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.

Monday
Aug042014

Plenty of Oversold Dow Stocks

The Dow as an index is in the red for the year, and the average performance of the 30 stocks in the index is right at the flat level.  Below is a look at our trading range screen for the 30 Dow index members.  For each stock, the black vertical line represents its 50-day moving average.  The red shaded areas represent overbought territory, while the green shaded areas represent oversold territory.

There are plenty of Dow names that have moved deep into oversold territory after last week's market pullback.  Blue-chip names like American Express (AXP), 3M (MMM), Merck (MRK), Travelers (TRV) and Wal-Mart (WMT) are all at extreme oversold levels, trading more than two standard deviations below their 50-days.  We see plenty of extreme situations for small-cap names in the Russell 2,000 throughout the year, but it's rare when so many big large-cap stocks are this oversold.  Buy-the-dip investors currently have plenty of opportunities if they're out looking, but based on sentiment, they may be few and far between right now.

Bespoke Institutional members have the ability to run their portfolios through our trading range screens on a regular basis.  To learn more about our Institutional offering, head on over to Bespoke Premium.

Monday
Aug042014

The Bespoke Morning Lineup: 8/4/14 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 quieter this morning than they were most of last week, and there’s been a relatively light slate of overnight news: some economic data in Europe, a few comments to Bloomberg News from a previous interview are hitting the tapes from Richmond Fed President Jeffrey Lacker, and there’s been renewed discussion of the effects of Russian sanctions, most specifically on Europe. But overall equity index futures are quiet for major US indices; despite their standard selloff at the European open, spoos have recovered to near Friday’s afternoon highs, 37 bps above their close Friday evening. The start of the trading session yesterday evening had seen a bit of buying pressure. Futures were extremely stable during the Asia-Pacific region’s trading day.

In US Treasury trading this morning, the curve is bear steepening (yields higher, led up by the longer dated tenors) but the move is marginal, led mostly by a 1.6 bps move in thirties. Most other issues are close to flat, with little catalyst for a move higher or lower until trading gets underway in US equities. The only data release today is the Gallup Consumer Spending measure. Overall this week will be a nice break from the torrent of data last week, with a relatively light schedule. There’s also a relatively light issuance schedule for the US Treasury, with only bills being auctioned. That said, there are announcements Wednesday for the next two quarters of expected US Treasury funding needs, the announcement of the ten year, three year, and thirty year note auctions, and a report on the amount of stripping (separation of future coupon/principal payments into zero-coupon bonds).

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

Monday
Aug042014

Pick-up in Bearish Sentiment

Bearish sentiment picked up in our weekly Bespoke Market Poll over the weekend after the worst week for stocks in a couple of years.  As shown below, there were 46% bulls and 54% bears on the S&P 500's directional trend over the next month.  This is the second week in a row of more bears than bulls, and it's the most bearish poll participants have been since our May 5th poll.

Friday
Aug012014

The Closer Commentary 8/1/14 - End of Week Commentary

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.

The worst week in US equities since 2012 is finally over, and the ocean of economic data reported this week is finally done. The dollar is higher, and it’s about the only thing as rates, credit, and commodities all sold off sympathetically with the huge rip in equity volatility.  While the massive selloff (relative to recent docile trends in volatility) of Thursday has taken us much closer to a moderate pullback of 5% or a 10% correction, we’re not terribly concerned about the bull market in US equities at present.  Earnings chugs along and remains positive, behind all the noise; the price to earnings ratio for large cap equities is now flat YTD.

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

Friday
Aug012014

S&P 500 Higher or Lower from Here?

US markets had an awful week, leaving the Dow, S&P 500 and Nasdaq all below their 50-day moving averages.  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 analysis of this week's sell-off and what it means for markets going forward?  Sign up for a 5-day free trial to any of our subscription services and read our just published Bespoke Report newsletter.  

Will the S&P 500 be higher or lower than its current level one month from now?
Higher
Lower
  
Free polls from Pollhost.com
Friday
Aug012014

High Yield Living Up To Its Name

Yields on High Yield corporate bonds (corporate bonds below BBB) are surging.  Part of it has to do with higher equity volatility; high yield bonds generally track equities closer than investment grade bonds do because of their risk profile, which is much more similar to equities than a highly-rated corporate.  The chart below shows the pain as measured by the spread between Treasuries and the bonds in the Bank of America Merrill Lynch High Yield Master II Index, a widely followed benchmark.

