COVID-19 Collapse vs. Other Major Downturns Thu, Mar 19, 2020 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. ___________________________________________________________________________ What's In Store For Unemployment Fri, Mar 20, 2020 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.
Records All Around Claims Thu, Mar 26, 2020 No one was expecting a strong number for jobless claims this week as forecasts were predicting claims to come in at a record high. The median forecast was calling for claims to total 1.7 million compared to 282K last week which had been the highest reading since September of 2017. Instead, they practically doubled those forecasts coming in at a record 3.283 million. Fortunately, that was less than some of the most aggressive estimates like Citigroup which forecasted claims to be 4 million. This week's data is an unprecedented albeit anticipated jump in jobless claims. To put the size of the number into perspective, that is roughly 1% of not the US working population, but the entire US population! In the history of the data going back to 1967, there has never been a higher number in the level of claims (first chart below) or week-over-week change (second chart below). The previous high for jobless claims was 695K from October of 1982, almost one-fifth of this week's print. As for the week to week changes, the over 3 million increase in claims blew the size of the previous largest movements out of the water. The four week moving average typically helps to smooth out the week to week fluctuations of the high-frequency data, but considering the size of the move, the utility of the moving average is fleeting this week. The moving average has also reached a record high and experienced the largest one week increase on record. While it may not be much consolation given how horrific this week's numbers are, one silver lining is in the non-seasonally adjusted number. Before seasonal adjustment, jobless claims were slightly less staggering at 2.898 million. In other words, seasonal factoring does make the number of claims look higher than the actual amount reported. But that is still the largest weekly increase and highest number on record regardless of any seasonal patterns that may be affecting the number. Given more workers are continuing to stay home than return to work these numbers are likely to keep rising over the coming weeks.
Sentiment Remains Bearish Thu, Mar 26, 2020 Even though equities are rallying considerably this week, sentiment has been little changed. That's likely a function of the timing of this week's survey and the massive volatility. 32.9% of respondents in AAII's weekly sentiment survey reported as bullish this week. That's little changed from 34.4% last week. Meanwhile, the percentage of equity newsletter writers reporting as bullish in the Investors Intelligence survey has continued to fall with just over 30% reporting as bulls this week. That is the lowest level since the first week of 2019. Prior to that, there have only been 29 other weeks since 1997 with lower readings. The results are similar for bearish sentiment. AAII's survey saw bearish sentiment rise slightly from 51.1% last week to 52.07% this week. Bearish sentiment has now been above 50% for three consecutive weeks. That is the first time this has happened since March of 2009. Back then readings above 50% persisted for four weeks straight. Outside of that 2009 occurrence, the only other times that bearish sentiment remained above 50% for three weeks or more was in January, March, and July of 2008 and the late summer and fall of 1990. As for the Investors Intelligence survey, 41.7% are reporting as bearish which is the highest level since October of 2011. This week's reading is in the 96th percentile of all readings in the history of the survey. Neutral sentiment picked up about half of a percentage point this week to 15.03%. With the majority of investors reporting as bearish, this very low reading is in just the second percentile of all readings in the history of the survey.
Country ETFs' Drawdowns and Rebounds Thu, Mar 26, 2020 The COVID-19 pandemic has impacted equity markets around the globe. As shown in the table below, the equity markets of all the major global economies tracked in our Global Macro Dashboard (using each country's ETF as a proxy) are all well off their 52-week highs with only four—Taiwan (EWT), Switzerland (EWL), Japan (EWJ), and China (MCHI)—less than 20% away from the past year's high. While not as close as those four, the US is actually one of the countries that is closest to its recent high; down 'just' 23.2% after this week's rally. Brazil (EWZ), on the other hand, is currently the furthest below its 52-week high at 45.8%. The S&P 500 (SPY) peaked on February 19th and was down 34.1% from there at Monday's close. Including SPY, that Monday close has marked at least a temporary bottom for a number, though not all, of these country ETFs. Since then, SPY has risen over 15% and that is actually on the lower end of these countries' performance. The chart below shows how much each country's ETF has rallied off of their respective lows since the global sell-off began on 2/19. Russia has seen the biggest rebound having risen 28.18%. Granted, it also bottomed ahead of other countries putting in its low on March 18th. Even though it is down the most off of its 52-week high, Brazil is also one of the best performers since its low on Monday. South Africa and Canada have also risen more than 25% since their lows on Monday.
