Topley’s Top 10 – July 06, 2023

Daily Top Ten No Comments

1. Investors Load Up on Bullish Bets at End of June

Dave Lutz Jones Trading THE FLOW SHOW– Investors piled into bullish bets on US stock futures toward the end of June, leaving positioning looking “very extended” and raising the risk of a pullback, Citigroup Inc. strategists said.  New longs of about $7.1 billion were added to S&P 500 futures last week, and investors are sitting on “moderately large profits,” according to a note from the bank dated July 3.

2. 90-DAY Absolute Return Spreads in Stocks

KAILASH CONCEPTS -The chart below shows the 90-day performance of the following six groups of stocks, from left to right:

  1. The largest 100 stocks in the Nasdaq that outperformed the index rose 31.6% in the last 90 days
  2. The 100 largest stocks in the Nasdaq were up 16.5% over the last 90 days
  3. The Russell 1000 growth index rose 10.3% over the last 90 days
  4. The Nasdaq 100’s largest stocks that underperformed the index rose only 4.3% in the last 90 days
  5. The S&P 500 rose 3.7% over the last 90 days
  6. The Russell 1000 value index fell -2.8% over the last 90 days

https://kailashconcepts.com

3. S&P Performance Around Recessions

Jim Reid-Deutsche Bank

This morning we have published our summer chart book entitled “If a recession was 6 months away, would markets & data tell you?” (link here). Henry and I will be doing a webinar on it at 2pm London time (9am ET) on Thursday July 13th. You can register Here to watch.

To help answer the question posed, the core of the chart book looks at how various assets and data perform leading up to previous US recessions through history, and compares that to what’s happened over the last couple of years. DB’s house view is for a US recession starting in Q4 2023, that could potentially get pushed back into Q1 2024. So these charts assume we’re 6 months away from a recession, and benchmarks where we are today against that point in previous cycles.

Today’s CoTD looks at equities in this framework. As you can see, the S&P 500 has on average performed very well from 2 years out up until the year before a US recession. However in the 12 months prior it flatlines (underperforming the long-term trend) before starting to fall 1-2 months before the recession. So you don’t get falls until the downturn is within touching distance but you do get sideways markets a year out.

This cycle is quite different at the moment. The S&P 500 was very weak “2 years out” for most of that year and then very strong over the last 6-9 months. So if you just look at this year there is absolutely no signal from equities that a recession is coming. However two caveats. Firstly if we did get a recession by year-end its likely at this stage that the 2-year lead-up to it would be the weakest equity performance in this post-WWII sample, so evidence of market concern in the lead-up as the rate environment completely changed. The second caveat is that as slide 9 in the pack shows, the equal weight S&P 500 has been trading more sideways over the last year, and much more typical of what you would see if a recession was now 6 months out. So it depends on your view of whether those handful of mega-cap tech stocks can influence the macro outlook.

4. Mid and Small-Cap Participated in June

JP Morgan Private Wealth.

5. Interest Costs are Projected to Eat Up 35% of Federal Revenue in the Future

Barrons

By Barrons Randall W. Forsyth

https://www.barrons.com/articles/federal-deficit-monetary-policy-interest-rates-economy-bde97221?mod=past_editions

6. Traffic Based on Supreme Court Rulings

7. Traditional pay TV US home penetration to fall below 50% in 2023

https://nscreenmedia.com/traditional-pay-tv-us-home-penetration-2023/#:~:text=With%2066.9%20million%20traditional%20pay,%2C%20satellite%2C%20or%20telco%20TV

8. Change in Workers Relocating for a New Job….Another Reason Less Homes will be for Sale

Food for Thought: Lastly, the change in workers relocating for a new job: The Daily Shot Brief

Source: @jeffsparshott

9. Federal Student Loan Debt by Age

Ramsey Solutions.

https://www.ramseysolutions.com/debt/average-student-loan-debt

10. Democracy Still Winning-Scott Galloway No Mercy No Malice Blog

The Good News-Over the long term, democracy is steadily beating autocracy. A hundred years ago, for every five autocracies there was one democracy. Today, democracy is the most popular form of governance.

https://www.profgalloway.com/truth/

Topley’s Top 10 – July 05, 2023

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1. Happy 4th of July….God Bless American Entreprenuers and their Employees

2. Two Charts that Sum Up 2023 Market from Callum Thomas….Technicals vs. Fundamentals

Technical Check:  This one’s interesting because not only did we end up clearing the lower resistance line, and then go on to break the upper line, but now in fact its gone on to retest that breakout and even chalked up a new high. So again, just on technicals, without knowing anything else, that looks bullish.

Source:  @topdowncharts Topdown Charts Professional

What About the Rest of Tech?  It really is just a case of big tech carrying the market, if we look at the percentage of Nasdaq stocks with negative earnings, it has just reached a new all-time high. If you argue that it is a fundamental driven rally, it ain’t showing up in the numbers (at least not yet?).

