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Daily Stock Market Articles

Discussion in 'Stock Market Today' started by bigbear0083, Mar 17, 2023.

  1. bigbear0083

    bigbear0083 Administrator
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    Let’s Not Sugar Coat It – Risks Are Rising
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    The August payroll report was kind of ok on the face of it. Payrolls grew by 142,000 in August, below expectations for a 165,000 increase but these things are noisy. The unemployment rate also declined from 4.3% to 4.2%, which is welcome. However, read one step beyond headlines and it’s fairly clear the labor market is softening. That does not mean we’re in a recession, or one is imminent – it just means risks are rising, and the Federal Reserve (Fed) needs to act.

    As I noted above, monthly payroll gains are noisy and so it helps to take an average. With revisions to June and July, monthly payroll gains have now averaged just 116,000 over the past three months. That’s barely enough to keep up with population growth, and a deterioration from earlier this year. The 3-month average was running around 199,000 back in March (after including recent benchmark revisions by the Bureau of Labor Statistics, which took April 2023-March 2024 payroll growth from 2.9 million to 2.1 million).

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    The unemployment rate has been rising as well – it was just 3.7% when we started 2024 and is now at 4.2% (unrounded, the unemployment rate fell from 4.25% in July to 4.22% in August). Historically, when the unemployment rises, it continues to rise. That leads to a negative feedback loop between hiring and spending (with lower incomes leading to lower spending), which ultimately results in a recession. This dynamic is neatly captured in the Sahm Rule, which says that when the 3-month average of the unemployment rate moves 0.50 or more percentage points above the lowest point of that average over the last 12 months, the economy is likely in the early months of a recession. It’s correctly indicated every recession since 1970. My colleague, VP, Asset Allocation Strategist, Barry Gilbert, wrote about this several weeks ago. The bad news is that the Sahm Rule triggered in July and remains triggered in August. The good news is that the preponderance of economic data clearly tells us we’re not in a recession right now. Claudia Sahm herself, the author of the rule, has suggested that the rule may be broken and things may be different this time. Instead of weak demand, the unemployment rate may be rising due to an increase inn the supply of workers (who can’t find jobs easily). The Sahm rule doesn’t distinguish between these two dynamics.

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    In any case, hiring has stalled. The hiring rate, which is hires as a percent of employment, has fallen to 3.4%. Other than during the heights of the pandemic, the last time hiring was at this level was in 2014. It’s unclear why employers have stopped hiring as much as they have. It could be uncertainty around future demand, policy expectations or uncertainty (from the Fed or Washington), or simply that employers hired too many people in 2021-2022 and have no need to increase payrolls immediately.

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    Risks Rising Doesn’t Mean Recession Is Here or Near
    The only solace in the deteriorating trends I cited above is that that it’s very gradual. Plus, other labor market data suggest that the labor market is in a reasonable place right now. It’s just that the trend is in the wrong direction. But it’s worth highlighting the positive data points.

    I’ve mentioned in previous blogs how I prefer looking at the “prime-age” (25-54 years) employment-population ratio, since it gets around definitional issues that crop up with the unemployment rate (someone is counted as being “unemployed” only if they’re “actively looking for a job”) or demographics (an aging population with more people retiring and leaving the labor force every day). The prime-age employment population ratio was unchanged at 80.9% in August. That’s higher than anything we saw between 2001 and 2019 (when it peaked at 80.4%). In fact, for women, this ratio is at 75.6%, only a tick below the highest we’ve seen (75.7% back in May). This by itself should tell you the labor market still quite healthy, with more people participating in it. This supports Claudia Sahm’s view that the Sahm Rule has triggered because of more workers coming into the labor force, rather than weak demand.

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    Layoffs are also low, which should also tell you we’re not in the middle of a recession or very close to one. The layoff rate, which is layoffs as a percent of employment, is running at 1.1%. That’s historically low. For perspective, it was running around 1.2-1.3% from 2017-2019, and around 1.3-1.6% from 2005-2007. Also, initial claims for unemployment benefits, which is one of the better leading economic indicators out there (if you had to pick one) still shows layoffs remain low, in line with what we saw in 2023 amid a strong labor market and even 2018-20019. The “insured unemployment rate,” which measures the number of unemployed people continuing to receive unemployment benefits as a percent of covered employment, is at 1.2% – above where it was pre-pandemic. All of this tells you that people aren’t at great risk of losing jobs, but finding a job has gotten harder (which is why continuing claims for benefits are higher).

