The stock market broke out to a new all-time high this week after a few weeks of sideways trading action. So which way will the market head from here in the near term? 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! If you're looking for some weekend reading, be sure to sign up for a 5-day free trial to one of our subscription services and check out our just published Bespoke Report newsletter. You can view a sample of the newsletter here.
While the average stock that reported this season fell 0.07% on its report day, there were some big divergences when looking at performance by sector. Some sectors saw their stocks gain significantly on their report days, while some sectors saw their stocks post big declines.
Below is a chart showing the average one-day change on earnings this season by sector. For companies reporting before the open, we use that day's change. For companies that report after the close, we use the next day's change. As shown, stocks in the Consumer Staples, Telecom and Energy sectors fell hard in response to earnings this season. The average Consumer Staples stock posted a one-day decline of 1.33% on its report day. Clearly investors were expecting too much from names in this sector heading into earnings season.
Stocks in the Health Care and Materials sectors reacted positively to earnings. As shown below, stocks in these two sectors averaged a nice one-day gain of 0.7%. Based on this, it appears that investors underestimated earnings strength in Health Care and Materials heading into earnings season.
Results were mixed for the two biggest sectors in the market -- Financials and Technology. The average Financial stock gained a modest 0.07% on its report day this season, while the average Technology stock was exactly flat.
As we mentioned yesterday, the average stock that reported earnings this season declined 0.07% on its report day, ending a streak of five consecutive quarters where stocks averaged gains on earnings. Some stocks had great quarters, however.
Below is a list of the 40 S&P 500 stocks that reacted the most positively on their earnings report days this season. For companies that report in the morning, we use that day's change. For companies that report after the close, we use the next day's change.
As shown, Expedia (EXPE) was the biggest winner this earnings season with a one-day gain of 18.02%. First Solar (FSLR) ranked second with a one-day gain of 17.56%, followed by Chipotle (CMG), Google (GOOG) and Harman (HAR). Google was probably the best earnings report for the market this season given its massive market cap and its big gain. Other notables on the list of earnings season winners include Amazon.com (AMZN), Microsoft (MSFT) and Boeing (BA).
Now on to the losers...
Below is a list of the 40 S&P 500 stocks that saw the biggest declines on their report days this season. Avon Products (AVP) takes the cake with a one-day decline of 21.88%. Cameron (CAM) and Stanley Black & Decker (SWK) rank 2nd and 3rd with declines of 14.3%, while Altera (ALTR) and WPX Energy (WPX) round out the worst five. Other notables on the list of losers include Whole Foods (WFM), Netflix (NFLX), Coach (COH), IBM and Caterpillar (CAT).
The third quarter earnings season came to an end today now that Wal-Mart (WMT) has released its numbers. Of the 2,268 companies that reported this season, which started in early October, 58.6% beat earnings estimates. Below is a chart comparing this quarter's beat rate to past quarters since 2001. Since the bull market began in March 2009, this is the second worst earnings beat rate we've seen. Only Q1 of this year was worse.
Coming into this earnings season, we had our eyes on two earnings-related streaks. The first was the 8-quarter streak of more companies lowering guidance than raising guidance. Unfortunately, the streak was extended to nine quarters this season, as companies lowering guidance outnumbered companies raising guidance by 4.5 percentage points. When will companies finally offer up positive outlooks on the future?
The other streak we had our eyes on this season was the 5-quarter streak of companies reacting positively on their report days. Coming into this earnings season, we had seen companies average gains on their report days going back to the second quarter of 2012. (For companies that report in the morning, 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, this season, the average company that reported declined 0.07% on its report day. Not a horrible reading, but enough to end the streak of gains.
Tomorrow we will be publishing an in-depth earnings season round-up report that analyzes everything that happened this reporting period and what to expect going forward. To receive the report, sign up for a 5-day free trial to our Bespoke Premium service today!
Whenever you talk about which sectors of the market are working, market cap is one aspect that is usually overlooked. In the charts below, we highlight the relative strength of each S&P sector compared to its corresponding index across all three market cap levels (S&P 500 large cap, S&P 400 mid cap and S&P 600 small cap). For example, in the Consumer Discretionary sector we compare the performance of small cap Consumer Discretionary stocks to the S&P 600 Small Cap Index. Rising lines indicate that the sector is outperforming its index while a falling line indicates that the sector is underperforming. As you will see in the charts, normally the sector's relative strength moves in the same direction across all three market cap levels, but there are times when they diverge, and these divergences can be a sign that a turn is coming.
