100 days ago today on March 11th, the WHO made it official and declared the COVID-19 outbreak a pandemic. Markets were already under a lot of pressure before the WHO declared the pandemic, but the 100 days since will probably go down as some of the craziest 100 days we’ll ever experience, not only in the market but in general society as well.  More than enough ink and pixels have been spent discussing the societal impact at large, so we’ll spare you and just focus on the markets.

While much of the declines were already in the rearview mirror by the time the WHO made its announcement, equities still had a steep decline in the immediate aftermath.  The large-cap Russell 1000, for example, fell another 19% to its March 23rd closing low, but after the rebound, the net change since the pandemic was officially declared has been a gain of 14.3%.

As impressive as the Russell 1000’s gain has been in the face of the global pandemic, many stocks have done a lot better than that.  The table below lists the 25 stocks in the index that have seen the biggest gains so far during this pandemic.  Topping the list is Wayfair (W) which has rallied more than 350%.  If there is one thing Americans must have realized while they were stuck at home under lockdown it was that they needed some new furniture!  Behind Wayfair, two other stocks have more than tripled and both were beaten down stocks from the Energy sector that were trading at less than $2 per share on March 11th.  A number of familiar names standout including Moderna (MRNA), Twilio (TWLO), DocuSign (DOCU), Beyond Meat (BYND), and Etsy (ETSY), but looking through the list, there’s really a diverse group of names ranging from bombed-out stocks from the Energy sector (8 stocks), Consumer names (7 stocks), and the ever-popular software stocks from the Technology sector (6 stocks).  It’s definitely been a rocky road for the markets over the last 100 days, but for anyone who had these names in their portfolio, they aren’t complaining. Click here to view Bespoke’s premium membership options for access to our weekly Bespoke Report which includes an update to our Stocks for the COVID economy portfolio that was released on March 11th. 

Equity markets have become a bit wobbly in the last week or so, but breadth, in terms of large-cap industry groups, still remains pretty robust.  Relative to their 50-DMAs, all 24 S&P 500 industry groups still have rising 50-DMAs.  When you consider the fact that the 50-day window spans the period going back to early April, a period encompassing most of what was one of the strongest 50-day rallies on record, the fact that every industry group has a rising 50-DMA isn’t all that surprising.

Even though all their 50-DMAs are rising, not every industry group is currently trading above its 50-DMA. While the reading briefly reached 100% in late May and early June, two industry groups have since pulled back below their 50-DMAs, putting the percentage at a still impressive 91.7%.

The table below summarizes industry group performance showing YTD performance, where each one is trading relative to its 50-DMA, as well as where the group is trading relative to its 52-week high.

As mentioned above, all but two groups (Drugs & Biotech and Food & Staples Retail) remain above their 50-DMAs, and another four are less than 2% above their 50-DMA.  If Friday’s sell-off deepens into next week, the percentage of industry groups above their 50-DMAs has the potential to quickly sink as low as 75%.  Of the 22 industry groups that are above their 50-DMAs,  Autos and Tech Hardware are the only two greater than 10% above.

On a YTD basis, the S&P 500 is down less than 4%, but for the vast majority of industry groups, performance has been worse than that.  Of the 24 groups shown, 16 are down more than 4% YTD, including eleven that are down over 10%. The worst performers of these losers include Energy, Banks, and Autos.  While Energy gets most of the attention for being so weak, Banks are essentially down just as much!  On the upside, just two industry groups are up over 10% (Retailers, which is basically Amazon, and Software & Services).  Retailing is also the one industry group that is within 1% of a 52-week high and one of seven that is within 4% of a 52-week high. Click here to view Bespoke’s premium membership options for our best research available.

We’ve noted in detail the massive reversals seen in global equities over the last three months, but outside of equities, we’ve also seen some other massive moves.  One example is credit spreads between the yields of corporate and high yield bonds relative to Treasuries.

The top chart below shows the spread in yields between the B of A Corporate Index relative to Treasuries going back to 1997, and below that, we show the 50-day rate of change in the spread.  Heading into the COVID-crash, spreads on corporate bonds were less than 100 basis points (bps), meaning the corporate bond index was yielding only 1 percentage point more than comparable Treasury yields.  In the span of less than two months, though, spreads surged by more than 300 bps to over 400 bps.  Not since the depths of the credit crisis in 2009 had we seen spreads widen out more than they did in March. Just as notable as the level is the fact that the speed with which spreads widened during the COVID-crash was similar to the pace during the credit crisis.

While spreads were quick to spike during both crises, they narrowed nearly as fast both times.  Going back to 1997, the most corporate spreads have ever narrowed over a 50-day period was in June 2009.  Coming in at a close second place, though, the 50-day period ending in early June was nearly as extreme.