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    So, as you can see, the labor market is still in a reasonably healthy place if the downtrend stops. The good news is that the downtrends can likely be arrested, or even reversed, if the Fed acts to cut off the risks that have clearly risen. As I wrote in a blog earlier this week, the Fed can act on Chair Powell’s recent comments that they do not “seek or welcome further cooling in labor market conditions” with a bigger-than-expected interest rate cut of 0.5%-points at their September meeting. Instead of opting for a more gradual approach that will clearly indicate institutional inertia in the face of rising risks. As Powell himself said, with the policy rate target currently at 5.25-5.50%, the Fed has ample room to respond to risks.

    We know the labor market is trending down. The big question going forward is how quickly the Fed responds to get in front of that trend to potentially reverse it.
     
  2. bigbear0083

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    Oracle (ORCL) Joins the Pack
    Mon, Sep 9, 2024

    When you think of the major cloud infrastructure providers, Amazon.com (AMZN), Alphabet (GOOGL), and Microsoft (MSFT) are the first names that typically come to mind. Given that their market caps are all well into the trillions, it makes sense, but one name saying "don't forget about me" is Oracle (ORCL). If you compare the performance of the four stocks since the launch of ChatGPT, ORCL's 74.6% gain lands right in the middle of the pack, ahead of GOOGL and MSFT but trailing AMZN's gain of 82%.

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    This year, though, ORCL has been the clear leader. With a gain of over 35%, it has doubled AMZN's 15.2% move and more than quadrupled the gains of GOOGL and MSFT. What's most impressive about ORCL's performance is that it's still right near its highs of the year even as the other three stocks are in drawdowns of 12%-20%.

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    Making ORCL's performance even more impressive is that the company has reported weaker-than-expected sales in each of its last four earnings reports. Last September and December, those weaker-than-expected revenues were not met kindly by the market as the stock experienced one-day declines of 12.4% and 13.5% which were the two largest one-day earnings declines since at least 2001! Following its March and June reports, though, the company still reported weaker-than-expected sales, but each of those reports were followed by one-day gains of 13.3% and 11.8% - ranking as the third and fourth strongest one-day gains in reaction to earnings since at least 2001. While no investor ever wants to see a company report weaker-than-expected sales, they were able to look past that shortfall as the company reported a new cloud partnership with Google, 50%+ growth in its cloud infrastructure services unit, and a higher-than-expected backlog.

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    Even as shares of ORCL have kept pace with the three major cloud providers since the launch of ChatGPT and outperformed handily so far this year, from a valuation perspective, shares trade more in line with the market. At 22.6x estimated earnings for the current year, ORCL's multiple is slightly more than three turns higher than GOOGL, and well below the multiples of AMZN and MSFT. With a market cap of nearly $400 billion, ORCL is far from an under-the-radar company, but it still doesn't get the same attention as many of its peers. Its performance this year illustrates that the best returns in the market don't always come from the places everyone else is already looking.

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  3. bigbear0083

    bigbear0083 Administrator
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    Horrible Small Business Earnings
    Tue, Sep 10, 2024

    This morning's NFIB Small Business Optimism Index showed disappointing results. The index was expected to show small businesses had less optimism with the index forecasted to fall 0.1 points month over month down to 93.6. Instead, the decline was much more dramatic as it fell down to 91.2; erasing all of the summer gains. One factor likely at play that we have noted in the past is political sensitivities.

    Historically speaking, NFIB data has tended to hold a positive bias during Republican administrations and vice versa. Put differently, optimism rises when Republicans are in power or are expected to be voted in, and optimism falls when Democrats are in power or are expected to win an election. In reaction to last month's report, we discussed how the recent surge in optimism earlier this summer was concurrent with the rising odds of former President Trump winning back the presidency. This latest data, on the other hand, would capture that the Presidential race is looking tighter than it did previously, and optimism seems to have moved lower in turn.

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    Looking under the hood of the report, there wasn't much to like. Of the inputs to the Optimism Index, only two rose month over month: Plans to Make Capital Outlays and Job Openings as Hard to Fill. The latter of those is by far the strongest category of the report with the August reading in the 92nd percentile of all months. Outside of that, there are four inputs to the optimism index and another three non-input categories that now rank in the bottom decile of readings. Some of those like Actual Earnings Changes and Expectations for Higher Real Sales also fell significantly month over month with bottom decile monthly moves.

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    As noted above, one of the weaker inputs to optimism was actual earnings changes and other "actual" categories are similarly weak. In August, that index fell 7 points month over month. That is the largest decline in a single month since last October when it fell 8 points. More impressively, that drop results in the index falling below the spring 2020 lows for the worst reading since March 2010. Among other categories for observed (rather than expected) conditions, employment change reached a new near term low of -6. That is the weakest reading in this index in two years. As we showed in the Morning Lineup, combined with other labor market categories, the report is consistent with a further weakening labor market.

