New The Bespoke Report · 2019. 9. 23. · The Bespoke Report Equity Market Pros and Cons March 1, 2019 ... Fiscal Stimulus Boosted 2018 Growth, 2019 Will Be Very Weak0.05.0 R&D Software

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The Bespoke ReportEquity Market Pros and Cons

March 1, 2019

An independent research firm that uses big data to present timely investment ideas in an easy to understand format.


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US Equities

Pros Cons1. Market Internals Exceptionally Strong2. Strength from Leading Groups3. Homebuilders Put in a Bottom4. Credit Rallying5. Analysts Still Negative, Beats Bottoming6. Guidance Flush7. Economy Still Growing8. Fed Flips Dovish9. Low Inflation10. Steepening Long-Term Yields11. Trade War Easing12. Global Stock Participation13. China Credit Easing14. Commodity Prices15. Seasonality, Strong Starts to a Year

1. Long-Term Technicals/No New High Yet2. Weak Global Data3. US Consumer Weakening4. STIRs Inverted5. Present vs. Expectations Warning Sign6. FANG+ No Longer Leading7. Peaks for Leading Indicators8. Jobless Claims Picking Up Slightly9. Home Prices Declining10. Small Business Sentiment11. Weak Retail Sales*12. 2020 Closer Than You Think



PROS – Market Internals Exceptionally Strong

While the S&P 500 has not made it back toits September all-time highs yet, thecumulative advance/decline line, which is arunning tally of the daily number ofadvancers minus decliners, has blown pastprior highs. This type of strength in breadthsuggests that price will soon follow, givingbulls a key supporting argument that newhighs will be made during this rally.

The spread between the S&P 500 equal-weight index and the normal cap-weightedindex also highlights strength in breadthrecently. As shown at right, the equal-weight index underperformed in 2017 and2018, but it has broken out of its downtrendduring the post-Christmas Eve rally.

Equal Weight Relative Breakout (Past 5 Years)

1.46

1.48

1.50

1.52

1.54

1.56

1.58

1.60

S&P 500 EqualWeight / S&P 500

S&P 500 vs Cumulative A/D Line: Last 12 Months

6383

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2/23 5/23 8/23 11/23 2/23

S&P 500 (Left Axis) Cumulative A/D Line (Right Axis)




90% of S&P 500 stocks are above their 50-DMAs,and we recently ended a long streak of days(711) without >90% of S&P 500 stocks abovetheir 50-DMAs. Forward returns after thesestreaks are broken are very strong.

S&P 500 Breadth: % of Stocks Above 50-DMAs Since 2001

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% of Stocks Above 50-DMAs (Left Axis) # of Days w/o >90% Reading (Right Axis)

Date

Streak of

Trading Days

Next

Week (%)

Next

Month (%)

Next 3

Mths (%)

Next 6

Mths (%)

5/2/03 583 0.36 6.04 3.80 12.56

11/12/04 354 -1.17 1.82 2.21 -1.56

4/29/09 1108 5.25 7.92 13.03 21.72

3/17/10 120 0.13 2.68 -4.18 -3.53

10/5/10 119 0.78 5.20 9.74 14.81

10/24/11 256 -0.07 -7.37 4.95 10.88

1/4/13 294 0.38 3.11 8.27 11.86

3/16/16 709 0.47 3.31 2.17 4.86

2/15/19 711 ? ? ? ?

Average 0.77 2.84 5.00 8.95

Median 0.37 3.21 4.38 11.37

Avg. All Days 0.11 0.45 1.37 2.84

Median All Days 0.27 1.09 2.56 4.56

vs. Avg All Days 0.65 2.39 3.63 6.11

vs. Med. All Days 0.10 2.12 1.82 6.81

*Streaks of trading days without >90% of S&P 500 stocks above their

50-day moving averages.

S&P 500 After End of Streaks w/o 90%+ Breadth Reading*

S&P 500 Sectors: % of Stocks Above 50-DMAs

76% 79% 79% 81%84% 88% 90% 93% 97% 97% 99% 99%

0%

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50-day moving averages (and most 200-DMAs) for major index ETFs are headed higher again.



PROS – Strength from Leading Groups

Areas of the market that are generally thought of as “leading” the S&P 500 continue to outperform during this rally, which is another argument for the case that the S&P will go on to make new highs. Small-caps have outperformed along with Industrials and Tech.

