With states around the country gradually reopening from the COVID lockdowns that we saw in March and April, it’s no surprise that activity is bouncing. But how big is the bounce? To keep track of how the economy is performing on a high frequency basis, we have constructed an index based on five variables that are updated weekly: mortgage purchase applications, demand for gasoline, container traffic on railroads, initial jobless claims, and weekly consumer comfort readings. These indices broadly capture activity in housing, vehicle traffic, industrial activity, the labor market, and consumers’ outlook. Using a statistical technique, we identify a shared factor across all three, and compare it to GDP growth. As shown in the chart below, over the long term this index does a decent job tracking GDP growth, though of course it is much more volatile. Some of that volatility is due to calendar effects (see the second chart below, as an example).

Our results show a clear bounce in output over the last month, with the index bottoming at worse than -20% YoY (equivalent to -4% YoY GDP, historically) and rising to -15.5% in the most recent data. That retraces about half of the decline in the index during March and early April. A good start, to be sure, but still indicative of -2% GDP YoY, which would be a grim level of economic activity relative to where the economy sat before COVID hit.

There have been other efforts to track weekly growth that show slightly different results. The New York Fed updates a weekly gauge that takes a similar approach to ours, although with different inputs and a related but different statistical approach. It suggests a much, much more severe decline in GDP: more like 11% current, which is a new low reading for the series and doesn’t show the same kind of bounce our data does. Since the Weekly Economic Indicator is presented scaled to GDP, we can use it to back out an estimate of QoQ SAAR GDP growth (which is how GDP is typically reported). Average YoY weekly growth in Q2 implies a 35% QoQ SAAR drop in Q2 GDP, and no real improvement in that number during recent weeks. Believe it or not, that -35% number is actually pretty optimistic compared to other growth trackers. For instance, the Atlanta Fed’s approach suggests QoQ SAAR in Q2 around -42%!  In our view, the WEI data is probably an over-estimate of the negativity for Q2 output changes versus Q1, but our own tracker is probably a bit optimistic with its -3% YoY GDP equivalent. Activity is very likely bouncing, but it’s got an absolutely massive hole to climb out of.  Start a two-week free trial to Bespoke Institutional to access our full research platform and our unique investor tools.

The first quarter earnings reporting period unofficially came to an end earlier this week, and it should be considered quite a success given how well the equity market performed during this time period.  Since earnings season began on April 13th, the S&P 500 (SPY) has gained more than 5%.  Of course, the market’s performance over the last month or so has much more to do with expectations on re-opening than how companies reported in Q1, but all things considered, the sky didn’t fall when it came to earnings results.

In terms of how actual earnings reports came in versus analyst expectations this past earnings season, the trend wasn’t all that rosy.  We’ve been tracking “beat rates” for more than a decade, which measure the percentage of companies reporting stronger than expected EPS and sales numbers (relative to consensus analyst estimates).  Our main “beat rate” trackers show beat rates on a rolling 3-month basis — meaning it looks at all companies that have reported earnings over the last three months and tells you what percentage of them beat analyst estimates.

Below is a snapshot of both bottom-line EPS and top-line sales beat rates over the last five years as displayed on our website at our “Earnings Explorer” page.  Notably, bottom-line EPS beat rates have been weakening quite dramatically over the last couple of months since the COVID crisis began.  Just this week, the 3-month rolling EPS beat rate dipped below its long-term average of 59.37% dating back to the year 2000.

On the other hand, top-line sales beat rates haven’t taken quite the hit yet.  The current sales beat rate stands at 60.67%.  While sales on an absolute basis fell dramatically at the end of Q1, the fact that sales beat rates haven’t fallen dramatically means companies have at least managed to keep up with analyst expectations.  A very weak sales beat rate would have meant companies were reporting numbers even weaker than already dour analyst expectations.

We also have a forward guidance tracker that measures the percentage of companies raising guidance versus the percentage of companies lowering guidance.  When this reading turns negative, it means more companies have lowered guidance than raised guidance over the last three months.  As shown below, right now our guidance spread stands at -16.08 percentage points, which is the weakest reading we’ve seen since early 2016.

One thing we’ve seen since the COVID crisis began is that more and more companies have withdrawn guidance altogether.  It’s hard to blame them.  The ones that have issued guidance have mostly lowered expectations.  While this paints a bleak picture for the future, if you look at this from a “glass half full” perspective, it actually leaves much more room for positive surprises down the road.  To access our beat rate and guidance spread trackers with even more historical data, start a two-week free trial to Bespoke Institutional today.  A free trial with give you full access to our Earnings Explorer tool and all of our other popular investor tools, plus a wide variety of unique equity market and economic research from Bespoke.

In May 5th’s Closer earlier this month, we noted how monthly Black Knight mortgage data for March with some caveats was holding up despite the economic impacts of the pandemic.  Yesterday, Black Knight released their first look at April’s data. The release had some positives but overall gave a fairly bleak outlook. Starting with the good news, both new foreclosures (7,400) and the foreclosure rate (0.4%) fell to record lows in April. But the good news essentially stops there as that was largely a result of moratoriums on foreclosure activity rather than an actual improvement in borrower payments.

Delinquencies, on the other hand, were sharply on the rise with 6.45% of all loans now delinquent.  That nearly doubled March’s rate of 3.39% for the largest month over month increase on record which was also nearly 3x the size of the prior record from 2008 as reported by Black Knight (note: that 2008 occurrence is not shown in chart below as our data only dates to 2012). While not the case yet, those delinquencies may filter through to a rise in foreclosures down the road depending on how fast households can recover from the COVID shock to incomes.

Despite the lower foreclosures at the moment, the uptick in delinquencies leaves the sum of non-current loans at 3.612 million which is the highest since January of 2015.  This sort of data is why headline indicators of housing market health like existing home sales should be treated cautiously; they’re in effect missing the lagged effects on incomes that delinquency stats capture.  Start a two-week free trial to Bespoke Premium to access our interactive economic indicators monitor and much more.

With the S&P 500 up around 4% since last Thursday’s close, bullish sentiment has unsurprisingly picked up with the percentage of investors reporting as bullish in AAII’s survey rising to 29% this week off of the recent low of 23.31% last week. At that level, bullish sentiment still remains low below levels seen as recently as the last week of April when it was at 30.6%.

The bulk of investors remain bearish. A little over 45% reported as such this week which was an improvement from readings of over 50% over the past two weeks. Similar to bullish sentiment, that leaves bearish sentiment at its lowest level since the last week of April.

While improved, bearish sentiment remains elevated relative to its historical readings as it has been for some time now. In fact, it has been above its historical average of 30.5% for 13 consecutive weeks now. That is tied with another 13-week long streak that lasted from the end of 2018 through the first weeks of 2019 for the longest stretch of above-average bearish readings since a 15-week long run that ended in August of 2012.  Granted, that is not nearly as long of a time of high bearish readings as was seen in the years of the Financial Crisis.  Back then bearish sentiment came in above average for 83 straight weeks.  But as shown in the second chart below, bearish sentiment has not only been just above average. It has been so by at least one standard deviation for 11 straight weeks.  That is now the fourth-longest steak on record and the longest since 2008’s 14-week run.

Neutral sentiment has been pretty stable with around a quarter of respondents reporting as such over the past several weeks.  After recovering from its multiyear low of 14.5% in March, neutral sentiment has remained within two percentage points of 25% for each of the past five weeks.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.