During the Cold War, American children and adults were educated on how to best protect themselves from a nuclear explosion. This included measures from the silly “duck and cover” campaign to nuclear fallout shelter instructions. If you happen to be curious about the federal government’s current recommendations in regards to protection from a nuclear blast, you can read up on the instructions here. We’re not sure how focused people will be about wearing a mask in the event of nuclear fallout, but we guess you can never be too careful!

With tensions between Western nations and Russia reaching levels not seen since the Cold War, we took a look at Google Trends to identify the level of fear in the American population with respect to the current war in Ukraine. We looked at the search volumes for terms like nuclear war, WWIII, canned food, Potassium Iodide, and gas mask. Searches for many of these terms hit five-year highs in the early days of the Russian invasion but have subsided since. The current level is still well above normalcy, but fears appear to have eased over the last week as the West’s retaliation has been almost entirely economic (or maybe there is no internet service in the fallout shelters). The aggregate index is pictured below.

Below are charts of each search term we utilized in the composition of our index. Potassium Iodide, the compound utilized to mitigate the effects of excessive radiation exposure, is the only term that remains at a five-year high in terms of search volume. While searches for some of these terms were actually much higher during the early days of COVID, they all experienced upticks in the last few weeks.  All-in-all, based on search trends based on fears of a nuclear situation or war with Russia spiked when the Ukraine invasion first started, but those fears have over the course of the last week. Click here to view Bespoke’s premium membership options.

Considering equities and other risk asset prices continue to swing violently, so too have readings on investor sentiment.  The weekly AAII survey of individual investors saw the percentage of respondents reporting as bullish fall back below 25% this week after rising above 30% last week. While that is not the largest drop in recent months (the second week of January saw bullish sentiment fall 7.9 percentage points compared to 6.4 today), it nonetheless reaffirmed that investor confidence is shaky, if not undecided, at the moment.

The drop in bullish sentiment was mostly picked up by those reporting as bearish. Bearish sentiment rose 4.4 percentage points to 45.8%. While that reading is roughly 15 percentage points above the historical average for bearish sentiment, the reading is still lower than an even more pessimistic reading only two weeks ago when more than half of respondents reported as bearish.

With the inverse moves in bullish and bearish sentiment, the bull-bear spread has pulled back to -21.8.  As with bullish and bearish sentiment, even if that does not set a new low, it is only in the 5th percentile of readings going back to the start of the survey.

After the largest single-week decline in nearly 20 years two weeks ago, neutral sentiment has been clawing its way back into the range it was in for most of the past year.  Gaining another 2 percentage points this week, the reading is now back above 30%.

Across each category of the report, there have been sizable swings in the past two months. To highlight this, in the chart below we show the eight-week rolling average of the absolute week over week change for each sentiment reading (bullish, bearish, and neutral) over the past 20 years.  Over the history of the survey, weekly changes have gravitated towards smaller swings meaning the past decade is structurally a bit different relative to the decade before that. That being said, the weekly swings in the AAII readings on sentiment have been some of the largest of any period of the post-Global Financial Criss era. In fact, not even the COVID crash saw such volatility in sentiment (given optimism collapsed and then remained muted for some time rather than swing back and forth) while the only times this average was as high as now in the past decade were the spring of 2013, February 2016, and January 2019. Click here to view Bespoke’s premium membership options.

While today’s CPI data did not come in hotter than expected as feared (matching expectations of 7.9% YoY growth), jobless claims came in worse than expected for both initial and continuing claims.  Seasonally adjusted initial claims rose to 227K versus expectations of a 2K increase from last week’s unrevised level of 215K.  In addition to the higher reading this week, the last print was also revised up by 1K.  In spite of the lack of improvement in claims recently (it’s been over 3 months since the multi-decade low of 188K set in early December), the level of claims remains historically low.

On a non-seasonally adjusted basis, claims for the current week of the year are in line with readings from the few years prior to the beginning of the pandemic.  In terms of the seasonal pattern, the current week of the year typically has not seen claims rise week over week as they did this year.  Claims tend to fall at this point of the year with the few weeks surrounding the current period marking some of the weeks of the year with the most consistent declines in claims. Regardless of the somewhat seasonally unusual move, the broader seasonal pattern this year has not marked a major divergence versus history.

Continuing claims were expected to fall from 1.476 million down to 1.450 million. Instead, claims rose by 18K.  As with initial claims, even though that is not as strong a reading as anticipated. It is far from leaving claims at any sort of worrisome level.Click here to view Bespoke’s premium membership options.

As we highlighted in a post this morning, today marks the thirteen-year anniversary of the 2009 market bottom of the Global Financial Crisis. Since then, the equity market has roared to the upside, rallying 531% (not including dividend) as of yesterday’s close, which constitutes annualized returns of 15%.