Semiconductors (SOX Index) vs. S&P 500 Relative Strength

2,250

2,350

2,450

2,550

2,650

2,750

2,850

2,950

3,050

0.40

0.42

0.44

0.46

0.48

0.50

0.52

0.54

SOX/S&P Ratio (Left Axis)

S&P 500 (Right Axis)

US Related

ETF Description

SPY S&P 500 3.61 11.97 19.40

DIA Dow 30 4.14 11.94 19.69

QQQ Nasdaq 100 3.88 12.75 21.21

IJH S&P Midcap 400 4.57 15.72 22.80

IJR S&P Smallcap 600 4.67 15.70 23.12

IWB Russell 1000 3.68 12.37 20.01

IWM Russell 2000 5.56 17.60 25.10

IWV Russell 3000 3.76 12.74 20.30

Last 4

Wks YTD

Since

12/24

US Equity Indices Total Return (%)

-10

-8

-6

-4

-2

0

2

Feb-18 May-18 Aug-18 Nov-18 Feb-19

Industrials vs. S&P 500

-3

0

3

6

Feb-18 May-18 Aug-18 Nov-18 Feb-19

Technology vs. S&P 500

FOMC Meeting: No Change

FOMC Meeting: Rate Hike

Relative strength for the semis bottomed well before the S&P bottomed in 2018.



PROS – Homebuilders Put in a Bottom

After dropping 40% from January 2018 through late October 2018, the S&P 1500 Homebuildergroup bottomed and has since made a series of higher lows.

Note that the homebuilders bottomed in October well ahead of the broad market’s low madeon Christmas Eve.

S&P 1500 Homebuilder Group: Last 12 Months

550

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650

700

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800

850

900



PROS – Credit Rallying

Credit Spreads Are Continuing To Decline (Higher Prices)

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4

US CDS IG US CDS HY

US Cash IG US Cash HY

EZ CDS IG EZ CDS HY

EZ Cash IG EZ Cash HY

USD and EUR credit spreads, z-score (normalized for volatility), past year.

Credit spreads are confirming strength in equities. While not yet back to extreme lows, spreads haverallied consistently over the past three months and are near the lowest levels of the rally, serving assupport for equity markets on both sides of the Atlantic.



PROS – Analysts Still Negative, Beats Bottoming

After getting overly optimistic regarding earnings in 2018, analysts are negative once again. Analysts are now lowering EPS estimates at a much faster pace than they’re raising them, which is actually bullish for the S&P near-term. Note that rolling 3-month EPS and sales “beat rates” have started to pick back up again too.

S&P 1500 Earnings Revisions Spread: 2008 - 2019

S&P 500: 2008 - 2019

-25.0%

-80

-60

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-20

0

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60

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

500

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'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

S&P 500

Revisions Spread Below 25%



PROS – Guidance Flush

S&P 500 Avg. % Chg After Earnings Season Based on Guidance Spread

-0.45-0.19 -0.17

-1.01

1.05

1.89

0.89

-0.08

2.552.24

0.06

-1.13-1.50

-1.00

-0.50

0.00

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1.00

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Negative Spread Spread -5 or Worse Positive Spread Spread +3 or Better

Next Week

Next Month

Next 3 Mths

Companies have been lowering guidance at a rapid pace over the last couple of months after getting overly optimistic in 2018 following the Trump tax cuts. While counterintuitive, when companies lower guidance more than they raise guidance, it’s actually bullish for the S&P 500 in the weeks and months following the end of earnings season.



PROS – Economy Still Growing

Economic growth came in at a slower but healthy 2.6% QoQ SAAR in Q4 2019, extending the streakof >2% growth quarters to 7, the longest such streak since the 9 quarter streak ending in Q1 ’15. Itwas also the first year since 2004 where all four quarters saw 2%+ growth.

Unfortunately, as fiscal stimulus (roughly equal to 2% of GDP in 2018) starts to slow growth rates willweaken in 2019; the very early Atlanta Fed GDPNow estimate is currently tracking near-zero growthin Q1, which would break the streak.

Even with a slowing global economy, US business investment remains very firm, a good sign.Fiscal Stimulus Boosted 2018 Growth, 2019 Will Be Very Weak After A Q3 Wobble, Total Investment Plugs Along0.05.0 R&D Software

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5

10 Consecutive Quarters With Growth >2%GDP QoQ SAARAtlanta Fed GDPNow Tracking for Q1

0.05.0 R&D Software

-28

-24

-20

-16

-12

-8

-4

0

4

8

12

16

20

Real Private FixedNonresidentialInvestment QoQSAAR



PROS – Fed Flips Dovish

The Fed is now exhorting “patience” and the most aggressive FOMC members are advocating only one hike in 2019 based on the current data; that plus widespread agreement that rates are now in neutral territory mean the Fed is out of the way of the markets until the economy starts accelerating again.

