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.

With a gain of 3% heading into the last hour of trading, the S&P 500 is on pace for just the 13th day since late 1952 (when the 5-day trading week on the NYSE started) when it started a quarter with a gain of over 2%.  The last time the index kicked off a quarter with a 2%+ gain was in Q1 of 2013, and the last time it started Q4 with a 2%+ advance was 19 years ago in 2003.  If the S&P 500 manages to hold onto its current gains, it would be just the 6th such gain of 3%+ to kick off a quarter since 1953.

It’s nice to see stocks rally for a change, but does a strong start to a quarter imply anything about the rest of the quarter ahead?  The table below lists the 12 prior quarters where the S&P 500 rallied more than 2% on the first day of a quarter.  For each occurrence, we also show how the S&P 500 performed for the remainder of the quarter.  Of the twelve different 2%+ rallies highlighted, the S&P 500 rallied an average of an additional 2.1% (median: 2.5%) for the rest of the quarter with gains two-thirds of the time.  Of those twelve different occurrences, though, the range of returns varied widely with the best rest-of-quarter performance being a gain of 18.7% (Q1 1975) while the largest rest-of-quarter decline was 14.4% in Q1 2009.  At the bottom of the table, we also show the average ‘rest of quarter’ returns after the first day of trading for all quarters since 1953.  With an average gain of 2.0% (median: 2.7%) and gains 66.5%, the returns are nearly the same as returns following strong starts to the quarter.  In other words, based on the results following the 12 prior occurrences, a strong start to the quarter tells you very little about the rest of the quarter’s performance. Click here to learn more about Bespoke’s premium stock market research service.

Please click the image below to view our October 2022 market calendar.  This calendar includes the S&P 500’s average percentage change and average intraday chart pattern for each trading day during the upcoming month.  It also includes market holidays and options expiration dates plus the dates of key economic indicator releases.  Click here to view Bespoke’s premium membership options.

Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.

While you’re here, join Bespoke Premium with a 30-day trial!

FT on LDI

LDI: the better mousetrap that almost broke the UK by Alexandra Scaggs and Louis Ashworth (FTAV)

An explainer on liability-driven investing (LDI), which is being fingered as the biggest factor in the collapse of the UK government bond market this week amidst new fiscal plans and a plunge in the pound. [Link; registration required]

Who exactly has the BoE bailed out? by Toby Nangle (FTAV)

When the BoE intervened to make sure the gilt market didn’t collapse under a mountain of margin calls, who was the ultimate beneficiary? Was it underwater pension funds or their counterparties? [Link; registration required]

Housing

The U.S. Rental Housing Market is Cooling Off Fast by Jay Parsons (RealPage)

Higher rates, inflation, and collapsing consumer confidence are destroying demand for housing as the process that creates new households slows down. As demand slows, so too will rents over the coming months. [Link]

Remote Work and Housing Demand by Augustus Kmetz, John Mondragon, and Johannes Wieland (FRBSF Economic Letter)

New research suggesting that the increase in remote work during the pandemic drove more than half of the overall increase in national home prices between November 2019 and November 2021. [Link]

10 Markets Where Sellers Are Cutting Home Prices the Most by Shaina Mishkin (Barron’s)

Price cuts are mounting across a US housing market that has been frozen by high rates. Sunbelt cities like Phoenix, Austin, and Las Vegas have the largest share of the market with cuts in price. [Link; registration required]

Florida

Hurricane Ian to add reinsurance rate momentum, disrupt Florida market: KBW by Steve Evans (Artemis)

Insurance analysts are growing increasingly concerned about the impact Ian will have on the Florida insurance market, with a price tag above $50bn most likely. For thinly-capitalized insurers who don’t have much reinsurance capacity, it could spell doom for the Floridian property insurance market. [Link]

Ukraine

The 90km journey that changed the course of the war in Ukraine by Henry Foy, Sam Joiner, Sam Learner and Caroline Nevitt (FT)

A step-by-step review of the lightning breakthrough which has led to a collapse in Russian lines across Eastern Ukraine, in a fantastic multimedia format. [Link; paywall]

Denmark, Germany and Poland warn of ‘sabotage’ after Nord Stream leaks by Richard Milne, David Sheppard, and Guy Chazan (FT)

Underwater explosions that led to ruptures in the Nord Stream pipeline complex have led multiple countries to identify Russia as the most likely culprit and likely to strike at other infrastructure as well. [Link; paywall]

