Friday
Aug082014

S&P 500 Higher or Lower from Here?

As we mentioned before the open today, the market usually bounces when our breadth measures get this oversold.  And we certainly got that bounce today with the S&P closing up more than 1%.  But which way will the market head from here?  Please take part in our 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!  If you're looking for more actionable analysis from Bespoke, be sure to sign up for a 5-day free trial to our Bespoke Premium service.  Clients love our Friday evening Bespoke Report newsletter that is part of the package.

Will the S&P 500 be higher or lower than its current level one month from now?
Higher
Lower
  
Free polls from Pollhost.com

Thursday
Aug072014

Oversold Everywhere

As shown below, the S&P 500 closed yesterday at the very bottom of oversold territory in our trading range chart, meaning it is two standard deviations below its 50-day.  It has gotten down to this level once over the past year (back in February), and it bounced nicely then.  As you can see in the chart below, while the index has taken a dip recently, it is still trading within its long-term uptrend.  Obviously trading over the next week or so will be key.

Nine of ten S&P 500 sectors are currently oversold as well.  Luckily, Technology -- the largest sector of the market -- has held up better than everything else, and it's the only sector that isn't currently oversold.

One indicator we're watching closely here is the S&P 500 10-day advance/decline line.  This is a short-term breadth reading that measures the average number of daily advancers minus decliners in the S&P 500 over the last ten trading days.  When this reading has gotten as oversold as it is now throughout history, the market typically sees at least a short-term bounce.  

Finally, just 23% of stocks in the S&P 500 are currently trading above their 50-day moving averages.  As shown below, this is the lowest reading that we have seen over the last year.

Thursday
Aug072014

Which Way For the 10-Year Yield?

The yield on the 10-year US Treasury hit a 52-week low today for the first time in more than two years, as moves in interest rates continue to confound the bulk of investors.  With the yield on the 10-year currently at 2.44%, we want to know which way readers think interest rates are going.  Which do you think we see first on the 10-year yield, 3% or less than 2%?  Take part in our poll below to let us know.

Which will come first for the yield on the 10-Year US Treasury
1 handle (under 2%)
3 handle (over 2.99%)
  
Free polls from Pollhost.com
Thursday
Aug072014

Bearish Sentiment Nears a 52-Week High

One thing that investors have been able to count on during this bull market is that whenever equities run into trouble bulls scatter and bears come out of the woodwork.  Given the recent market weakness, that has once again been the case this week.  Following the worst week for equities in over two years, bullish sentiment on the part of individual investors dropped and bearish sentiment spiked.  According to the weekly survey of investor sentiment from the American Association of Individual Investors (AAII), bullish sentiment dropped from 31.12% down to 30.89%.  While that was just a marginal decline, as you can see in the chart, it is still down sharply from where it was in early July.

Meanwhile, the magnitude of the move in bearish sentiment was much greater.  Compared to last week's reading of 31.12%, bearish sentiment rose over 7 percentage points this week to 38.23%.  That is the highest level of bearish sentiment in nearly a year (8/22/13).  With bullish sentiment now exceeding bullish sentiment by 7.34 percentage points, this is only the second time this year that bears have outnumbered bulls.

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!

Thursday
Aug072014

Jobless Claims Lower Than Expected

For the fourth time in the last five weeks, jobless claims came in below forecasts this week.  While economists were forecasting a level of 304K, the actual reading came in 15K weaker at 289K.  This was the second lowest weekly reading of the recovery, behind only the 279K level we saw two weeks ago.  As we have said numerous times in the last several weeks, while other economic indicators have been showing mixed results recently, jobless claims have remained firm.

With this week's decline, the four-week moving average dropped to post-recession low of 293.5K, which is the lowest level since February 2006.  This is the fourth straight week that we have seen a new low in the four-week moving average and just further underscores how strong jobless claims have been of late.

The most impressive part of Thursday's jobless claims report, though, was the non-seasonally adjusted (NSA) number.  At a level of 247.1K, this was the lowest weekly NSA reading for the current week of the year in at least 25 years, and well below the average of 324.6K for the current week dating back to 2000.  It's hard to get much better than that.

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!

Wednesday
Aug062014

The Closer Commentary 8/6/14 - Technically, Flat. For Now.

The below is an excerpt from tonight's edition of The Closer, sent to Bespoke Premium and Institutional clients each night along with graphs, analysis, and timing models for both single name equities and the market as a whole.

 

On a sector basis, today’s tape belied some very strong internals.  On a sector basis, 93% of Consumer Staples stocks were up today, and the sector gained 91 bps.  On the cyclical side, Financials piled on 45 bps, and 73% of names were up.  Even sectors that were down, such as Health Care and Tech, had more than half their stocks up.  Consumer Discretionary also had stronger internals than its 26 bps loss would suggest with 58% of stocks gaining.  On an index basis, 271 of 500 stocks were up, but of the 228 stocks that were down, 34 were either Telecoms or Utilities (sectors that lost over 1% today and had a single up stock between them).  Finally, concluding our sector review, Industrials continued to drastically underperform, down 2.73% versus the S&P 500 since the beginning of July thanks in part to the strong dollar.