Bespoke Fedspeak Monitor Index

Bespoke Fedspeak Monitor Assessment Scale

-80

-60

-40

-20

0

20

40

60

80

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

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0.4

0.6

0.8

1.0

1.2

Fedspeak Monitor Index

3m Change in 10y Yield (bps)

Very Hawkish 3Hawkish 2

Rolling 20-speech average of

FOMC speaker speech rating.

Dovish -2

Very Dovish -3

Slightly Hawkish 1

Neutral 0Slightly Dovish -1



PROS – Low Inflation

ISM Manufacturing Net Commodities Up in Price (3 Mth Avg): 2007 - 2019

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1/07 1/09 1/11 1/13 1/15 1/17 1/19

CP

I (Y/Y

, %)

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mm

od

itie

s U

p I

n P

rice

(N

et)

3 Month Average Net Commodities Up In Price (left axis)

CPI Y/Y (right axis)

We love using the monthly ISM survey as an inflation predictor, and the most recent ISM Manufacturing survey that asks about commodity prices suggests that investors have no reason to be concerned about inflation here.



PROS – Steepening Long-Term Yields

One comforting signal from interest rate markets is persistent long term steepening of long-term yields.While the 2s10s curve is very flat, rates more sensitive to inflation have risen, a sign that while theeconomy has slowed, the Fed’s reversal to a more dovish tone will improve the backdrop.

From a technical perspective, the recent uptick in benchmark yields has been largely technical. 10 yearyields broke out of their consolidation and above a trend line dating back to September,suggesting that the interest rate markets are not pricing a recession.

While 2s10s Remains Flat, Longer-Term Curves Are Steepening 10 Year Yields Have Coiled & Broken Out: Rates Reverse Higher

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2s10s Yield Curve

5s30s Yield Curve

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3.3



PROS – Trade War Easing

Markets Started To Fall After Second Tranche of Chinese Tariffs (10% on $200bn, Red 20) Hit

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S&P 500

Solar/Washing Machines

Steel/Aluminum

China

Date Label Event Date Label Event Date Label Event

10/31/2017 1 4/20/2017 1 8/18/2017 1 US investigates China for unfair trade practices

3/22/2018 2 US concludes China engages in unfair trade practices

1/22/2018 2 US tariffs on $8.5bn solar panels/$1.8bn washing machines 4/27/2017 2 4/3/2018 3 US considers tariffs on $50bn of Chinese goods

2/5/2018 3 China opens investigation on US sorghum exports 4/4/2018 4 China threatens retaliatory tariffs

4/17/2018 4 China tariffs on $1bn of sorghum 2/16/2018 3 US finds imports/steel threaten national security 4/5/2018 5 US considers tariffs on another $100bn of Chinese goods

5/14/2018 5 Korea disputes washing machines/solar tariffs via WTO 3/1/2018 4 US announces tariffs on $48bn aluminum/steel imports 6/15/2018 6 US revises $50bn tariff tranche

5/18/2018 6 China ends sorghum tariffs 3/7/2018 5 EU announces retaliatory tariffs on US 6/15/2018 7 China revises $50bn retaliatroy tariff tranche

8/14/2018 7 China disputes solar tariffs via WTO 3/8/2018 6 Canada/Mexico exempted from steel/aluminum tariffs 6/18/2018 8 US begins looking at $200bn list of goods for tariffs (on top of $50bn)

3/22/2018 7 7/6/2018 9 US and China raise tariffs on $34bn of $50bn

7/10/2018 10 US releases $200bn of goods for second tariff tranche

3/23/2018 8 US steel/aluminum tariffs go into effect 7/24/2018 11 US announces subsidies for farmers after tariff effects

3/28/2018 9 Korea agrees to steel export quota 8/1/2018 12 US considers 25% tariff (vs 10%) on $200bn tranche

4/2/2018 10 China retaliatory tariffs on US 8/3/2018 13 China considers $60bn in retaliatory tariffs

6/1/2018 11 US ends tariff exemptions for EU/Canada/Mexico 8/7/2018 14 US finalizes $16bn of $50bn tariff tranche

6/22/2018 12 EU announces retaliatory tariffs on US 8/8/2018 15 China finalizes $16bn of $50bn tariff tranche

7/2/2018 13 Canada announces retaliatory tariffs on US 8/13/2018 16 US passes laws limiting foreign investment and tech transfer

7/16/2018 14 US files WTO disputes over retaliatory tariffs 8/23/2018 17 US and China raise tariffs on last $16bn of $50bn

7/24/2018 15 US announces subsidies for farmers after tariff effects 9/17/2018 18 US finalizes $200bn tariff list (10%)

8/10/2018 16 US raises tariffs on Turkey after lira declines 9/18/2018 19 China finalizes $60bn tariff list (5-10%)

8/14/2018 17 Turkey announces retaliatory tariffs on US 9/24/2018 20 US $200bn/China $60bn tariff lists goes into effect

12/3/2018 21 US/China "truce"/negotiation; 10% on $200bn goes to 25% March 1st

2/25/2019 22 March 1st deadline delayed.

