Bespoke publishes an in-depth look at the market’s historical performance on Fed Days prior to each FOMC meeting.  One of the things we note each time is how well the S&P 500 has historically done on Fed Days since 1994 when the Fed began announcing its policy decisions on the same day as its meetings.  (Prior to 1994, the Fed’s decisions were not released immediately, so the stock market did not have any Fed news to react to on meeting days.)  Historically, the S&P has averaged a one-day gain of nearly 30 basis points on Fed Days.  That’s 10x as strong as the average one-day change of 0.03% that the S&P has experienced on all trading days throughout history.

But gains on Fed Days have been few and far between lately.  Below we show the average one-day change for the S&P 500 over the last 10 Fed Days, and we roll the 10 Fed Day reading back to 1994.  As shown, the current average one-day change of -0.30% for the S&P over the last 10 Fed Days is very negative by historical standards.  There have only been two prior periods (early 2001 and early 2006) where the average was lower than it is now.

The 10 Fed Day average for the S&P is not being weighed down by just one or two extremely negative one-day moves.  In fact, the S&P has declined on nine of the last ten Fed Days!  As shown below, there has never been a prior 10 Fed Day period where the S&P declined on at least nine of those days.  And coincidentally (?), 10 Fed Days ago was when Fed Chair Powell first took the helm!  As we noted in today’s Morning Lineup ahead of the open, Powell is going to have to break out of this rut at some point!  Start a two week free trial to one of Bespoke’s premium memberships to access our suite of investment tools and daily equity market research.

The surge for stocks yesterday in response to dovish ECB comments and potential progress on the trade front has lifted the major US large-cap index ETFs to overbought levels.  The Dow and each of the ETFs tracking the S&P 500 (IVV, SPY, VOO) are now all overbought while the rest of the major index ETFs remain neutral.  While these large-cap ETFs have moved into overbought range, they aren’t extended too far into extreme territory yet. A number of other ETFs like the Russell 1000 (IWB), the S&P 100 (OEF), and Total Stock Market ETF (VTI) are all teetering on becoming overbought.  The movements to these levels have been pretty rapid over the past week as seen through the fairly large tails in the Trading Range section of our Trend Analyzer.  For reference, the dot represents where each ETF is currently trading within its range, while the tail end represents where it was trading one week ago.

Looking at the individual industry group ETFs, like small caps, biotech ETFs have been handily outperforming.  The Nasdaq Biotechnology ETF (IBB) has risen 4.81% in the past week while the S&P Biotech ETF (XBI) has surged even more with a 7.12% gain.  A large portion of these gains have come in the past few days following Pfizer’s (PFE) announcement of an acquisition of Array BioPharma (ARRY).  Now firmly neutral and above the 50-DMA, these two biotech ETFs were at or just above oversold levels only a week ago.  Gold miners have also been performing well as GDXJ and GDX have both rallied nearly 5% in the past week.  While this leads them to be fairly overbought (GDX just barely to an extreme), real estate has actually been running even hotter. Despite middling gains versus the rest of the industry group ETFs in the past week, the US Real Estate ETF (IYR) and REIT ETF (VNQ) are both the most overbought of the industries as has been the case for the past few days.  Start a two-week free trial to Bespoke Institutional to access our entire suite of investment tools and all of our daily research.

It has now been 15 months since Housing Starts last made a new high, and despite the fact that they seem to have stabilized, on a 12-month average basis, they are showing signs of rolling over.  With residential housing being such a large share of the economy, we wanted to show how a rollover in Housing Starts fits in with the economic cycle.  The chart below shows Housing Starts on a 12-month rolling average basis.  In it, we have overlaid recessions in gray and colored the line red whenever the reading hit a one-year low.  Looking at the chart, there wasn’t a single recession where the 12-month average reading in Housing Starts wasn’t at 12-month lows heading into the recession. There were, however, a number of ‘false positives’  where the 12-month average had rolled over and no recession followed before Starts started to rebound again.  Those occurrences were in the mid-1960s, mid-1980s, mid-1990s (2 periods) and during the early stages of this expansion in 2011.  So while the slowdown in Housing Starts is reflective of slower overall growth, it hardly guarantees a recession is around the corner.  One trait that these ‘false-positive’ periods do have in common, though, is that during all five of them, the FOMC was easing monetary policy during or shortly after the 12-month low readings in Housing Starts.

Given the volatility in multi-family units, we also ran this analysis using single-family Housing Starts, but here again, the results are similar. While single-family starts have typically already started to roll over well in advance of recessions, not all rollovers in single-family starts have been followed by recessions. Start a two-week free trial to Bespoke Institutional to access our entire suite of investment tools and all of our daily research.