Down Best Six Months Not Encouraging The depth of this waterfall decline may be too deep for the market to rebound quickly. This bear market also put this year’s Best Six Months (November-April) at risk of being negative. The record of down Best Six Months is not encouraging and it reminds us of a salient quote from the Almanac from an old market sage, “If the market does not rally, as it should during bullish seasonal periods, it is a sign that other forces are stronger and that when the seasonal period ends those forces will really have their say.”— Edson Gould (Stock market analyst, Findings & Forecasts, 1902-1987) The table below of Down Best Six Month for DJIA since 1950 also suggests caution and patience is in order. Subsequent Worst Six Months (May-October) have averaged losses with only two decent years 1982 and 2009. The market bottom in August 1982 marked the end of the 1966-1982 secular bear market and came of the early 1980s double dip recession. Following the first back-to-back down Best Six Months since 1973-1974, the market hit a secular bear market low in March 2009. Market action in the rest of these years was rather grim.
Declines Bigger In Texas Mon, Mar 30, 2020 Over the past couple of weeks, we have been highlighting the record declines in the regional Federal Reserve banks' manufacturing indices for the month of March (see here and here). The most recent of these indices, from the Dallas Fed, was released this morning, and results were as bad as the others. The headline reading fell to -70 from 1.2 last month. That is a record low for business activity eclipsing even the 2009 lows and was by far the largest month over month decline in the history of the survey (second chart). As for expectations six months later, the index fell to 39.5 from 18 which is likewise the largest decline on record. That leaves expectations at their lowest level since December of 2008. That weak headline number comes on weakness across all of the individual components of the report. Many of these categories also experienced record declines which has completely changed the picture just a month ago. Last month, there were only three components across both current condition and six month outlook indices that were negative. Today there are only two (wages and benefits), and both of these have fallen dramatically. In this month's survey, the Dallas Fed surveyed respondents on a number of COVID-19 related questions. Over three-quarters of respondents reported a negative impact on production and sales as a result of the virus while 67.5% reported weaker demand. The subindices echo these results. Each of the categories tracking demand like new orders, unfilled orders, and shipments fell dramatically in March as shown below. New orders (both current and the six-month outlook) experienced the largest decline on record. That leaves the index for current conditions at its lowest level since 2009 and the index for future expectations at its lowest level on record. The indices for unfilled orders are also at their lowest level since the financial crisis after experiencing the second-largest decline on record for the current conditions index and the largest decline ever for expectations. Given this lack of demand, shipments have also plummeted by an unprecedented amount. It should come as no surprise following last week's jobless claims number, but as with so many other components of this month's survey, the indices for unemployment have also collapsed experiencing the largest declines ever. Both current conditions and future expectations indices are now at their lowest levels since 2008/2009.
Claims Collapses Citi Surprise Index Mon, Mar 30, 2020 The economic impacts of COVID-19 have begun to appear in the past few weeks' data releases. Given that these impacts have been decidedly negative, the Citi Economic Surprise Index for the US has turned sharply lower. This index measures how economic data comes in relative to forecasts. Rising or positive numbers indicate more releases are beating expectations and vice versa. On March 13th the index peaked, reaching its highest level since early 2018 at 73.8. It then pulled back off of those highs but was still fairly high in the low 60s all the way up until last Wednesday. But it then fell out of bed dropping to -1.5 today. Given the index weights various releases differently, most of the blame for that decline can be put on last Thursday's initial jobless claims number. Thanks to the massive miss, from Wednesday to Thursday the index fell from 61.7 all the way to 1. While that did not drop the index itself to any new low as it is now back to similar levels as the start of the year, that one day decline was the largest ever as shown in the chart below.