Similar to spreads on corporate bonds, the movement in spreads on high yield (junk) credit has been nearly as extreme.  While spreads on the B of A High Yield Master Index widened out by only half as much during the COVID-crash as they did during the Financial Crisis, the 50-day move ending in late March was easily more extreme than any other period outside of the credit crisis.

A shown in both charts above, the only time both corporate and high yield spreads narrowed by an amount anywhere close to the amount they narrowed from late March through early June was back in early June of 2009.  The chart below of the S&P 500 shows that point from the perspective of the S&P 500. That period in June 2009 was right in the early stages of what turned out to be a multi-year bull market. Given the similar tightening in the credit market now versus back then, should we assume a similar move for equities going forward?

After the last five months, we’ll be the first to say that anything is possible.  However, while there are plenty of similarities between the moves in credit markets over the last three months versus the first half of 2009, there are also important distinctions.  The most important of these has to do with where the S&P 500 is trading right now. The second chart below shows the historical levels the S&P 500 has traded at relative to its all-time high.  Even after the initial narrowing of credit spreads from March through early June 2009, the S&P 500 was still more than 40% off its all-time highs, and therefore still had a lot of climbing to do to get out of the hole.  Back in June 2009, to get back to its all-time high from October 2007, the S&P 500 still had to rally another 75%.  Today, it’s a much different picture as the S&P 500 is already within 10% of its February 2020 all-time high.  Could we be in the earlier stages of what turns out to be another long-term bull market?  Sure.  Will the magnitude of the gains be anything like the gains early on in the bull market that began in 2009?  It’s unlikely. Click here to view Bespoke’s premium membership options for our best research available.

This morning, the Philadelphia Federal Reserve Bank updated its manufacturing index for the month of June. The past few months have seen some of the lowest readings in the index’s history dating back to 1968.  But this month the index rose from -43.1 in May to 27.5 in June.  That 70.6 point increase in the index was the largest single-month gain on record.  The turn into positive territory also indicates that overall manufacturing conditions for the region improved in June, although we’re still far from fully recovered from the impacts of COVID-19.  In the special questions section of this month’s survey, 77.8% of businesses reported total production is down in Q2 versus Q1.  Of the responding firms, 46% reported conditions improved in June compared to 19% reporting decreases. Last month over half of the respondents reported worse conditions.

While the return to positive territory only leaves the headline index at its highest level since February, the index for conditions six months in the future is much higher as firms have an optimistic outlook.  That index rose from 49.7 in May to 66.3 in June; its highest level since June of 1992.

Like the gain in the headline number which was the largest since month over month increase on record, the same can also be said for Shipments while several other categories, especially those for future expectations, experienced increases in the 90th percentile or better of all prior periods. In addition to the headline index, several categories also showed expansionary readings (above 0) compared to only two last month.  For the six month outlook, every index is now positive.

Indicators of demand like new orders and shipments have both picked up substantially.  As previously mentioned, the index for Shipments saw its largest monthly gain on record while New Orders saw its second-largest gain on record behind last month’s even larger gain of 45.2 points.

Broad activity for the region appeared to rebound in June, but employment remains weak.  The indices for Number of Employees and Average Workweek both remain in negative territory (indicating a decrease in the level of employment) at -4.3 and -6.5, respectively, though they too have at least improved for two months in a row. Another reason for optimism regarding these indices is the six-month outlooks indices for these categories came in much stronger. In other words, while companies may not currently hiring, they expect to start doing so before year end.   Click here to view Bespoke’s premium membership options for our best research available.

The S&P 500 has faced its share of downward pressure in the past week including a 5.76% drop last Thursday and multiple days with declines intraday.  That has slammed investor sentiment as AAII’s bullish reading fell 9.91 percentage points to 24.37% this week. That is the largest single weekly decline in bullish sentiment since the final week of February when it fell 10.17 percentage points from 40.6% to 30.43%.  This week also marked the largest move in absolute terms since then. That leaves bullish sentiment at its lowest level since the May 14th low of 23.31%.

The loss in bullish sentiment has almost entirely been picked up by the bearish camp.  Bearish sentiment rose 9.73 percentage points this week to 47.78%; the highest reading of the past month.  This was the first time bearish sentiment has risen in six weeks. As shown in the second chart below, the five-week streak of consecutive declines in bullish sentiment came to an end tied with six other identically long streaks for the longest in the history of the survey dating back to 1987.

The large inverse moves of bullish and bearish sentiment this week has caused the bull-bear spread to decline.  The spread now stands at -23.41 compared to -3.77 last week. That 19.64 point decline was the largest drop in the spread and largest absolute move since a 20.49-point drop on March 12th.  That also snapped a streak of five weeks in which the spread was moving in the direction of favoring bulls.

Not all the losses in bullish sentiment turned pessimistic though.  Neutral sentiment experienced a small increase of 0.18 percentage points to 27.85%.  Click here to view Bespoke’s premium membership options for our best research available.