As expected, sector performance has been uneven. Technology has led the way to the upside, rising more than 11-fold and booking an annualized return of 21.5%. The Consumer Discretionary sector comes in second, with price appreciation of 923.3% and an annualized return of 19.6%. Energy has been the worst-performing sector, returning just 88.7%, which is an annualized gain of 5.0%. Telecommunication Services is the second-worst, gaining 147.4% (7.2% annualized). Again, all of these returns do not include dividends.

Turning to individual equities, the tables below highlight the thirteen best and worst-performing current members of the S&P 500 since the March 2009 lows.  For each stock, we also include how the stock performed during the crisis (10/7/07 through 3/9/09).  Starting with the winners, all but two of them fell more than 50% during the crisis with United Rentals (URI) falling more than 90%!  All of these stocks have made up for those losses, though, with three rising more than 10,000% (an increase of 100X) over the last thirteen years. Of the current S&P 500 members, DexCom (DXCM) is the best performer in terms of price appreciation, booking an annualized return of 44.1%. NVIDIA (NVDA) and United Rentals (URI) have gained 42.9% and 42.8% annualized, respectively.  Apple (AAPL) was already a large company in 2009, but its 35.7% annualized return moved it to the top of the charts in terms of the world’s largest companies.

There are only four current S&P 500 members that have seen negative price action since the bottom of the Global Financial Crisis, with those being Lumen Technologies (LUMN), APA (APA), Viatris (VTRS), and Carnival (CCL). The median annualized return of these names is a loss of 1.8 percent, not including dividends. Just to put this in perspective, only 11 of the 500 names currently in the S&P 500 have performed worse than the current 10-year treasury yield.  The only one of these that is higher now than it was at the October 2007 peak is People’s United (PBCT). Click here to view Bespoke’s premium membership options.

Today marks the 13-year anniversary of the day when things got as bad as they can get for financial markets.  After more than a year-long bear market which cut the value of the US stock market by over half, on 3/9/09, the S&P 500 closed at its lowest level since September 1996.  A peak to trough haircut of more than 50% is enough, but bear markets are crueler than that, and this one was especially so.  A case in point- on its way to zero in 2008, Lehman Brothers saw separate rallies of 24%, 53%, 26%, 70%, 34%, etc. and with each one, investors kept getting sucked back in thinking the worst was over.

Now, replay that scenario with every other stock in the Financials sector and you start to get the picture.   On a market-wide basis; in the two weeks after the 2008 Election, the S&P 500 dropped more than 20%.  Then, as President-Elect Obama started to announce his cabinet, markets breathed a sigh of relief.  The naming of Tim Geithner as Treasury Secretary elicited an especially strong response, and from late November through year-end 2008, stocks recovered and rallied more than 20%.  It was a new bull market!  But at the start of 2009, any hopes of an enduring rally quickly faded as the S&P 500 resumed its downward slide.

As catastrophic as the stock market declines were, most Americans couldn’t be bothered with it, not because they weren’t busy losing their shirts or retirement saving, but instead because they were too busy wondering if the ATMs would still be working tomorrow or where they would stay when their homes were foreclosed.  We hear a lot of market people who consider making it through the COVID Crash as a badge of honor, but for the markets, COVID was just a bad month.

The phrase gets tossed around a lot, but the period spanning the late 1990s through 2009 really was a lost decade for the US equity market and marked the first time since 1941 that the rolling 10-year return for the S&P 500 was negative.  In the 1990s, we were all told that stocks only go higher over the long-term, but ten years later we had all just experienced the harsh reality first hand.

If you lived through it, late 2008/early 2009 was as bad or close to as bad as it gets.  Financial blood was in the streets and the bodies of failed banks and brokerages were piled up.  By March 2009, no one even wanted to hear the word stock, and the mere mention of the stock market was enough to leave you by yourself at a party.  As these things often work, March 2009 ended what was a nearly 13-year period of no gains in the stock market and the beginning of a nearly 13-year massive rally.  There were bumps along the way, but they were mostly short-lived, and even after this year’s brutal start, the S&P 500 is still up over 500% from those lows.

As much as sentiment has worsened and as painful as the declines from the January highs feel now, they are a blip when viewed in the context of the last 13 years.  Just to put things in perspective, on Monday, the S&P 500 fell more than 2.95% for its worst one-day decline since October 2020. From September 2008 through March 2009, though, there were more than 30 one-day declines of 2.95%! For another example, the CBOE Volatility Index (VIX) closed above 30 for the 7th straight day on Tuesday, which is one of just 17 streaks where it has closed over 30 for seven or more days. On 3/9/09, though, the VIX closed at just under 50 in what was the 121st straight day of closes above 30 and ultimately the longest ever streak of closes above 30 (170).  In other words, as bad as it feels now, things could get a lot worse.

Conversely, whenever you hear someone say there’s no way out from here for equities, remember March 2009, March 2020 at the COVID lows, and every other bear market or correction low.  The way out for the market was never obvious. It never is. Click here to view Bespoke’s premium membership options.

