It’s Over
Spring is meant to be a season of growth, but that’s the last way to describe what’s been going on in financial markets for the last several weeks. The S&P 500 came into April with a three-week winning streak on Friday, April 1st, but in what has been one of the cruelest April Fools pranks we’ve ever seen, the S&P 500 was down for seven straight weeks in what was the longest weekly losing streak since March 2001. For the DJIA, the streak was even more extreme with eight straight weekly declines for the longest run of consecutive declines in 99 years. 99 years is a long time.
As shown in the chart below, the streak that ended this week was one of just three other periods where the S&P 500 was down for seven or more straight weeks. The other three were in May 1970 (8 weeks), March 1980 (7 weeks), and March 2001 (8 weeks). Besides relentless selling over several weeks, the other factor these three periods have in common is that they all occurred during recessions. May 1970 was right in the middle of a recession, March 1980 was two months into the first of the ‘double-dip’ recessions in the early 1980s, and March 2001 came just as the economy was starting to roll over from the dot-bomb fueled contraction. Economists have assured anyone who will listen that the economy isn’t close to a recession yet, but then again, in Q1 the economy contracted by 1.5%, and the latest projection from the Atlanta Fed’s GDPNow model currently has a forecast of just 1.9% growth for Q2.
As an investor, whether we’re in a recession or not at this point is almost irrelevant. Equities have already fallen sharply. The more important question is where the economy is going. Anyone who has that kind of crystal ball has a distinct advantage. Think about it. When a recession begins, no one watching just the economy ever knows what is about to unfold. They may be thought of as periods of economic weakness and high unemployment, but the start of a recession also coincides with the point at which the economy is at its strongest and firing on all cylinders. The last thing on anyone’s mind at that point is a recession.
In terms of the prior streaks where the S&P 500 declined for seven or more weeks in a row, forward performance was mixed but generally positive. Three is admittedly a small sample size, but one, three, six, and twelve months later, the S&P 500 was higher at least two out of three times, and three months later (13 weeks) it was higher all three times. 2022 has been a lousy year so far. Wouldn’t it be nice, though, if six months from now at Thanksgiving, instead of everyone worrying about a new emerging strain of COVID (like we did last year), we were all thankful that stocks and bonds stabilized and maybe, just maybe, even partly dug themselves out of the hole they’ve already put themselves into? Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Morning Lineup – 5/27/22 – Up. Finally?
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“You take an educated gamble. If you don’t occasionally make a mistake, you’re not doing your job.” – James Sinegal
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Is this the week markets finally manage to scratch out a rally? Barring an absolute collapse into the three day weekend, US stocks are poised to finish off the week significantly higher, but before we get to the closing bell, there’s a bunch of economic data to get through, including Wholesale Inventories, Personal Income and Spending, the PCE Core Deflator, and Michigan Confidence.
Treasuries are modestly higher, equities are flat, crude oil is slightly lower, and bitcoin is down heading into the final session before a three-day weekend.
In today’s Morning Lineup, we recap major market moves out of Asia and Europe as well as the comparison in the performance between US and European stocks so far this year.
Memorial Day weekend marks the unofficial start to the summer driving season, and prices heading into the period have surged both this month and on a YTD basis. The national average price of a gallon of gas, according to AAA, sits at $4.60 per gallon, which is up just under 10% this month (third-largest increase since 2005) and 40% YTD (second largest YTD increase since 2005). The 40% YTD increase is more than twice the historical average and follows what was a 35% YTD increase last year. There’s pain at the pump.
Gas prices have no doubt surged, but if there’s any potential silver lining, it is that from a seasonal perspective, we’re at the point in the year where prices tend to peak. Whether prices follow that seasonal pattern this year, though, remains to be seen.
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Bulls Back Below 20%
In spite of the S&P 500 actually reversing course and heading higher in the past week, sentiment on the part of individual investors surveyed by the American Association of Individual Investors has turned lower, once again falling below 20%. That is the first sub-20% reading since the last week of April, although the multiple readings in the mid-teens last month were lower than this week’s reading.
The past several months as the major indices have entered downtrends have seen an impressive collapse in optimism. Over the past six months, slightly more than half of the time less than a quarter of AAII respondents have reported as bullish. Going back through the history of the survey beginning in the late 1980s, there have only been two other periods with this same sort of consistently pessimistic attitude for an extended period of time: late 1988 to early 1989 and two years later in early 1991.
Given bulls were hard to find, bearish sentiment ticked up to 53.5%. Although over half of respondents are expecting lower stock prices, that is still not as high of a reading as the end of April when it was nearly 60%.
Regardless, bears continue to heavily outweigh bulls as the bull-bear spread has now sat in negative territory for all but two weeks over the past half-year.
The bearish camp did not pick up all of the losses in bullish sentiment. Neutral sentiment rose back up to 26.7% this week marking the highest reading in a month. That being said, the reading remains below the historical average of 31.43%. Click here to learn more about Bespoke’s premium stock market research service.