S&P 500 Industry Group Performance Numbers After COVID Crash Mon, Mar 30, 2020 Looking at the S&P 500's industry groups, every one is now up over the last week since last Monday's low. The only standout is the Food & Staples Retailing group which is only up 1.3%. But as we frequently highlighted last week, that is a result of it being the group that also held up the best during the time between the 2/19 peak through last Monday's low. In fact, that industry is currently the one that is closest to its 52 week high at 11%. The Consumer Durables and Apparel group, on the other hand, has performed the best over the past week rising nearly 30%. That comes as it was one of the most beaten down sectors, nearly being cut in half during the initial COVID crash. Even with the recent rally, that still leaves it another 31.65% below its 52-week high. The size of the declines over the past month and a half have erased a lot of the past few years of progress. There are currently only five industry groups higher than they were one year ago. Only half are up over the past two and three years. Fortunately, over a longer time horizon—the past five years—the majority of industries are still higher with some industries like Software and Services, Semiconductors, and Retailing still up around 100% or more. Autos and Energy, however, are both down more than 50% over the last five years.
Daily Economic Data Shows Scale Of COVID-19's Impact Tue, Mar 31, 2020 Since COVID-19 activity shut-downs started to roll across the country back in early March, a number of industries have taken massive hits. Restaurants and travel have been especially hard-hit, but the scale of declines is so large it can be hard to grasp in the abstract. Below we show how activity indicators for key sectors of the economy are down 60% or more on a YoY basis, a shock that's completely unprecedented in a modern services economy. Granted, these declines are in large part by design, and some of them can bounce back significantly. On the other, these drops indicate revenue not available to meet costs that include payroll, rent, and interest. A 93% decline in travel volumes, 100% decline in seated restaurant meals, 55% decline in overall restaurant revenue, and 67% decline in a subset of small business hours worked are all statistics that capture just how badly broad swathes of economic activity are being hit.
With 30% unemployment being thrown out there and businesses shutting down. How is anyone a bull right now? Peak infection isn't supposed to be for another 30 days.
US Equity Index ETFs at the Start of Q2 2020 Wed, Apr 1, 2020 Below is a snapshot of major US equity index ETFs from our Trend Analyzer tool available to Bespoke members. Every ETF in this group was down 10% or more in the first quarter, with the Nasdaq 100 (QQQ) down the least at -10.24%. Small-caps (IJR, IWM) and micro-caps (IWC) were the worst performers in Q1 with declines of more than 30%. The S&P 500 (SPY) was down 19.4% in Q1 while the Dow 30 (DIA) was down 22.6%. Notably, every single major index ETF is now in a long-term downtrend based on our "Trend" scoring system. All but one are trading in oversold territory, which means they're more than one standard deviation below their 50-day moving averages. QQQ is the only ETF in the group that didn't end the first quarter of 2020 at oversold levels. Over the last five days, these ETFs are up 5%+ pretty much across the board. The only exception is the Nasdaq 100 (QQQ), which is up just 3.7% over the last week. As bad as things look now, they were actually a lot worse a week ago.
Under the Hood Weakness From ISM Wed, Apr 1, 2020 As we have been highlighting over the past couple of weeks, soft manufacturing data for the month of March from regional Federal Reserve districts was horrendous with several record lows and record month over month declines. The ISM Manufacturing index for March was not nearly as bad. Forecasts were calling for the headline number to fall to 45 from 50.1 in February. That would have been the lowest level for the index since May of 2009. Instead, it only fell to 49.1 which is still a contractionary reading but much better than expected and actually 1.3 points above the December low of 47.8. While the headline number has held up fairly well, under the hood this month's report was not as strong. All but three categories fell in March, and the ones that rose are not positive signs. Supplier Deliveries, Business Inventories, and Customer Inventories all rose meaning products from suppliers are taking longer to reach manufacturers and existing inventories are not being drawn down on as they were previously. Additionally, whereas most readings were expansionary one year ago, now only Supplier Deliveries is, which again is not a positive sign. When the index for Supplier Deliveries is rising, this indicates that it is taking longer for manufacturers to receive products from their suppliers. This month, the index rose 7.7 points to 65 which is the highest level since June of 2018 when it reached 68.2. Of all readings since 1948, that is in the 89th percentile. That last time that the index rose by this much was nearly 15 years ago in September of 2005. Prior to that, you would need to go all the way back to 1988 to find a time that Supplier Deliveries rose by a larger amount. In other words, the shutdowns and slowdowns from COVID-19 are certainly beginning to disrupt supply chains. Not only are supply chains taking a hit but so is demand. As we mentioned in Monday's Closer, readings on new orders across other surveys have plummeted and the March ISM report is no exception. The index for New Orders fell 7.6 points to 42.2 in March. While that is not necessarily the sharpest decline in recent history (December of 2018 saw a larger decline of 8.7 points), New Orders is now at its lowest level since March of 2009. Additionally, this month's report has begun to show some of the adverse effects of COVID-19 on the labor market. The Employment component fell 3.1 points to 43.8 which is also the lowest level since the Spring of 2009. In last month's report, we noted the record decline in imports. As could be expected, that decline continued in March, albeit at not nearly as dramatic a pace with the index for Imports falling slightly more to 42.1. That still leaves it at its lowest level since the financial crisis. Export orders, on the other hand, caught up with a sizable decline of their own. Exports fell 4.6 points to 46.6. That is the largest decline since last August and it also leaves it around similar levels to then. Either way, these two indices are pointing to an all-around slowdown of trade activity as a result of the coronavirus.
