Thursday
Aug212014

Philly Fed Hits Multi-Year High

Today's release of the Philly Fed report for the month of August not only came in stronger than expected, but the General Business Conditions index hit its highest level since March 2011.  While economists were forecasting a level of 19.7, the actual reading came in at 28.0, up from last month's reading of 23.9.

Strangely enough, while the headline reading of the Philly Fed report showed strength, the business indicators within the report were practically all weak.  As shown in the table to the right, seven of the nine indicators declined this month, reversing last month's gains.  The biggest declines of the general business indicators came in New Orders and Shipments.  In fact, while the headline reading of this month's report was the best since March 2011, the New Orders component saw its largest monthly decline since August of that same year.   Net net, on the surface there was a lot to like about the report, but after digging into the internals a lot of the bloom came off the rose.

Thursday
Aug212014

Commodity Trading Range Charts

Below is an updated look at our trading range charts for ten major commodities.  For each commodity, the green area represents between two standard deviations above and below the 50-day moving average.  Moves to the top of or above the green zone are considered overbought, while moves to the bottom of or below the green zone are considered oversold.  

As you can tell by the charts, commodities have had a rough go of it lately.  Nearly all of them are currently at the bottom of their trading ranges or worse.  Oil has really broken down here after a brief attempt to break out above $105 in June.  Right now it is in a steep downtrend and has yet to find support.  If oil can't hold the $90 level on a test in the near term, it will be entering price levels that it hasn't seen in quite some time.  Like oil, the precious metals have also been trending lower.  Gold, silver and platinum have all moved to the bottom of their trading ranges recently, so we'll have to see if they can bounce off of these oversold levels.  

Corn and wheat are two more commodities that have had brutal summers.  Since peaking in May, they have been on a straight path lower with hardly any attempts to bounce.  The only commodity that has yet to break down is coffee, but even it has been range bound since the price spike it saw at the start of the year.

Those looking for signs of a pick-up in inflation won't find it in commodity prices, that's for sure. 

Thursday
Aug212014

The Bulls Are Back!

With the S&P 500 on pace for its third straight week of gains, investors are getting hopping on the bullish bandwagon - in a big way.  According to this week's survey of individual investors from the American Association of Individual Investors (AAII), bullish sentiment rose by 6.3 percentage points to 46.11%.  Adding this week's increase to last week's jump of 8.92 percentage points, the two-week increase in bullish sentiment (15.2) is the largest two-week increase since last July.  This week's level of bullish sentiment is also the first reading above 40% since early June and actually represents the highest reading of bullish sentiment so far this year.  While less than half of individual investors are bullish, we are getting close to that 50% threshold that has spelled short-term trouble in the past.

As bullish sentiment surges, bears are moving to the sidelines.  This week's level of bearish sentiment declined from 26.96% last week down to 23.65%, which is the lowest weekly reading since early July.  The last time bearish sentiment saw as big a two-week decline as it has the last two weeks (14.58 percentage points) was back in late October of last year.

Tuesday
Aug192014

S&P 500 Just 10 Points Away

A couple of weeks ago, the bears were out in full force, but a 4% rally off of the August 7th lows has certainly quieted things down.  

As shown below, the S&P 500 is now back in overbought territory (>1 standard deviation above 50-DMA) after trading in oversold territory as recently as last week.  As of the close today, the S&P is just 10 points away from its July all-time high.  Is another break-out near?  (Sign up for a 5-day free trial to the Bespoke Premium service for our thoughts.) 

One area that has already broken out is the tech-heavy Nasdaq, which has blown out to new bull market highs this week.  For further reference, below is a look at the performance of various asset classes since the market made its short-term low on the 7th of this month.  Performance in the US has been pretty even based on market caps, with small, mid and large caps performing roughly inline.  From a sector perspective, Health Care, Industrials and Consumer Discretionary have outperformed during this run higher, while Telecom and Energy have lagged.  

Things have really quieted down in Ukraine/Russia, and Russia's stock market has benefited the most from this.  As shown below, the RSX Russia ETF is up 8.7% since August 7th, which is the biggest gainer of any ETF in the entire matrix.  As stocks have rallied during this geo-political "quiet period," commodity prices have gone lower, led by oil (USO) with a decline of 4%.  Both gold (GLD) and silver (SLV) are down as well, though.