Source:  @_rob_anderson

https://www.topdowncharts.com/about

3. Summary of Historical Top 10 Stocks Contribution to Returns

Marketwatch As an aside, Kostin(Goldman) and the team address the whole narrow market issue, saying that in any given year, returns have been concentrated on a group of outperformers. Observe the below chart: “Excluding the top 10 contributors in each year, the S&P 500 would have delivered an 8% average annual return since 1990 (vs. 12% for the full index),” they said. The top 10 contributors account for roughly 12 percentage points of the S&P 500’s 15% year-to-date return.

https://www.marketwatch.com/story/these-stocks-could-be-the-next-magnificent-seven-market-leaders-says-goldman-sachs-5ea8a4e6?mod=home-page

4. High Yield Spreads and Stock Market Performance

Dorsey Wright Of course, the economy is not our primary focus, but there is a strong relationship between the economy and US equities, so we wanted to see what high yield spreads might be able to tell us about stock performance. To answer that question, we looked at the quarterly change of the CBUS 10 Year Spread (CBUS10YRSPREAD), which measures the spread between US Treasuries and high yield corporate bonds, for each quarter since Q2 1987 and compared it to the quarterly returns of the S&P 500 (SPX). What we found is that SPX performs significantly better in quarters when high yield spreads are narrowing, and that the magnitude of the change is also significant as SPX performed better in quarters when spreads narrowed significantly and worse when they widened by a large amount. The results are shown in the table below.

https://www.nasdaq.com/solutions/nasdaq-dorsey-wright

5. Apple Sets Price to Sales Record High

Purple Arrow is 2007 Iphone Introduction

https://companiesmarketcap.com/apple/ps-ratio/#:~:text=According%20to%20Apple’s%20latest%20financial,P%2FS%20ratio%20of%206.91

6. Homebuilders and Lumber??

XHB Homebuilder ETF close to 2021 highs

But Lumber close to lows….This chart shows lumber versus homebuilder stocks …It is down close to -80% from highs.

www.stockcharts.com

7. The Other Real Estate Charts Forming Bases

Regional Bank ETF KRE forming base since March?

Vanguard REIT ETF forming base since October 2022 low?

www.stockcharts.com

8. Here is Homebuilders vs. REIT ETF

Straight up since mid-2022

More vivid in point and figure chart….massive move higher?  Reversion?

www.stockcharts.com

9. The Real “Carrying Cost” of Homeownership…NY Times

NY Times By Michael Kolomatsky

Lurking Beneath Home Prices: Hidden Costs Insurance, taxes, maintenance and utility costs vary by region, driving up the true cost of homeownership.

Frustrated home hunters have watched U.S. home prices surge from a median of $327,100 in the fourth quarter of 2019 to $436,800 in the first quarter of 2023. With the focus on rapidly rising prices, it’s easy to forget the “hidden” costs of homeownership, including property taxes, homeowner’s insurance, utility payments and maintenance.

According to a recent Zillow study of housing costs in the first quarter of 2023, the median amount of these auxiliary expenses in 39 large U.S. metro areas was $14,155 a year. Among those metros (where sufficient data was available), San Francisco had the highest annual hidden costs (a median of $22,791), while Las Vegas had the lowest ($9,886).

Overall, maintenance was found to require the greatest median outlay ($6,413 a year), followed by utilities ($3,216), property taxes ($2,827) and homeowner’s insurance ($1,699). Taxes varied the most, from an annual median of $9,145 in New York City to just $1,055 in Pittsburgh.

To build the list, researchers used each metro’s median real estate tax and home value, as drawn from the Zillow Home Value Index. Insurance costs were calculated at 0.5 percent of value. Utility costs were derived from 2022 state averages, while phone bills and streaming-service costs were sourced from Forbes reporting. Zillow collaborated with Thumbtack, a site connecting contractors with homeowners, to determine local costs of maintenance and essential repairs, such as fixing appliances, house cleaning (including carpets, chimneys, gutters, grout and windows), lawn care, roof maintenance and yard work, among others.

https://www.nytimes.com/2023/06/29/realestate/home-prices-costs.html

10. Farnum Street Blog

TKP

A few gems from my remarkable conversation with Dr. Julie Gurner:

Victim or survivor mindset

“I think that there are two ways of looking at things that have happened to you. You can be a victim or you can be a survivor. Those are two very different cognitive positions. You can’t control what happens to you in either circumstance, but one is very powerful. You have overcome. One is you have had something happen to you and you are under that thing for quite some period of time. For me, if I hear someone and I hear that helplessness, one is that I want to reframe that experience. I want to tell a different story. I want them to tell a different narrative to themselves. I want them to rewrite that. In some ways, you want them to rewrite that narrative to survivorship and overcoming and what it took. You ask the right questions to get them to see that their own throughway in that case is based on their strength and ability. You want them to see those things rather than seeing the helplessness and powerlessness.”

Moving forward

“When people are telling me that “I’m doing this because of my childhood” or “I’m doing this because of this,” I think you’re giving up some amount of power. You’re giving up a lot of power to something outside of yourself, and also how you’re interpreting that event is not useful to you. There may be a lot of truth to the terrible things that have happened, but those terrible things—you have to shut the door at some point and say, “I am my own man or woman, and I move forward. … if you are somebody who uses other events as a reason to self-destruct, you’re ceding power… We see that even in companies—“I’m doing this because so-and-so made me angry. I’m doing this because…”—and you end up making some poor decisions and ceding power because of someone else. You’re willing to make a poor decision. You’re willing to give up. Sometimes people are willing to give up their entire future dreams because of X, Y, and Z, and it’s a tragedy. You want people to really understand the power they have to create their own lives at some point, and that creation is not given to anyone else but you.”

— Listen and Learn (FS | Transcript | Apple | Spotify)

Insight

“It’s one thing to create. The other is you have to choose. ‘What are we going to do, and what are we not going to do?’ This is a gigantic aspect of show-business survival. It’s kind of unseen, what’s picked and what is discarded, but mastering that is how you stay alive.”

— Seinfeld

Tiny Thought

Your life is designed to get the results you are getting right now.

For the trajectory to change, the approach must change.

(Click here to share on Twitter)

https://fs.blog/