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    Circling back on the weak change to earnings, the report details a handful of reasons that small businesses are reporting lower earnings. As shown below, the most common response in August was increased costs; up 2 percentage points to 16%. The next most common reason was sales volumes which was unchanged sequentially at 13%.

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    While those responses would indicate that an uptick in inflation has been hurting the bottom line of small businesses, the report's inflation gauge was somewhat contradictory. There continues to be more companies reporting that prices are higher versus lower than they were three months ago. However, that higher prices index has been improving dramatically. The index dropped to a new low of 20 in August which is the lowest level since January 2021. While that is also still elevated ranking in the 81st percentile of all months on record, that is well below the peak from two and a half years ago and is consistent with decelerating inflation. Additionally, the share of businesses reporting inflation as their biggest problem ticked down modestly to 24% from 25% and is well below the highs near 35%.

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  4. bigbear0083

    bigbear0083 Administrator
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    No Need to be Superstitious, S&P 500 Up 8 of 13 Friday 13th Days in September

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    Since 1930, the S&P 500 has traded a grand total of 158 Friday 13th across all twelve months. The overall track record is 87 up days and 71 down days with a modestly bullish average gain of 0.04% on all Friday 13ths. The worst Friday 13th loss was 6.12% in October 1989. This day is often referred to as “Black Friday.” The best Friday 13th gain was 9.29% in March 2020. Digging deeper into the data reveals that September Friday 13th has been up 8 times, down 5 times with an average gain of 0.06%. Although a modest gain, there is no reason to fear Friday 13th in September.

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  5. bigbear0083

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    Volatility Anyone?
    Wed, Sep 11, 2024

    It’s anyone’s guess where the S&P 500 finishes the day. What we do know is that the S&P 500 once again found itself trading down more than 1% on the day this morning. Today’s move continues an emerging trend from the last two months where the market increasingly finds itself in a 1% hole early in the trading session. To illustrate, the chart below shows the 50-day moving average of the number of trading days when the S&P 500 was down at least 1% relative to the prior day's close at some point before noon easter. After dropping as low as zero in mid-July just as the S&P 500 was hitting record highs, the frequency of 1%+ declines in the morning has quickly shot up to eight. That's the highest level since April 2023 coming out of the stress in the regional banks.

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    From a longer-term perspective, the current frequency of 1%+ declines in the morning is nowhere near extreme levels. During the 2022 bear market, the moving average spiked as high as 22, and during Covid it exceeded 24. During both the Financial Crisis and the bursting of the dot-com bubble, there were periods where the S&P 500 was down at least 1% in the morning on over 60% of all trading days! Despite these periods of extreme readings, the long-term average number of days that the S&P 500 was down 1%+ in the morning over 50 days is much lower at just 6.2

    What is notable about the current period, however, is that up until a few days ago, the recent period (338 trading days) was the seventh longest on record of below-average readings in the number of 1%+ morning declines. It was also the longest since the 471 trading day streak ending in March 2018. With the yield curve uninverting, the Fed set to cut rates, and an election on the horizon, the relative calm of the last 16 months has faded like a summer fling.

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  6. bigbear0083

    bigbear0083 Administrator
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    Highest and Lowest Country ETF Dividend Yields
    Wed, Sep 11, 2024

    US equities have outperformed the rest of the world for a long time now. Over the past decade, the US, proxied by the S&P 500 ETF (SPY), has returned 228% compared to a 48% total return for the rest of the world as measured by the MSCI All World Ex. US ETF (ACWX). On a relative basis, US outperformance has been nearly uninterrupted over this period.

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    Below is a look at the performance of the US versus the rest of the world since the current bull market for global equities began on 10/12/22. In this chart, we include the S&P 500 ETF (SPY), another All World Ex. US ETF (CWI), and the Invesco International Dividend Achievers ETF (PID) which holds international stocks with higher dividend yields.

    While the US (SPY) is up 58% on a total return basis during the current bull market, the rest of the world (CWI) is up 13.5 percentage points less at +44.5%. The international dividend stock ETF (PID) is up even less at just 38%.

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    Looking at the international dividend ETF (PID) over a longer time frame, over the last five years, it's up 20.6% in price and more than double that on a total return basis. So dividends re-invested have accounted for more than half of PID's total return since late 2019.