Tuesday
Aug192014

Autos On The Move

We've seen a continued pickup in auto sales over the course of the spring, with the most recent Auto Sales release for July showing a seasonally adjusted annual rate (SAAR) of 16.4 million total, 12.95 million domestic.  That figure is down slightly from June's figure (16.92 million total, 13.25 million domestic) but represents a shift upward in terms of momentum from this time last year when sales were 15.73 million and 12.2 million.  The move higher for auto sales is a great sign for the economy, and we've seen a steady move higher throughout the recovery from the "great recession," which is just another example of the slow but steady improvement that has been a hall mark of this economic expansion.

Domestic automakers have largely benefited from this retrn to a semblance of normalcy in the auto market, as shown in the chart below which plots the S&P 1500 Automobiles Industry Industry Index against both domestic and total vehicle sales.

There are only two diversified US auto manufacturers left: Ford (F) and General Motors (GM).  With so little diversification, this puts investors at risk for surprises like the GM recalls.  If you'd like to get exposure to rising US auto sales but aren't eager to put all your eggs in one or two baskets, American Despository Receipts (ADRs) might be a good option.  ADRs represent foreign shares held overseas by US financial institutions, making them similar (although distinct from) to exchange-traded funds (ETFs) or exchange traded-notes (ETNs).  If you are interested in trading ADRs, make sure to familiarize yourself with their specific risk factors, which can differ from American equities.  Below is a list of auto manufacturers that are traded in the US.  Bolded names are US equities; the rest are ADRs.  Members of the S&P 1500 Automobile Industry Index are highlighted in grey.

Tuesday
Aug192014

Housing Starts: Insight From Bespoke

Last month, June Housing Starts registered a large miss, printing at 893,000 seasonally adjusted annual rate (SAAR), versus expectations of 1.02 million SAAR.  But in The Bespoke Report dated 7/18/14, we dove into the underlying data to properly understand what drove the miss.  Our findings are presented below.

Today, as we expected, Housing Starts surged, and there were upward revisions of 52,000 SAAR to last month's figure, bringing it much closer to our predicted level of 970,000.  

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Tuesday
Aug192014

Housing Starts Reverse Last Month's Big Miss

After last month's big miss in Housing Starts where the reported number missed expectations by 127K, Tuesday's Housing Starts report for July exceeded expectations by nearly the same amount.  While economists were forecasting a seasonally adjusted annualized rate (SAAR) of 968K, the actual level came in 125K higher at 1,093K.  This was the third better than expected reading of the year and the biggest beat relative to expectations.  At the current level for July, Housing Starts are just 12K from taking out the post-recession high of 1,105K from November.  

Looking at the breakdown of this month's Housing Starts report between single and multi-family units, the bulk of July's gains came in multi-family units which increased by 28.9% m/m, hitting their highest level since January 2006.  Meanwhile, single family units, which are considered to have a bigger economic impact, saw a much more tepid increase, rising by 8.3%, which was only about half the rate of growth that we saw in the headline reading.

Like Housing Starts, Building Permits for the month of July also came in significantly stronger than expected.  While economists were forecasting permits to come in at an SAAR rate of 1,000K, July's total came in at 1,052K.  Like Housing Starts, this was also just the third time this year that Building Permits came in better than expected.  Like the breakdown in starts, this month's breakdown in permits was similarly skewed in favor of multi-family units.  While single family permits increased by just 0.9% m/m, multi-family starts rose 21.5%.

Monday
Aug182014

Range Bound Russell

While a lot of investors have written off the Russell 2000 and small cap stocks since the index's peak in early March, a look at the index's chart shows that it has, more than anything else, been trading in a range bound consolidation mode.  This is a topic we have covered in the past, but with the index's recent moves, it warrants an update.

On a closing basis, each sell-off in the index this year has culminated in a higher low.  On the upside, the index's closing high for the year was 1,208.65 on March 4th.  From there, the Russell 2000 sold off 9.3% but found its footing just above the prior closing low for the year from February 5th.  After that sell-off, it rebounded by just over 10%, nearly recouping all of its declines and closing just half a point shy of a new high.  Once that rally failed to take out the March highs, technicians all but nailed the coffin closed for the Russell. 

