Chart of the Day: Breadth Is Still Weak
Bespoke’s Morning Lineup – 4/7/22 – Defensives Rise to the Top
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“If you can learn to create a state of mind that is not affected by the market’s behaviour, the struggle will cease to exist.” – Mark Douglas
After two lousy days for the equity market, futures were attempting a bounce but have drifted back towards the unchanged level as treasury yields rise and oil prices bounce. Initial Jobless Claims were just released and they came in at 166K which was below the 200K consensus forecast and the lowest weekly reading since November 1968! Continuing Claims, however, surprised to the upside coming in at a level of 1.523 million versus forecasts for a level of 1.302 million. That’s it for economic data today, but in terms of fed-speak, at 9 AM eastern we’ll hear from Bullard, and then at 2 PM Bostic and Evans will be speaking.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
It’s been a rough week for the broader market as the S&P 500 has declined more than 2.5% over the last five trading days (since 3/30 close). In looking at the performance of individual sectors over that span, performance has been about what you would expect in a tape with a more defensive tone. While cyclical sectors like Industrials, Consumer Discretionary, Technology, and Financials have been crushed with declines of more than 4%. Defensive sectors have actually bucked the trend. Utilities have actually risen more than 3%, Real Estate is up over 2%, Consumer Staples has risen 1.8%, and even Health Care is in the green.
What’s also notable about the current levels of sectors is that in spite of the weak tape, just three sectors closed below their 50-day moving averages yesterday, and six sectors are either at overbought or ‘extreme’ overbought levels. That fact says more about how much the market had rallied leading up to the last day of the quarter than it does about the magnitude of the recent declines. After gains like we saw in the back half of March, it is only natural to see the market take a pause or even pull back.
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Stock Market Volatility: It’s Higher Than You Think
“You pay a very high price for a cheery consensus. It won’t be the economy that will do in investors; it will be the investors themselves. Uncertainty is actually the friend of the buyer of long-term values.” Warren Buffett
You don’t need us to tell you that 2022 has been a volatile year for the stock market, but in one way it has been even more volatile than you think. Nowhere in the equity market has the uncertainty and day-to-day moves been higher than in the Nasdaq. Over the last 50 trading days, the Nasdaq’s average daily move has been a gain or loss of 1.76%, and on a YTD basis, the average remains at a still unsettling level of 1.66%. To put this in perspective, in all of 2021, there were only 37 days that even experienced a gain or loss of 1.66% or more. While volatility has spiked this year, relative to other periods in the last thirty years or so, there have been plenty of other stretches when the average daily move spiked even more. Back in early 2020, the Nasdaq’s average daily move over the prior 50 trading days spiked to more than 3%, and in October 2011, the average daily move spiked to just over 2%. Those two periods, however, pale in comparison to the Financial Crisis when the average daily move approached 4% per day! That was even greater than the highs from the bursting of the dot-com bubble when 3% daily moves for the Nasdaq were routine.
Although the Nasdaq’s average daily move is nowhere near its highest levels of the last twenty years, volatility has still been extremely high. While this week is only three trading days old, we’ve already had three days where the Nasdaq had a daily move of at least 1%, and as a result, we have now had a total of 12 straight weeks where the Nasdaq experienced at least three 1% daily moves (even including holiday-shortened weeks). In the chart below, we show weekly streaks where the Nasdaq experienced at least three trading days of 1% moves. The current streak isn’t over, but it has already eclipsed any streaks seen during the COVID crash or the Financial Crisis. In fact, to find a longer streak you have to go all the way back to September 2002 in the waning days of the dot-com crash.
As noted above, Warren Buffett once said that uncertainty is the friend of the buyer of long-term values, but volatility can be unsettling for individual investors, and as Peter Lynch once said, “Not everyone has the stomach. If you are susceptible to selling everything in a panic, you ought to avoid stocks and mutual funds altogether.” Click here to view Bespoke’s premium membership options.
The Closer – March Minutes Reaction, Balance Sheet Runoff, Neighbor Data, EIA – 4/6/22
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a summary of the minutes from the March FOMC meeting. We follow up with a note on balance sheet runoff and the market’s reaction to today’s release of the minutes. We then recap some data South and North of the border in the form of Mexican vehicle production and the record Ivey PMI in Canada. We close out with a recap of this week’s petroleum stockpile data from the EIA.
If you’re wondering what the Closer is like each day, click here or on the thumbnail image below for a sample of a few pages from the report.
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2022: A Story of Rotation
The S&P 500 is lower again today and dropping back below its 200-DMA as of this writing. After rallying over 11% in the second half of March, the S&P 500’s current leg lower has brought it down roughly 3.4% from the March 29th closing high. As for which stocks have done the best and worst during the recent leg lower, it has more or less been a story of rotation from earlier this year. To get a gauge on this, in the charts below, we took a look at the performance of S&P 500 stocks since the recent peak in late March based on their performance during the two legs lower (1/3 through 1/27 and 2/9 through 3/8) as well as during the two rebounds off those lows (1/27 through 2/9 and 3/8 through 3/29).