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Looking across the range of issues surveyed by the NFIB, labor and inflation remain front and center of what most concerns small businesses.  As shown below, the combined percentage of respondents reporting either cost or quality of labor as their most important problem continues to be the most prevalent topic with 33% of firms reporting as such. That is down slightly from 34% in January thanks to the decline in quality of labor.  Most other categories fell to or remained at record lows. Such was the case for Poor Sales, Competition from Big Business, Government Requirements and Red Tape, and Financial & Interest Rates.

Last month the percentage of respondents reporting inflation as their biggest problem went unchanged from the December reading of 22%.  This month that reading gained another 4 percentage points to cross above a quarter of all respondents for the first time on record going back to 1986.  Behind labor concerns (the combined reading of cost and quality of labor), this is the most commonly reported problem, and based on the action in commodities prices over the last couple of weeks, this reading will almost certainly increase again next month.

That means what has usually been the second most important problem on a combined basis recently, government requirement and taxes, dropped in the ranking. In fact, the 3 percentage point decline in government requirements offset the one percentage point increase in taxes to tie the November 2005 reading for the lowest on record.  As we have noted in the past, the past few presidential cycles have structurally seen lower readings in these indices when Republicans were in office and vice versa when Democrats have held the presidency.  With Biden currently in office, the record low reading is somewhat unusual from this political perspective.

That is not the only category that has fallen to record lows.  Poor sales and competition from big business have both fallen dramatically in the past couple of years. Click here to view Bespoke’s premium membership options.

Sentiment on behalf of small businesses fell for the second month in a row in February. At 95.7, the NFIB’s Optimism Index has now dropped to the lowest level since January 2021 and continues to closer to its COVID low and further from its high.

The Optimism Index is now right around the bottom quartile of historical readings after the 1.4 point decline.  Given the decline in the headline number, breadth across categories this month was weak with Job Openings Hard to Fill the only index to rise month over month. Despite the increase in Job Openings Hard to Fill, the index for Plans to Increase Employment saw the largest decline of any component.

Employment indices in this month’s report are some of those that remain the most elevated relative to their historical ranges. That being said, they have cooled off recently as we noted earlier in today’s Morning Lineup. Indices like Job Openings Hard to Fill and Compensation and Compensation Plans are all in the top few percentiles of their historical ranges even after coming off their peaks and some even falling significantly month over month in February. Hiring Plans, however, experienced a 7 point decline—ranking in the bottom 1% of all monthly moves—bringing that index out of the top decile of historical readings.

As for other areas of the report, General Business Conditions remain extremely weak falling another 2 points to remain in the bottom one percent of historical readings. Additionally this month, fewer respondents reported that it is a good time to expand, and more expect lower than higher sales on the horizon. While it is not an input to the optimism index, there was a new record high in the percentage of respondents reporting that they are raising prices. Click here to view Bespoke’s premium membership options.

As the Russia-Ukraine conflict escalates and western nations apply economic pressure on Russia (one of the world’s largest producers of oil & natural gas), the market for energy-related commodities has become extremely tight. The current energy crisis has shown investors the downside of being reliant on other countries, especially ones they aren’t friendly with.  In our current economic setup, For example, it would be nearly impossible to phase out Russian oil for the majority of western nations, but technological innovation and increased adoption of clean energy can change the balance which is why alternative energy stocks have caught a bid.  For example, the iShares Global Clean Energy ETF (ICLN) has rallied 17.8% since Russia invaded Ukraine, thus wiping out the previous 17% YTD decline.

There are two ways to view the correlation between clean energy stocks and the price of energy. As the price of oil rises, the attractiveness of alternative energy sources increases for consumers, enterprises, and governments alike. Therefore, following this logic, one could expect a moderately positive correlation between the two. On the other hand, increased adoption of alternative energy decreases the demand for oil, which will suppress the value of energy commodities and lead to gains for clean energy stocks.

Since ICLN began trading in February of 2015, the ETF and the front-month WTI crude oil contract have had a correlation coefficient of 0.35, which signifies a moderately positive relationship. However, this correlation is far from constant. Granted, there are many other factors besides oil prices (like government legislation and valuations) that affect the stocks in the ICLN ETF, but currently, the one-month correlation between the two assets is relatively strong at 0.72, which is especially notable since this figure hit a record low of -0.91 on 1/26.

On a rolling three-month basis, the correlation coefficient between the two assets is still compressed compared to historical averages. Since the launch of the ETF, the average three-month correlation between ICLN and oil has been 0.24, but this figure hit an all-time low of -0.89 two weeks ago on 2/25. This measure has started to move higher in the last few sessions, but the current level is still low relative to history. In fact, the correlation coefficient on a three-month basis has only been lower than current levels 8.5% of the time since 2015..

The chart below compares the relative strength of ICLN versus oil over the last year. In the chart, a rising line indicates that ICLN is outperforming oil and vice versa.  As you can see, oil has been significantly outperforming ICLN over the last year. Additionally, excluding the COVID craziness when oil turned negative for a day in April 2020, the rolling one-year relative strength is near all-time lows (second chart). Click here to view Bespoke’s premium membership options.