Following a few months of downward trending initial jobless claims bringing the indicator back down around multi-decade lows, there has finally been a significant uptick.  Whereas last week’s reading was revised lower to an even more impressive 190K (the lowest since April), the latest print soared 29K to 219K.  That is only the highest level since the end of August, but it also is back in the range of pre-pandemic readings while also marking the largest week over week increase in claims since the first week of June.

On a non-seasonally adjusted basis, claims rose as might have been expected for the current week of the year.  As shown in the second chart below, as far as consistency of week-over-week increases go,  the current week of the year is tied with the 2nd and 45th (approximately the weeks of January 8th and November 5th) for fourth as claims have risen 85.5% of the time since 1967. Additionally, before seasonal adjustment, it was not a particularly large increase as the 13.3K WoW rise was half of the average for the comparable week of the year.  Even after that increase, unadjusted claims have only been lower during the year’s comparable week twice: 1968 and 1969. In other words, a drift higher in claims is normal at this point of the year, and even with that move higher, claims remain nothing short of impressive.

As for continuing claims which are lagged an additional week to the initial claims number, the latest week saw a modest increase of 15K to 1.361 million.  That snapped a streak of four consecutive weeks of declines.  Whereas seasonally adjusted initial claims have risen back into the pre-pandemic range, continuing claims have only experienced a modest move higher and are well below their own levels from pre-pandemic years.

In the past few months, we have consistently checked in on the ratio of initial jobless claims to continuing claims (both seasonally adjusted) as a measure of the lack of follow-through of the former to the latter.  With last week’s very strong initial claims number that was more reflective of the still strong continuing claims number, that ratio has now come back in line with the historical average.  Click here to learn more about Bespoke’s premium stock market research service.

Like oil and water, oil and stock prices generally don’t mix.  A big jump in oil prices usually leads to lower stock prices, while stock prices often experience a boost when oil prices decline.  That’s what makes the performance of both to start the week so interesting with the S&P 500 up over 5% week to date through Tuesday’s close while oil prices surged nearly 9% during that same span.

In the case of oil prices, two-day rallies of the magnitude we saw through Tuesday’s close have been common going back to the start of 1984 which is as far back as we have full-year data on a daily basis.  You could even say that moves of this magnitude have been relatively common.

Two-day rallies in equity prices of the magnitude seen this week haven’t been nearly as common, but we wouldn’t call them rare either. Besides this week, there have been 23 other times since 1984 when the trailing two-day performance of the S&P 500 was greater than this week’s two-day rally.

Where things really start to get much less common is when both the S&P 500 and crude oil prices rally 5% or more at the same time. That has only happened six other times since 1984, and prior to 2008, it had never happened before. The chart below shows the S&P 500 since 2007 with the red dots showing every day that both the S&P 500 and crude oil rallied 5%+ over a two-day span.  Four of those occurrences came during and coming out of the Financial Crisis, another was in August 2015 when China devalued the yuan, and the most recent occurrence before this week was right after the COVID crash lows.  With the exception of the first occurrence right after Lehman’s bankruptcy in September 2008, every one of the other occurrences came either in the later stages of a bear market or coming out of a significant decline, and what they all have in common is that they occurred during periods of severe market dislocations.

One aspect of the first occurrence in September 2008 that has bears salivating is that the S&P 500’s pattern leading up to that occurrence looks very similar to the pattern now, and in each case was down by similar amounts from all-time highs (19.2% in September 2008 and 20.7% as of Tuesday’s close).  Additionally, in both cases, the bounce came shortly after the S&P 500 broke below a prior low.  Looking more closely at the two periods and overlaying them on top of each other, though, besides the fact that the S&P 500 was down sharply in the year leading up to both periods, the patterns don’t look all that similar after all and the correlation between closing prices is just 0.63. Click here to learn more about Bespoke’s premium stock market research service.

File this under “You Don’t See This Very Often.”  Equities surged over 2% yesterday reversing a recent trend of relentless declines since late August.  It wasn’t just equities that rallied though.  Everything did.  Crude oil gushed more than 4.5% and even Treasuries caught a bid as prices at the long end of the curve jumped 1.5%.  Taken by themselves, yesterday’s moves in all three asset classes were large but hardly out of the norm.  It was the 29th time this year that the S&P 500 rallied 1.5% or more in a single day, the 66th time that crude oil advanced at least 1.5%, and the long-bond future has now rallied more than 1.5% six different times this year. Again, nothing to raise eyebrows at.

What was unique about yesterday, or at least used to be considered unique, was the fact that all three asset classes rallied 1.5%+ on the same day.  All three asset classes tend to rally for different reasons, so what’s good for one isn’t always good for the others.  Therefore, it’s very uncommon to see them all rally like that on the same day.  It’s so uncommon, in fact, that since the late 1970s, it has only happened four other times, and one of them was last week on 9/28!  The three other occurrences were on 10/7/88, 9/16/97, and 11/4/08.

Below we have included charts of the S&P 500 in the six months before and one year after each of the three prior occurrences.  Again, these are the three times prior to last week that the S&P 500, the long bond, and crude oil all rallied more than 1.5% on the same day.

Back in October 1988, markets were concerned about Fed rate hikes and a weaker than expected non-farm payrolls report along with a downward revision to readings from prior months.  These were the catalysts for the move as economic growth was still strong but at a pace that was not as strong as anticipated, which raised hopes that the FOMC would not have to be as aggressive in hiking rates. While the S&P 500 experienced a pullback of about 7% shortly after the one-day rally, the longer-term uptrend remained intact, and the S&P 500 was up more than 25% over the course of the next 12 months.