New York

NYC Proposal Offers Cash for Spotting Parking Violations in Bike Lanes by Fola Akinnibi and Skylar Woodhouse (Bloomberg)

A new law in New York City would turn citizens into bounty hunters seeking cars that so often block bike lanes around the city. [Link; soft paywall]

Yankees’ threat of sitting Aaron Judge finally ended long rain delay with Red Sox by Brendan Kuty (NJ.com)

ESPN was desperate to air a final at bat for Aaron Judge in his pursuit of 61 homeruns and pressured MLB to extend a rain delay. In response, Yankees manager Aaron Boone threatened to sit the start. [Link]

New Jersey

Three men charged with fraud in $100 million New Jersey deli scheme by Mike Calia and Dan Mangan (CNBC)

A tiny deli ended up being listed as part of a $100mm market cap company that is now embroiled in a series of charges including securities fraud. [Link]

Political Science

Can nonviolent resistance survive COVID-19? by Erica Chenoweth (Journal of Human Rights/Taylor & Francis Online)

The COVID-19 pandemic did not reduce the number of mass protests around the world but those protests did show much less efficacy in achieving their aims. [Link]

Food

The story of white sauce, Virginia’s unique contribution to Mexican American cuisine by Mattew Korfhage (The Virginia-Pilot)

Virginia isn’t known for its Mexican food, but that hasn’t stopped the state from developing a unique contribution to the cuisine: a white sauce that won’t be found anywhere else. [Link]

Read Bespoke’s most actionable market research by joining Bespoke Premium today!  Get started here.

Have a great weekend!

Although the S&P 500 hit 52-week lows for the first time since June this week, bulls actually stepped back up to the plate (in a very small way).  Bullish sentiment, according to the AAII sentiment survey, rose back up to 20% after a low of 17.7% last week.  Even with that modest increase, bullish sentiment remains historically muted at 17.7 percentage points below the historical norm.

Bearish sentiment likewise remains elevated and hardly improved.  The latest reading dropped marginally from 60.9% to 60.8% marking the first time on record that there have been back-to-back readings of 60% or more as we noted in an earlier tweet. The only other times bearish sentiment came in above 60% were in March 2009, October 2008, and August and October 1990.

Given the near record high in bearish sentiment coupled with the slight increase in bullish sentiment, the bull-bear spread improved rising from -43.2 to -40.8.  Again, in spite of that improvement, the latest reading shows that bears continue to heavily outweigh bulls to a historic degree.

Given both bulls and bears are at extremes, recent moves have borrowed heavily from neutral sentiment.  That reading has fallen sharply over the past three weeks and is back below 20% for the lowest reading since April 2020.  The 9.5 percentage point decline over the past three weeks has been the largest drop in such a span since May pointing to investors being increasingly polarized.

The AAII survey may have moved slightly less bearish this week on net, but other sentiment surveys saw the opposite results.  The Investors Intelligence survey saw bulls hit the lowest level since 2016, and the NAAIM exposure index showed the least long exposure to equities since March 2020. Standardizing and then combining each of these surveys shows that the average reading is now two full standard deviations below the historical norm.  That is slightly better than the June low with the only other period with as depressed a level of sentiment being the financial crisis years. Click here to learn more about Bespoke’s premium stock market research service.

Adding ammunition to the hawkish tone out of the Fed, this week’s initial jobless claims number showed yet another decline to already impressively low levels.  Not only was last week’s reading revised down by 4K to 213K, but this week’s reading fell back below 200K. Now at 193K, claims are back to where they were in April after having fallen for six of the last seven weeks. With a drop back below 200K, claims have fallen back below the range from the couple of years prior to the pandemic. Outside of lows earlier this year, that would be some of the best levels for claims since 1969.

Before seasonal adjustment, it is an even equally impressive low.  For the comparable week of the year, this most recent reading of 156.1K was the lowest since 1969 and was only slightly above the seasonal low from a couple of weeks ago.  While it does not steal from how strong claims have been, we would note that the current week of the year does have some seasonal tailwinds with a decline roughly 70% of the time.

Continuing claims are lagged an additional week to initial claims making the most recent print through the week of September 16th.  Claims fell for the sixth consecutive week to reach 1.347 million, the lowest level since the first week of July. Click here to learn more about Bespoke’s premium stock market research service.