The Bespoke 50 Growth Stocks — 5/26/22
The “Bespoke 50” is a basket of noteworthy growth stocks in the Russell 3,000. To make the list, a stock must have strong earnings growth prospects along with an attractive price chart based on Bespoke’s analysis. The Bespoke 50 is updated weekly on Thursday unless otherwise noted. There were no changes to the list this week.
The Bespoke 50 is available with a Bespoke Premium subscription or a Bespoke Institutional subscription. You can learn more about our subscription offerings at our Membership Options page, or simply start a two-week trial at our sign-up page.
The Bespoke 50 performance chart shown does not represent actual investment results. The Bespoke 50 is updated weekly on Thursday. Performance is based on equally weighting each of the 50 stocks (2% each) and is calculated using each stock’s opening price as of Friday morning each week. Entry prices and exit prices used for stocks that are added or removed from the Bespoke 50 are based on Friday’s opening price. Any potential commissions, brokerage fees, or dividends are not included in the Bespoke 50 performance calculation, but the performance shown is net of a hypothetical annual advisory fee of 0.85%. Performance tracking for the Bespoke 50 and the Russell 3,000 total return index begins on March 5th, 2012 when the Bespoke 50 was first published. Past performance is not a guarantee of future results. The Bespoke 50 is meant to be an idea generator for investors and not a recommendation to buy or sell any specific securities. It is not personalized advice because it in no way takes into account an investor’s individual needs. As always, investors should conduct their own research when buying or selling individual securities. Click here to read our full disclosure on hypothetical performance tracking. Bespoke representatives or wealth management clients may have positions in securities discussed or mentioned in its published content.
Bespoke’s Morning Lineup – 5/26/22 – Is it Real? Or is it Metaverse?
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“Someday neither AI nor us will be able to tell whether we are in a virtual or physical world.” – Jensen Huang
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We’ll be honest, based on the way markets have been trading the last couple of months, we would have expected that if the 7th largest stock (NVIDIA) in the Nasdaq 100 was trading 5% lower in reaction to earnings, that futures for the index would also be lower. Right now, futures are actually trading about 0.4% higher. Is this real?
In addition to the positive tone in futures, there’s also some major M&A news with Broadcom (AVGO) reaching a deal to acquire VMware (VMW) in a cash and stock deal valued at $61 billion in what would be one of the largest tech mergers of all time. On the one hand, a bull would point to this transaction as a sign that companies are finding value in the market after the plunge over the last five months. On the other hand, as recently as February, VMW’s stock was right around the $142.50 price the company agreed to sell itself at today, so does that indicate that management expects limited upside for the industry going forward?
It’s a big morning for economic data with revised GDP for Q1 (revised lower), Personal Consumption (higher than expected), PCE (lower than expected), and Jobless Claims (initial lower than expected, continuing higher) all just released at 8:30. Later on this morning, Pending Home Sales and the KC Fed manufacturing report will be released at 10 AM.
In today’s Morning Lineup, we recap morning earnings reports (pg 4), overnight central bank actions (pg 4), the latest economic data out of Asia and Europe (pg 5), and a lot more.
The Energy sector hit another new 52-week high yesterday further cementing its lead as the top-performing sector in the S&P 500. Given the rally over the last year, it’s pretty hard to believe that the Energy sector is still more than 10% below its record high back in 2014.
Given the rally in Energy, the sector’s relative strength has made a significant turnaround this year. After eight years of near-constant underperformance, the recent outperformance has taken its relative strength to levels not seen in three years.
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Bespoke’s Morning Lineup – 5/25/22 – Fixed Income Repairs
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“All ballplayers should quit when it starts to feel as if all the baselines run uphill.” – Babe Ruth
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On this day in 1935, Babe Ruth hit his last home run before retiring from the game about a week later. Ruth not only hit one home run that day, but he went four for four with three bombs and six RBIs. Like Ruth’s advice in the above quote for when to quit the game, traders should take a similar approach and step back from the tape when the lines on the charts constantly go in the wrong direction. For traders biased to the long side, there’s been a lot of that this year.
Futures are lower again this morning as economic concerns weigh on sentiment and investors find little in the way of urgency to put money to work. The war in Ukraine shows no signs of easing, weekly mortgage applications showed no growth in purchase applications, and this morning’s earnings warning from Dick’s (DKS) suggests that the consumer may be catching a cold.
It’s a relatively quiet day on the economic calendar with Durable Goods (weaker than expected) and Energy Inventories the only reports on the calendar. Outside of DKS, which has already reported, the only major report on the calendar after the close is NVIDIA (NVDA). Semis had been showing some relative strength versus the market up until late last week, so this will be an important report to watch, although NVDA’s high multiple relative to the market means that investors may not be willing to give it much leeway.
In today’s Morning Lineup, we recap on the latest earnings warning in the retail sector from DKS (pg 4), Asian and European markets (pg 4), group performance in the Eurozone (pg 5), the latest economic data out of Asia and Europe (pg 5), and a lot more.