Interestingly, the most recent sell-off bottomed out well above the prior sell-off's closing low, marking the second higher low of the year for the index.  With today's rally, the Russell 2000 is actually trading in the upper half of its range for 2014 (midpoint: 1,151.12).  Eventually, the Russell is going to break out of its range in one direction or the other, and the longer it trades within this range, the bigger the move will likely be.  Until that happens, though, we would characterize trading in the Russell 2000 as nothing more than range bound consolidation.

Monday
Aug182014

Prices at the Pump Still Falling

While gas prices typically are elevated during the summer driving season, consumers have been getting a break (at least relatively speaking) so far in 2014.  According to AAA, the national average price of a gallon of gas this weekend was $3.45, which represents a decline of 6.5% from this year's high of just under $3.70 per gallon which was reached in late April.

What makes this summer's decline in prices noteworthy is the fact that gas prices normally hover at or near their highs of the year in the Summer.  The chart below shows a composite for the national average price of a gallon of gas throughout the year going back to 2005.  In a typical year, prices at the pump rise steadily throughout the first four to five months of the year and peak just before Memorial Day.  They then trade sideways near their annual highs through Labor Day, before giving up all their pre-summer gains in the final 3-4 months of the year.  This year, gas prices followed the typical pattern (although to a smaller magnitude) up until the spring, but once the summer hit instead of remaining elevated, the bottom fell out and prices have been in a practical free-fall.  Since the start of July, for example, the national average price has only risen on 3 out of 48 days!

The table to the right shows the national average price of gasoline as of 8/17 in each year since 2005.  Even though gas prices have bucked the trend and declined this summer, they are still not low by historical standards.  Compared to the prior nine years, the current price is right in the middle at the fifth lowest.  That being said, it is the lowest national average price for this time of year since 2010, and with a gain of 3.9%, the YTD gain is the second smallest increase since at least 2005.

For anyone who has been driving for more than a few years, paying $3.45 for a gallon of gas is hardly anything to get excited about, but the fact is that gas prices are abnormally low relative to recent history, and are therefore providing some much needed relief to consumers.  If this trend continues, it should also provide a boost to the Consumer Discretionary sector, which has seen a dismal performance in 2014.

On a final note, another factor working in favor of lower gas prices is crack spreads.  Cracks spreads measure the difference between the price of gasoline and oil futures.  In other words, it is the premium that refiners earn on taking crude oil and refining it to gasoline.  The chart below crack spreads between WTI and NYMEX RBOB gasoline futures.  At a current level of $15.93, crack spreads are 28% below their average level of $22.02 going back to 1990.  For the current day of the year, though, spreads are even more depressed.  In the last 25 years (since 1990), there have only been four years where crack spreads were lower on 8/17 than they are now.  Road trip anyone?

When geo-political tensions flare up, stay on top of the latest moves in the market with Bespoke Premium.  Start your day with our Morning Lineup, end it with The Closer, and enjoy everything else in between -- some of the most insightful and actionable market analysis on the Street.  Sign up for a 5-day free trial to Bespoke Premium today!

Monday
Aug182014

Homebuilder Sentiment Stronger Than Expected

With a decline of over 6% so far this year, 2014 has not been a year to remember for the homebuilders.  The weakness in the sector has also been evident in the National Association of Home Builders (NAHB) monthly survey of home builder sentiment.  After hitting post-recession highs in the second half of 2013, sentiment dropped throughout the first half of 2014, driven in part by a Winter that was right out of Frozen's kingdom of Arendelle.

After bottoming out in May, however, we have started to see sentiment among home builders improve.  Monday's better than expected report for August continued that trend as the headline reading of home builder sentiment ticked up to 55 from 53.  This was stronger than the 53 consensus forecast and marked the third straight month that sentiment was better than expected.

The table to the right breaks down this month's home builder sentiment survey by category and regions.  In terms of categories, there was strength across the board as present and future sales both rose by two points, and traffic jumped three points.  In terms of regional data, sentiment was more mixed.  While the South and West regions actually saw small declines, sentiment in the Northeast and Midwest saw solid increases.  In fact, in the Midwest region, sentiment climbed to a new post-recession high of 65, which was also the highest level ever recorded since regional data is available (going back to 2005).  Now, if only those homebuilder stocks could get a boost.

When geo-political tensions flare up, stay on top of the latest moves in the market with Bespoke Premium.  Start your day with our Morning Lineup, end it with The Closer, and enjoy everything else in between -- some of the most insightful and actionable market analysis on the Street.  Sign up for a 5-day free trial to Bespoke Premium today!

