980, the average 10-day range is 2.28%.
In the long-term chart of the yen below, the red dots show each time the rolling 10-day change dropped below 0.30%. The first occurred in early 1986 at a time when the yen was in the middle of a monster rally that took it from over 250 yen per dollar down to under 125 in less than three years. After that, the next time the range dropped below 0.30% didn’t occur until late 2019 and then again in June 2020. Leading up to and after those occurrences, the yen was in a sideways trend and didn’t do much over the following year before the current sell-off started in earnest. It’s a small sample size, but in each of the prior two examples, the trend that was in place leading up to the narrow ten-day range remained in place after.
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Chart of the Day: Election Cycle, Biden, and Investing & Politics
Equities Shine Over Bonds
Helped mainly by the massive gain since late October, the S&P 500’s one-year trailing total return through the end of March clocked in at an eye-watering 30.5%, or nearly triple the historical average of 11.8%. While the rally over the last year has been well above average, it followed a period of weak returns in the prior year. When you combine the last two years, the S&P 500’s annualized gain of 9.7% is nearly a full percentage point below the long-term historical average. Looking out over the last five and ten years, annualized returns have been well above average, but over the prior twenty years, the S&P 500’s performance has been sub-par.
Equity market returns may have been below average over the last two and twenty years, but you won’t find many equity investors looking to trade shoes with investors hiding out in long-term (LT) US Treasuries. The chart below shows the annualized total return of the Bank of America/Merrill Lynch index of 10+ Year US Treasuries over various timeframes. Over the last year, LT Treasuries declined 4.8% versus a long-term average annualized gain of 8.1%. If you think that’s bad, check out the two-year annualized decline of 13.1%…in Treasuries! That’s a 25% haircut! Even over the last five years, LT Treasury returns have been negative to the tune of 1.6% annualized. To find – not better than average – but simply positive returns, you have to go out to the ten-year window, where the total return is just 1.6% annualized and still seven percentage points less than the historical average. While technically not a lost decade, it’s been a loser of a decade for sure.
Bespoke Market Calendar — April 2024
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Bespoke’s Matrix of Economic Indicators – 4/1/24
Our Matrix of Economic Indicators provides a concise summary analysis of the US economy’s momentum. We combine trends across the dozens and dozens of economic indicators in various categories like manufacturing, employment, housing, the consumer, and inflation to provide a directional overview of the economy.
To access our newest Matrix of Economic Indicators, start a two-week free trial to either Bespoke Premium or Bespoke Institutional now!
Bespoke’s Morning Lineup – 4/1/24 – Quiet Start to New Quarter
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“If you plan on being anything less than you are capable of being, you will probably be unhappy all the days of your life.” – Abraham Maslow
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Welcome to the new quarter! It’s a quiet start to the day, week, month, and quarter as much of the rest of the world remains closed in observance of Easter, but looking back, outside of a handful of countries, natural gas, and fixed income, the first quarter of 2024 picked up right where 2023 left off. You’d have to be living under a rock not to know that the S&P 500 ended March with a five-month winning streak, and along with it, the Nasdaq has also traded higher in each of the last five months in what was the second five-month winning streak in the last year.
In its history dating back to 1971, the current winning streak is the 25th time that the Nasdaq has had a winning streak of at least five months. The current streak is the fourth of the post-COVID era, but heading into Covid, the Nasdaq was also up for five straight months from September 2019 to January 2020 before falling over 6% in February 2020. Overall, for all of the 24 prior five-month streaks, the Nasdaq’s median performance in the following month was a gain of 1.2% with positive returns nearly 63% of the time. More recently, though, four of the last five streaks have ended in the fifth month.
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Q1 2024 Asset Class Performance + Big Winners and Losers
The first quarter of 2024 ended with the S&P 500 (SPY) posting a total return of 10.4%. That was good enough to beat the Tech-heavy Nasdaq 100 (QQQ) and the blue-chip Dow 30 (DIA) on the large-cap front, and it also beat both mid-caps (IJH) and small-caps (IWM). The weakest of the various US index ETFs in Q1 was the small-cap value ETF (IJS), which was up just 0.06%.
Looking at sectors, it was Energy (XLE), Financials (XLF), Communication Services (XLC), and Industrials (XLI) that posted double-digit percentage gains, while Real Estate (XLRE) was the only sector in the red with a decline of 0.65%.
Outside of the US, there were some winners like Italy (EWI) and Japan (EWJ) and losers like Brazil (EWZ), Hong Kong (EWH), and China (MCHI).
Commodity ETFs saw some big gains in Q1, although natural gas (UNG) fell sharply. While Treasury ETFs were up slightly in March, they finished Q1 slightly in the red.
Below is a look at the average performance of Russell 1,000 stocks in Q1 broken out by sector. As shown, Energy stocks averaged the biggest gains in Q1 at 11.56%, followed by Industrials (10.08%) and Financials (9.61%). Notably, Tech stocks averaged a gain of just 4.86%, while Communication Services and Real Estate stocks averaged declines.
