The equity market’s rally off of the bear market low on March 23rd has taken pause with the S&P 500 more or less flat over the past week.  With a lack of a push higher, optimistic sentiment has waned. The American Association of Individual Investors‘ weekly sentiment survey saw 34.86% of respondents reporting as bullish this week. That is down 1.7 percentage points from last week.

That is not to say those investors have turned into pessimists though.  Bearish sentiment is also down this week, falling to 42.75% from 44.7% last week.  Bearish sentiment is now at its lowest level since the first week of March.  Granted, it is still the predominant sentiment and is very elevated at over one standard deviation above its historical average of 30.42%.

With fewer investors taking a bullish or bearish stance, an increased share are reporting neutral sentiment which is now at 22.39%.  Neutral sentiment has been very muted recently with this week marking the first time since the first week of March that more than 20% of investors are reporting as neutral.

Despite their moves this week, bearish sentiment remains elevated while neutral sentiment remains stretched to the downside.  It has now been six straight weeks in which bearish sentiment has been extremely elevated (over 1 standard deviation above its historical average) while neutral sentiment is extremely muted (over 1 standard deviation below its historical average). That is now tied with another six week long streak ending in September of 2007 for the longest such streak in the history of the survey.  In other words, although things have improved a bit in the past couple of weeks, investors have been decidedly bearish by this measure for a historically long stretch of time.

The bull-bear spread echoes this as this week marked the eighth consecutive week in which the spread has favored bears.  As shown in the table below, that is far from the longest streak in the survey’s history, one that ran for 22 weeks in 1990 holds the record, but it is significantly longer than most others. The current streak is the longest since another one that ended at eight weeks long in February of 2016. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Yesterday, we highlighted the collapse of the first of the April regional Federal Reserve indices which was from the New York Fed. This morning, we got an update from the Philadelphia Fed, and the results were not much better. The headline index fell from -12.7 in March to -56.6 in April.  That is the second-lowest level of the index on record behind the record low of -57.1 back in July of 1980. That deterioration has come very rapidly. As recently as February, before COVID-19’s impact had been fully felt, the index was at 36.7 which is at the upper end of its historic range in the 97th percentile of all readings.  In just the last two months, though, the headline index has experienced its two largest declines on record: -43.9 this month and -49.4 last month.

The components of the index are similarly at or near record lows.  As shown in the table below, indices for demand and employment all experienced their largest declines ever this month. Overall, demand is weaker while delivery times are longer as both prices paid and received fall.

Demand is one of the key areas of weakness in the regional Fed reports.  The indices for New Orders and Shipments have both fallen by their largest amounts ever to record lows.

As a result of weak demand, prices are beginning to fall.  The Prices Paid component is now down to -9.3 which is its lowest level since May 2015. Prices Received, on the other hand, is even lower at -10.6, which is the worst reading since July of 2009. The 17.4 point decline this month was also the fourth largest month over month decline for Prices Received on record.

Last month’s report had yet to capture the massive drop in employment as a result of COVID-19. That changed this month with the index for Number of Employees cratering to -46.7. That is the second-lowest reading ever behind March of 2009 when it fell to -51.5. Meanwhile, Average Workweek is down to its lowest level ever at -54.5.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

The pain has not stopped for the US labor market.  Initial jobless claims remain at extremely elevated levels coming in at 5.245 million this week.  Although this is still extremely high compared to other readings throughout history, this week’s print was a small improvement from the past few weeks coming in below expectations (5.625 million) as well as the past couple of weeks’ readings which have been well above 6.5 million.  Last week, seasonally adjusted claims totaled 6.615 million which makes the 1.37 million drop to 5.245 million this week the largest single week decline on record. Obviously, that is little consolation given the fact that it was still the third-largest weekly reading on record. Put differently, although there were not as many added this week as the past few weeks, there are still a historically massive number of jobless claims being filed.

Over the past four weeks, there have now been over 20 million jobless claims filed on a non-seasonally adjusted basis.  In terms of total US population, that is roughly 6% or over 12% of the labor force.  This week contributed another 4.972 million to that number compared to the past two weeks which saw prints of over 6 million.  Again, that 1.24 million claims decline this week is the largest decline ever recorded even though it is not much of a positive.