As a result, high yield bond-focused investments have been getting crushed.  Here's a chart of the HYG ETF, which invests exclusively in high yield bonds:

That 3.14% decline is equivalent to more than two-thirds of the 30-day yield on the ETF (4.52%). There have also been massive redemptions of high yield bond ETFs with HYG suffering $361mm (or 3% of assets) in net outflows yesterday (the second most of any ETF) and its competitor JNK seeing $122mm or 1.34% of its assets leave the building via redemptions. 

Interestingly, though, the chart of LQD, which invests only in investment grade bonds, doesn't look anywhere near as bad:

After matching performance for a long time, high yield is starting to give up returns to investment grade.  The below chart traces the ratio of HYG to LQD over the past year, and the underperformance of HYG is really starting to accelerate here.

And all you have to do to understand why is look at the yield spread on investment grade debt.  The below chart shows the same spread as we illustrated above for high yield, but this time uses the Bank of America Merrill Lynch Corporate Bond Master II index, which doesn't include riskier high yield bonds.

While high yield spreads have spiked, the spreads on corporate bonds have steadily trended sideways, and while they may be headed slightly higher, we aren't seeing anything close to the explosion in spreads the junk bond market is showing.

We don't see this move higher in junk bond spreads as a horrible sign for the economy, necessarily.  Spreads are near their all-time lows and would have to run much, much higher to be indicative of a jump in economy-wide default risk that comes with slowing corporate revenues in a recession.  Rather we see it as a healthy risk re-pricing off of all time lows in premiums demanded for some relatively speculative investments.  The high yield move is a negative for equities, though, as generally speaking high yield spreads and the S&P 500 are very negatively correlated.

Interested in more cross-asset analysis?  We sent Bespoke Premium and Institutional subscribers a B.I.G. Tip on the performance of high yield spreads and the equity market on July 23rd.  Sign up for a free trial now to access!

Friday
Aug012014

ISM Commodity Survey Shows Less Pricing Pressure

While the big jump in Thursday's Employment Cost Index has many investors concerned about potential inflation pressures down the road, today's ISM Manufacturing report had a glimmer of good news.  Although the Prices Paid component rose from 58.0 to 59.5, the survey of commodities prices showed the fewest net number of commodities rising in price so far this year.  According to the ISM, manufacturers noted that prices had increased for nine commodities and declined for three for a net reading of six.

The chart below shows the three month moving average of the net number of commodities rising in price going back to 1999.  Along with that, we have also shown the y/y reading in the Consumer Price Index.  Historically, the two indices have tended to move in similar directions, so with the three month moving average starting to roll over, there is some hope that the CPI will follow suit.

Friday
Aug012014

ISM Manufacturing Hits a Three Year High

After a huge reported drop in the Chicago PMI on Thursday, today's ISM Manufacturing report surprised to the upside.  While economists were expecting a level of 56.0, the actual reading came in at 57.1, which was up nearly two points from last month's reading of 55.3.  After this month's increase the ISM Manufacturing Index is sitting at its best level since April 2011.

Looking at the internals of this month's report shows a pretty positive picture.  Of the ten components to the report, six increased relative to June while four declined.  The biggest increases this month came from Employment and New Orders, and in the case of Employment, that index rose to its highest level since June 2011.  On a year/year basis, the internals were even stronger with seven components rising and three declining.

Friday
Aug012014

Ford Truck Sales Mostly Up Slightly in July

Sales of pickup trucks are often a sign of strength or weakness in the small business and construction sectors as these types of businesses are the most common users of these vehicles.  With that in mind, today's figures from Ford (F) for sales of F-150 pickup trucks were modestly positive.  For the month of July, Ford sold 63.24K F-150s, which represented an increase of just under 5% from July of last year.  With that increase, July's F-150 total was the strongest for Ford since 2006.

Year to date, Ford has now sold 429.1K F-150s, which is slightly higher than last year's July YTD total of 427.9K.  This too, is Ford's best YTD total sales figure for F-150s since 2006.  While sales appear to be leveling off relative to last year's total, we would note that Ford is introducing a major redesign to the F-150 this fall, so there could be some prospective buyers holding off until the new model is released. 


Friday
Aug012014

Sectors Oversold

Yesterday's steep decline left four of ten S&P 500 sectors in oversold territory, and three more are set to open oversold based on red futures this morning.  Consumer Staples and Industrials are both more than 3 standard deviations below their 50-days, which is as extreme as it gets.  When sectors get that oversold, you typically see a near-term bounce.  

Just 33.8% of S&P 500 stocks are now above their 50-days, which is down 20 points from where it started the day yesterday at 53%.  Four sectors have less than 25% of their stocks above their 50-days, which represents deep oversold territory.  Industrials and Materials are both right near 23%, Consumer Staples is at 15%, and Utilities is at 10%.  