To continue reading, subscribers can click here.  Non-subscribers can gain access by signing up for a five day free trial.

Wednesday
Aug062014

Energy Inventories Drop More Than Expected

This week's release of energy inventories from the Department of Energy (DoE) showed that stockpiles of crude oil and gasoline dropped more than expected in the latest week.  In the case of crude oil stockpiles fell by 1.756 million barrels compared to expectations for a decline of 1.55 million barrels.  Even after this week's decline, though, stockpiles remain well above their average over the last ten years and going back to 1984.

In the case of gasoline, inventories saw an even bigger decline relative to expectations.  While traders were expecting stockpiles to remain unchanged from last week, the actual decline was 4.387 million barrels. The last time we saw a weekly decline of that magnitude was in early April.  Finally, unlike oil where inventories are well above average, the difference between current and average levels in gasoline stockpiles is much smaller.

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!

Wednesday
Aug062014

Incredible Shrinking Yields

Remember a few years back when everyone used to look at the 1% yields on long-term Japanese sovereign debt and write it off as a phenomenon specific to Japan?  Well that so-called Japan specific issue is now firmly entrenched in Germany and Japan, and with a yield of 2.08% Canada is not far behind. Meanwhile, Japan has graduated down to the sub 1% club!  

 

With the exception of Russia, long-term sovereign yields across the G8 are at levels that were unthinkable a few years ago.  Even in Russia, where the current geo-political situation would make you think the country would have trouble borrowing money in the capital markets, 10-year sovereign debt is yielding just 5.29%.  Keep in mind that this is a country that defaulted on its debt 16 years ago and is also being threatened with increased sanctions over its aggression with the Ukraine.  Elsewhere in the G8, the US is in the middle of the pack at 2.44%, while Great Britain (2.51%) and Italy (2.80%) are both also under 3%.

The table below lists the current 10-year local currency sovereign debt yields of each G8 country, as well as their changes over the last day, week, month, three and six months.  As you can clearly see, everywhere except Russia (and Italy in the last week), yields have been on the decline.  Even as calls for a peak in fixed income have been around for months now, the appetite for sovereign debt hasn't been satisfied.

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!

Wednesday
Aug062014

The Bespoke Morning Lineup: 8/6/14 Commentary

The below commentary excerpt is an example of what Bespoke Premium subscribers receive every morning in The Morning Lineup in addition to three pages of key headlines, charts, trends, and technical indicators.  We will be posting a sample of our commentary here each morning for the next several weeks.  If you're interested in receiving this report and our many others via email, try a 5 day free trial to Bespoke Premium today!

Global markets are in churn and burn mode this morning as European data has drastically under-delivered and the specter of conflict in the Ukraine hangs dark over the continent. Risk markets are hitting bids all over the place, and the selling in credit (European investment grade CDS indices 3 bps wider, high yield 15 bps wider, financial CDS 4 bps wider), equities (EuroStoxx -1.63%), sovereign debt markets (Italian, Portuguese and Greek debt all 10 bps wider to bunds), and currencies (virtually every major cross lower versus the USD; JPY also performing strongly), is notable.

European trading is getting hard to watch as Italy is just off its lows but still down more than 3% following horrible data this morning. The UK is outperforming but still off over a percent (-1.17%) on Industrial and Manufacturing Production misses and higher-than-expected home prices. France, Spain, and Germany are all puking up gains from yesterday in sympathy with the Italian market where equities are down 2.93%. Portugal is off over 3% and Greece is toying with a loss of almost 5% today. The two best-performing markets in Europe at this hour, both off 95 bps, are the Netherlands and Poland; literally every other market in Europe is down at least 100 bps.

The wide-ranging economic data released today for Europe was a series of misses, with very little to look to for comfort about the prospects for the EU. Factory orders in Germany fell 3.2% month-over-month in June, versus expectations of 0.9%. Retail PMIs are in full-blown rout mode, missing expectations this morning for Germany, France, Italy, and the Eurozone as a whole. Finally, there was the Italian GDP release which actually fell year-over-year by 0.3% versus expectations of 0.1% growth. The economic data out of the Eurozone is screaming for further action from the ECB, but it’s still not clear if the central bank has the legal ability to start buying bonds in order to expand the money supply. It’s also not clear how much support QE would offer a eurozone whose economic conditions are rapidly deteriorating.

Subscribers, please click the thumbnail below to access the full Morning Lineup. 