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    So which country ETFs available to US investors offer the highest and lowest dividend yields? Below is a list of as many country-specific stock market ETFs that we could find along with their yield over the past 12 months, their historical average yield, and their year-to-date total return. The list is sorted from highest 12-month dividend yield to lowest. (It's important to understand how ETF dividends and dividends of international equities are taxed based on whether they are qualified or non-qualified. In non-taxable accounts, investors do not have to worry about the tax rate on dividends received, but in taxable accounts, international dividends are usually considered non-qualified. You can read more about dividend taxes on ETFs here.)

    As shown at the bottom of the table, the average 12-month dividend yield of all country ETFs shown is 3.26%. That compares to SPY's 12-month dividend yield of just 1.24%. Currently, the US ranks near the very bottom of the list when it comes to dividend yields. There are a good chunk of country ETFs that currently yield more than the 2-year and 10-year Treasury notes.

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  7. bigbear0083

    bigbear0083 Administrator
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  8. bigbear0083

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    Sentiment Goes According to Seasonality
    Thu, Sep 12, 2024

    The typical seasonal September slump for stocks has left the S&P 500 down 1.5% month-to-date. Regardless of the rebound in the past few sessions, the weak start to the month has put a dampener on investor sentiment. In the final two weeks of August, the percentage of respondents reporting as bullish to the AAII Investor Sentiment Survey came in above 50%. Since peaking the week of August 22nd at 51.6%, bullish sentiment has now slid for 3 straight weeks and is down to 39.8%. That is the lowest level of bullish sentiment and the first sub-40% reading since the first week of June.

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    With the drop in bulls, bearish sentiment has been on the rise. Bears came in at 31% today which is the highest level in five weeks and right in line with the historical average for that reading since the start of the survey in 1987.

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    Bulls falling and bears rising would mean that the survey's bull-bear spread has pivoted lower. The spread fell from a reading above 20 last week down to 8.8. While that is a significant drop, bulls still outnumber bears as has been the case for the past 20 weeks. Through the history of the survey, there have only been 13 other streaks of 20+ weeks of positive bull-bear readings, the most recent of which ended this past April at 24 weeks.

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    September has historically been a rough month for equities from a seasonal perspective. As such, sentiment has also tended to be weak. The charts below show the average bull-bear spread reading by month for all years since 1987 and so far in 2024. Sentiment is usually strongest at the bookends of the year (January and February) and tends to fall in the late-Summer with September marking the annual low.

    This year has to some degree followed that pattern. Sentiment was strong in the first two months of the year and unusually carried through into March. Sentiment slumped in April but began to pick up through July before reversing lower in the past two months.

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    The AAII survey hasn't been the only measure of sentiment to moderate lately. This week's bull-bear spread in the Investors Intelligence survey similarly dropped with the weakest reading since last November. The NAAIM Exposure index was modestly higher but continues to show equity exposure was significantly higher a couple of weeks ago. All combined into our sentiment composite, sentiment favors bullishness, but to the weakest level in a month.

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    Like the AAII survey, although investor outlooks are not as rosy as they were previously, it has been an impressive streak of net bullish readings. Our sentiment composite has now come in with a positive reading for 20 straight weeks. That immediately follows a 24-week long streak that ended in April with only one week of bearish sentiment in between the two. Before that, there were only seven other streaks that lasted at least 20 weeks. In other words, it has been an impressively long stretch of bullish investor sentiment.

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  9. bigbear0083

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    The Inflation Fight Is Over but Fed Policy Remains Uncertain
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    We’ve consistently said for several months now that inflation was last year’s problem. The latest consumer price index (CPI) data confirms this. Headline CPI is up 2.5% year over year (y/y) through August, which is the slowest pace in three and half years. Here’s some perspective on how far we’ve come:

    • A year ago (August 2023), headline CPI was 3.7% y/y
    • Two years ago (August 2022), it was 8.3%
    • At the end of 2019, it was 2.3%
    The inflation fight is done. This is welcome news for American households and even the Federal Reserve (Fed) as it seals the deal for the Fed to embark on a series of interest rate cuts over the next few months.

    There’s actually good reason to believe that CPI data is overstating things. As you can see in the chart below, the big contributor to inflation is shelter, which is severely lagging more real-time private market data on rental inflation.

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    If you exclude shelter, inflation is running well below what we saw just before the pandemic hit, whether you look at short-term trends or the long-term trend. CPI excluding shelter is running at an annualized pace of 0.5% over the past three months, and it’s been in negative territory for the third month in a row. On a year-over-year basis, CPI ex shelter is up only 1.2%.

