Last week, the Bureau of Economic Analysis (BEA) reported Q3 international transactions. The current account is comprised of credits (exports, income) and debits (imports, costs) between the US and other international economies. On a quarterly basis, these flows are very large, with more than $1 trillion moving out of the US and almost as much coming back in, for a net deficit (the current account deficit) of $124bn. That deficit isn’t too big relative to GDP, but it’s interesting to look at what goes into it instead of focusing on the headline number.

Below we show the various major categories by type.  As shown, trade (exports and imports) is much larger than any other category and goods are the biggest factor in trade.  Most changes come from this group of transactions, with industrial and capital goods the largest by far.  Consumer goods, even including autos and parts, are less important than goods purchased for business consumption.  Primary income is earned abroad: for instance, the income of US direct investments, employee wages and salaries, and portfolio income on securities’ dividends or coupons. Secondary income is generally transfers like remittances or foreign aid.  Sign up for Bespoke’s “2020” special and get our Bespoke Report 2020 Market Outlook and Investor Toolkit.

Initial jobless claims remained elevated relative to recent history this week as the seasonally adjusted number came in at 234K compared to expectations of a decline to 225K. As shown below, the four-week moving average—which offers a better look at the overall trend by smoothing out this type of week to week volatility—has been grinding higher even before the past couple of weeks’ swings. In other words, regardless of the more recent surge, claims have been trending higher in the past year.

Given this, it has been some time since the four week moving average has made a new cycle low.  In fact, the moving average is now 24K above the April low of 201.5K.  As shown in the chart below, this is the widest spread between a weekly reading and the cycle low in more than a year, but there have also been prior times that the spread has been far wider such as in 2011, 2012, 2013, and 2017. Despite this, outside of April, most of the past year has seen claims fairly elevated above its lows.

Expanding on this, while the distance between the last low and the current level could be worse, the current streak without a new low is now the second longest of the current cycle at 35 weeks long, passing the 34 week long streak ending in May 2014.  If this continues for another seven weeks, it will take out the streak lasting 42 consecutive weeks ending in December 2012.

Seeing as it has been so long since we have seen a new low in the 4-week moving average for claims, it shouldn’t come as a surprise that 2019 has been relatively quiet on the new low front.  In fact, there were only two weeks that saw a new low get put in place this year, both occurring in April. As shown in the chart below, no other year of the current cycle has seen so few of such weeks. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

More fresh all-time highs, a winning streak ending at five days long, and the announcement of a trade agreement between the US and China in the past week have all contributed to sending bullish sentiment in AAII‘s weekly survey to 44.1%.  That is its highest level since October of 2018 and the first time in over four weeks that bullish sentiment is above its historical average of 38.08%. This week also marked back-to-back weeks in which optimism was the predominant sentiment.

The gains in bullish sentiment have come from the bearish camp as those reporting as pessimistic fell to 20.5%, the lowest reading since the February low of 20%.  At this low of a level, bearish sentiment has gotten a bit extreme at more than one standard deviation below its historical average. Meanwhile, neither bullish or neutral sentiment are at similar extremes. In other words, while sentiment may be a bit overly optimistic, it could be worse.

Not all of the gains in bullish sentiment came from bears.  The percentage of investors reporting as neutral fell by 0.92 percentage points to 35.4%.  Since that change was on the smaller side, neutral sentiment remains well within its recent range.  In fact, this week marked the nineteenth consecutive week that neutral sentiment was above its historical average. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

If someone had told you on January 1st that the year would start off with fears of an economic recession in the US as Retail Sales showed their largest decline since 2009, and then that the US would be in a trade war with China where at one point the President ordered all US companies to start looking for an alternative to doing business in that country, you would have thought that 2019 would likely end up being a pretty volatile year.  As if these two headwinds weren’t enough, add to them that the President would have been impeached towards year-end, and you may have even asked, “How bad was the bear market going to be?”

Well, there was no bear market in 2019, and for that matter, there wasn’t even a correction!  The chart below shows the maximum drawdown of the S&P 500 from a closing high for each calendar year since 1928.  The average drawdown in a given year during this span has been a decline of 16.3%, and in 58 of the 92 years, there has been a decline of at least 10%.  While years with a drawdown of at least 10% aren’t uncommon, and this year there has been no shortage of potential headwinds, the maximum drawdown for 2019 has been less than 7%!  While this year has been tame, don’t forget that last year, the S&P 500 saw a drawdown of 19.8% on a closing basis as many of the headwinds we faced early on in 2019 were already priced in by the end of 2018.  Start a two-week free trial to Bespoke Premium to access all of our B.I.G. Tips reports, Annual Outlook Report, interactive tools, and much more.