In the Consumer Discretionary sector, large caps continue to lead the way and are outperforming the S&P 500 by a wide margin. The mid cap Consumer Discretionary sector was performing in line with large caps through the spring, but they have since lost momentum. Small cap Consumer Discretionary stocks, on the other hand, were lagging by a wide margin in the spring, but they have since gotten back on track and are now outperforming their peer index over the last year.
In the Consumer Staples sector, mid caps had been the standout sector among the three over the last year. Since the middle of summer, however, mid cap Consumer Staples have lagged the S&P 400 mid cap index. Small cap Consumer Staples are just barely hanging on to positive territory over the last year, while large caps have been lagging by a small margin.
As we have pointed out multiple times in the last several weeks, large cap Energy stocks led by Exxon (XOM) and Chevron (CVX) have been big laggards over the last year. Up until recently, as you slid down the market cap scale, relative strength improved. In the last month, however, small and mid cap Energy sector stocks have reversed course and started underperforming.
The divergence between large cap Financial sector stocks and their mid and small cap peers has continued nearly unabated over the last year. In our view, the reason for this disparity stems from the regulatory environment which favors larger firms over smaller ones. That being said, since the end of the summer the sector has been underperforming across all market caps.
As we said in the first paragraph, normally you see similar sector performance across different market caps, and the Health Care sector is a perfect example. All three sectors (large, mid and small cap) are outperforming their respective indices by nearly identical margins.
Relative strength across the market cap spectrum is also similar in the Industrials sector with the exception of small caps which have reversed course. While the patterns are similar, mid caps are outperforming the S&P 400 by a wide margin, while large cap Industrials are outperforming the S&P 500 by a lesser, although comfortable, degree.
Back in the summer, the Materials sector was one of the weakest of the ten sectors. In the fall, though, we saw big rebounds in large and mid cap Materials stocks relative to their respective indices. One reason for this turnaround was the decline in the dollar. In the last few weeks, though, the dollar has caught a bid again, causing the sector to underperform again.
Large cap Technology stocks have been one of the more disappointing market sectors so far in 2013. Investors typically expect the sector to do well when the overall market is doing well, but this year that has not been the case. Among the ten large cap sectors, the only sectors doing worse are Telecom Services, Utilities, and Energy. While large and mid cap Technology have lagged, small cap Technology sector stocks are still handily outperforming the S&P 600 small cap index.
Telecom Services and Utilities have been big laggards over the last year across all three market caps. Across the large, mid, and small cap space, the Telecom Services sector only has 15 stocks, so it probably shouldn't even be a sector. That being said, both sectors have been hit hard by the fact that the stocks have high dividend yields, and with interest rates rising this year, dividend payers have been adversely impact.
In spite of the fact that newsletter writers are less bearish than at any time since at least 1989, individual investors have reigned in their horns this week. According to the weekly survey from the American Association of Individual Investors, bullish sentiment dropped this week from 45.48% down to 39.2%. That drop of 6.3 percentage points is the largest weekly decline since late September.
With bullish sentiment dropping, bearish sentiment increased. As shown in the lower chart, bearish sentiment increased from 21.8% up to 27.5%. This increase of 5.7 percentage points represents a five-week high. Even at current levels, though, bearish sentiment is still well below its 34% average during the bull market.
Although Thursday's jobless claims report for the latest week came in higher than expected (339K vs 330K), it did mark the fifth straight week of declines from the shutdown high of 373K on October 4th.
With this week's decline, the four-week moving average dropped from 349.8K down to 344K. This is the second straight week where the four-week moving average declined, but we have a ways to go before it breaks below its post-recession low of 305K. That level was reached on 9/27/13.
On a non-seasonally adjusted basis (NSA), jobless claims rose by more than 25K (331.4K to 357.8K). In spite of the increase, though, claims for this time of year are still low relative to other years since 2000. In fact, this week's level was the lowest for the current week of the year since 2007, and well below the average of 398.4K.
After trading sideways since the end of October, the S&P 500 staged another breakout to new all-time highs today. As shown in our trading range chart below, the index never managed to pull below overbought territory (>1 standard deviation above its 50-DMA) over the last two weeks. Instead, the index's moving averages played catch-up, so even though it's higher than it was when it last hit an all-time high, the S&P is less overbought now than it was then.
