Bespoke’s Morning Lineup – 12/23/22 – Holiday Trading
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“I put my heart and soul into my work, and I have lost my mind in the process.” – Vincent van Gogh
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It’s the last trading day before Christmas, but a lot of people who make their living in the financial markets are probably feeling a little like van Gogh after this year. Hopefully, they all handle it better than the artist, though, and keep all of their appendages intact. We have another busy day of economic data in-store with Personal Income, Personal Spending, Michigan Confidence, and New Home Sales among the reports on the calendar. Equity futures are firmly in positive territory, crude oil is pushing $80 per barrel, and yields are higher with the 10-year yield trading back above 3.7%.
The last week of the year is considered a positive one for equities, but how positive has it been? Not as strong as you might think. Since 1980, the S&P 500’s average gain during the last week of December has been a gain of 0.41% with positive returns 57% of the time. Surprisingly, there have only been two other years during that span where the S&P 500 was down more than 15% YTD heading into the last week of the year (this year will be the third). In those two years, performance in the final week was mixed. In 2002, the S&P 500 went on to fall another 1.4% in the last week of the year; in 2008, the S&P 500 rallied 4.0%. So, just because the market is down a lot heading into the final week doesn’t necessarily mean it will bounce back or continue falling to close out the year.
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No Worse Year for Sentiment
The past few weeks had been uneventful when it comes to the AAII’s weekly reading on investor sentiment. As we noted last week, the three-week range that bullish sentiment occupied had reached a record low hovering between 24.3% and 24.7%. In the latest release, sentiment finally moved but not in the most promising direction. Bullish sentiment dropped 4 percentage points down to 20.3% this week to make for the lowest reading since the end of September.
With a decline in neutral sentiment as well, all of the increase went to bears with that reading rising to the highest level and back above 50% for the first time since late October.
As a result of the large inverse moves of the two sentiment readings, the bull-bear spread shows a dramatic tilt towards an even more pessimistic bias with bears outnumbering bulls by 32 percentage points. That is the widest spread since the week of October 20th and lower than most of the past decade’s range.
With yet another week of bears outnumbering bulls, the record streak of negative readings in the bull-bear spread has grown to 38 weeks long; a full month longer than the previous record ending in October 2020. Historically, investor sentiment has acted as a contrarian indicator meaning low readings on optimism have typically been followed by stronger returns for the S&P 500. This time around, sentiment and prices have given each other little reason to turn around.
In an earlier post, we noted how there has not even been a single week this year in which bullish sentiment has been above the historical average of 37.6%. Taking another look at just how depressed sentiment has been, the average bullish sentiment reading in 2022 has been less than 25%. The only years that had come close to such a low reading were 1988 (27.29%) and 1990 (27.08%). Playing into that low average has been the fact that there have been a record 30 weeks this year with bullish sentiment coming in below 25%. Meanwhile, bearish sentiment has averaged 46.17% this year, slightly above the previous record of 45.2% in 2008. With bearish sentiment tipping back above 50% once again this week, there have now been 17 weeks with such an elevated reading, tying the record from 2008 with one week to go. Click here to learn more about Bespoke’s premium stock market research service.
Chart of the Day: Record Put-Call Ratio
Malaise Among Individual Investors
The misery of 2022 has continued when it comes to investor sentiment. In the latest weekly AAII poll, bullish sentiment declined from 24.3% down to 20.3%. That’s the lowest reading since the end of September and less than five points above the YTD low of 15.8% from mid-April.
As shown in the chart above, there hasn’t been a single week this year where bullish sentiment has been above its historical average of 37.6%, and the only week where sentiment was even close to its historical average was at the start of the year. With just one week left in the year, barring a historic one-week surge, 2022 will go down as the first year in the history of the AAII survey where there wasn’t a single week that bullish sentiment was above average. Talk about malaise. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Morning Lineup – 12/22/22 – Back to Normal
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“Make a game plan and stick to it. Unless it’s not working.” – Yogi Berra
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Today is looking like a back-to-normal 2022 day for US stocks as futures are trading lower. The gains were fun while they lasted. Looking on the bright side, there are only five trading days left in the year. Elsewhere in markets, the 10-year yield is down slightly to 3.65% while oil has been quietly rallying and is now just under $80 per barrel.