By now, every “normal” claims number has rolled off of the four-week moving average. As such, it has again pressed higher this week to a record of more than 5.5 million.   Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

In an earlier post, we highlighted Netflix (NFLX) as one of the stocks benefiting from the COVID-19 economy. Yesterday, it managed to reach a new 52 week high and today was up nearly 5% at the intraday high. That brings the stock to a new all time high, surpassing the previous record closing high from July 9th, 2018. That is while the broader market, the S&P 500, is down well over 2% on the day.  That type of outperformance has not necessarily been the norm over the past two years.  As shown in the second chart below, while NFLX tended to outperform the rest of the market (a rising line indicates NFLX outperforming the S&P 500 and vice versa) in the first half of the past five years, after its July 2018 peak, that outperformance began to subside.

Another way of showing this is performance over the last two years.  At the time of the S&P 500’s high on 2/19, the performance of NFLX and the S&P 500 since mid April of 2018 were basically dead even at 25.5% and 26.5% respectively. After both saw those gains erased, NFLX’s recent surge leaves it up nearly 40% over the past two years while the S&P 500 is only up 3.5%.  Start a two-week free trial to Bespoke Institutional to access our full range of research and interactive tools.

This morning, the NAHB updated their monthly reading on homebuilder sentiment, and like most other recent economic data, the results were not good.  Homebuilder sentiment fell below 50 for the first time since June of 2014 (readings below 50 are considered contractionary).  The index plummeted to its lowest reading since June of 2012 falling from 72 in March down to 30 in April.

As shown in the table below, that 42 point decline in just one month was the largest ever recorded in the data going back to 1985.  The same can also be said for every one of the sub-indices as well which are now at multi-year lows.  That stands in stark contrast to where things were just one month ago.  In March, the headline index, as well as several other sub-indices, were in the 95th percentile or better of all readings.  In other words, before the COVID-19 pandemic homebuilders’ outlook was historically optimistic.

One interesting thing to note in this month’s survey was the declines in homebuilder sentiment were broad across geographic regions but the areas of the country most affected by the virus saw larger declines and are now at lower levels.  Namely, sentiment in the Northeast is the lowest of the four regions at 19 compared to the next lowest, 25, in the Midwest.  That is as the bulk of US COVID-19 cases can be found in the Northeast, particularly in the tri-state area. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

Last month, the New York Fed’s monthly manufacturing index fell to its weakest level since March of 2009. Fast forward one month and the headline reading has collapsed even further and more dramatically for the US region hit hardest by COVID-19.  The April reading was forecasted to come in at -35 which would have been the lowest level ever recorded.  Instead, it surpassed that by more than two fold coming in at -78.2 and experiencing its largest monthly decline on record in the process. While a net of over three-quarters of the region’s businesses reported declining current conditions, the outlook picked up slightly from last month.  Conditions six months out rose to 7 from 1.2 last month.

With expectations and current conditions heading in opposite directions and the index for current conditions reaching such an extreme low, the spread between the two is now at its highest level ever.

Given the massive decline in the headline number, many of the individual categories of the report were equally as bad. In addition to the headline number, New Orders, Shipments, Number of Employees, and Average Workweek all are at record lows and experienced their largest m/m declines on record.  While there were no record lows for the categories on expectations, most of those same ones are around the 1st or 2nd percentile.  Additionally, plans for Capital Expenditure and Technology Spending fell by their largest amounts ever.

Demand has been in absolute free fall.  The indices for both New Orders and Shipments have experienced record declines to record lows; surpassing even those from the last recession.  More than half of responding businesses have reported that New Orders and Shipments are weaker.  Businesses do not appear to see much light at the end of the tunnel yet either. While not at absolute lows, the readings for New Orders and Shipments six months out are both in the bottom 2nd percentile of all readings and at their lowest levels since the financial crisis.

With business grinding to a halt, it appears focus has shifted from investment to simply staying afloat and cutting costs as the indices for capital expenditure, technology spending, and all tanked. For the first time since June of 2013 for Technology Spending and May of 2009 for Capital Expenditures, the NY Fed indices have tipped negative.  Both now stand at -11 indicating fewer companies are looking to expand on capital expenditures or technologies that would benefit operations.

