The Closer: End of Week Charts — 3/20/20
Looking for deeper insight on global markets and economics? In tonight’s Closer sent to Bespoke clients, we recap weekly price action in major asset classes, update economic surprise index data for major economies, chart the weekly Commitment of Traders report from the CFTC, and provide our normal nightly update on ETF performance, volume and price movers, and the Bespoke Market Timing Model. We also take a look at the trend in various developed market FX markets.
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Daily Sector Snapshot — 3/20/20
What’s In Store For Unemployment
We’ve been keeping track of state jobless claim filings around the country as they’ve been reported in the media, and the numbers are grim. Based on a wide range of states that have reported just a couple of days’ worth of statistics, filings look to be just shy of 1 million for the week (due to be reported next Thursday, March 26th). Of course, those numbers could come in much higher through the week. We saw one broker economics department estimate the total number at 2.5 million. We also like to look at Google Trends data, because it generally tracks claims pretty well. If the numbers from that unofficial data are even close to correct, the US is going to report somewhere between 1.3 million and 1.5 million initial jobless claims in six days.
It’s worth thinking about what that mechanically means for the unemployment rate. The chart below shows a range of four different unemployment rates that would come about from job losses as detailed. Assuming next week’s onslaught of claims is only the beginning, it wouldn’t take long to get to an unemployment rate near the highs around 10% from the last recession. If the US sheds more than a million jobs in the first week as a starting point this week, it’s easy to see how fast the unemployment rate could rise.
Bespoke’s Morning Lineup – 3/20/20 – 6.5 Hours Left
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Futures started out the overnight session weak, rallied throughout the night, but have been giving up ground ever since. We have no idea where they’ll be by the time the market opens (or closes for that matter). At the recent pace, though, they won’t be positive by the time equities open for trading. We would note that if the S&P 500 does manage to finish the day higher, it would be the first back to back gains for the S&P 500 since February 12th!
Along with US equities, just about every financial asset except for volatility products and the US dollar are higher. The moves higher look pretty reasonable and restrained, and that would be a huge improvement for the function and orderliness of US financial markets even if we have not yet seen a major bottom for equities start to carve out yet. The best thing for everyone is that markets will close for the weekend shortly and give investors, central bankers, lawmakers, and most importantly, health care professionals an opportunity to assess their actions over the last few weeks to see what has worked and what hasn’t. They can also take into account new developments and alter their actions accordingly. Conditions have been very fluid, but a lot still needs to be done. The bottom line is that the status quo of an indefinite economic lockdown is unsustainable for everybody.
Read today’s Bespoke Morning Lineup for a discussion of the latest uptake in Fed liquidity programs, European markets, credit market dislocations, and coronavirus case counts.
Charts like the one of crude oil’s daily changes can be found across just about every different asset class these days. Yesterday, WTI crude oil had its largest one-day daily gain on record, rising by 23.8%. That move followed the second and third largest one-day declines for crude oil on record from 3/9/20 (-24.6%) and 3/18/20 (-24.4%), respectively. Not sure what you want to call it, but it’s far from rational market behavior.
The Closer – Vol Must Fall, Markets Must Clear – 3/19/20
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Bespoke’s Sector Snapshot — 3/19/20
COVID-19 Collapse vs. Other Major Downturns
Even though equities rose today, the S&P 500 still remains over 28% off of the 2/19 high. As of yesterday’s close, only twenty days after the S&P 500’s peak, the index was down nearly 32% from that high. Below is a look at the current selloff from its high versus prior big selloffs since 1928. We all know about the 1929 and 1987 market crashes, but this one has even those beat in terms of the time it took to fall this much. And the two major peaks and subsequent bear markets of the 21st century both took basically a year to fall the same amount that we’ve fallen in just 20 trading days this time. Start a two-week free trial to Bespoke Institutional to our full library of research and interactive tools.
Sentiment Still Sour
With the S&P 500 only having fallen roughly 1.3% since the last week’s sentiment survey from AAII, bullish sentiment has risen 4.66 percentage points to 34.4%. While bullish sentiment among individual investors is higher, another reading of newsletter writers from Investors Intelligence saw bullish sentiment drop even further. 34.6% of respondents in that survey reported as bullish which is the lowest amount since the first week of last year. That is in the lowest 5% of all readings for that sentiment reading.
With bullish sentiment picking up, bearish sentiment fell though not by much. Bearish sentiment remains very elevated. For the second week in a row, over half of the respondents reported as pessimistic. That is the first time with back to back readings above 50 since March 2009. The Investors Intelligence survey also remains extremely bearish. 32.7% of respondents in that survey reported as bears which is the highest share since the first week of 2019 when that reading totaled 34.6%.
As for the AAII’s reading on neutral sentiment, for only the 28th time in the survey’s history going back to 1987, less than 15% are reporting neutral sentiment. Now at 14.5%, neutral sentiment is at its lowest level since November of 2010 when it had fallen to 13.95%. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.
Stocks for the COVID Economy Update
Oil Slippery
Like a flopping wet fish, it’s been incredibly hard to get a hold on an accurate price of crude oil this week. With a gain of 22.2% so far today, WTI is experiencing its largest one-day gain on record (dating back to 1983). The next closest largest one-day gain was in December 2008 when crude rallied 17.8%. While today’s gain is impressive, keep in mind that it followed yesterday’s decline of 24.4% which ranks as the third-largest one-day decline on record and last week’s 24.6% decline on March 9th. In fact, three of the four largest one-day percentage moves in WTI have all come in the last two weeks!
While a big gain in any asset class always leads to questions over whether it is the start of a new run higher, we would caution that following the prior nine largest one-day gains on record, crude oil’s median change over the next week was a decline of 4.4%. Start a two-week free trial to Bespoke Institutional for full access to our market and economic analysis.