US Int'l Trade Commission reccommends tariffs on solar

panels/washing machines

EU/Korea/Brazil/Argentina/Australia exempted from

steel/aluminum tariffs

US starts investigation on steel imports under security

argument

US starts investigation on aluminum imports under

security argument

The US has deferred raising10% tariffs to 25% on $200bnof Chinese imports as tradetalks continue; we note thatthe 10% tariffs taking effect(20) were almost the deadtop of the market, andspecific trade policy changeshave been infrequent sincethe stock market fell in Q4.



PROS – Global Stock Participation

After a rough 2018, international markets are rising in unison once again. All but 10 of the 75 country stock markets we track are in the green in 2019, and developed G7 countries are all performing nicely.

Country YTD % Chg Country YTD % Chg Country YTD % Chg

Bermuda 21.63 Spain 8.52 Chile 3.63

China 20.05 Saudi Arabia 8.51 Jamaica 2.93

Greece 16.19 Brazil 8.27 Kenya 2.91

Turkey 13.14 Norway 8.17 Hungary 2.64

Ireland 13.06 Japan 7.93 Croatia 2.51

Italy 12.94 Iceland 7.73 Poland 2.48

Argentina 12.64 South Korea 7.56 Philippines 2.35

Canada 12.41 Israel 7.36 Mexico 2.17

Belgium 12.35 Taiwan 6.80 Slovakia 2.05

Finland 12.29 Pakistan 6.67 Ecuador 2.00

Sweden 12.17 South Africa 6.57 Nigeria 1.26

Switzerland 11.66 Peru 6.46 Malaysia 0.60

Hong Kong 11.48 Estonia 6.43 Botswana 0.30

United States 11.40 New Zealand 6.13 Malta 0.17

France 11.30 Lithuania 5.70 India -0.01

Luxembourg 11.17 Bahrain 5.64 Mauritius -0.52

Russia 11.10 Britain 5.63 Ukraine -0.71

Denmark 10.71 Latvia 4.99 Bulgaria -1.58

Portugal 10.63 Thailand 4.96 Qatar -1.82

Netherlands 10.39 Singapore 4.94 Morocco -1.87

Germany 9.88 Indonesia 4.93 Lebanon -3.42

Vietnam 9.76 Namibia 4.56 Oman -4.15

Australia 9.68 Abu Dhabi (UAE) 4.53 Serbia -4.17

Colombia 9.63 Dubai UAE 4.19 Sri Lanka -4.92

Austria 9.56 Romania 3.79

Czech Republic 9.04

G7 Country BRICs

Country Stock Mkt YTD % Chg (Local Currency)



PROS – China Bull Market

Back in November, we made a call that Chinese equities looked to be bottoming, and that call has worked out quite well. The Shanghai Composite is crushing it in 2019, and it just entered a new bull market with a gain of 21.5% off its lows.

The Shanghai bottomed right at its long-term uptrend channel, and the average bull market for the index sees a gain of 112.6%. That’s another 90+ percentage points of upside for the current bull just to get to the average.

China's Shanghai Composite: 1990-Present

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Number Avg. % Chg Median % Chg Avg. # of Days

Bulls 30 112.6% 34.4% 205

Bears 29 -34.9% -32.2% 142

% Chg # of Days

Current Bull 21.5 57

China Historical Bull and Bear Markets

Global

ETF Description

EWA Australia 4.18 11.27 16.29

EWZ Brazil -6.04 11.66 16.45

EWC Canada 2.91 16.53 20.87

ASHR China 16.49 28.49 29.20

EWQ France 4.67 11.50 15.69

EWG Germany 2.91 8.84 12.89

EWH Hong Kong 6.25 14.91 16.14

PIN India 0.64 -1.86 1.28

EWI Italy 5.08 12.68 17.18

EWJ Japan 0.57 7.26 10.69

EWW Mexico -2.88 5.78 7.29

EWP Spain 2.79 8.72 11.04

RSX Russia -2.79 9.49 11.33

EWU UK 3.32 11.24 14.32

Last 4

Wks YTD

Since

12/24

Foreign Equities Total Return (%)