The move in September 1997 came right before the downturn from the Asia Financial Crisis and was spurred on by a weaker-than-expected CPI report.  The S&P 500 was in the middle of a sideways range at the time of the simultaneous rallies and it remained there for the next three months.  Over the next 12 months, the S&P 500 was up over 10% after rallying as much as 25%.

The third prior occurrence in early November 2008 capped off a six-trading day 19% rally in the S&P 500, and the index was back at new lows by the end of the month.  The move came on Election Day, but polls had already shown a clear path to victory for Obama, so it wasn’t anything election specific that caused the move.  More likely, the rally followed what had essentially been a waterfall decline where everything declined and declined sharply. From that close to the ultimate trough in March 2009, the S&P 500 lost a third of its value before finally bottoming, but one year later, the S&P still managed to gain just over 4% in total.

Again, the current period is unique relative to the prior three since we’ve seen it happen twice within the same week!  Like the period in 2008, yesterday’s move followed a period in the market where everything was declining.  Unlike the 2008 occurrence, though, both moves came the day after the S&P 500 closed at a 52-week low rather than just late in a near 20% rally in the S&P 500.  Like the first two occurrences in 1988 and 1997, although the market isn’t in an uptrend this time around, the move was spurred on by weaker economic data, raising hopes that the FOMC would take a less hawkish approach to monetary policy.

While there isn’t a clear common link between the current period and the prior three, moves like yesterday where stocks, bonds, and crude oil all rallied sharply (1.5%+) have been extremely uncommon over the last 45 years.

Of a number of country ETFs, Brazil (EWZ) has far outpaced the rest of the world as we noted last week. With some well-received news on the election front over the weekend, that outperformance has been amplified even as other global equity markets similarly have posted large gains.  Whereas the average country ETF is down 20.73% year to date, Brazil is up over 17%.  So far this week and in the month of October, EWZ has also left the rest of the world in the dust rallying nearly 11%; more than twice the average for other emerging markets.

As shown above and in the chart below, the past couple of days’ surge in price in the wake of the country’s election going to a runoff has sent the ETF smashing through its 50-DMA as well as its 200-DMA.  Not only is that coming off of a lower low, but additionally it has now moved above the high end of the range since early August. That being said, the move has resulted in the ETF approaching extremely overbought levels.

As for just how large the move has been, below we show the daily moves in EWZ since its inception in July 2000.  With a gain of 9.85% yesterday, there have only been a baker’s dozen other times with a daily move that was even larger.  The most recent of these was March 24, 2020 (+12.06%); one day after the pandemic low for many equity markets around the world. However, earlier that month there were equally if not even more impressive daily moves of 10.1% on March 10th, 13.1% on March 17th, and 17.62% on March 13th.  Prior to that, only 2008 and 2002 single-day moves of as large an amount.

As previously mentioned, the rally in Brazilian equities has been impressive, but so too has been the bounce here in the US as well as the rest of the world.  As a result of the corresponding moves, the ratio of EWZ to SPY has moved up to the highest level since August 2021. In spite of the recent outperformance in 2022, from a longer-term perspective (the past five years), the ratio has been in a downtrend and essentially moved sideways during the post-pandemic rally. In other words, the past few days have been impressive for Brazilian equities, but one day does not necessarily make a trend. Click here to learn more about Bespoke’s premium stock market research service.

Below is a look at our key ETF matrix highlighting total returns over the last five years, three years, and year-to-date.  What’s most remarkable to us is how bad five-year performance has gotten for quite a few asset classes.  Significant drops in price this year have erased years of built-up gains, and now a lot of areas of global financial markets are actually looking at double-digit percentage declines going back to the late 2010s.

The major US index ETFs are sitting on 20%+ declines in 2022, but they’re still up nicely over the last three and five years.  The Nasdaq 100 (QQQ) is down 30% YTD but still up 95% over the last five years.  Only the Technology sector ETF (XLK) has done better on a five-year total return basis out of all the ETFs listed in the matrix.

On the flip side, an unrelenting rise in interest rates this year has caused the bond market to suffer its worst drawdown in decades.  This has left the aggregate US bond market ETFs (AGG, BND) now lower on a total return basis over the last five years.  The long-duration 20+ Year Treasury ETF (TLT) is down 25% over the last three years and 8% over the last five years.

Outside of the US, every major country ETF in our matrix has underperformed SPY over the last five years.  India (PIN) is up the most (+39.9%) and the closest to SPY’s 58.6% five-year gain.  Canada (EWC) and Israel (EIS) are both up just over 20% over the last five years, while Australia (EWA) and France (EWQ) are the only others in the green.  Spain (EWP) and Germany (EWG) are down the most with five-year declines of more than 25%! Click here to learn more about Bespoke’s premium stock market research service.

Looking more closely at stocks vs. bonds, below is the five-year total return of the S&P 500 (SPY) vs. the US aggregate bond market (AGG).  Historically there has been an expectation that bonds would cushion the blow when stocks fall, but 2022 has been uniquely painful for both asset classes.  While SPY has fallen more than 20% this year, it has still posted a total return of nearly 60% on a five-year basis.  The bond market, on the other hand, is now negative over the last five years. Click here to learn more about Bespoke’s premium stock market research service.