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“I am convinced that there is nothing they admire so much as strength, and there is nothing for which they have less respect than for weakness” – Winston Churchill

Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.  

The term ‘weakness’ has a lot of applicability to the current market environment. There has been little positive to say about how equities have performed since the S&P 500’s record high two weeks ago. Has it only been two weeks? 

With the S&P 500 finishing the day down by more than 1.2%, the only positive thing to say about yesterday was that the 200-day moving average (DMA) provided some level of support. After trading down near that level in the morning, the S&P 500 bounced through the afternoon and even briefly peeked into positive territory. The good times didn’t last long. With President Trump being more of a mush on stock prices lately than Fed Chair Powell, there was a barrage of selling into the close ahead of last night’s address to Congress.

This morning, equity futures are putting in a valiant effort with gains, but they’re already well off the overnight highs and barely higher. Where they finish is anyone’s guess. Treasury yields are modestly higher, crude oil is back down to $67 per barrel, gold is marginally higher, and Bitcoin is surprisingly back above $90K.

European markets have bounced back from yesterday’s weakness following news in Germany after yesterday’s close that the country would increase deficit spending, and that has 10-year German Bund yields surging over 20 bps to their highest levels in over a year.

On the economic calendar, ADP Payrolls were just released, and the headline reading came in at 77K versus forecasts for an increase of 148K. With market concerns shifting from inflation to the health of the economy, this report is likely to raise some concerns. It’s important to remember that ADP has often varied widely from Non-Farm Payrolls, but the miss will put added significance on tomorrow’s jobless claims report. Outside of that, the only two other reports are ISM Manufacturing and Factory Orders at 10 AM.

While the 200-DMA provided support for the S&P 500 yesterday, we’d caution about getting too excited. Remember, it was only Friday that the Nasdaq ‘successfully’ tested its 200-DMA, but that support lasted less than one trading session.

The short-term direction of the market is anyone’s guess, but from a longer-term perspective, we’d note that as extreme as the last two weeks may seem in the moment, the market has been there and done that. Since WWII, there have now been 64 pullbacks of 5%+ from an S&P 500 record high. This decline seems especially swift as it took the S&P 500 less than two weeks to reach the 5% milestone, but we would point out that a third of the prior 63 pullbacks reached the 5% level just as fast or even faster. For all 63 prior streaks, it took an average of less than four weeks (25 calendar days) to fall 5% from an all-time high.

The top chart below shows every time the S&P 500 experienced a 5% pullback from an all-time closing high, and the second chart shows the same occurrences over just the last ten years. Some of these pullbacks expanded to become full-fledged extended bear markets where, in some cases, the S&P 500 lost a significant percentage of its value. In most cases, though, the declines were short-lived, and you’d have a hard time even remembering what caused them in the first place.

In his speech last night, President Trump told Congress, “There’ll be a little disturbance, but we’re OK with that.” For everyone invested in the stock market, how little is little?