Strength in Regional Manufacturing
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Among a deluge of economic data, we saw two strong regional Fed surveys out of the New York and Philadelphia regions. First, in the New York region, the General Business Conditions of the Empire Manufacturing report came in at a level of 9.0 versus expectations for a level of 4.0. This month’s reading was the highest level since April (9.6) and the second highest reading since January 2015. Even more impressive than the current conditions index was expectations for six months from now. That index rose from 29.9 up to 50.2, which is the highest reading since January 2012 and the largest one-month increase since November 2011.
In the Philadelphia region, we saw similar strength as the headline index for business conditions exceeded consensus expectations of 9.1, rising from 7.6 up to 21.5. That’s both the highest monthly reading and the largest one-month increase since November 2014. Skeptics may argue that all of the recent improvement in data is based on surveys and expectations rather than hard data, but clearly, sentiment about the future has changed, and if this sentiment doesn’t materialize it would go down as one of the biggest fake-outs ever seen.
ETF Trends: US Indices & Styles – 12/15/16
The USD has soared over the last five sessions, one of the best performing ETFs we track. Health Care and Pharma stocks have also performed well. Being long Japanese or European equities with an FX hedge has also performed well while Consumer Staples, Utilities, and Growth stocks have also turned around relative to all ETFs. On the losing side of the equation, metals prices have plunged while a number of EM ETFs have also moved lower as yield jumps have pushed down bond prices and the mortgage market.
Bespoke provides Bespoke Premium and Bespoke Institutional members with a daily ETF Trends report that highlights proprietary trend and timing scores for more than 200 widely followed ETFs across all asset classes. If you’re an ETF investor, this daily report is perfect. Sign up below to access today’s ETF Trends report.
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The Bespoke Report — 2017 — “Market Cycles”
Our 2017 Bespoke Report market outlook is the most important piece of research that Bespoke publishes each year. We’ve been publishing our annual outlook piece since the formation of Bespoke in 2007, and it gets better and better each year! In this year’s edition, we’ll be covering every important topic you can think of dealing with financial markets as we enter 2017. And to say that 2017 should be an interesting year for asset classes would be an understatement given the huge rotation we’ve already seen in just a few weeks since the Presidential Election was held back on November 8th.
The 2017 Bespoke Report contains sections like Washington and Markets, Economic Cycles, Market Cycles, The Fed, Sector Technicals and Weightings, Stock Market Sentiment, Stock Market Seasonality, Housing, Commodities, and more. In this year’s edition, we’ll also be featuring our new “Trump Index” of stocks that we expect to perform best in 2017 based on the new administration.
Over the next few weeks until the full publication is sent to paid members on December 29th, we’ll be releasing individual sections as we complete them. Today we have published the “Market Cycles” section of the 2017 Bespoke Report, which looks at the current bull market that is now entering its 9th year. In this section we look at historical bull markets and how they typically look when they’re close to reaching a top. Is the current bull also looking toppy or does it still have legs?
To view this section immediately and also receive the full 2017 Bespoke Report when it’s published on December 29th, simply sign up for a 30-day free trial to Bespoke Premium. It’s that easy!
B.I.G. Tips – Sentiment: 102 Weeks and Counting
Chart of the Day: Sell Brazil?
Homebuilder Sentiment Surges to a 10+Year High
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We’ve seen a lot of improvement in economic data over the last several weeks, but December’s reading on homebuilder sentiment may have taken the cake. While economists were forecasting this month’s reading to come in unchanged from November’s reading of 63, the actual reading surged to 70. That’s the highest reading since July 2005, and it’s tied for the second largest beat relative to expectations going back to 2003.
The table to the right breaks down this month’s report by present and future sales, traffic, and regional sentiment. As shown, it was green across the screen in December with every metric increasing on a month/month basis. Not only did every category increase, but they also all hit highs for the current cycle. Homebuilders are now extremely optimistic about future sales.
The chart below shows changes in homebuilder sentiment by region going back to 2005. Here again, sentiment in every region is now at cycle highs. Even in the Northeast and South regions where sentiment was showing signs of faltering, those indices are now at new cycle highs.
Dynamic Upgrades/Downgrades: 12/15/16
the Bespoke 50 — 12/15/16
Every Thursday, Bespoke publishes its “Bespoke 50” list of top growth stocks in the Russell 3,000. Our “Bespoke 50” portfolio is made up of the 50 stocks that fit a proprietary growth screen that we created a number of years ago. Since inception in early 2012, the “Bespoke 50” has nearly doubled the performance of the S&P 500. Through today, the “Bespoke 50” is up 113.7% since inception versus the S&P 500’s gain of 65.5%.
To view our “Bespoke 50” list of top growth stocks, sign up for Bespoke Premium ($99/month) at this checkout page and get your first month free. This is a great deal!
Still No Joy in Investor-Ville
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US equities saw more all-time highs this week, but individual investors are digging in their heels and actually turning more bearish. According to this week’s survey of stock market sentiment from AAII, bullish sentiment saw a slight increase of 1.6 percentage points, rising from 43.1% up to 44.7%. That now puts the current streak of sub-50% readings at 102 weeks! Over the last several months we have heard that the country has never been as divided as it is now politically, and in terms of sentiment, we are seeing a similar picture as it has become seemingly impossible for the bullish camp to get a majority.
While the move in bullish sentiment was slight this week, bearish sentiment saw its largest one-week increase in 13 weeks, rising from 26.5% up to 32.3%. That’s the highest reading since the election, and takes bearish sentiment back above the downtrend that it had broken below a few weeks back.
Average Country ETF Down 2%+ Since Election
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While the US stock market (S&P 500) is up 10% year-to-date heading into today’s trading, the Russian stock market is now up 5x more on the year at +51.8%. Check out the year-to-date performance chart of the two countries below. As shown, Russia has exploded higher since Trump was elected, but even heading into the election, the country was significantly outperforming the US.
Below is a look at our trading range screen for the 30 largest country ETFs traded on US exchanges. For each ETF, the dot represents where it’s currently trading within its normal range, while the tail end represents where it was trading one week ago. The black vertical “N” line represents each ETF’s 50-day moving average, and moves into the red or green zones are considered overbought or oversold.
If you’re a US investor buying these country ETFs looking to gain international exposure, you’ve got to be aware that movements in the US dollar will make it so that you’re not getting the same performance as you’d get if you were say a domestic German investor buying the German stock index. If the US dollar gains against the euro while you own the Germany ETF (EWG), it’s going to hurt your EWG performance.
The reason we’re bringing up the dollar’s impact on these ETFs is because the dollar has surged since Trump was elected, and as a result, the average performance of these 30 country ETFs since the close on Election Day is actually a decline of 2.6%. As shown, while Russia (RSX) is up 13.5%, the next best performing country ETFs since Election Day are Canada (EWC) at +4.6%, Italy (EWI) at +5.96%, and the US (SPY) at +5.5%. Most country ETFs are either flat or down, however, and at this point, only a handful remain in “overbought” territory. Countries like Brazil (EWZ), China (ASHR), and Hong Kong (EWH) are now oversold.