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    The problem created by lagging shelter inflation is magnified when you look at core inflation, which excludes food and energy. It’s the number the Fed typically likes to focus on. Core CPI is running at 3.2% year on year, with shelter contributing 2.2%-points of that. For perspective, at the end of 2019, core CPI was running at 2.3% year on year with shelter contributing 1.4%-points of that. In other words, the “excess” core inflation of about 0.9%-points we’re seeing now is coming almost entirely from the shelter component.

    We’ve tackled the issue with official shelter inflation data a lot over the last couple of years. Shelter makes up 43% of core CPI, and the data runs with significant lags to what we see in actual rental markets. Rents of primary residence account for 10%-points of that, while “owners’ equivalent rent” (OER) accounts for the other 33%-points. OER is the “implied rent” homeowners pay, and it’s based on market rents as opposed to home prices. Private market data, like those from Apartment List, have been telling us that rents have actually been declining for over a year now. The good news is that official data is turning toward what the private data is telling us, but it’s happening ever so slowly. We’re not going to see the official data show outright deflation eventually, but it’s likely to stabilize around where it was pre-pandemic—it’s just going to take a while.

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    All Eyes on the Fed, but the Onus Is on Chair Powell
    It looks like Fed members have gotten comfortable with the notion that the inflation fight is more or less over. The problem is that labor market trends are going in the wrong direction. I wrote about this last week. Note that the Fed has two mandates: low and stable inflation, along with maximum employment. At this point, they’ve mostly achieved the former, but the latter is clearly at risk.

    What is worrying is that several Fed members have talked about cutting rates in a “gradual,” or “careful,” or “prudent” manner, indicating they don’t see any urgency to get ahead of declining labor market trends. Meaning they are inclined to start with a 0.25%-point cut at their September meeting next week and proceed at that pace over the remainder of the year. The slightly hotter core CPI data from August, albeit on the back of lagging shelter inflation, further reduces the odds of them starting the rate cut cycle with a big 0.50%-point cut. But this also makes it even more likely that they find themselves further behind the curve in a few months and will have to play catch-up by going big later on, a rerun of when they waited too long to raise rates as inflation was picking up in late 2021/early 2022—but from the opposite side.

    A notable exception to the gradualist approach appears to be Fed Chair Jerome Powell himself. At his Jackson Hole speech about three weeks ago he made no mention of following a “careful” or “gradual” approach. Instead, he said they would not tolerate further cooling in the labor market. Since then, we got a slew of labor market data, including August payrolls, showing things are slowing down further. There’s a reasonable chance that Powell may buck the opinion of other Fed members and decide to “go big” with a 0.50%-point cut at their September meeting. That will also show intentionality that they do intend to support the labor market—and hence the economy, since incomes drive consumption.

    While the economy is in a reasonably healthy place today, that may not be the case 6-12 months from now if the Fed starts to fall further behind the curve. Safe to say we’re not in a recession now, nor is one imminent over the next few months, but the odds of one by mid-2025 is starting to increase. This raises the stakes for the Fed’s September meeting and all eyes will be on Chair Powell.
     
  10. bigbear0083

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    [​IMG]

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    [​IMG]

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    A Summer Swoon in Trendy Tech
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    Returns in the stock prices of technology companies have cooled as of late, marking a sharp change from the experience of the previous year. Performance to date in the third quarter of 2024 is listed below for the so called ‘Magnificent 7,’ and the data show a significant slowdown compared to recent history. An equal weight portfolio of the selected stocks would have returned -0.04% thus far in the third quarter, according to FactSet data, much lower than the year leading into this quarter which showed a gain of +54.72%.

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    Investors are tasked with forecasting the future earnings potential of each company and appropriately discounting to today’s value. With a clear slowdown in stock returns, investors may be anticipating a slowdown in fundamental growth. It may serve investors well to revisit some of the headlines that affected the sector during this quarter.

    The emergence of Artificial Intelligence (AI) in late 2022 has catalyzed much of the positive returns in technology stocks. However, investors got their first glimpse that growth is potentially limited during this quarter. During Alphabet’s quarterly earnings call, CEO Sundar Pichai noted that “the risk of underinvesting [in AI technology] is dramatically greater than the risk of overinvesting for us.” For those skeptical of the AI-fueled gains, it gave a reason to suspect that some of the largest tech companies are at least cognizant of potentially overinvesting and that future growth may not be as high as currently anticipated. It’s noteworthy to highlight that Nvidia stock declined roughly 25% from the day those comments were made by Mr. Pichai on July 23rd to an intraday low on August 5th.

    For the investor believing AI is indeed catalyzing a generational technology refresh, there are reasons for optimism. Data from Google Trends, pictured below, shows that search activity for “ChatGPT” reached an all-time high just this week. ChatGPT, one of the first and most well-known Large Language Models (LLMs) continues to dazzle users with new features and propel its popularity to new highs, with a new model released just this past week. It serves as a stark reminder that innovation and rapid product releases are one of the hallmarks of investing in technology companies.

