It’s finally the last trading day of what has been a tough year for most asset classes, especially equities.  As of this writing, the S&P 500 is on pace to finish the year with a 19.83% loss.  Over the course of the index’s history, there have only been nine other years in which the S&P 500 has fallen at least 15% for the full year.  Of course, turning the page of the calendar does not mean all the issues dragging stocks lower magically go away, and a big decline one year does not in and of itself mean we’re due for a big gain the next year.

In the chart below we plot the annual percentage change of the S&P 500 versus its move the following year.  Taking a linear regression shows that performance one year is not a good explainer for next-year performance with a miniscule R squared of 0.0003.  Looking just at those years where the S&P fell 15%+, five times the index posted gains the next year, while four times the index posted further declines.  Click here to learn more about Bespoke’s premium stock market research service.

The last week of the year also brings in the last reading on investor sentiment for 2022. Perhaps a bout of new year’s optimism has overridden the negative impact of the market’s continued decline, but bullish sentiment actually rebounded up to 26.5% after spending four straight weeks below 25%. That leaves the reading right in the middle of the past year’s range.

Bearish sentiment, on the other hand, fell from a recent high of 52.3% down to 47.6%. Unlike bullish sentiment, that level remains a bit more elevated.  Outside of last week’s 50%+ reading, it would have been the highest reading since October 20th.

In spite of a slightly more bullish tilt, this week’s data continues to show sentiment is dominated by bears. The bull-bear spread favors bears by 21.1 percentage points; the third week in a row with a sub -20 reading.

Not all of the gains to the bullish camp came from the bears.  The share of respondents reporting neutral sentiment was also lower this week falling for the fourth week in a row.  This week’s 1.5 percentage point drop was the smallest of that four-week span but brings the indicator to the lowest level since October 20th. Click here to learn more about Bespoke’s premium stock market research service.

As we noted in an earlier post, today’s release of the AAII survey gives us the final reading of the year on sentiment, solidifying a number of points as to just how dour the investor outlook has been.

For starters, the bull-bear spread heavily favors bears, and that has been the case for some time now.  As shown below, the spread has been negative (meaning a higher share of respondents are reporting as bearish than bullish) for a record 39 weeks in a row- over a month longer than the previous record which occurred recently in 2020.

Across all weeks in 2022, bullish sentiment averaged a reading of merely 24.73%.  Since the survey began in 1987, that is a record low.  In fact, the previous lowest readings were a few percentage points higher at 27.29% and 27.08% in 1988 and 1990, respectively.  Meanwhile, the average reading on bearish sentiment was historically elevated at a record of 46.2%, surpassing the prior record set in 2008 by one percentage point. Prior to 2008/2009, only 1990 saw a very high average reading for bearish sentiment.

As we highlighted in an earlier tweet, given the low readings on bullish sentiment, there was not even a single week this year in which bullish sentiment came in above its historical average of  37.63%. Of course with a low share of survey respondents reporting as bullish, a larger share would be reporting as bearish. To match the impressive reading with no weeks seeing above-average bullish sentiment, nearly every week this year (51) has seen bearish sentiment come in above its historical average of 31%, tying the record high set in 2009.

As previously mentioned, bullish sentiment averaged a reading below 25% this year. Given that reading, it should come as no surprise that 2022 also saw a record number of weeks (30) with bulls below 25%. Prior to this year, 1988 (one year after the survey began) was the prior record at 23 weeks. In other words, this year there were nearly two months more in which less than a quarter of investors reported as bullish than the previous record. Additionally, there had been 17 weeks in which over half of the responses were bearish.  Similar to the number of weeks in which bearish sentiment was above average, that ties 2008 for the record high.  Click here to learn more about Bespoke’s premium stock market research service.

Initial jobless claims have not been of particular interest recently as the weekly indicator has seen choppy week-to-week moves that have yet to set any major new high or low.  In the latest release, seasonally adjusted claims rose to 225K, matching expectations for the highest reading since the first week of the month.  Looking at the four-week moving average to smooth out some of the choppiness, the number has fallen to 221K. This week was the third sequential decline in a row for the lowest reading since early November.

On a non-seasonally adjusted basis, claims tend to drift higher at the end of the year and into the new year.  For example, the current week of the year has historically seen unadjusted claims rise week over week 90% of the time since the data begins in 1967. That seasonal drift has appeared this year but to a lesser degree as the past couple of weeks’ increase in claims has been slightly less strong than normal.  Given this, claims are well below comparable readings from the years prior to the pandemic and up only slightly versus this point last year.

Continuing claims remain the more worrisome portion of the weekly jobless claims report.  The reading has continued to rise rapidly as this week’s reading eclipsed 1.7 million for the first time since February.

There are plenty of ways of measuring how fast continuing claims have risen, but looking at the 3-month rate of change, claims are up over 25%.  As shown below, this large of an increase has never occurred outside of a recession. Click here to learn more about Bespoke’s premium stock market research service.

Earlier today we published our Global Macro Dashboard which provides an overview of the main economic and market data of 22 major global economies.  In the table below, we show the recent performance of the ETFs tracking those same countries.

With 2022 drawing to a close, there are only two countries that are currently in the green for the year: Brazil (EWZ) and Mexico (EWW).  Neither are up much, but up is up, especially in a year like this one.

In terms of month-to-date change, Hong Kong (EWH) has risen the most with a 5.62% gain, while China (MCHI) is up a modest 0.46%.  On the other end of the spectrum, Taiwan (EWT) has fallen sharply with an over 20% decline, but most of that drop is actually due to a $5.18/share long-term capital gain that the fund paid out earlier this month. Click here to learn more about Bespoke’s premium stock market research service.

Yesterday Amazon (AMZN) became the third of the mega-cap FAANG+ stocks (along with META and NFLX) to close below its closing low made during the COVID Crash in March 2020.  Not only have all of AMZN’s post-pandemic gains been erased, but it’s now trading below its lowest close made during the COVID Crash!

NYSE’s FAANG+ index is described as an index of “10 of today’s highly-traded tech giants.”  Given that most of the FAANG+ stocks account for a massive portion of the market cap weighted S&P 500, they are an impactful group.  As shown below, the FAANG+ index peaked in early November last year and has dropped 46% since then. The drop more recently follows a failed breakout above the top of its downtrend channel as the index is now back to within 5% of this past November’s low. On a relative basis, the group has been underperforming the broader market for even longer with a high in February of last year.

Below is a look at the ten FAANG+ stocks.  As shown, they came into the year with a combined market cap of $12.3 trillion, and they’re ending the year with a combined market cap of just over $7 trillion.  While Apple (AAPL) has fallen the least YTD in terms of share price change, it has lost the most in market cap at $844 billion.  Amazon (AMZN) has seen its market cap fall the second-most at $843 billion, essentially getting cut in half.  Tesla (TSLA), along with AMZN, is one of two names that lost their “$1 trillion market cap” club status this year.  TSLA is now down 69% on the year, and its market cap has fallen from $1.06 trillion down to just $344 billion.  The other FAANG+ stocks that are down 50%+ on the year include Meta (META), NVIDIA (NVDA), Netflix (NFLX), AMD, and Snowflake (SNOW).

With markets continuing to drop in these final trading days of December, on an absolute basis, 2022 is going to go down as the biggest year of wealth destruction ever for the US equity market.  In 2008, the Russell 3,000 saw its market cap fall by $6.7 trillion.  As of today, the Russell 3,000’s market cap has fallen about $11.2 trillion so far in 2022.  $5.2 trillion of that $11.2 trillion decline has come from just the ten FAANG+ stocks shown below. Click here to learn more about Bespoke’s premium stock market research service.