Equity Market Pros and Cons — Q2 2022
This week’s Bespoke Report is an updated version of our “Pros and Cons” edition for Q2 2022.
With this report, you’re able to get a complete picture of the bull and bear case for US stocks right now. It’s heavy on graphics and light on text, but we let the charts and tables do the talking!
On page two of the report, you’ll see a full list of the pros and cons that we lay out. We then provide slides for each “pro” or “con” that we’ve highlighted.
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Daily Sector Snapshot — 5/6/22
Bespoke’s Morning Lineup – 5/6/22 – April Jobs Report Better Than Expected
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Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
4,131.93. That’s the level the S&P 500 will have to close above today in order to end the four-week streak of declines. After yesterday, it’s hard to believe that the S&P 500 is still up on the week, but as long as it doesn’t fall more than 0.36%, that will remain the case. There’s still a lot for the market to navigate through between now and the 4 o’clock closing bell, including the April Non-Farm Payrolls report and a number of Fed speakers.
On the jobs front, Non-Farm Payrolls came in higher than expected (428K vs 380K), the Unemployment Rate was unchanged at 3.6%, and average hourly earnings rose by less than expected (0.3% vs 0.4%) and were up 5.5% on a y/y basis.
In today’s Morning Lineup, we recap overnight events in Asia and Europe (pg 4), the drawdown in Asian and European stocks (pg 5), other Asian and European economic data (pg 6), and a lot more.
As we pointed out in our Chart of the Day earlier this week, breadth, as measured by the S&P 500’s 10-day advance/decline (A/D) line had yet to reach (and still hasn’t) extreme readings relative to other pullbacks since 1990. Yesterday’s mauling, though, did mark the fourth time in the last ten trading days that the net A/D reading for the S&P 500 was -400 or less. Going back to 1990, there have only been four other periods where there have been this many or more ‘Nothing’ days in a 10-trading day span. The most recent was in March 2020 when there were a total of six in ten days. The other three periods were September 2015 (peak of four), October 2011 (peak of five), and October 2008 (peak of five).
Obviously, the periods shown above occurred during market downturns, and that is evident in the chart below where every red dot indicates days when the 10-day trailing total of ‘Nothing’ days was four or more. Looking at each of the prior periods below and measuring performance from the first day in each one when the 10-day total reached four, the S&P 500 continued to see additional declines over the following one, three, six, and twelve months in 2008, but for the other three periods shown, performance over the following three, six, and twelve months was positive. Is the current period more like 2008 or the other three periods? Or is it a completely different period altogether?
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Bulls Bloom
The latest reading on sentiment from the American Association of Individual Investors showed bulls stepped back in as the S&P 500 generally rallied in the past week. After a historic low of only 16.4% last week, the percentage of respondents reporting as bullish rose back up to 26.9%. That is the first time over a quarter of respondents reported as bullish since the end of March. The double-digit weekly increase was also the largest since last October.
The increase in optimism was met with a 6.5 percentage point drop in the share of respondents reporting bearish sentiment. Even after that decline, over half of the respondents responded as bearish. That is the first time with back-to-back weeks of over 50% readings since May 2020. The current level of 52.9% is also still in the top 3% of all readings going back to the start of the survey in 1987.
That means in spite of a small improvement, sentiment continues to heavily favor bears. The bull-bear spread returned to a more normal but still very low reading of -26.
Fewer respondents were also reporting that they expect equity market prices to hold steady as neutral sentiment fell to 20.3%. That was the lowest reading since November 2020 when it was only one percentage point lower than now. Click here to learn more about Bespoke’s premium stock market research service.
Bespoke’s Weekly Sector Snapshot — 5/5/22
Fed Day Follow Up
In last night’s Closer, we recapped the market reaction to the FOMC’s 50 bps rate hike noting that equities really took off once Fed Chair Powell ruled out the possibility of 75 bps hikes on the horizon. By the close, the S&P 500 rallied 2.55% from right before the decision (1:59 PM). As shown below, that marked the third-best S&P 500 reaction to a Fed day since 1994 when the FOMC began to announce its decision on the same day as the meeting.
Given today’s massive declines, the S&P has already erased its 2%+ post-FOMC gain. Below we show the S&P’s intraday performance the day after each Fed day when the index rallied over 2% post-meeting (1:59 to the close). For each day, the date shown represents the day of the FOMC meeting. On average, the S&P 500 has tended to gap down the following day and continue to trade lower throughout the first post-FOMC session as we are seeing today.
