While many areas of the market have seen sizable pullbacks this year, the broader market has been stingier.  Just this morning, a client was lamenting the fact that they had a decent amount of cash, but the market just wasn’t providing opportunities to get in.  So far this year, the S&P 500’s largest decline from a peak (on a closing basis) has been 4.23%, and given that we’re not even four full months into the year, we initially thought that 4% seemed normal enough especially when the earlier months of the year tend to be positive.

In order to see how this year stacks up to prior years, the chart below shows the duration into each year (on a percentage basis) that the S&P 500 first closed down 5% or more from its YTD peak. Years in green indicate that there wasn’t a single point in the entire year that the S&P 500 experienced a 5% decline.  The last occurrence was in 2017, and there have been a total of seven years since 1928.  As we near the end of April, we’re nearly a third of the way into 2021, and compared to the ‘average’ year, we’ve already gone longer without a 5% pullback.  Since 1928, the S&P 500 usually experiences its first 5%+ pullback 28% of the way into the year, which coincidentally enough works out to April 15th – the day before Federal taxes are typically due!  In fact, at this point in prior years, the S&P 500 has already experienced its first 5%+ pullback more than 65% of the time.  Believe it or not, in 30% of all years since 1928 the first 5% drop occurred in the month of January.

Based on prior years, the market to this point has in fact been stingy in terms of providing opportunities for investors to add exposure, although based on today’s reports of new capital gains tax increases from the Biden Administration, that window may soon open.  Click here to view Bespoke’s premium membership options for our best research available.

Sentiment continues to run in favor of the bulls though there has been some moderation in the past couple of weeks. Bullish sentiment as measured by the AAII weekly sentiment survey peaked at 56.9% in the second week of April but has since fallen in back-to-back weeks falling 4.2 percentage points to 52.7%. While lower recently, this is the first time since the last two weeks of 2017 and the first week of 2018 that bullish sentiment has remained above 50% for three weeks in a row. Before that, you would have to go back to early 2011 to find another period with bullish sentiment being above 50% for several weeks in a row. Outside of the early 2000s, such readings have been relatively uncommon.

Even though bullish sentiment has pulled back, fewer respondents are reporting bearish sentiment.  Only 20.5% of respondents reported as pessimistic this week compared to 24.6% last week.  That is 0.1 percentage points above the low of 20.4% from April 8th which was also the lowest level of bearish sentiment since April 2019.

With both bullish and bearish sentiment lower, that means neutral sentiment picked up the difference rising 5.2 percentage points to 26.8%.  That was the largest one-week increase in neutral sentiment since a 10 point rise from November 12th to November 19th of last year.  Back then, neutral sentiment rose to a slightly higher level of 29.29%.

While individual investors have become less bullish over the past couple of weeks, the opposite is true of newsletter writers.  The Investors Intelligence survey of this group has seen bullish sentiment rise for three weeks in a row reaching 63.7% this week.  That is the highest level since at identical reading in the second week of the year. Although it has not been particularly long since the last comparable reading, we would note that it is elevated relative to history.  In the chart below we show bullish sentiment over the past 50 years. Outside of now and late last year, the last time bullish sentiment was as high was in late 2017/early 2018. You would have to go all the way back to February of 1987 or earlier to find another time before that when sentiment was as high as it is now. Additionally, less than 20% of respondents are also looking for a correction. Readings around these levels were not necessarily uncommon in the early 2000s and prior, but relative to the past 15 years or so such a low reading has been rarer. Click here to view Bespoke’s premium membership options for our best research available.

Last week saw an impressive reading for jobless claims falling to 576K. While that was revised slightly higher to 586K this week—which would still be well below the previous low for the pandemic—today’s release saw further improvements with initial claims dropping another 39K from that revised level to 547K.  That brings the total decline over the past two weeks to just under 200K; the largest since the first week of August when claims first fell back below one million.

On a non-seasonally adjusted basis claims likewise continue to fall which is normal given the time of year.  The current week of the year (week number 16) has only seen unadjusted claims rise week over week 13% of the time going back to 1967 when the data begins.  In other words, the improvement in claims comes alongside seasonal tailwinds as non-seasonally adjusted initial jobless claims fell to 566.5K this week from 623K last week. The picture for Pandemic Unemployment Assitance was not as positive as the program experienced a small uptick from 131.7K to 133.3K.  Nonetheless, that is the second week in a row with a very low count in claims for this program.

Continuing jobless claims had been on an impressive streak of 12 straight weeks of declines, but that appeared to end last week after rising to 3.731 million. Fast forward to today’s release and that reading was revised down significantly by 23K to 3.708K.  Given that was below the prior week’s 3.717 million reading and the most recent reading fell further to 3.674 million, the streak of consecutive week-over-week declines has been brought back to life, extending to 14 weeks long. As shown in the second chart below, that makes for the longest streak of consecutive declines on record.  Overall, the continuing claims picture continues to consistently improve as continuing claims are well below the pre-pandemic record from the last recession. Granted, current levels are still historically elevated around levels of past highs like those in the early 1990s and 2000s.

When factoring in all programs, the most recent data is for the first week of April.  Based on the latest results, we saw an uptick in total continuing claims across all programs rising just under 500K to 17.4 million.  While regular state claims and the Extended Benefits program both saw declines of more than 100K, they were offset by 265.2K and 447.7K respective increases in PUA claims and Pandemic Emergency Unemployment Compensation (PEUC) claims. Those increases bring these programs’ claim counts back up to similar levels as a month ago. Meanwhile, Extended Benefits claims are at their lowest level since early October, and regular state claims are at the lowest of the pandemic.