PROS – China Credit Easing

China Medium- & Long-Term Loans To Consumers Net Chg, bn $ SAAR China Medium- & Long-Term Loans To NFC Net Chg, bn $ SAAR

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MoM Ann. ($ bn),2739.6

3m/3m Ann. ($ bn),864

YoY Ann. ($ bn),457.3

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MoM Ann. ($ bn),6849

3m/3m Ann. ($ bn),1709.1

YoY Ann. ($ bn),572.7

Chinese credit creation surged in January. After seasonally-adjusting the data, we see a netincrease of $2.34 trillion in loans to households, at annual rates and converted to US dollar. That’sa record pace, and is joined by a $6.85 trillion annual rate of increase for loans to non-financialcorporations. In other words, these two categories alone saw lending worth more than half of USGDP (if it ran at the same pace the whole year). That sort of credit binge is of significant benefit toglobal financial sentiment even if it doesn’t result in huge positive impacts for real activity.



PROS – Commodity Prices

After plunging through 2018, commodity prices have started to turn up. While commodity prices don’t always have a consistent relationship with growth, the declines in the prices of metals and energy especially are one less thing for investors to worry about.

Commodity Prices Have Bottomed & Turned Higher Copper Prices Have Made A Classic Extended Bottom

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Industrial Metals

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PROS – Seasonality, Strong Starts

From a seasonal perspective, market bulls have the calendar on their side.

Over the last 20 years, the two-month stretch of March and April has been the best two-month period on the calendar for the DJIA.

The DJIA has averaged a gain of 1.47% in March over the last 20 years and a further gain of 2.25% in April.

Month Last 100 Years % Positive Last 50 Years % Positive Last 20 Years % Positive

January 0.97 63% 0.95 62% -0.97 50%

February 0.14 55% 0.41 60% -0.24 60%

March 0.52 59% 1.12 66% 1.47 65%

April 1.29 61% 1.87 66% 2.25 80%

May 0.05 54% 0.14 54% -0.08 55%

June 0.32 49% -0.24 48% -0.99 35%

July 1.57 64% 0.87 58% 1.12 70%

August 0.85 60% -0.12 58% -0.15 60%

September -1.08 41% -0.92 36% -1.18 45%

October 0.34 61% 0.70 60% 1.76 70%

November 0.89 62% 1.32 68% 1.65 70%

December 1.44 73% 1.45 68% 1.03 65%

Average Monthly % Change for the DJIA

Average Monthly % Change for the DJIA

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Last 100 Years

Last 50 Years

Last 20 Years



PROS – Seasonality, Strong Starts

2019 has seen one of the best starts to a year on record for the S&P 500. Through late February, the S&P had been up on 73% of trading days. The 7 prior years that saw similar strength saw gains for the remainder of the year every time.

The Nasdaq is also on a 10-week winning streak, and note in the right table below that in the three months after 10-week winning streaks, the Nasdaq has been up every time for an average gain of 10%!

Week Ending One Week One Month Three Months Six Months One Year

2/4/1972 1.34 4.91 6.33 8.00 4.32

2/13/1976 2.32 2.28 1.42 3.20 8.01

5/12/1978 1.82 4.10 10.55 -3.82 8.62

10/22/1982 -1.24 4.88 13.32 34.03 29.82

12/6/1985 2.34 2.97 14.19 26.43 14.65

2/3/1989 -0.98 -0.58 5.53 12.45 3.90

6/2/1989 0.45 -3.88 4.36 1.21 2.32

12/24/1999 2.52 3.19 25.03 -3.13 -36.59

2/28/2019 ? ? ? ? ?

Average 1.07 2.23 10.09 9.80 4.38

Median 1.58 3.08 8.44 5.60 6.17

Nasdaq Performance (%)

Nasdaq 10-Week Winning Streaks

Year YTD Gain Rest of Q1 Rest of Year Max Gain from 37th Day Max Decline From 37th Day

1961 67.6 7.71 4.38 14.32 16.06 0.00

1965 67.6 2.86 -1.16 6.03 6.26 -6.39

1967 67.6 8.86 3.14 10.31 11.60 -1.13

1971 70.3 4.97 3.70 5.54 8.31 -6.79

1976 67.6 13.13 0.73 5.32 5.68 -3.33

1995 67.6 6.02 2.83 26.50 27.68 -0.98

2012 67.6 8.60 3.13 4.43 7.32 -6.42

2019 73.0 11.97

Average 2.39 10.35 11.85 -3.58

Median 3.13 6.03 8.31 -3.33

All Years

Average 0.47 5.98

% Positive 57.1 69.2

Postive Days in First 37

(% of Total)

S&P 500 Performance (%)

S&P 500 Most Consistent Positive Starts: 1928 - 2019



CONS – Market Still in Correction, No New High Yet

We want to see the market in a long-term uptrend if we’re going to be fully invested, but until the major indices make new all-time highs, they’ll all remain in either sideways trends or downtrends. The rally to start 2019 has put a dent in downtrends that were in place for every US index ETF we track, though, as half of them are now in sideways trends instead of downtrends.