The economic calendar is busy today as many reporting agencies try to squeeze in this month’s reports before Christmas. Data released so far hasn’t been particularly market-friendly as revised GDP came in higher than expected (3.2% vs 2.9%) and Core PCE was revised higher (4.7% vs 4.6%). Jobless claims were also strong with initial claims coming in lower than expected (216K vs 222K) and continuing claims also coming in slightly better than expected (1,672K vs 1,675K). If they were to have any impact on Fed policy, none of these reports would suggest less of a hawkish stance.
The more things change, the more they stay the same. Even after two days of gains, sector performance over the last five trading days has been pretty poor and almost exactly in line with performance rankings on a YTD basis. As shown in the scatter chart below which compares YTD performance versus the last week, there has been a clear correlation between the two with an r-squared of 0.78. Heading into year-end, investors are following the game plan of selling their losers and buying the few winners.
Looking at a snapshot from our Trend Analyzer, four of the S&P 500’s eleven sectors are down over 4% in the last week, another four are down more than 2%, two are down over 1%, and only Energy is higher. In terms of where sectors are now trading with respect to their trading ranges, there’s still pretty much of an even split between sectors trading above and below their 50-day moving average with six above and five below. Consumer Discretionary is the only sector in oversold territory. While that may seem like an ominous sign heading into the Christmas season, it’s worth remembering that retailers usually underperform at this time of year. Also, Tesla (TSLA) makes up about 13% of the sector, so the stock’s weakness has been a drag on the overall sector.
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Bespoke Baskets Update — December 2022
Chart of the Day – Record Declines in Existing Home Sales
Bespoke’s Morning Lineup – 12/21/22 – Two in a Row?
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“The graveyards are full of indispensable men.” – Charles de Gaulle
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As we get closer to Christmas, the pace of news starts to slow, so that’s why one of this morning’s headlines concerns a Twitter poll. After more people voted that they wanted him to step down as CEO of the social media company, Elon Musk announced that he will step down as CEO of Twitter once he finds “someone foolish enough to take the job!” Elon has also suggested in the past week that no one besides him with the ability to do so would take on the job of leading the company when he noted, “No one wants the job who can actually keep Twitter alive. There is no successor.”
We also had some positive (or not as bad as expected) earnings news after the close on Tuesday with Nike (NKE) trading up over 10% and FedEx (FDX) up close to 5%. Expectations heading into the Q4 earnings season next month have really been negative, but at least these companies are starting off with a good first impression.
On the economic calendar this morning, the only reports scheduled are Existing Home Sales and Consumer Confidence at 10 AM.
Even with US stocks on pace for their second straight day of gains, it hasn’t been a pretty December for stocks. What was an uptrend from the October lows has been broken in a convincing way, and the only hope for chart watchers now is that the June lows hold creating what could turn out to be a reverse head-and-shoulders pattern.
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Chart of the Day – Biggest Surge in the Yen in More Than a Decade
Mega-Caps Down $5 Trillion in Market Cap, AMZN Now Down $1+ Trillion
As we approach the end of 2022, below is an updated look at the drawdown in market cap that we’ve seen in the US equity space since major indices peaked on the first trading day of the year. Using the Russell 3,000 as a proxy, the US stock market has seen an $11.7 trillion drawdown from the peak on 1/3/22. The max drawdown was $13.6 trillion at the low on 9/30, so we’ve seen market cap increase by just under $2 trillion since then. In dollar terms, this drawdown has been more extreme than anything investors have ever experienced. That’s pretty deflationary if you ask us!
Of the $11.7 trillion drawdown in US equity market cap, just over $5 trillion of the drop has come from six companies! Below is a look at the six current and former “trillion dollar market cap” club members that have now collectively lost about $5.07 trillion in market cap from their peaks. As shown, Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Meta (META), and Tesla (TSLA) have all lost at least $750 billion in market cap from their highs. And Amazon (AMZN) is the first to lose more than $1 trillion in market cap! Just a few years ago, no company had a market cap of more than a trillion dollars, and now we have a company that has lost more than a trillion dollars in market cap.
For all six of these companies, their current drawdowns are easily their biggest on record. Apple (AAPL) has lost $880 billion, Alphabet (GOOGL) is down $846 billion, Meta (META) and Tesla (TSLA) are both down more than $760 billion, and Microsoft (MSFT) is down $784 billion even though it was down close to a trillion at its lows in November. Click here to learn more about Bespoke’s premium stock market research service.