As for the composition of claims, those moves meant a significant share (35%) of total claims still come from extension programs like PEUC and Extended Benefits. While that is below the highs from last month on a combined basis, breaking this down further, the PEUC program’s share of total claims reached 32.2% in the most recent week’s data; a new high for the pandemic. Meanwhile, the Extended Benefits program’s share fell to the lowest level since October.  There is a similar dynamic for PUA and regular state claims with the former accounting for a growing share of total claims and the latter accounting for the smallest share of the pandemic. Click here to view Bespoke’s premium membership options for our best research available.

Ever since ‘crypto’ entered the mainstream, bitcoin has been the superstar.  Sure, doge has gotten its 15 minutes, but at least nine out of ten times, if you ask someone about crypto, the first asset they are going to mention is bitcoin. The next most popular crypto asset has pretty much always been ethereum, but it has always taken a backseat to bitcoin.  Even today, while bitcoin has a total market value of just over one trillion dollars, the total value of ether out there is just under $300 billion.

While ethereum is less than a third the size of bitcoin, in recent days it has been holding up very well given the pullback in bitcoin.  The chart below shows the performance of both crypto-currencies over the last six months.  While they’ve followed relatively similar paths, you’ll notice that despite bitcoin’s 15%+ pullback, ether has traded to record highs.

Another way to put the recent performance of ether versus bitcoin into perspective is to compare the ratio of the two over time.  In the chart below, we show the ratio of bitcoin versus ether going back to early 2018.  A high ratio indicates that bitcoin is outperforming ether and vice versa.  Back in late 2018, the ratio between the two peaked out at more than 60 ether per bitcoin, but it has been trending lower ever since.  In fact, as of today, one bitcoin is worth just over 21 ether which is the lowest ratio since August 2018.  Ether may have been nothing more than a single-A player relative to bitcoin a year and a half ago, but it has quickly worked its way up to the system and earned itself a spot in the dugout next to bitcoin.  Click here to view Bespoke’s premium membership options for our best research available.

The S&P 500 is headed back up towards record highs today, but the index’s pullback earlier in the week was shared with other equity markets around the world.  In the table below, we show the ETFs tracking the stock markets of the 23 countries in our Global Macro Dashboard. Last week most of these were overbought with some at extremely overbought levels of more than 2 standard deviations above their 50-DMAs. Performance over the past week has been mixed but broadly speaking these countries are now lower within their respective trading ranges.  One notable exception has been Taiwan (EWT) which has been the best performer rising to 52-week highs and moving into extreme overbought territory.  Mexico is also at a 52-week high today.

When it comes to developed versus emerging market countries, though, these are two outliers with their cohorts mostly on the other end of the spectrum.  On average, EM countries are underperforming on a year-to-date basis and the only countries in the red in 2021 are EM names.  As a result, these also are generally much further from their 52-week highs. For example, Malaysia (EWM), Brazil (EWZ), India (INDA), and China (MCHI) are all the furthest (at least 5% below) from their 52-week highs.  Granted in the past week EM has outperformed on average with the exception of INDA which has been the worst performer of the 23 countries as COVID cases soar in that country. Meanwhile, developed market countries are 34 bps lower on average but generally closer to their highs and more overbought.

In the charts below we show the five countries that are furthest from and closest to their 52-week highs.  As we noted in today’s Morning Lineup, Japanese equities (EWJ) last peaked in mid-February but have been trending lower ever since and have taken a sharp leg lower in recent days. That leaves EWJ right at the low end of the past few months’ range. That is the only developed market country of those the furthest below their 50-DMAs. Of the other countries with the furthest to go until they reach their 52-week highs, only INDA is also around critical support levels after a significant short-term move lower recently. EWM, EWZ, and MCHI on the other hand are further off their lows. EWZ has even been trending higher over the past month.

As previously mentioned, Taiwan (EWT) and Mexico (EWW) are both setting new 52-week highs today.  There are a handful of other countries that are within 2% of doing the same but Switzerland (EWL), the US (SPY), and Australia (EWA) are the closest. Click here to view Bespoke’s premium membership options for our best research available.

It hasn’t been a particularly good week for a lot of stocks to this point, but Altria (MO) has been especially hard hit following news that the Biden Administration may issue restrictions on the amount of nicotine that can be contained in cigarettes.  While the stock is off its lows from earlier in the week, it’s still down 9%.  Meanwhile, Philip Morris International (PM), which has no exposure to US tobacco sales and regulation, has risen more than 2% so far this week.

The snapshot of the two stocks from our Trend Analyzer shows the divergent paths of each stock following Monday’s news.  Through Tuesday, while MO dropped below its 50-DMA, PM moved from merely overbought to ‘extreme’ overbought levels.

Over time the stocks of both MO and PM have trended to track each other pretty closely, especially over the last five years.  Therefore, given the short-term disparity in performance between the two stocks, does this week’s sell-off in MO provide an attractive risk/reward trade-off relative to PM?

At first glance, that would seem to be the case, but some perspective is on order.  The chart below shows the 50-day performance spread between MO relative to PM going back to 2008.  What’s important to keep in mind is that this week’s move has only narrowed what was previously an extreme performance gap where MO was outperforming PM and MO is still outperforming PM over the last 50 trading days.  In fact, back in late March when the performance gap between the two was over 15 percentage points, it was the fifth widest spread since Philip Morris split up its international and domestic units in 2008.  As bad as a week as its been for MO relative to PM over the last few days, the last few weeks had been just as painful for PM relative to MO. Click here to view Bespoke’s premium membership options for our best research available.