Keeping track of the Fed can be a complicated business. In addition to official releases from the Board of Governors (including policy statements, press releases, meeting minutes, and materials like the twice-quarterly Beige Book), there is also a never-ending parade of appearances in Congress, speeches, and media hits to digest.

One way we stay on top of this mountain of verbiage is natural language processing. For FOMC statements, press conferences, minutes, the Beige Book, and published FOMC speeches, we apply a series of algorithms to compare them to previous commentary over time. This lets us assess how the language scans on a hawk/dove scale. Hawks are central bankers worried about inflation, sanguine or optimistic on growth and unemployment, and generally biased towards raising rates or otherwise tightening policy. Doves are the opposite.

Our algorithms have several different approaches. Two use dictionary-based approaches from papers by Loughran-McDonald and Schmeling & Wagner to look for language that is associated with either hawkishness or dovishness. The Loughran-McDonald algorithm also scores speeches for attitudes on inflation and growth. Another approach is to compare speeches to language from periods when the Fed was hiking rates via a logistic regression, or compare them to periods when the market reacted aggressively to Fed policy (again via a logistic regression). Those two approaches based on rate cycles or market data can also look forward (i.e. regress against the next outcome rather than the current one). In total, we have 8 different methods to score Fed communications, which we can then compare to either similar communications (for instance, comparing a policy statement to other policy statements) or the whole corpus of Fed communications.

Last Monday, July 13, we got a very good example of how these algorithms work. Governor Waller gave a speech (link) that revealed a very hawkish bias. To illustrate that hawkishness, below we show a series of scores for the speech. The higher a score, the more hawkish the speech is perceived to be. As shown, while our rate cycle logistic regression didn’t see Waller’s comments as very hawkish, our market reaction-based regression did. And dictionary-based regressions were right at the top of the charts.

The second chart above illustrates how hawkish the speech was. To create it, we took all Fed communications since 1994 and scored each one, showing the average hawkish/dovish percentile score for our two dictionary-based measures. As shown, there are only a few speeches in Fed history that were more hawkish than Waller’s comments two Mondays ago. That’s a strong signal that Waller – and given his position as a leading voice that tends to move before the rest of the FOMC – will be ready to raise rates soon, an outcome that felt unthinkable at the start of the year.

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The S&P 500 fell 1.21% yesterday. While that’s not an ideal day for investors, there have been 15 days this year that were worse. More unusual than the decline at the index level were the 5%+ declines in Communication Services and Consumer Discretionary following negative earnings reactions from Alphabet (GOOGL) and Tesla (TSLA), respectively. The two stocks were the largest drags on the index for the day.

This was the first time this year that multiple sectors fell at least 5% in a single session. It happened twice during last year’s Tariff Tantrum on April 3 and April 4, twice during the 2022 bear market, and ten times around the COVID Crash in 2020. Before that, there were four such days during the 2011 sovereign debt scare, 43 during the Financial Crisis in 2008 and 2009, and nine following the bursting of the Dot-Com Bubble from 2000 through 2002. Outside of those major market downturns and yesterday, it hasn’t happened at all since the turn of the century.

On the bright side, assuming no further deterioration in the current market, only two sectors fell more than 5% yesterday, which pales in comparison to past market downturns. As the chart below shows, there were days when all eleven S&P 500 sectors shed at least 5% on the worst days of the Financial Crisis and Covid Crash, and ten during the sovereign debt scare in 2011.

Below are one-year charts of Communication Services and Consumer Discretionary. Yesterday’s declines pushed both sectors well into extremely oversold territory. Communication Services finished 2.27 standard deviations below its 50-DMA, while Consumer Discretionary fell to 2.95 standard deviations below its 50-DMA, knocking on the door of three full standard deviations.

You can find more sector research like this in Bespoke’s Daily Sector Snapshot.

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South Korea is the world’s 15th-largest economy, but its stock market increasingly looks more representative of a meme stock than a developed economy.

Just think about these various performance figures. Since the end of Q1, the iShares MSCI South Korea ETF (EWY) is up 34%. From its high on June 18th, just over a month ago, EWY is down more than 25%. Despite that decline, though, the ETF is still more than 21% above its 200-DMA, as well as comfortably above its uptrend line that has been in place since late last year.

How you judge the performance of South Korean stocks depends entirely on your time horizon, and a difference of just a few weeks will dramatically alter how performance looks.

The wide disparity in performance numbers based on differences of just a few weeks is a consequence of massive volatility. As noted in today’s Morning Lineup, 5% daily moves in the KOSPI used to be a notable event, but these days, they’re a normal occurrence. So far this year, EWY has already had 31 daily moves of +/-5%. Since 2001, the only other year that saw more moves of that magnitude was 2008, with 43. This year trails that total by just 12, and there are still more than five months left this year!

With the increased frequency of large daily moves, EWY’s average daily change over the last 50 days has moved above 4%. Since the start of 2001, the only other time that average was at similar or higher levels was in the heart of the Financial Crisis during 67 days from October 2008 through January 2009.

For people who were in the market at that time, it was widely considered one of the most volatile periods in market history. We’re still a ways from that peak level of volatility in the Financial Crisis, but for South Korea, BTS, as in Big Time Swings, is all the rage.

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