Apr 21, 2022
The S&P 500 is once again fighting to gain back some lost ground in the past week. That move higher has been able to lift sentiment slightly, but overall tones remain historically pessimistic. The American Association of Individual Investors weekly sentiment survey showed bulls crawl back up to 18.9% from a historic low of 15.8% reached last week. With less than a fifth of respondents bullish, this remains in the bottom 2% of all weeks on record.
Of course, with bullish sentiment historically depressed, bearish sentiment is historically elevated at 43.9%. That is down from much higher readings of the past year that eclipsed 50% but remains just off the upper decile of its historical range.
As such, bears continue to outnumber bulls by 25 full percentage points. Given the contrarian nature of sentiment indicators, that would still be taken as a positive sign for forward performance of equities as we highlighted on page 6 of last week’s Bespoke Report.
Taking into account other sentiment indicators shows a similar picture. The NAAIM Exposure Index currently sits at 74.05 which is off of the low of 30 from early March while the Investors Intelligence survey saw the first negative bull-bear spread reading in a month this week. Combining these readings, our Sentiment Composite has come off the lows but is still at one of the weaker readings of the past decade. Click here to view Bespoke’s premium membership options.
Apr 21, 2022
Seasonally adjusted initial jobless claims remain off of the low from one month ago, but this week did see a sequential improvement. Claims dropped by 2K to 184K from last week’s slightly upwardly revised level of 186K. That is the ninth week in a row with sub-200K prints as claims sit at some of the lowest levels on record.
Before seasonal adjustment, claims were also impressive falling from 224.1K to 196.9K as the brief seasonal uptick at this point of the year unwinds. As shown in the second chart below, the current week of the year has only seen claims rise week over week 12% of the time historically. Claims will likely continue to see seasonal tailwinds through the next several weeks before a seasonal increase in the late spring and summer.
Lagged one week to initial claims, continuing claims came in below expectations of 1.459 million, reaching a new low of 1.417 million. That sets the lowest level since February 1970. Click here to view Bespoke’s premium membership options.
Apr 20, 2022
US Treasury yields have continued to move higher with mortgage rates rising in tow (we explained some key distinguishing characteristics of mortgages versus Treasuries in last night’s Closer). Bankrate.com’s national average for a 30-year fixed rate mortgage has now eclipsed 5.25% in the past week which is an over 2 percentage point increase year over year. Since the start of this series on mortgage rates going back to the late 1990s, that is by far the largest year-over-year increase on record.
Higher rates mean less attractive affordability so purchase applications have continued to fall per the latest Mortgage Bankers Association data. Seasonally adjusted purchase applications dropped 3% this week and are hovering just above the February lows.
The spring is often the hottest time of the year for housing activity. As shown below, the few weeks surrounding the current one have often marked the annual high (blue dots in chart below) in non-seasonally adjusted purchase applications over the past decade. This year that might not be the case. Activity has been running below that of the prior year and has plateaued more recently as mortgage rates have taken off. At the moment, this year’s high was set a little over a month ago in the second week of March. While a new high for the year is still within tangible reach from current levels—meaning upcoming weeks could still very well experience an uptick to a new high—this year has the potential to see a much earlier than usual high in mortgage purchases.
Refinance applications meanwhile are far weaker with unrelenting declines recently. This week marked the sixth week over week decline in a row leaving the MBA’s refinance index at the lowest level since February 2019. Click here to learn more about Bespoke’s premium stock market research service.
Apr 19, 2022
An earnings triple play is when a company beats analyst earnings estimates, beats analyst sales estimates, and also raises guidance. We consider these the gold standard for earnings as these type of results show fundamental strength and are often met with higher share prices. Using data from our Earnings Explorer database, the pandemic years have seen an explosion of triple plays as analyst estimates were too pessimistic/companies rebounded more solidly than expected. As shown below, at the highs last fall, a record of more than 18% of companies reporting earnings (on a rolling 3 month basis) reported a triple play. Over the past several months, though, that reading has pulled back considerably and today is only at 10.5%. While down from its highs, a reading of 10.5% is still elevated relative to history.
As we have noted in the past, when triple plays have been more commonplace, the market response to individual stocks reporting triple plays has been less cheerful. When the rate at which triple plays exploded earlier in the pandemic, the average full-day change on earnings days tanked to some of the weakest in the history of our data. At the low last July, the average stock that reported a triple play over the prior three months only gained ~1.5% on its earnings reaction day. For all earnings triple plays since 2002, the average one-day share price response has been roughly +5%. Recently, stock price reactions to triple plays have been improving with an average gain of 3.1% over the past three months and a little better than two-thirds of triple plays moving higher. As with the triple play rate, that is not fully back to pre-pandemic levels, but it is trending in that direction. With the number of triple plays expected to be light this season, the stocks that do manage to report them should start to be rewarded again. Click here to learn more about Bespoke’s premium stock market research service.
Apr 19, 2022
While it is seeing a large bounce today currently up 5% as of this writing, Cathie Wood’s flagship fund, the ARK Innovation ETF (ARK), has had a rough go of it over the past year and change. The ETF peaked in February of last year and has fallen over 60% in the months since then, erasing the entirety of the post-pandemic rally. As for the current holdings making up the ETF, everything has pulled back from post-pandemic highs which were mostly set either in early 2021 or late 2021. To highlight this, in the chart below we show each current holding’s change (in percentage terms) from its respective 5-year high. The average holding is currently down over 70% from its high. (ARKK holdings are released daily at ARK’s website.)
Below is a snapshot of current ARKK holdings and where they’re trading relative to 5-year highs. Year to date, only one stock in the ARKK ETF, Signify Health (SGFY), has managed a positive move as the average YTD decline currently stands at 40.8%. That being said, SGFY is still down over 60% versus its February 2021 high. As previously mentioned, most other holdings similarly peaked in the first quarter of last year while many others peaked more recently last fall. As shown in the table, the average peak date for all ARKK holdings was 3/11/21.
One of the stocks that hit a high last fall is the mega-cap EV giant Tesla (TSLA). Since its November 4th, 2021 high, TSLA has fallen only 18.41%, and it is only down 5% year to date. Even though hardly anyone would wish to see an investment lose nearly a fifth of its value, that is a substantially better result than most other ARKK holdings. For example, Berkley Lights (BLI) down 94% from its 5-year high, while 43% of the ETF’s holdings have fallen by at least 75%. Given that TSLA is by far the largest ARKK holding with a 10.55% weight, its smaller decline relative to the rest of the ETF’s holdings has helped ARKK from falling even more.
With the average ARKK stock down 70% from its 5-year high, it’s going to take a huge rally in the “growth” space to get back to prior levels. As shown at the bottom of the table, the average stock in the ETF now needs to rally 348% to get back to prior highs! Click here to learn more about Bespoke’s premium stock market research service.
Bespoke Investment Group, LLC believes all information contained in this report to be accurate, but we do not guarantee its accuracy. None of the information in this report or any opinions expressed constitutes a solicitation of the purchase or sale of any securities or commodities. This is not personalized advice. Investors should do their own research and/or work with an investment professional when making portfolio decisions. As always, past performance of any investment is not a guarantee of future results. Bespoke representatives or clients may have positions in securities discussed or mentioned in its published content.