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    Future usage of LLMs, such as ChatGPT, may get another boost to growth with the release of the iPhone 16 and the associated integration with LLMs. DemandSage estimates that ChatGPT saw 200 million weekly active users in July 2024, an impressive feat for such a young company.1 But it may be only Act 1, to borrow a phrase. ChatGPT’s integration into the Apple ecosystem, such as becoming the preferred LLM on iPhones, may open the application to a market of over 1 billion active devices. A connection to these cutting-edge applications with less friction may mean a surge of new users could be just over the horizon.

    While the third quarter of 2024 has provided technology investors with lackluster returns compared to recent history, investors are tasked with assessing the current growth landscape. Executives have become cognizant of overspending and overinvesting in such pricey technology. Yet, usage continues to grow and hit new highs among ChatGPT, due both to advancing capabilities and a broader set of distribution lines for users to gain access with. Investors may be well served to look at growing usage among new technologies and assess if these trends continue.
     
  13. bigbear0083

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    [​IMG]

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    September Quarterly Options Expiration Week Dodgy, Week After Dreadful

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    Since the S&P index futures began trading on April 21, 1982, stock options, index options as well as index futures all expire at the same time four times each year in March, June, September, and December. September’s quarterly option expiration week has been up 54.8% of the time for S&P 500 since 1982. DJIA and NASDAQ have slightly weaker track records with gains 52.4% of the time and 52.4% respectively.

    However, the week has suffered several sizable losses. The worst loss followed the September 11 terrorist attacks in 2001. In the last twenty-one years, S&P 500 and NASDAQ are tied for best record during September’s quarterly option expiration week, up thirteen times, but NASDAQ has been down the last six straight. Friday had been firm with all three indices advancing every year 2004 to 2011, but S&P 500 has been down 11 of the last 12 and NASDAQ has been down 10 of the last 12 since.

    S&P 500 Down 27 of 34 Week After September Quarterly Options Expiration, Average Loss 1.06%

    The week after September options expiration week, has a dreadful history of declines most notably since 1990. The week after September quarterly options expiration week has been a nearly constant source of pain with only a few meaningful exceptions over the past 34 years. Substantial and across the board gains have occurred just four times: 1998, 2001, 2010 and 2016 while many more weeks were hit with sizable losses. In 2022 DJIA and S&P 500 declined over 4% while NASDAQ fell 5.07%.

    Full stats are the sea-of-red in the tables here. Average losses since 1990 are even worse; DJIA –1.09%, S&P 500 –1.06%, NASDAQ –1.06%. End-of-Q3 portfolio restructuring is the most likely explanation for this trend as managers trim summer holdings and position for the fourth quarter.

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  15. bigbear0083

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  16. bigbear0083

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    Three Things To Know About Last Week
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    “There are decades where nothing happens; and there are weeks where decades happen.” Vladimir Lenin



    Last week was Carson’s Excell conference down in Orlando and it was a ton of fun, but a little exhausting as well. I’m glad it is over, but looking back it was such a fun and productive week for our Investment Research team.

    From interviewing Tom Lee, Fundstrat’s Founder and CEO, in front of nearly 1,000 people on Facts vs Feelings 100th episode, to various breakouts from members of our team, to doing random Spaces with some of the big names guests in attendance, to just hanging out with our Carson Partners to learn more about what we can do to help them build their businesses and help their clients, it was a great week in the Sunshine State.

    A funny thing happened while we were all together though, stocks soared! You can’t make this up, as the S&P 500 was up more than 4% for the best week since last November, but all five days were higher as well on the week. I’m calling this a perfect week and the bottom line is they tend to happen in bullish trends. I found 29 other times all five days of the week where higher, all five days were above the 200-day moving average, and on Friday it was less than 3% from an all-time high. In other words, a similar situation to right now. Well, a year later stocks were higher more than 86% of the time and up a median of 17.0%, not bad, not bad.

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    The second thing that happened last week that I think you should know about is stocks rebounded from their worst week of the year to have their best week of the year, talk about an Excell bounce! We have no clue if these will still be the best and worst weeks of the year at the end of the year, but we do know we saw a 4% or greater weekly decline, only to turn into a 4% or more weekly bounce the next week. Would you believe the past 11 times we saw that stocks were higher a year later by the tune of up 23.7% on average? Yep, it is true and it just happened. Going out further, I found 22 times this happened since 1950 and stocks were higher a year later 18 times (81.8%) and up an average of 16.4% and a median of 18.8%.