New Record Doubles The Old Record Thu, Apr 2, 2020 Last week, a record number of Americans filed for unemployment as initial jobless claims surged to 3.283 million. That number was revised higher to 3.307 million this week setting an even higher bar for a new record. Despite that, this week's print doubled last week's record number as jobless claims came in at 6.648 million. Put another way, that is roughly 2% of the entire US population filing for unemployment this week alone! Not only did this week's release double last week's record print, but it was also above the most aggressive forecasts of 6.5 million. With claims having risen this much, any historical precedent has been utterly blown out of the water. The past few weeks are multiples larger than even past recessions' peaks. Additionally, the size of the week over week changes have also been much larger than anything previously observed in the history of the data. One silver lining of the report is due to seasonal factoring, the adjusted number is about 824K higher than the non-seasonally adjusted number which came in at 5.824 million this week. In other words, the actual number reported before seasonal adjustment is still very bad, but not quite as bad as the seasonally adjusted number lets on. As with the adjusted number, this did double what was already a record print last week on the largest week over week change ever. Normally, the four-week moving average would help to smooth out any week to week fluctuations of this data. But seeing as the current situation is far from normal, there is not much smoothing happening. Even the moving average has ripped higher by more than any other period in history.
Consumers Turn Bearish on Equities Thu, Apr 2, 2020 Tuesday's Consumer Confidence report managed to exceed expectations, but as we noted at the time, the survey for the March reports cuts off on the 18th, so as economic conditions turned south, sentiment levels also likely declined. One area of the report where sentiment already has seen a notable decline is in consumer sentiment towards stock prices. As shown in the top chart below, the percentage of consumers expecting stock prices to decline nearly doubled from 21.7% up to 39.2% while the percentage of consumers looking for higher prices dropped from 43.1% down to 32.3%. In the case of negative sentiment, the percentage of bearish consumers hasn't been this high since late 2012. Given the major shift in sentiment, the spread between bullish and bearish consumers has seen a major reversal falling from firmly positive (21.4) to firmly negative (-6.9). By this measure, the spread between bullish and bearish investors hasn't been this negative since February 2016.
Worst Q1 In Dow History Well, life sure is interesting now here at the home office with the kids distance learning and me and the wife tele-working. But the market never sleeps. Q1 2020 is in the books logging the worst Q1 performance for DJIA in history. But what’s it all mean? So I ran the numbers on the worst quarterly declines and double-digit Q1 declines to see if I could glean some insight from history. Have a look at these two tables and tell me what you think. I see some interesting years on these two lists. There are the Panics of 1903 and 1907. The greatest number of record quarterly declines occurs during the period from the 1929 Crash through the Great Depression and WWII. There’s the secular bear market low of 1974. The Kennedy Slide or flash crash of 1962 may be a bit of an anomaly. Then we have the back-to-back down years of 2001 and 2002 after 9/11 and the build up to the Iraq War. And finally the end of the Financial Crisis in late 2008 rounds out these infamous lists. What concerns me is that this record Q1 collapse comes right off new all-time highs and has several components. The COVID-19 pandemic crisis exposed an overvalued market and an over-leveraged economy with much of the world and financial market caught way off guard. And this virus continues to spread and kill with the economic impact only beginning to be felt. We can only do our best to stem the spread and hope that the medical experts, government leaders, corporations and individuals band together and do everything possible to support the economy, communities, find some therapeutic solutions and help each other to get through this and contain this virus. This is a wake-up call for the world and humanity to get our proverbial stuff together. It reminds me of salient quote out of the Almanac quote database from media mogul John Malone, “Moses Shapiro (of General Instrument) told me, ‘Son, this is Talmudic wisdom. Always ask the question ‘If not?’ Few people have good strategies for when their assumptions are wrong.’ That’s the best business advice I ever got.” I am far from convinced the bottom is in, but I do suspect the market will bottom before the virus peaks. Stay safe and be well.