CONS – Weak Global Data

Global data has weakened markedly. Whether it’s the “soft,” coincident sentiment-drivenmanufacturing purchasing manager indices released by Markit every month or “hard,” lagging data inthe form of global trade volumes, global economic activity is looking very weak. For PMIs, the bigdriver looks to be the reversal in Eurozone readings, while “hard” data has seen Chinese impactsweigh the strongest on the overall levels of activity.Markit Manufacturing PMIs Are Falling Into Contraction, Led By The EZ World Trade Is Slowing Dramatically, Driven By EM Asia aka China

20

30

40

50

60

70Canada, 52.6

India, 54.3

Japan, 48.9

South Korea, 48.3

Taiwan, 47.5

Australia, 52.9

Brazil, 53.4

Austria, 51.8

France, 51.5

Netherlands, 52.7

UK, 52

Greece, 54.2

Italy, 47.7

Spain, 49.9

Czech, 48.6

Poland, 47.6

Russia, 50.1

Turkey, 46.4

China, 49.9

Euro Area, 49.3

Germany, 47.6

USA, 53

Global, 50.6

-50

-40

-30

-20

-10

0

10

20

30

40

Global Trade Volume3m/3m Ann., -3.67%

EM Asia Imports, 3m/3mAnn., -20.21%



CONS – US Consumer Weakening

Consumer spending is set to start Q1 on a very weak footing thanks to the impact of Q4 equitymarket declines and the confidence impact of the government shutdown that lasted over a month.Consumer sentiment indices deteriorated dramatically, but have risen in February thanks to themarket rebound and shutdown resolution. We expect a weak January and February before consumerspending starts to rebound in March and Q2.

After A Strong Close to 2018, Shutdown/Q4 Stocks Hurting Q1 Spending Consumer Sentiment Fell From Shutdown/Stock Fall, Rebound In Feb

0

1

2

3

4

5

6

7

8

9

10

First Data Merchant Services Dollar Volume YoY

Johnson Redbook Retail Same-Store-Sales YoY

US Retail Sales YoY

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

BBG Consumer Comfort (Monthly Avg)

Conference Board Consumer Confidence

U. of Mich. Consumer Sentiment

Consumer sentiment indices, z-score

(normalized for volatility), past 10 years.



CONS – Weak Retail Sales*

The most recent Retail Sales report was released late due to the government shutdown, but it would have been better to have not gotten the report at all given how terrible it was. It was so bad that many questioned the validity of the data and expect to see big revisions in the coming months.

That being said, this is still officially published data that covers spending habits of consumers, and the sharp decline is definitely a negative. Note at right that our diffusion index of retail sectors showing growth has moved all the way down to just above even.

Retail Sales Diffusion Index of Sectors Showing Growth: 2000 - 2019

Six Month Average

0.33

-8

-6

-4

-2

0

2

4

6

8

10

'00 '04 '08 '12 '16

Recessions

Retail Sales Sectors: Consecutive Months of Gains (Losses)

3

1

-1 -1 -1 -1 -1 -1 -1 -1-2 -2

-4

-9-10

-5

0

5C

on

secu

tive

Mo

nth

s



CONS – STIRs Inverted

While the modest steepening of the longer-term yield curve mentioned earlier is a good sign for theeconomic outlook, the short-term interest rate market is a very different story. As shown below, theEurodollar yield curve is still inverted, indicating market pricing of rate cuts over rate hikes in the nextcouple of years. Similar inversions lead recessions by healthy margins in the last two cycles and is asource of concern.

After A Strong Close to 2018, Shutdown/Q4 Stocks Hurting Q1 Spending Eurodollar Yield Curve Inverted Doesn't Bode Well

2.0

2.2

2.4

2.6

2.8

3.0

3.2

Year Ago Current

-2

-1

0

1

2

3

4 Recessions

Spread Between First and SeventhEurodollar Contract (bps)



CONS – Present vs. Expectations Warning Sign

Consumer Confidence saw a nicepick-up in January, but the Presentvs. Expectations readings are stillvery worrisome.

Whenever consumers are verypositive about the present butmuch less so about the future(expectations), it’s usually verylate in an economic expansion. Apeak in the spread followed by adowntick would mean that arecession is likely right around thecorner.