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    Lastly, on Wednesday last week, S&P 500 was down 1.6% about 90 minutes into trading over worries about inflation and the Debate the night before, but by the end of the day stocks were up more than 1%. This was a huge reversal and usually days like this led to higher prices in the future, in fact, the last time we saw anything like this was the exact lows of the bear market from 2022 back in October 2022. Up a median of more than 9% six months later and more than 16% a year later says it all, as this is another feather in the cap for the bulls.

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    Last week was a lot of fun for Carson, but also for the bulls. It might not always be this way, especially as we are entering one of the more seasonally weak times the last two weeks of September (below) and into October of an election year, but any near-term weakness will likely be fairly contained and these three stats I’ve mentioned here continue to support this bull market is alive and well.

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  17. bigbear0083

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    Doomsayers Have Their New Indicator: The Yield Curve Uninverts
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    The pandemic and post-pandemic environment has been a breeding ground of economic anomalies born out of deep disruptions and policy extremes that have echoed across the years. That doesn’t mean good economic analysis doesn’t hold true; it does mean that good analysis takes some extra work. You couldn’t just paint by numbers over the last several years. You had to think a little bit about how you’re counting things up and what the “true count” is given the unusual circumstances. My colleagues Sonu Varghese, VP, Global Macro Strategist, and Ryan Detrick, Chief Market Strategist, have had a keen eye for the numbers that mattered over the last couple of years, cutting across the onslaught of doomsaying charts that treated the environment as “business as usual.”

    Writing on the eve of the Fed’s first rate cut of the cycle, I thought I would take a quick look at the latest harbinger of doom making the rounds. The yield curve has uninverted. What does that mean? The 10-year Treasury yield is normally higher than the 2-year Treasury yield. Investors expect a higher yield for a bond whose maturity is further out. Since June 1976, the 10-year has been above the 2-year 83% of the time. When the 2-year yield moves above the 10-year, called yield curve inversion, it’s usually a sign that markets expect the Fed to get more aggressive, and sometimes, to a lesser extent, that the economy may weaken.

    Much was made of the yield curve inverting back in July of 2022. But the bear market bottomed three months later and the expansion continued. In fact, real GDP grew at an annualized pace of 2.8% over the two years since July 2022, above the 2010-2019 average of 2.4% and the S&P 500 rose over 40% from July 31, 2022 to August 31, 2024. Much was made of the inversion reaching more than 1% for the first time since 1981 in June of 2023. Markets pressed higher and the expansion continued. By our measure the yield curve uninverted (assuming it stays that way) on Friday, September 6, 2024. (It had uninverted a little earlier but had inverted again.) What happens next?

    Like inversion, uninversion (or reversion, or yield curve normalization) is a reflection of what investors expect the Fed to do. A curve that has uninverted means investors expect the Fed to lower interest rates. It could probably be a stronger sign of economic risk than inversion, but historically, the Fed’s been behind the curve and was playing catch up – economic data was already deteriorating by the time the Fed started lowering rates (e.g. 1990, 2001, 2007, 2020). In other words, you can’t paint by numbers.

    Even with that, uninversion hasn’t meant a lot for stocks. We looked at the date the yield curve uninverted around the last six recessions (all the history we had). It’s a small sample, but at the very least it tells us that uninversion hasn’t spelled doom for markets. To the contrary, the one-year numbers historically are actually pretty good, up a median of 17%.

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    We can’t ignore the risks. Labor market trends have turned negative increasing the possibility of an economic downturn. However, we still think a Federal Reserve that is at least moderately aggressive about lowering currently restrictive rates can avoid falling behind the curve. How restrictive are we now? In 2019 a fed funds rate of just 2.5% was considered high enough to break a pretty good economy and the Fed had to make a mid-cycle adjustment. The fed funds rate is at 5.5% now, a meaningful hurdle for economic expansion, but the economy has actually held up quite well. The Fed’s current aggressive efforts to control inflation were needed, but with inflation under control and job gains slowing, highly restrictive rates can do unnecessary damage to the economy whether or not it causes a recession.

    In the table above, stock gains were strongest despite uninversion in the early 80s. While we don’t think the current situation is completely analogous to the early 80s, there are some common factors. The current hiking cycle is the most aggressive since the early 80s. The motivation was also similar—the focus was on inflation, not necessarily an economy that was overheating. The 80s had their own market drivers, but we do think market resilience in response to an aggressive Fed has some parallels.