All or Nothing Days on the Rise Wed, Apr 8, 2020 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.
Sectors Failing at their 50-Day Mon, Apr 13, 2020 In last week's Sector Snapshot, we noted that each of the eleven sectors as well as the S&P 500 had finally exited oversold territory as shown in the charts below. Even with the major indices down around 2% today, they have held up in neutral territory so far. One interesting thing to note of today's decline is some sectors are turning lower right as they come within reach of their 50-DMAs. Over the course of this recent market downturn, Health Care has been the only sector to recently close above its 50-DMA which happened last Wednesday and Thursday. Before that, you would have to go all the way back to March 5th to find a sector above its 50-DMA (Utilities). While Health Care pressed above this average last week, it has failed to hold there with today's declines bringing it 0.79% below its 50-DMA. Health Care is not alone in failing at its 50-DMA though. Despite having never taken out these levels, the Materials and Real Estate sectors both came within 1% of their averages as of Friday's close before turning lower today. While they did not get as close, Consumer Staples and Utilities have also failed to press higher after closing within 2% of their 50-DMAs on Friday. That gives evidence that the 50-DMA could be the next technical roadblock for the other sectors as well as the broader S&P 500.
Crumbling Empire Wed, Apr 15, 2020 Last month, the New York Fed's monthly manufacturing index fell to its weakest level since March of 2009. Fast forward one month and the headline reading has collapsed even further and more dramatically for the US region hit hardest by COVID-19. The April reading was forecasted to come in at -35 which would have been the lowest level ever recorded. Instead, it surpassed that by more than two fold coming in at -78.2 and experiencing its largest monthly decline on record in the process. While a net of over three-quarters of the region's businesses reported declining current conditions, the outlook picked up slightly from last month. Conditions six months out rose to 7 from 1.2 last month. With expectations and current conditions heading in opposite directions and the index for current conditions reaching such an extreme low, the spread between the two is now at its highest level ever. Given the massive decline in the headline number, many of the individual categories of the report were equally as bad. In addition to the headline number, New Orders, Shipments, Number of Employees, and Average Workweek all are at record lows and experienced their largest m/m declines on record. While there were no record lows for the categories on expectations, most of those same ones are around the 1st or 2nd percentile. Additionally, plans for Capital Expenditure and Technology Spending fell by their largest amounts ever. Demand has been in absolute free fall. The indices for both New Orders and Shipments have experienced record declines to record lows; surpassing even those from the last recession. More than half of responding businesses have reported that New Orders and Shipments are weaker. Businesses do not appear to see much light at the end of the tunnel yet either. While not at absolute lows, the readings for New Orders and Shipments six months out are both in the bottom 2nd percentile of all readings and at their lowest levels since the financial crisis. With business grinding to a halt, it appears focus has shifted from investment to simply staying afloat and cutting costs as the indices for capital expenditure, technology spending, and all tanked. For the first time since June of 2013 for Technology Spending and May of 2009 for Capital Expenditures, the NY Fed indices have tipped negative. Both now stand at -11 indicating fewer companies are looking to expand on capital expenditures or technologies that would benefit operations. Looking purely at recent jobless claims numbers, the employment side of this month's Empire Fed report could not be expected to show much strength. This month's report showed 58.6% of responding employers reporting smaller workforces while only 3.3% saw an increase in employees. Additionally, 64.7% of companies reported lower employee workweeks compared to 3.1% with longer workweeks. Those readings for Number of Employees and Average Workweeks at -55.3 and -61.6, respectively, are both record lows for current conditions. As for expectations six months out, employers do not appear overly optimistic either. Although the reading on average workweek rose to 8.4, which is in the middle of the past few years' range, expectations for number of employees fell to 5.2 which is its lowest level since August of 2016.