After the first four months of the year where fixed income performed just as poorly as equities, we’ve seen a bit of a rebound in the sector in recent weeks. Below is a snapshot of some major fixed income ETFs from our Trend Analyzer. Despite YTD declines for just about all of them, the last week has seen gains across the board. The majority of the ETFs are still below their 50-DMAs, but the fact that they’ve started to ‘disconnect’ from the performance of equities illustrates how investors are starting to worry more about the health of the economy than inflation.
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The Bespoke Metaverse Index – 5/24/22
Bespoke’s Metaverse Index tracks 40 companies with exposure to the continued rollout of the metaverse. We outlined seven components of the metaverse and selected the companies that have either spoken about their metaverse plans or have the capabilities to fulfill metaverse needs within these categories.
Bespoke’s Metaverse Index is available at the Bespoke Premium level and higher. You can sign up for Bespoke Premium now and receive a 14-day trial to read our Metaverse report. To sign up, choose either the monthly or annual checkout link below:
All Day Rallies A Thing of the Past
It seems like a distant memory now, but Monday’s rally marked just the 13th time all year (and over the last 100 trading days) that the S&P 500 tracking ETF (SPY) opened higher and traded in positive territory all day (‘100% positive day’). The chart below shows the rolling 100-trading day total number of 100% positive days for SPY since 1994, shortly after the ETF launched. The current level of 13 is already well below the long-term average of 18, but last week, the reading was even lower at 12. The last time the 100-day rolling total was lower than that was in May 2009, and the lowest readings ever recorded were in periods beginning in October 2002 and September 2008 with just six in a 100-trading day span.
What makes the current period unique is how quickly the rate of 100% positive days has plummeted. 100 trading days ago, the rolling total was more than twice the current level at 29. Also, it was only in February 2021 (less than sixteen months ago) that the number of 100% positive days reached a record high of 33 on 2/4/21. That peak came just weeks before the Federal Government sent out the third and final round of stimulus checks. Just as massive amounts of fiscal and monetary stimulus helped to support markets during COVID, the withdrawal of these supports has introduced gravity back into the equation. Click here to learn more about Bespoke’s premium stock market research service.
Richmond Reversal
In addition to weaker than expected preliminary S&P Global (formerly Markit) PMIs, another weak regional Fed manufacturing index hit the tape this morning. The Richmond Fed’s Manufacturing Composite dropped into contraction in May as the index hit its lowest level in two years. The 23-point month-over-month drop was also the second-largest decline on record behind the 49-point drop in April 2020.
Each regional Fed’s headline manufacturing number differs slightly in composition and the Richmond reading is made using shipments, new orders, and employment as inputs. As shown below, each of those indices experienced historic declines this month causing the massive drop in the composite. Breadth elsewhere in the report was not much better though. Other categories like capacity utilization, order backlogs, and average workweek also pulled back sharply. Meanwhile, expectations for several categories are in the bottom few percentile of their historical ranges going back to the start of the data in the 1990s. Overall, this month’s report showed a massive slowdown in activity that is consistent with other surveys that have come out this month.
Two of the inputs to the composite that also fell into contraction this month were new orders and shipments. New Orders have seen a small handful of larger declines with September of last year being the most recent one. New Orders were also much lower after that decline last fall. As for Shipments, the 31-point month-over-month decline ranks as the second-largest on record next to April 2020 when the index fell a whopping 77 points. While it does not necessarily outweigh the rapid deterioration in demand, one silver lining of the report was a further huge improvement in supply chains. The reading on Vendor Lead Times was sliced in half as the index remains below pre-pandemic levels.
Again, Employment is the third input to the composite and it was the sole input to remain in expansion in May. That being said, it too fell sharply versus the prior month. While that reading indicates lower mid-Atlantic manufacturers are currently net taking on more workers, expectations saw a record decline meaning hiring plans are likely to decelerate significantly in the near future. That is as wage growth has stalled out and the length of the average workweek has been cut.
Finally, in spite of supply chain improvements and weaker demand, prices have continued to rise unabated. Prices paid hit fresh record highs across both current conditions and expectations. Prices received are off-peak but the reading did tick up slightly in May. Click here to learn more about Bespoke’s premium stock market research service.
Speculators Bullish on Bitcoin
Bitcoin has been relatively flat in the past couple of weeks in the wake of the TerraUSD blowup. That is also in spite of further declines for equities which have been highly correlated to cryptos lately, especially on an intraday basis. As the two largest cryptos—Bitcoin and Ethereum—have traded more or less sideways, speculators appear to be getting a little more bullish. As we do each week, in last night’s Closer we highlighted how positioning data from the CFTC’s Commitments of Traders report showed speculators are positioned net long (meaning there is a higher share of open interest that are long the future than short) in Ethereum and Bitcoin futures. The latest data as of last Tuesday showed a net 7.93% of Ethereum futures were long. That was down slightly from the prior week but remains one of the strongest readings since the data began roughly one year earlier. Bitcoin open interest is similarly net long, with the latest reading rising to the highest level since November 2019. That means the highest share of speculators are anticipating higher bitcoin prices since before the pandemic when the crypto was trading below $10,000; nearly a third of what it is at today. Open interest back then was also a fraction of what it is now as well. Click here to learn more about Bespoke’s premium stock market research service.