    Each uninversion in the table above was in fact associated with a market drawdown of at least 15%, but that just shows how difficult it is to time drawdowns. And if you think, “Oh, I’ll buy near the bottom,” be aware that this would be very atypical investor behavior. As Ryan often likes to say, investing is the only place where everyone runs out of the store screaming when things go on sale.

    If your concern isn’t markets, uninversion has done ok as a recession warning but it’s been highly variable. In the 1980s, uninversion actually came after the recession started, unlike the other four cases. If the current situation ends up being somewhat parallel, you could point to the 2022 bear market as the primary response to Fed rate hikes, which started back in March 2022.

    In the other four cases, uninversion was a pretty good signal, but we don’t think we’re on the verge of a global pandemic, or a 100-year financial crisis, or even tech bubble valuation extremes. (We have had two bear markets in the last five years after all.) Uninversion likely just reflects the fact that the Fed is going to normalize interest rates after raising them to very restrictive levels last year. The bottom line is that uninversion may signal the need for more vigilance, but if you needed the yield curve to tell you that you just haven’t been paying attention. But it should not dictate your investment decisions.
     
  18. bigbear0083

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    Going Ex-Dividend
    Thu, Sep 19, 2024

    Just over a tenth of the stocks in the S&P 500 are going ex-dividend in the next two weeks, and below is a list of the stocks going ex that have dividend yields that are higher than the yield of the S&P 500 (~1.28%).

    As a reminder, to capture a quarterly dividend payment, investors need to own shares as of the close on the day prior to the ex-dividend date. If the ex-dividend date is 9/20/24, for example, you'd need to own shares as of the close on 9/19/24 to capture the dividend.

    Some of the highest yielding stocks going ex-dividend in the next two weeks include Eversource Energy (ES), Philip Morris International (PM), Franklin Resources (BEN), US Bancorp (USB), Host Hotels (HST), and Realty Income (O).

    Some of the largest, most well-known stocks going ex-dividend in the next two weeks include the aforementioned Philip Morris International (PM), Medtronic (MDT), Mondelez (MDLZ), Deere (DE), Cisco (CSCO), and Comcast (CMCSA).

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  19. bigbear0083

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  20. bigbear0083

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    Best and Worst Performers Since 8/5
    Thu, Sep 19, 2024

    The large-cap S&P 500 and Russell 1,000 are both now up more than 10% since the summer low made on August 5th. They're also trading back to new all-time highs today.

    Within the Russell 1,000, the average stock in the index is up 10% as well, meaning breadth has been strong. This is different from what we saw in the first half of the year when the mega-caps pretty much drove all of the market's gains.

    We've seen some pretty massive moves higher in individual stocks since August 5th. There are 137 stocks in the Russell 1,000 up more than 20% since then (just 32 trading days), and there are 21 stocks up more than 40%. Below is a list of those 40%+ gainers.

    As shown, buy-now-pay-later stock Affirm (AFRM) is up the most since 8/5 with a gain of nearly 88%. App-maker AppLovin (APP) is up the second-most at +83.8%.

    Language-learning app Duolingo (DUOL), online real estate search site Zillow (ZG), and fast-casual Mediterranean menu company Cava (CAVA) round out the top five with gains of more than 56%.

    Other notables on the list of big winners recently include Palantir (PLTR) with a gain of 53%, Five Below (FIVE) at +45.4%, SharkNinja (SN) at 44.9%, and RH at 41.1%.

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    While more than 87% of stocks in the Russell 1,000 are up since 8/5, there are 123 stocks that are in the red, including the 26 listed below that are down more than 10%.

    Trump Media (DJT) is the Russell 1,000 stock down the most since 8/5 with a drop of 44.7%. Wolfspeed (WOLF), elf Beauty (ELF), New Fortress (NFE), and Dollar General (DG) round out the list of the five biggest losers, and other notable names on the list include Dollar Tree (DLTR), Sirius (SIRI), Celsius (CELH), Moderna (MRNA), Walgreens Boots (WBA), Ally Financial (ALLY), and Birkenstock (BIRK).

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    Below is a look at the average performance of Russell 1,000 stocks since 8/5 broken out by sector. Four sectors have seen average gains in a tight range between 12.3-12.8%: Real Estate, Technology, Financials, and Consumer Discretionary. On the weaker side, the average Energy stock is up just 3.1% since 8/5.

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    Below is a look at the average year-over-year percentage change of Russell 1,000 stocks by sector. Over the last year (since 9/19/23), the average Russell 1,000 stock is up 23.8%, but stocks in the Financials sector have done by far the best with an average gain of 34.5%. Notably, the AI-heavy Technology sector ranks third behind Financials and Industrials. Energy stocks, on the other hand, are only up an average of 1.9% YoY.

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