The one cyclical sector that still has a reading above 50% is Technology at 51.5%, but it looks like that could break too with futures in the red this morning.

Friday
Aug012014

Key Asset Class Performance in July and YTD

Below is a look at the performance of various asset classes using key ETFs from our daily ETF Trends report published at Bespoke Premium.  For each ETF, we highlight its performance yesterday, in July, and year-to-date. 

Stocks took a tumble yesterday both domestically and internationally, and the declines left US markets down for the month of July.  The Dow's (DIA) move lower yesterday actually left it down on the year as well.  Some bubble!  

Smallcaps underperformed once again in July, with the Russell 2,000 (IWM) falling 6.4%.  For the year, the Russell 2,000 is down 3.6%.  In terms of sectors, Energy, Health Care, Financials and Industrials all fell more than 2% yesterday.  For the month of July, Industrials got hit the hardest of the cyclical sectors with a decline of 4.13%, but Utilities actually fell more at -6.8%.  For the year, though, Utilities is still up more than 8%.  

There has been a wide disparity in sector performance on a year-to-date basis.  Energy, Technology and Health Care are all up more than 9% year-to-date, but Consumer Discretionary and Industrials are both down for the year.  You don't typically see such a wide range in the cyclical sectors.

Internationally, Brazil and Spain got hit the hardest yesterday with declines of around 3%.  Italy, Germany and France all fell more than 2%, leaving them down 6%+ for the month of July.  While Italy is still up on the year, both France and Germany are in the red.  There was some green on the board in July, though.  China (FXI) jumped 9.26% on the month, leaving it up 5.47% year-to-date.  Hong Kong (EWH) rose 5.36% in July and is up 6.8% on the year.  The best performing country on the year is still India (INP) with a gain of 20.56%.  

Thursday
Jul312014

The Closer Commentary 7/31/14 - We Don't Need No Justification

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.

It’s rare that you see a day where the following financial assets trade lower simultaneously: large cap stocks, small cap stocks, Treasuries, oil, credit (CDS indices), gold, silver, platinum, palladium, and copper.  Virtually the only asset class that didn’t have ferocious volatility selling today was the USD, which was essentially flat versus EUR, JPY, CAD, and CHF.  The action today simply didn’t make sense from a technical or fundamental perspective, and the explanations we saw trotted out made even less sense.

One culprit that has been discussed: inflation has edged up as of yesterday’s GDP report to 2.0% annualized, as measured by core PCE.  But this pace of price growth, while to the upside of leading indicators received during the quarter, is still an incredibly benign level, and is totally unthreatening in terms of both harm to the economy (runaway inflation) or in terms of kickstarting a Fed tightening.  The Fed has stressed repeatedly that not only is its inflation target symmetric around 2.0%, but further it will not be fooled by an economy that has printed higher inflation in recent memory (Q1 2012 had a 2.1 core PCE print).  While higher inflation could be coming, it needs to be sustained before it will impact the thinking in FOMC meetings. 

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

Thursday
Jul312014

The No-Bull Bull Market

The weekly bullish and bearish sentiment readings from the American Association of Individual Investors were released this morning, and they showed an equal amount of bulls and bears at 31.12%.  We've been writing about the lack of optimism from individual investors during this bull market pretty much since it began back in 2009, and our theory has been that after two 50%+ declines for the major indices over the last decade and a half, investors are understandably very suspicious of equities as an asset class.  No matter how high stocks go, any signs of short-term trouble cause sentiment to sour quickly.  At this point it seems like the healing process coming out of the financial crisis could take decades and not months or years. 

To better illustrate the lack of optimism on the part of individual investors over the last few years, below is a chart of the rolling one-year average of the weekly AAII bullish sentiment reading going back to 1988.  Over the last year, the average weekly AAII bullish reading has been 37.95%.  This is about a point lower than the historical average weekly reading of 38.82% over the entire time period.  As you can see in the chart, bullish sentiment has been suppressed throughout this entire bull market going back to 2009, but it has really diverged from the S&P over the last two years.  Since mid-2012, the S&P 500 has been charging higher to new all-time highs, but bullish sentiment has remained very low and refuses to jump higher.  

Thursday
Jul312014

Individual Investors Indecisive

Today's release of sentiment figures from the American Association of Individual Investors (AAII) shows that sentiment is more mixed than it has been in recent memory.  While there was little in the way of moves in either direction this week, the percentage of bullish and bearish investors is exactly identical at 31.12%.  This is the first time in more than four years (May 2010) that bullish and bearish sentiment have been the same.  Between stronger than expected earnings and GDP data on one hand, and the potential for a tighter Fed and geo-political concerns on the international front, investors just can't seem to make up their mind in either direction.

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