Below are our trading range charts for the ten S&P 500 sectors. Charts outlined in green made new bull market highs today along with the S&P 500. The four sectors that broke out are Technology, Industrials, Consumer Discretionary and Health Care. Technology is now the most overbought sector of the market, while Utilities and Telecom -- two defensives -- are the only sectors not currently overbought.
Following up on yesterday's post discussing how emerging markets were holding on for dear life, we wanted to highlight their relative strength compared to the S&P 500. The chart below shows the relative strength of the emerging market ETF (EEM) compared to the S&P 500 ETF (SPY). A rising line indicates that emerging markets are outperforming the S&P 500 and vice versa when the line is falling.
The current bull market in US equities started out with emerging markets outperforming the S&P 500. After the first year and a half, though, there was a notable shift where the US took the leadership role. Since then, it has been a pretty steady decline in relative strength of emerging markets. In fact, in early July, EEM hit a bull market low on a relative basis.
The lower chart shows the relative strength of emerging markets and the S&P 500 over just the last six months. Here, we saw steady underperformance on the part of EEM through the summer. Towards the end of the summer, though, the S&P 500 faltered and emerging markets started to outperform through mid-October. Since mid-October, US equities have once again taken the leadership role and EEM is back near multi-year lows on a relative basis. What is important to note here is that in the period leading up to the government shutdown and debate over the debt ceiling, investors rotated out of US stocks. However, right when the market's caught wind of the deal on the shutdown and debt ceiling, investors quickly rotated back into the S&P 500.
Looking ahead to early next year when the debt ceiling will have to be raised again (by 2/7), investors should keep the last six months in mind. If signs start to point towards another protracted and messy debate over the debt ceiling, we would expect US equities to start underperforming again early next year. If, however, politicians in Washington can miraculously work out an agreement in a smooth manner, we would expect US equities to continue outperforming.
Below is a list of the 40 best performing S&P 1500 (current members) stocks since the bull market began on March 9th, 2009. If you like looking at big winners, this list is for you. As shown, all 40 stocks are up more than 1,400% (a "14-bagger"), and 24 are up more than 2,000% (a "20-bagger"). There are even three stocks up more than 5,000% (a "50-bagger")!
The best performing stock currently in the S&P 1500 since the bull market began is Select Comfort (SCSS), which is up 7,864%. As shown, on 3/9/09, SCSS closed at $0.25. Today it is at $19.91.
CalAmp (CAMP) is up the second-most with a gain of 5,888%, followed by 3D printing company 3D Systems (DDD) at 5,615%.
The list above includes largecaps, midcaps and smallcaps, but below is a list of just the best performing largecaps (current S&P 500 members) since the bull market began. As shown, there are 13 current S&P 500 members that have been "10-baggers" (gained more than 1,000%) since March 9th, 2009. Regeneron (REGN) is up the most with a gain of 2,197%, followed by Wyndham Worldwide (WYN) at 2,030%. CBS is up the third most with a gain of 1,796%. On 3/9/09, CBS was a $3 stock -- now it's at $58.60.
Some of the more notable name on the list below include priceline.com (PCLN) with a gain of 1,301%, Wynn Resorts (WYNN) at 1,263%, Chipotle Mexican Grill (CMG) at 987%, Ford Motor (F) at 858% (F was at $1.74 on 3/9/09!) and Netflix (NFLX) at 763%.
Below is a look at the quarter-to-date and year-to-date performance numbers (local currency) for the stock markets of 76 countries around the world. So far this quarter, the average country on the list is up 2.53%, while the average country is up 12.84% year-to-date. Of the 76 countries, 61 are in the green for the year, while the remaining 15 are down.
As shown, Argentina and Dubai have posted the biggest gains in 2013 at 86.39% and 72.61%, respectively. Japan ranks fourth on the list with a gain of 40.34%, putting it first among G7 countries. With a gain of 11.42% so far this quarter, Greece is now up 24.45% year-to-date, putting it just ahead of the US at 23.74%. Germany ranks third among the G7 countries with a YTD gain of 19.23%, followed by France (17.1%), Italy (16.8%) and the UK (14%). Canada has been the worst performing G7 country so far in 2013 with a gain of 7.37%.
