The Bespoke Report – 4/9/20
This week’s Bespoke Report newsletter is now available for members.
There’s an old saying that uncertainty breeds opportunity, and if that’s the case, boy are there a lot of opportunities now. Let’s highlight some examples of how much uncertainty and confusion there is in the United States right now. For starters, the Baker, Bloom, and Davis US Economic Policy Uncertainty Index is currently at record highs, easily eclipsing peaks that were seen in prior periods of stress in the country. And what did the stock market do this week as Economic Uncertainty hit an all-time high? Rally more than 12% of course!
This week’s Bespoke Report covers all this week’s market events and discusses how they may impact performance going forward. To read the report and access everything else Bespoke’s research platform has to offer, start a two-week free trial to one of our three membership levels. You won’t be disappointed!
Chart of the Day: Best Week For The S&P 500 Since 1974
Bespoke’s Sector Snapshot — 4/9/20
Gold Up, Dollar Down
For a majority of the past year the US dollar has been fairly range bound, but the massive move away from risk assets more recently led to major buying for what is globally considered a safe haven currency. From its 52 week low and high on March 9th and March 20th, respectively, the dollar index rose 8.28%. But since that peak just before the equity market’s bottom, the dollar index has come back down; currently ~3.25% below that high.
With the dollar lower, another safe haven that tends to trade inversely has benefited: gold. Since late February, the yellow metal had struggled to break out to new highs, but this week it has finally broken out. Currently, gold is at its highest level since late 2012. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.
Claims Still High
Jobless claims were forecast to come in at 5 million this week which actually would have been a significant improvement from last week. Instead, claims came in much higher at 6.606 million while last week’s number was revised up even higher to 6.867 million. That 261K decline over the past week surpassed the 141K decline back in July of 1992 for the largest weekly drop in claims on record. Granted, that does not mean too much given how high claims are and the fact that over the past three weeks there has been a total of over 16.78 million claims reported, or about 5% of the entire US population. Absolutely devastating.
Before seasonal adjustment, this week’s number looks even worse at 6.203 million. That is slightly higher than the 6.016 million last week which sets a new record.
As the low readings from before the massive claims spike continue to roll off of the four week moving average, the average has reached new record highs rising to 4.266 million. That 1.599 million increase from last week is only slightly smaller than the move the previous week. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.
Bespoke’s Morning Lineup – 4/9/20 – Corona Friday a Day Early?
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week free trial to Bespoke Premium. CLICK HERE to learn more and start your free trial.
With US markets closed for Good Friday tomorrow, it was looking like Corona Friday was coming a day early this week as US futures were indicating a decline of 1% at the open. Jobless claims were just released and came in at a level of 6.606 million versus forecasts of 5.0 million. That’s off last week’s record high, but still much higher than expected.
Right in sync with the release of jobless claims, the Fed is now just out with an announcement of adding $2.3 trillion in new loans to support the economy. Say what you want, but when the history of this is written, no one will be able to accuse the Fed of not going big. In response to the Fed’s announcement, futures have erased all of their declines and are now flat to slightly higher.
Read today’s Bespoke Morning Lineup for a discussion of the latest trends and statistics of the outbreak, an analysis of groups driving the rally in Europe this week, and a big drop in Machinery Tool Orders in Japan.
It was only a week or so ago that we were looking at a situation where there were just about no stocks in the S&P 500 that were overbought, while nearly all of them were oversold. That situation has changed a lot in the last few days. Through yesterday’s close, less than 10% of stocks in the S&P 500 were oversold, but at the same time, less than 10% of stocks in the S&P 500 were overbought as well. In other word’s right now the market is basically in no man’s land.
The Closer – No Way In – 4/8/20
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Looking for deeper insight on markets? In tonight’s Closer sent to Bespoke Institutional clients, we show how breadth has been lagging the indices’ gains over the past few sessions. Next, we take a look at what the official end of the bear market means before pivoting over to today’s 30 year bond auction. We then show the record increase in crude oil inventories and normalizing fund flows.
See today’s post-market Closer and everything else Bespoke publishes by starting a 14-day free trial to Bespoke Institutional today!
Daily Sector Snapshot — 4/8/20
Health Care Gets No Booster Shot From Sanders
Bernie Sanders dropped out of the Presidential race today, and while his chances of ever securing the nomination were slim to none, his dropping out does reduce a small amount of uncertainty. The chart below illustrates this trend as the Vermont Senator’s odds to win have dropped dramatically since Super Tuesday.
As we have noted in the past, the odds of winning for the more progressive candidates on the Democratic ticket have typically had an inverse relationship to the Health Care sector’s performance because their policies are more likely to shake up the business model of companies in this sector. Despite that relationship, Health Care stocks saw little in the way of a boost from Sanders dropping out of the race. There wasn’t a single point in the trading day today where Health Care was the top-performing sector in the S&P 500, although its performance relative to the S&P 500 did pick up slightly in the afternoon after the Sanders announcement. Start a two-week free trial to Bespoke Institutional to access all of our research and interactive tools.
All or Nothing Days on the Rise
We consider an ‘all or nothing day’ to be a day where the net daily breadth reading (daily advancing stocks minus declining stocks) for the S&P 500 is above +400 or below -400. While these types of days were practically non-existent in the 1990s, beginning in the early 2000s, their frequency started to rise with the increased popularity of trading in the S&P 500 ETF (SPY). Whereas investors used to buy and sell individual stocks, the increased popularity of SPY moved the market more towards the type of environment where investors were buying and selling the market.
All or nothing days also increase in frequency during periods of increased market volatility, and that trend has been no different this time around either. The chart below shows the 50-day moving average of all or nothing days going back to 1990. Over the last 50 trading days, more than a third of all trading days have been all or nothing days. The only two other times where the average was higher in the last thirty years were in December 2008 and November 2011. The average got close to current levels back in late 2015 and early 2016 but was never able to quite get above 33%.
Looking at the frequency of all or nothing days on an annual basis shows another interesting trend. So far this year, there have been 19 all or nothing days for the S&P 500. We may be barely a quarter into 2020 so far, but this year’s total already ranks above more than half of the 31 years since 1990. In fact, the S&P 500 is currently on pace to have 70 all or nothing days in 2020, which would tie 2011 for the most ever in a given year. It’s only April, but 2020 is shaping up to be the year of record volatility. Start a two-week free trial to one of Bespoke’s three premium memberships to see our best and most actionable market analysis.