Tuesday
Aug052014

The Closer Commentary 8/5/14 - Stop, Get On The Floor

The below is an excerpt from tonight's edition of The Closer, sent to Bespoke Premium and Institutional clients each night along with graphs, analysis, and timing models for both single name equities and the market as a whole.

US equities sold off aggressively today after….nothing, really.  There was no credible catalyst for the lightning quick move down from 1930 on the S&P 500 at 1:30 PM to 1917 at 1:44 PM and eventually the lows of the day at 1913 around 2:10 PM.  The moves today were disorderly, choppy, and didn’t feel sensible to us; not to say that the market ought to have been higher today, or that it ought to have been down less.  Rather, we were surprised at how markets were moving all day today, right from the start.

One thing that caught our eye, which we touched on in our commentary on The Morning Lineup, was the idea that equity futures were under pressure from something other than Europe this morning.  The pattern over the last month or two has been for S&P 500 futures to track Europe closely until the open in US cash markets or often the close in Europe (11:30), at which point the US market regains its footing and trades on its own.  But this morning we saw the precise opposite: Europe got off to a solid start on the back of good PMI data but instead of rising with the eastern side of the Atlantic, US futures fell.

The pre-market price action was confirmed at the open when the cash market zig-zagged.  While the S&P 500 was able to climb off its lows to within 5 index points of breakeven, it couldn’t hold either of the high-on-days put in between 10:30 and noon.  But after selling off moderately through the afternoon, stocks looked like they were angling for a run higher when a sudden wave of selling came out of nowhere.  At right is a chart showing just how aggressive the move was for the S&P 500, the Dow,  and the Russell 2000. 

To continue reading, subscribers can click here.  Non-subscribers can gain access by signing up for a five day free trial.

Tuesday
Aug052014

A Year To Forget For The Oracle

Back in April, we looked at how some of the big holdings for Berkshire Hathaway were performing in 2014, and compared them to the S&P 500.  As of April 7th, this year was a tough one for Warren Buffett's top holdings at Berkshire; his 15 largest S&P 500 investments were trailing the S&P 500 by about 0.8% year to date.  Since then, though, things have gotten worse.  

Below is a table detailing Warren Buffett's 15 largest investments since the start of the year and over the past 12 months.  While Buffett measures his book value versus the S&P 500 instead of the price of his underlying shares, we can take a look at the market's assessment.

On both a simple (dividends excluded) and total return (including reinvestment of dividends) basis, the top 15 equity holdings of the Berkshire Hathaway portfolio (as of 3/31/14) plus Bank of America (BAC), which Berkshire owns warrants on, have noticeably underperformed the S&P 500.  For the purposes of our analysis, we assumed that Berkshire is long 700 million shares of BAC, which is basically equivalent to returns on deep in the money calls that the warrants replicate.

While some of Buffet's picks have been marvelous (including his largest investment, Wells Fargo- WFC), and a large position in DirecTV- DTV), others have dragged down his returns including Coca-Cola (KO), which has faced uncertainty over demand headwinds as fewer Americans consume carbonated beverages.  General Motors (GM) has also gotten smoked this year as recall after recall has poured in; this despite a boom in US auto sales.

One thing is certain: over the long run, Buffett's track record is second to none.  Like any investor, though, his returns can really swing and even underperform the market over shorter time periods.  It's also worth noting that there are dozens of other businesses bolted on to Berkshire Hathaway besides its equity portfolio.  Those businesses are the reason that BRK shares have returned 8.35% year-to-date, or almost double the return of the S&P 500, despite the underperformance of his portfolio.

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, and end it with The Closer -- some of the most insightful and actionable market analysis on the Street.  Sign up for a 5-day free trial to Bespoke Premium today!

Tuesday
Aug052014

Less Pricing Pressure in ISM Commodities Survey

Whether you want to look at the various official inflation measures or the anecdotal stories of companies raising prices, concerns over an uptick in inflation have become more prevalent in the past few weeks.  At the surface, last Friday's ISM Manufacturing report seemed to support those concerns as the Prices Paid component increased from 58.0 to 59.5.  As we noted last week, though, underneath the surface we actually saw a decline in the number of commodities that were rising in price.

In Tuesday's ISM Services report, we saw a similar decline in the number of commodities rising in price.  During the month of July, respondents in the services sector noted increases in 20 commodities while 3 declined in price. At a net of 17, this represented a decline of four from June's level.  On a 3 month moving average basis, the net number of commodities rising in price now stands at 16.7, which is down 1 from last month and is the lowest reading since March.  While we are not implying that worries over inflation should be brushed aside, it is notable that just as inflation and rising prices are starting to make the headlines, the ISM surveys of commodity prices in the ISM reports are showing that the situation has not gotten any worse.

Start your day with our Morning Lineup, and end it with The Closer -- some of the most insightful and actionable market analysis on the Street.  Sign up for a 5-day free trial to Bespoke Premium today!