Monday
Aug182014

Bullish Sentiment Still Elevated

Bullish sentiment ticked up a point this weekend in our Bespoke Market Poll, from 63% to 64%.  As shown in the charts below, bullish sentiment is definitely at the top end of its range here.  The last time the reading was at 60% or higher for two weeks in a row was back in February.

Monday
Aug182014

"A Second Half Story"

How many times have you heard that phrase in your life?  At the start of every year, when strategists are asked what their view on the market is, the response invariably sounds something like, "We expect near term volatility and potential weakness in the equity market, but see the economy and earnings picking up steam in the second half of the year."  The purpose of a statement like this is often so the person can claim they were right no matter what happened.  If the market goes down, and never rebounds they can say they were right to get you out of the market (and hope that no one remembers they said it would be a strong second half).  If the market goes straight up, instead, they can say something like the market looks six months ahead, so since we were expecting strength in the second half, you should have been buying in the first half to anticipate that pickup.

This year, though, the term a second half story has actually played out, but in a different way than you might think.  The chart below shows the performance of the S&P 500 so far this year.  In the chart, each quarter of the year has been broken down into halves.  So the first half of each quarter is shaded in gray, while the second half of the quarter is not shaded.  For each half of each quarter, we have also labeled the performance of the S&P 500 during each period.  As you can clearly see, the first half of every quarter so far this year has been negative for the S&P 500.  In fact, the three largest peak to trough declines have all originated and ended in the first half of each quarter.  Like the first halves of Q1 and Q2, the first half of Q3 ended with a decline for the S&P 500.  On the bright side, the second half of each quarter has been positive for the S&P 500, with gains of 1.83% and 4.78%, respectively.  With today marking the first trading day of the second half of the third quarter, bulls are hoping this pattern of 2014 continues to hold and that the third quarter is once again a second half story.

 

Friday
Aug152014

S&P 500 Higher or Lower from Here?

The market quietly pushed higher from Monday through Thursday of this week, only to stumble on Friday morning as geo-political tensions out of Ukraine hit risky assets like equities across the globe.  So which way will the market head from here?  Please take part in our weekly Bespoke Market Poll below by letting us know whether you think the S&P 500 will be higher or lower one month from now.  We'll report back with the results on Monday before the open.  Thanks for participating and have a great weekend!

Looking for more market analysis and stock ideas from Bespoke?  Be sure to sign up for a 5-day free trial to our Bespoke Premium service and check out our just-published weekly Bespoke Report newsletter.  This week's 34-page newsletter covers numerous topics, including the just-concluded earnings season, geo-political worries, weak economic data out of Europe, market technicals, short interest, seasonality, and much more.  The newsletter also contains our updated Bespoke Model Stock Portfolio and Model Dividend Portfolio, so you can see which stocks Bespoke currently likes best.  Sign up for a 5-day free trial today.  Use "summer" in the coupon code section of our Subscribe page to receive a 10% discount on the life of your membership!

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Friday
Aug152014

Stocks Down on Earnings Again

The second-quarter earnings season came to an end yesterday with Wal-Mart's (WMT) report.  Of the more than 2,400 companies that reported since earnings season began on July 8th, the average stock fell 0.70% on the day of its report.  (For companies that report before the open, we look at that day's change.  For companies that report after the close, we look at the next day's change.)  As shown below, the last two quarters have been brutal for stock performance on earnings.  The average one-day decline of 0.70% this quarter was bad, but last quarter was even worse when the average stock fell 0.9% on its report day.  This is the worst two-quarter losing streak going back to at least 2003 using data from our Interactive Earnings Report Database.  Let's see if there's a bounce back next quarter after this brutal two quarter stretch.

Friday
Aug152014

Bespoke Featured In WSJ's 50 Best Twitter Follows List

Many thanks to the Wall Street Journal and Katie Martin of the MoneyBeat blog for naming Bespoke one of the 50 Financial Twitter Feeds You Must Follow!  We love Twitter as a platform for discussion and engagement.  Being mentioned on the same list as Merrill Lynch, Goldman Sachs, Guggenheim, UBS, and PIMCO was an endorsement of our thirty-seven thousand followers as much as it was of us.  Please click here to read the post and see the whole list.  You can follow us on Twitter at @bespokeinvest and access our subscription content at Bespoke Premium.