While most "developed" and "emerging" markets have done well in 2013, the BRICs (Brazil, Russia, India and China) have lagged. Of the BRICs, only India's stock market is in the green for the year, and it's up just 4.4%. Russia is down 5.88%, China is down 6.27%, and Brazil is down 15%. Only Peru has done worse than Brazil in 2013 with a decline of 23%.
After experiencing strong rallies from September through mid-October, emerging markets are back on life support. As shown below, the EEM (emerging markets) and EEB (BRICs) ETFs have both moved sharply lower over the past few weeks. Today they have moved down to levels that need to hold for technicians to remain bullish on them in the near term. A break below the two support lines drawn in the charts would definitely trigger sell signals.
Short interest figures for the end of October were released after the close on Monday. Earlier today we sent out an update of our Short Interest Report to Bespoke Institutional and Bespoke Premium clients, but below we have updated our list of the most heavily shorted S&P 1500 stocks. The list below contains the 35 stocks in the S&P 1500 that have more than 25% of their free floating shares sold short. The majority of stocks shown are small caps, which is common to see when looking at short interest figures. Since small cap companies are less established, they tend to attract a greater number of skeptics relative to their more seasoned large cap peers. In total 22 of the 35 names on the list are small caps, nine are mid caps, and just four are large caps (CLF, JCP, X, and LEN).
For each stock on the list, we have also included their performance so far in November. Of the 35 stocks, just ten are down so far this month, while the remaining 25 are up. The biggest winners (or losers from the perspective of the short sellers) have been GT Advanced (GTAT) and 3D Systems (DDD), which are both up 20%+ just this month alone. Overall, the average return of these 35 names has been a gain of 5.1% so far this month, even as the overall S&P 1500 is up just 0.50%. So far, there isn't much to be thankful for in November on the part of the short-sellers.
Today's NFIB Small Business Trends report was released this morning and showed that small business optimism came in weaker than expected (91.6 vs 93.5). Within each month's report the NFIB asks small businesses to name the single most important problem they face. The results of this month's survey are outlined in the table below.
In this month's survey, Government Regulations once again topped the list, although it did decrease three percentage points to 21%. Wouldn't you know it that in the month where the government was closed for half of the month that the category of regulations/red tape being the biggest problem saw one of its largest monthly declines in the last several years?
Second on the list of biggest problems is taxes at 20%, which took up the slack for government regulations. Behind Red Tape and Taxes, Poor Sales came in third place at 17%. It doesn't say much for the business climate in the United States when businesses are two and a half times more worried about how the government is going to regulate and tax them than they are about actually moving merchandise. Yes, we have made this point multiple times over the last several months, but it bears repeating for as long as it is the case.
One of the bright spots of this month's NFIB Small Business Optimism report was the fact that only 3% of small businesses cited inflation as their number one problem. This is the lowest reading since December 2010. As long as the Fed remains in easing mode, worries over the potential inflationary impact of its policies are understandable. However, as we have seen in primary and secondary measures, inflation remains contained.
In the S&P 500, 76% of stocks are currently trading above their 50-day moving averages (50-DMA). The 50-day is used as a gauge to measure whether a stock is in a short-term uptrend or short-term downtrend. With more than three quarters of the stocks in the S&P 500 currently in short-term uptrends, underlying breadth remains healthy for the market.
Below is a chart highlighting the percentage of S&P 500 stocks above their 50-days going back to October of last year. As you can see, we haven't had a blowout reading above 90% in more than six months. Since June, the reading has peaked out in the mid-80s three times before eventually pulling back. On the pullbacks, the percentage of stocks above their 50-days bottomed out at a higher level than the time before. This means we've seen a series of higher lows in breadth when the market has gone through periods of decline this year. It has been awhile since we've seen a huge wave of selling that has pushed every area of the market into oversold territory.
Below is a look at current breadth readings for the ten S&P 500 sectors. As shown, half have breadth readings that are weaker than the overall index, and half have readings that are stronger. The five sectors with stronger breadth readings than the S&P 500 as a whole are Consumer Staples, Utilities, Materials, Industrials and Financials. All five of these sectors have more than 80% of their stocks currently above their 50-days. The five sectors underperforming the main index in terms of breadth are Energy, Technology, Telecom, Health Care and Consumer Discretionary. Keep in mind, though, that Energy is the weakest with a reading of 63.6%, but that isn't a negative breadth reading at all. Overall, things are pretty healthy here.