 

Tuesday
Aug052014

Upside Surprise in ISM Services

Today's ISM Non Manufacturing report for the month of July hit its highest level since November 2005 and showed that the pace of economic activity continued to improve during the first month of the third quarter.  While economists were expecting the headline index to come in at a level of 56.5, the actual reading came in at 58.2.  That 2.2 point beat relative to expectations was the widest since last September.  

Combining Tuesday's ISM Services report with the ISM Manufacturing report from Friday and accounting for each sector's share of the economy gives us a combined reading of 58.3, which is also the best reading since November 2005.  While these numbers are certainly encouraging, they probably won't give any comfort to those investors who may already be skittish about the Fed.

The table below breaks down July's ISM Services report by each of the index's subcomponents.  Compared to last month, breadth in July's report was positive with five components increasing, four declining, and one unchanged.  The biggest increases relative to last month were in Business Activity (+4.9) and New Orders (+3.7).  The increase in New Orders brought that component to its highest level since August 2005.  Compared to last year, this month's report was even more positive as six components increased and three declined.  On a year/year basis, the biggest increases were in New Orders and Backlog Orders.  Finally, the two point decline in export orders in this month's report is a potential sign that weakness in foreign markets is crimping demand in those regions.

Start your day with our Morning Lineup, and end it with The Closer -- some of the most insightful and actionable market analysis on the Street.  Sign up for a 5-day free trial to Bespoke Premium today!

Tuesday
Aug052014

The Bespoke Morning Lineup: 8/5/14 Commentary

The below commentary excerpt is an example of what Bespoke Premium subscribers receive every morning in The Morning Lineup in addition to three pages of key headlines, charts, trends, and technical indicators.  We will be posting a sample of our commentary here each morning for the next several weeks.  If you're interested in receiving this report and our many others via email, try a 5 day free trial to Bespoke Premium today!

One possible catalyst for Treasuries today is the JPM Client Duration Survey, which showed short covering of interest rate risk from both active clients and all clients. Although net longs are still negative, this could be a factor in some of last week’s large end-of-week yield swings. Net shorts remain at elevated levels, and are only back to where they were as ofJune 23rd.

Turning to earnings, ADM (+0.82% yesterday, +0.02% pre-market) beat EPS but missed on the top line, where revenue shrank 4.6% year-over-year. In e-commerce, retailer Blue Nile (NILE, -0.27%, flat pre-market) managed to miss on EPS, deliver a revenue miss and year-over-year revenue declines, and guide down revenue and EPS for both Q3 and the full year; all in all a disastrous report from the online retailer. Although not earnings related, Target (TGT, +1.42% yesterday, -3.21% pre-market) announced an increase in costs related to the data breach reported earlier this year. The guidance hit EPS by 7 cents per share, down to 78 cents in Q2 versus $0.85 - $1.00 and an estimate of $0.91.

Turning to economic data, the US iteration of Markit’s PMI Services is due at 9:45 AM, with a 60.8 print expected versus 61.0 prior. ISM Non-Manufacturing follow at 10:00, with an expansion to 56.5 expected versus 56.0 prior. Also at 10:00 are factory orders, expected to expand by 0.6% after a 0.5% decline last month.

Subscribers, please click the thumbnail below to access the full Morning Lineup. 

Monday
Aug042014

The Closer Commentary 8/4/14 - Turning European?

The below is an excerpt from tonight's edition of The Closer, sent to Bespoke Premium and Institutional clients each night along with graphs, analysis, and timing models for both single name equities and the market as a whole.

There were no major economic releases today but one under-appreciated indicator that came out was the Federal Reserve’s Senior Loan Officer Survey.  The survey assesses credit conditions using a wide-ranging assessment of various loan markets as seen by loan officers at banks around the country.  This quarter’s release was very good news with respect to credit conditions, with increased demand for loans across commercial & industrial, mortgage, commercial real estate, and consumer lending verticals.  While the release isn’t extraordinarily useful as a stand-alone assessment, it does offer a nice qualitative support to our observation of loan growth acceleration; not only is the supply of loans growing, their demand is as well.

After a vertiginous selloff late last week (and partially fueled by large amounts of equity volatility) credit spreads as measured by the Markit CDX High Yield index of credit default swaps traded on a range of high yield companies came off recent highs.  It’s not clear whether this is a rally driven by profit taking on short positions or possibly a pause on the way to more aggressive widening, but the charts at right show the key takeaway: credit had a good day today relative to its recent history.

A market supporting the move lower in credit spreads was the volatility market for equities.  The index moved off three month highs from intraday Friday to more moderate 15.12 close today, a change of 1.91 index points, which means implied volatility over the coming month is 15.12% annualized.

To continue reading, subscribers can click here.  Non-subscribers can gain access by signing up for a five day free trial.

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