Below is a look at the 30 best performing Russell 1,000 stocks in Q1. NVIDIA (NVDA) topped the list with an 82.5% gain, but surprisingly, a Utilities stock (VST) ranked second with a gain of 80.8%. AppLovin (APP), Shockwave Medical (SWAV), and Vertiv (VRT) rounded out the top five.
When we crossed the list of big Q1 winners with our Bespoke AI basket, it’s interesting that just three of the top thirty stocks are on our AI list: NVDA, VRT, and PSTG. There were plenty of non-AI and non-Tech stocks up big in Q1, like Williams-Sonoma (WSM), Crocs (CROX), Kellogg (KLG), Spotify (SPOT), and DoorDash (DASH).
Not everything went up in Q1. Roughly a third of the Russell 1,000 finished the quarter in the red, while there were 49 stocks in the index that fell more than 20%. Below are the 30 stocks that did the worst in Q1, led by New York Community Bancorp’s (NYCB) decline of 68.5%.
All or Nothing Comes Back
Although the S&P 500 is ending the week little changed (as of this writing it is trading 7 bps higher today), yesterday’s gain came in at a more impressive 86 bps. Besides the size of the move higher was that the gain occurred on very strong breadth with the S&P 500 registering an “All or Nothing Day”. We consider any day an “All or Nothing Day” when the daily advance/decline line (the difference between the number of S&P 500 stocks rising and falling on a given day) comes in at above +400 or below -400. In other words, these are days when broad swathes of the market trade in the same direction.
Recently, all-or-nothing days have been hard to come by. On a rolling 200-day basis, only 4.5% of days have registered such readings. Following very elevated readings just one year ago, current levels are now down around some of the lowest of the past two decades.
For this calendar year, yesterday was also the first all-or-nothing day of the year. Since 2008, when the pace of all-or-nothing days experienced a structural increase in frequency as the popularity of ETFs ballooned, the only other year where the first occurrence came later in the year was 2017 when it took 72 trading days.
Not only have “All or Nothing Days” been fairly uncommon lately, but before yesterday it had been just over three months since the last one was observed. As shown below, that is one of the longer streaks of the past couple of decades. The last streak of such a length ended in late January 2020. Of course, there have been multiple streaks that have run much longer such as 2006 and 2018 which were nearly twice as long. Or going further back to the 1990s (not pictured in the chart below), there have been streaks that have gone on upwards of 561 trading days.
In the table below, we show the performance of the S&P 500 following the end of each other streak without an all-or-nothing day since 1990 that has lasted at least three months. This most recent streak just barely made that three-month mark, but following prior streaks performance was mixed. After these streaks have ended, the S&P 500 has traded higher only a little better than half the time one week, one month, and three months later. Additionally, median returns were weaker than the norm for all periods since 1990. Six months to a year later, the S&P 500 traded higher much more consistently, albeit again median returns have trailed the norm.
Chart of the Day – April Seasonality & Recent Performance Implications
Bespoke’s Morning Lineup – 3/28/24 – Hold Your Horses
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“Even if you don’t have the authorities – and frankly I didn’t have the authorities for anything – if you take charge, people will follow.” – Hank Paulson
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Futures were little changed coming into the 8:30 data dump this morning, even as Ged Governor Waller implied that investors should hold their horses regarding rate cuts by saying he needed to see additional evidence of decelerating inflation before thinking about cutting rates. This morning’s data was generally positive as jobless claims were pretty much right in line with forecasts, while GDP was revised higher. Inflation data in the form of the GDP Price Index and the core PCE Price Index were either right in line or slightly better than expected. In response to all the reports, futures remain little changed although they may have seen a slightly positive bump.
It may be the last trading day before a long weekend, but one thing you may want to stick around to watch for is whether the S&P 500 can squeak by with a double-digit percentage gain for the first quarter. Through yesterday’s close, the S&P 500’s quarter-to-date gain was 10.04%, so any gain today will make it two straight quarters of double-digit percentage gains. Any decline, however, of even more than a point in the S&P 500 will put the quarter just shy of a 10% gain.
Taking an optimistic approach, the table below shows the performance of the S&P 500 following every prior period where the S&P 500 was up at least 10% since WWII. For each period, we show the S&P 500’s performance following the end of the second double-digit percentage quarter. The following month tended to see some weakness with a median decline of 0.75% and gains just three out of seven times. Three months later, returns shifted positive with a median gain of 1.67%, but none of the streaks extended to a third quarter of double-digit gains. Six months later, performance was also positive with gains more than two-thirds of the time, and one year later, the S&P 500’s median gain was 9.55% with positive returns all but once. The only time the S&P 500 wasn’t up over the next year was following the occurrence in Q4 2010, and that decline was just 0.002%.
Whether the market finished up 10% or more for the quarter, barring a very bad day, it will be the fifth straight positive month for the S&P 500, but one area of the market that hasn’t contributed much to this month’s rally is the mag 7. Through yesterday’s close, two of the seven stocks in the group were down month to date, and five were underperforming the S&P 500. That’s been an uncommon trend since the bull market kicked off in late 2022. The last time the S&P 500 was up in a given month and five of the seven mag 7 stocks underperformed the index was in October 2022.
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