Consumer Confidence: Present Conditions vs Expectations

Consumer Confidence: Spread of Present Conditions vs Expectations

0

20

40

60

80

100

120

140

160

180

200

'67 '77 '87 '97 '07 '17

Expectations

Present Conditions

-100

-80

-60

-40

-20

0

20

40

60

80

100

'67 '77 '87 '97 '07 '17

(New cycle high)



CONS – FANG+ No Longer Leading

Investors love to latch onto growth themes during bull markets, and the FANG+ trade drove the market’s rally in 2016 and 2017 given the size of these massive Tech companies. With S&P 500 breadth stronger than FANG+ breadth recently, the FANG+ trade is no longer a leading theme.



CONS – Peaks for Leading Indicators

Leading/Coincident Ratio Starting To Look Like A Peak

Leading-Coincident Indicator Ratio Has Dropped Since September

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1.25

1.30Recession

LEI/CEI Ratio

0.80

0.85

0.90

0.95

1.00

1.05

1.10

1.15

Recession LEI/CEI Ratio

Peak Date Recession Start Date Months

9/30/1959 4/30/1960 7

4/30/1966 12/31/1969 44

1/31/1973 11/30/1973 10

6/30/1977 1/31/1980 31

9/30/1980 7/31/1981 10

9/30/1987 7/31/1990 34

9/30/1997 3/31/2001 42

8/31/2005 12/31/2007 28

9/30/2018 ?

Average 26

Median 30

LEI/CEI Ratio Recession Indicator

The ratio of the Conference Board’s Leading toCoincident indices is a good leading sign ofpending recession. That ratio peaked inSeptember of 2018, and has been declining since.However, that doesn’t mean a recession is in theprocess of starting. Historically, the ratio typicallypeaks two to two-and-a-half years beforerecession, with the minimum lead time of thelast three recessions coming in at 28 months.Plus, there have also been two other false alarmsduring this cycle.



CONS – Jobless Claims Picking Up Slightly

The steady trek lower for initial jobless claims has been an amazing trend to watch since the bull market for stocks began in early 2009.

But over the last couple of months we’ve seen a slight pick-up in claims that warrants caution. The four-week moving average for claims made a new 52-week high last week, and we’ve started to see YoY increases in the non-seasonally adjusted readings over the last few weeks as well.

Four Week Count: 2/1/19 235

2/8/19 239

2/15/19 217

2/22/19 225

Average 229.00

Initial Jobless Claims (SA): 2005 - 2019 (Four Week Moving Average)

200

300

400

500

600

700

'05 '07 '09 '11 '13 '15 '17 '19

Tho

usa

nd

s

229.00

Initial Jobless Claims: 2005 - 2019 (Non-Seasonally Adjusted)

100

200

300

400

500

600

700

800

900

1000

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Tho

usa

nd

s

Average for current week since 2000 = 315.59K

202.7K



CONS – Home Prices Declining

After multiple years of gains, home prices have been declining for the past year now, and the lows don’t appear to be in yet.

Housing Starts have also broken down badly recently.

US Housing Starts (000s)

300

500

700

900

1100

1300

1500

1700

1900

2100

2300

Annual Rate for HousingUnits Started, 1078



While Small Business Optimism has not historically been a good recession predictor, we did have it in our “Pros” column in our last publication due to epic strength seen in 2017 and 2018.

After peaking at a record 108.8 last year, small business sentiment has plummeted to its lowest level since November 2016, erasing all of the post-Trump election increase. So, it’s definitely no longer a positive!

CONS – Small Business Sentiment

NFIB Small Business Optimism: 1975 - 2019

NFIB Small Business Optimism: 2009 - 2019

108.8

101.2

80

85

90

95

100

105

110

'75 '80 '85 '90 '95 '00 '05 '10 '15

108.8

101.2

80

85

90

95

100

105

110

'09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

Lowest level since November 2016



CONS – 2020 Closer Than You Think

The stock market views Trump as pro-business, and as 2020 gets closer, the market is going to be paying a lot more attention to likely outcomes in both the Oval Office and at the US Capitol. One outcome that the market would not like is a Sanders Presidency and a Dem sweep of the House and Senate. Right now betting odds give Dems a 60% chance at winning the White House, while Republicans are at 62% to maintain the Senate and Democrats are at 70% to hold the House.



Bespoke Model Portfolio

At left is an updated snapshot of the Bespoke Model Portfolio.

Have a great weekend!

Bespoke Terms and Privacy Policy.