Looking purely at recent jobless claims numbers, the employment side of this month’s Empire Fed report could not be expected to show much strength.  This month’s report showed 58.6% of responding employers reporting smaller workforces while only 3.3% saw an increase in employees.  Additionally, 64.7% of companies reported lower employee workweeks compared to 3.1% with longer workweeks. Those readings for Number of Employees and Average Workweeks at -55.3 and -61.6, respectively, are both record lows for current conditions.  As for expectations six months out, employers do not appear overly optimistic either. Although the reading on average workweek rose to 8.4, which is in the middle of the past few years’ range, expectations for number of employees fell to 5.2 which is its lowest level since August of 2016. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

With the S&P 500’s rally off of the 3/23 low continuing yesterday, a handful of stocks in the index actually made new 52 week highs!  Other than yesterday’s new highs, there are only 19 stocks in the index that have reached a 52 week high at some point since the beginning of March.  Regeneron (REGN) was one of the few stocks that rallied in that time frame on hopes that the company would develop a treatment for COVID-19.  Other than REGN, stocks in this group seem to be plays on the COVID economy including consumer staples retailers like Walmart (WMT) and Dollar General (DG) as well as plays on Americans staying at home like Netflix (NFLX) and Amazon (AMZN).

With that outperformance during the worst of the sell-off and solid gains since the March 23rd low, most of these stocks are currently mid to high single digits above their February 19th levels except for Regeneron (REGN) and Newmont (NEM) which are 30.94% and 29.72% above, respectively.

As shown in the table above, which can also be seen in the charts from our Chart Scanner below, the COVID collapse that lasted from February into March only resulted in Amazon (AMZN) reaching a 52-week low. AMZN’s 52 week low occurred on March 16th; one week before the rest of the market’s bottom.  Every other stock of those that made a new 52-high yesterday saw its 52-week low at some point in 2019.

As shown below, several of these stocks reaching 52-week highs means that they have cleared some form of significant resistance. Dollar General (DG) and Netflix (NFLX), for example, unsuccessfully tested resistance multiple times within the past year before these most recent breakouts. As for trends, each one is currently in a rough uptrend over the past six months to a year putting aside some disruption from the volatility of the recent sell-off.  Start a two-week free trial to Bespoke Institutional to access our Chart Scanner and much more.

Below is an updated look at the performance of the S&P 500 and its eleven sectors over various time periods.  From the S&P 500’s last all time high on February 19th, no sector has been hit as hard as Energy.  From those highs for the broader index, the sector had been more than cut in half by the time the S&P 500 found a bottom on March 23rd.  In the time since then, Energy has been the best performing sector having risen 44.9%.  Meanwhile, some of the best performing sectors over the past few years like Technology and Consumer Discretionary have performed essentially inline with the S&P during this rally.  Despite Energy’s outperformance off the 3/23 lows, the sector is still down 36.3% since the S&P 500’s February 19th high and is down even more YTD.  Over the past year, two year, and three year period, Energy has also been roughly cut in half.

After the huge rally we’ve seen since March 23rd, there are now four sectors that are back up on a year-over-year basis — Utilities, Health Care, Technology, and Consumer Staples.  On a two-year basis, seven of eleven sectors are now back in the green, while only three sectors are now down on a three-year basis (Energy, Industrials, and Communication Services).

The S&P 500 as a whole is now down just 2.53% year-over-year, while it’s up 6.6% over the last two years and up 21.6% over the last three years.

The Covid crash brought most sectors to some form of a multi-year low.  But with the significant bounce since 3/23 across sectors, a significant mean reversion has taken place and several sectors are now sitting more in the middle of the past few year’s range as shown in the charts below.  Meanwhile, others like Energy, Financials, Industrials, and Materials remain at the lower end of those ranges.

Even on a shorter time frame equities are simply in the middle of their ranges.  Last week, the Health Care sector finally crossed back above its 50-DMA; the first sector to do so since the Utilities sector in the first week of March. Today, the Consumer Discretionary, Consumer Staples, Health Care, Materials, and Technology sectors have all done the same but are still within 1% of their 50-DMAs except for Health Care which is 2.5% above.

The S&P 500, Communication Services, Real Estate, and Utilities are only around 2.5 or fewer percentage points away from their 50-DMAs.  But for Financials and Industrials, they are still over 8% away.  Energy still has the furthest to go currently 13.5% below its 50-DMA.  Start a two-week free trial to Bespoke Institutional to access our Sector Snapshot and much more.