Today’s performance is certainly on the weaker end of these occurrences, though. In fact, like the other two largest post-FOMC rallies that saw over 3% gains in the afternoon of Fed days, December 2008 and August 2011, today saw a significant gap lower with continued losses through mid-morning. The continued selling today is setting up to more closely resemble the August 2011 occurrence. Following the December 2008 instance, on the other hand, the S&P 500 found a low in the late morning and even briefly went positive the day after the big post-FOMC gain.
While today is shaping up to look like another time the market rallied hard in response to the FOMC, taking a step back to look at all Fed day afternoon performance (1:59 to the close) versus next-day performance (full day), there is not much of a strong trend. As shown below, the S&P 500’s performance from 1:59 to the close on a Fed day is a statistically poor explainer of next-day performance. That being said, today does stand out as one of the worst Fed day follow-ups on record. Click here to learn more about Bespoke’s premium stock market research service.
Claims Come Off the Lows
Initial jobless claims have come off of multi-decade lows in the past few weeks with the most recent print released this morning marking the most significant increase in some time. Claims are back up to 200K for the first time since the week of February 11th. Additionally, the 19K week over week increase was the largest one-week uptick since last July when they rose 33K and the level of claims was more than double what it is now.
Non-seasonally adjusted claims are also still at historically strong levels albeit having come off the lows. The only comparable week of the year that has seen a lower reading on claims was in 2018 when they were roughly 7K below current levels.
In terms of seasonal trends, claims will likely continue to fall modestly in the coming weeks before running into some seasonal headwinds in the late spring and early summer.
Continuing claims are delayed an additional week to initial jobless claims and this reading set a new low in the most recent print. Claims fell below 1.4 million for the first time since February 1970 reiterating the point that there are a historically small number of people filing continued unemployment claims. Click here to learn more about Bespoke’s premium stock market research service.
The Bespoke 50 Growth Stocks — 5/5/22
The “Bespoke 50” is a basket of noteworthy growth stocks in the Russell 3,000. To make the list, a stock must have strong earnings growth prospects along with an attractive price chart based on Bespoke’s analysis. The Bespoke 50 is updated weekly on Thursday unless otherwise noted. There were four changes to the list this week.
The Bespoke 50 is available with a Bespoke Premium subscription or a Bespoke Institutional subscription. You can learn more about our subscription offerings at our Membership Options page, or simply start a two-week trial at our sign-up page.
The Bespoke 50 performance chart shown does not represent actual investment results. The Bespoke 50 is updated weekly on Thursday. Performance is based on equally weighting each of the 50 stocks (2% each) and is calculated using each stock’s opening price as of Friday morning each week. Entry prices and exit prices used for stocks that are added or removed from the Bespoke 50 are based on Friday’s opening price. Any potential commissions, brokerage fees, or dividends are not included in the Bespoke 50 performance calculation, but the performance shown is net of a hypothetical annual advisory fee of 0.85%. Performance tracking for the Bespoke 50 and the Russell 3,000 total return index begins on March 5th, 2012 when the Bespoke 50 was first published. Past performance is not a guarantee of future results. The Bespoke 50 is meant to be an idea generator for investors and not a recommendation to buy or sell any specific securities. It is not personalized advice because it in no way takes into account an investor’s individual needs. As always, investors should conduct their own research when buying or selling individual securities. Click here to read our full disclosure on hypothetical performance tracking. Bespoke representatives or wealth management clients may have positions in securities discussed or mentioned in its published content.
Chart of the Day: Earnings Season Summary
Bespoke’s Morning Lineup – 5/5/22 – Back to Reality
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Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
Futures are moderately lower this morning following yesterday’s major post-Fed surge. After taking the declines into account, though, the S&P 500 is still higher than it was heading into the last hour of yesterday’s trading. Economic data this morning was mixed to negative. Non-Farm Productivity and Initial Jobless Claims were weaker than expected, Unit Labor Costs were higher than expected, and Continuing Jobless Claims were the only data point that was stronger than economist forecasts.
In today’s Morning Lineup, we recap overnight events in Asia and Europe (pg 4), the BoE’s latest policy decision (pg 5), other Asian and European economic data (pg 6), and a lot more.
With the market rallying 2% on a Fed day for the second time in a row and the S&P 500 rallying more than 1% in the final hour of trading for the second time this week, you can’t fault investors for feeling a sense of deja vu. As noted on Twitter, yesterday was the first time since April 2009 that the S&P 500 rallied more than 2% on back-to-back Fed days.
Shifting the focus to last-hour rallies, 1%+ gains in the final hour of trading aren’t nearly as uncommon. Since the mid-1980s, it has happened 168 times and looking at the chart, they have occurred in all types of market environments – uptrends, downtrends, near peaks, and near bottoms, so it’s hard to read too much into their significance.
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