Stock Company

Current

Price

Portfolio

Weight (%)

Entry

Price

Stop

Price Date Added % Change

Communication Services 11.4

NFLX Netflix 358.52 7.0 241.16 289.00 12/24/18 48.7

TWTR Twitter 30.59 4.4 34.23 25.90 11/6/18 -10.6

Consumer Discretionary 4.6

PHM PulteGroup 26.80 4.6 28.57 19.80 1/11/19 -6.2

0.0

Energy 0.0

Financials 11.8

STNE StoneCo 31.24 7.1 21.48 16.10 2/6/19 45.4

VIRT Virtu Financial 25.42 4.7 26.29 19.40 1/11/19 -3.3

Health Care 0.0

Industrials 5.1

AYI Acuity Brands 132.37 5.1 126.60 98.00 2/6/19 4.6

Materials 0.0

Real Estate 0.0

Technology 13.3

HEAR Turtle Beach 15.00 2.7 16.50 13.48 2/19/19 -9.1

INTC Intel 53.25 5.6 44.42 36.25 12/24/18 19.9

NVDA NVIDIA 157.00 5.0 153.09 124.00 2/6/19 2.6

Utilities 0.0

ETFs 5.2

EEM MSCI Emerging Markets ETF42.52 5.2 38.46 33.90 12/24/18 10.6

Cash 48.5

Performance (%):

Since Inception1 YTD = Recently Added

S&P 500 84.6 11.8 = Changed Stop Price/

Model Portfolio 142.2 4.4 Lowered Weighting

vs. S&P 500 57.6 -7.4

1Bespoke's Model Portfolio began with an initial value of $100,000 on 5/29/07.

Consumer Staples

*Bespoke's Model Portfolio does not represent actual investment results. Entry price represents the price of the security at the time it was

added. Securities that reach their stop limit are noted in our weekly Bespoke Report newsletter. If the security trades through the stop in

after hours trading, we use the first opening price as our exit price on the position.

Bespoke Model Portfolio: 3/1/19


https://www.bespokepremium.com/about/legal-policy/


Bespoke Dividend Income Model Portfolio

Ticker Name

Current

Price

Current

Yield (%)

Most

Recent

Dividend ($)

Recent/Next

Ex Date

Portfolio

Weight (%)

Entry

Price

Stop

Price

Date

Added

%

Change

Consumer Discretionary 5.0GPC Genuine Parts 108.87 2.80 0.76 12/6 5.0 99.72 81.45 8/22/18 9.2

Consumer Staples 4.2FLO Flowers Foods 20.67 3.48 0.18 2/28 4.2 20.43 15.75 8/22/18 1.2

Energy 0.0

Financials 4.2TRV Travelers 133.08 2.31 0.77 3/8 4.2 123.10 107.50 8/28/17 8.1

Health Care 10.2AMGN Amgen 191.65 3.03 1.45 2/14 5.0 171.79 155.00 8/28/17 11.6

BDX Becton, Dickinson 253.96 1.21 0.77 3/7 5.2 199.67 191.50 8/28/17 27.2

Industrials 8.2DAL Delta 48.81 2.87 0.35 2/28 3.5 57.27 44.30 8/22/18 -14.8

UNP Union Pacific 167.54 2.10 0.88 2/27 4.6 151.12 119.75 8/22/18 10.9

Materials 4.5APD Air Products 179.89 2.58 1.16 3/29 4.5 165.06 144.50 8/22/18 9.0

Real Estate 0.0

Technology 15.2CSCO Cisco 51.52 2.72 0.35 4/4 4.6 46.08 38.45 8/22/18 11.8

HPQ HP Inc 19.58 3.27 0.16 3/12 3.3 24.45 18.60 8/22/18 -19.9

XLNX Xilinx 126.70 1.14 0.36 2/5 7.3 72.78 59.75 8/22/18 74.1

Communication Services 6.2T AT&T 30.67 6.65 0.51 1/9 2.9 32.79 26.50 8/22/18 -6.5

VZ Verizon 56.65 4.25 0.60 1/9 3.2 54.26 45.75 8/22/18 4.4

Utilities 7.4AES AES Corp 17.51 3.12 0.14 1/31 3.9 13.94 11.25 8/22/18 25.6

NEE NextEra Energy 187.44 2.67 1.25 2/27 3.5 171.47 149.10 8/22/18 9.3

Cash 35.0

Performance1:

Since Inception1 QTD YTD

S&P 500 56.64 13.07 13.07 = Recently Added

Model Portfolio 51.99 8.25 8.25

Bespoke Dividend Income Model Portfolio: 3/1/19

1 Bespoke's Dividend Income Model Portfolio began with an

initial value of $100,000 on 7/22/14.


Documents

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