We go through the charts in a little more detail below, but the short of it is that since the recent high in the final days of March, the worst performing stocks have been the same names that were the weakest during the prior two legs lower this year. Conversely, the stocks that have outperformed recently have been the same ones that were the worst performers during the two rallies in late January/early February and during March. Click here to view Bespoke’s premium membership options.
The two charts below show the performance of S&P 500 stocks since 3/29 grouped into deciles based on how they performed during selloffs from 1/3 to 1/27 (top chart) and from 2/9 to 3/8 (bottom chart). In the case of both charts, the general trend has been that stocks that performed the worst during each of the prior sell-off this year have also been the worst performers over the last week or so since the close on 3/29, while the stocks holding up the best are the same ones that outperformed during those declines.
Similar to the analysis above, the two charts below show the performance of S&P 500 stocks since 3/29 grouped into deciles based on how they performed in the rallies from 1/27 to 2/9 (top chart) and from 3/8 to 3/29 (bottom chart). In this case, the general trend has been that stocks that performed the best during each of the rallies this year have been the worst performers since the close on 3/29, while the stocks that underperformed the most in the two rallies have sold off the least during this most recent decline.
Chart of the Day: Transports Fall Off The Rails
Bespoke’s Morning Lineup – 4/6/22 – Hard Time to be a “Vampire”
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“Bond investors are the vampires of the investment world. They love decay, recession – anything that leads to low inflation and the protection of the real value of their loans.” – Bill Gross
It’s looking like it’s going to be one of those days. Futures were just modestly negative overnight but then started to really weaken as Europe opened for trading and things haven’t stabilized since. The S&P 500 faces losses of around 1% at the open with the Nasdaq down over 1.5%. If equities were looking to rally coming into the week, yesterday’s Fed commentary put at least a temporary stop to that. Interest rates are higher across the curve and the 2s10s yield curve has steepened well out of inverted territory, but that comes along with yields on the 10-year above 2.6% to its highest level in just over three years.
The economic calendar is light today as weekly mortgage applications were the only release, and they fell 6.3% following a 6.8% last week and an 8.1% decline the week before that. Besides that, Energy inventories will be released at 10:30 and the Minutes from March’s FOMC meeting will be released at 2 PM. Philly Fed President Harker and Richmond Fed President Barkin will also be speaking this morning.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
For bond investors, these days are tough indeed. With inflation rampant around the world and central banks finally putting the brakes on the gravy train of liquidity, the increase in interest rates has been relentless with bond prices seeing some of their largest declines in years. A case in point is the iShares 20+ Year US Treasury Bond ETF (TLT). It’s already down 13% YTD and indicated to open lower today by another 1%. The chart below shows historical drawdowns from record closing highs in TLT since its inception in late 2002. Based on where the ETF is trading this morning, it has now declined 26% from its last record closing high back in early August 2020. Throughout its history, there have only been a handful of other periods where TLT ever experienced a peak to trough decline of more than 20%, and the only other time it dropped more was coming out of the Financial Crisis.
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The Closer – Markets Wake Up Toa Screeching Hawks, Real Yield Surge, Trade Insight – 4/5/22
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin tonight with an overview of today’s Fedspeak and the price action in response. We then take a look at real rates followed by the US trade deficit before finishing with an update on delinquency data for the month of February.
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Chart of the Day: Google Search Trend “Reopening” Update
Bespoke’s Morning Lineup – 4/5/22 – Fed Speakers Step Up to the Plate
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.
“The meek shall inherit the Earth, but not its mineral rights.” – J. Paul Getty
Outside of the drama surrounding Twitter (TWTR) and Elon Musk, who is now a board member of the company, there’s not a lot of newsflows this morning centered on US stocks. The only economic report on the calendar is the ISM Services report at 10 AM eastern, but there are also a number of Fed speakers scheduled. At 10 AM, we’ll hear from Minneapolis Fed President Kashkari, and then at 11:05 AM Fed Governor Lael Brainard will likely shed additional light on whether the Fed moves 50 bps at its next meeting. The final speaker of the day will be New York Fed President Williams at 2 PM.
Equity futures are modestly lower today, but the most noteworthy development of the morning is the fact that the 2s10s curve has steepened and has nearly ‘unverted’.
Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.
With a month-to-date gain of more than 4% in just two trading days, the run higher in Brazilian stocks has continued into the second quarter. Year to date, the iShares MSCI Brazil ETF (EWZ) is now up over 40%, and given that gain, we don’t know what’s more noteworthy. Is it the fact that since its inception in 2000, this represents the best YTD start for the ETF (through 4/4) on record? Or is it that even after this year’s rally, the ETF is over 6% relative to its high in 2021?
Starting with YTD starts, the chart below shows the YTD gain for EWZ going back to 2001. This year’s 40.8% gain easily ranks as the strongest YTD gain for the ETF since its launch.
As mentioned above, the last year has been a roller-coaster for EWZ. Even after this year’s sharp rally, which began on 1/5, EWZ remains more than 6% below its June 2021 high.
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