The Strangest Top 25 List In Some Time Thu, Aug 13, 2020 Look closely at the list of the top 25 performing S&P 500 stocks since last Thursday's close and tell us what's wrong with it? Do you see it? Keep looking, you'll figure it out. Yup. That's it! Not a single one of the 25 best performing stocks over the last week is from the Technology sector. In looking through the list of names, it's littered with stocks that were left for dead at varying points in the last several months. FedEx (FDX) is up nearly 18%. Casinos and cruise ships have been collecting dust and rust for the last five months, but the stocks of MGM and Royal Caribbean (RCL) are the second and third best-performing stocks in the S&P 500 over the last week. Not only are there no stocks from the Technology sector in the top 25, but there aren't even any in the top 50. To find a Tech sector stock on the list, you have to go all the way down to spot number 70 where Xerox (XRX) sits with its gain of 6.73%. Yeah. We were surprised too. Not only is XRX still a public company, but it's considered a tech stock. If you want to find a lot of stocks from the Technology sector, they are on the list of the 25 worst performers since last Thursday. Of the 25 names listed below, 12 are from the Technology sector. Not only that, but even many of the non-tech stocks listed like Illumina (ILMN), Netflix (NFLX), Activision Blizzard (ATVI), Marketaxess (MKTX), Electronic Arts (EA), and Hologic (HOLX) have very high tech characteristics behind their businesses.
Jobless Claims Back Above 1 Million Thu, Aug 20, 2020 Last week, initial jobless claims came in below one million for the first time in 21 weeks. Even though another sub-million print was expected, claims actually saw a dramatic increase rising to 1.106 million. The 135K increase week over week was the biggest single-week increase of the pandemic excluding the first two enormous jumps in the second half of March; both of which were increases of over 3 million. Even though that is a big jump from last week, the actual level of claims remains around some of the lowest levels since the pandemic began. In fact, despite the large increase this week, claims are still lower than they were two weeks ago. On a non-seasonally, adjusted basis claims were 891.5K this week. That actually marks a third straight week with claims below a million as the level of this reading continues to offer a bit more of an optimistic view than the seasonally adjusted number. Although NSA claims remain around the lowest levels of the pandemic, there was not an improvement this week. The 52.8K increase week over week was the first rise in four weeks and was the third-largest increase since the first week of April. As we have noted recently, the summer months through September have seasonally been a strong time for claims as the nonseasonally adjusted (NSA) number has tended to drift lower. The increase this week is out of the ordinary for this point in the year as it was the first time in the history of the data (since 1967) that NSA claims for the current week of the year (33rd week) were higher from the prior week. In other words, the rise in claims this week bucked a historically consistent trend of seasonal strength. The big drop in claims last week benefitted the most recent reading for continuing claims (lagged an additional week to initial claims) which have continued to decline as they broke below 16 million for the first time since April 10th. The 604K WoW decline was slightly smaller than last week's 861K decline For Pandemic Unemployment Assistance (PUA), initial claims were also higher, rising over 50K from last week. In total, claims (the headline number plus PUA claims) rose to 1.43 million from 1.33 million last week. Again while that is an increase from last week's lows, it is still around some of the strongest levels of the pandemic. Total NSA continuing claims for the last week of July (continuing PUA claims are lagged another additional week), on the other hand, fell slightly from 26.6 million to 26.4 million. That was entirely thanks to a drop in regular claims as PUA claims actually rose from 10.7 million to 11.2 million.
Philly Fed in a Funk Thu, Aug 20, 2020 On the back on Monday's weaker Empire Fed survey, today's release of the Philadelphia Fed's Business Outlook Survey similarly showed a slowdown in activity during August. The headline index fell 7 points to 17.2. While that is a third consecutive expansionary reading, it also marked back to back declines. That means that the region's manufacturing sector has continued to grow, but at a decelerating pace in the past two months. Like the headline number, many of the individual categories also remain in expansion territory but were lower than last month. The only readings to rise month over month were the indices for Delivery Times, Inventories, and Prices Received. Inventories as well as the index for Unfilled Orders were the only ones to be in contraction in August. Demand continues to improve with both the indices for New Orders and Shipments showing another expansionary reading in August, but both were also lower indicating demand did slow somewhat. While the index for New Orders remains at a healthy level historically, in the upper quartile of all readings since 1980, Shipments are at a more muted level in just the 38th percentile. As for employment metrics, there was a slowing in the Number of Employees hired in the region with that index falling from 20.1 to 9. That 11.1 drop was the biggest change of any sub-index this month and with respect to that index, this month's decline was in the bottom 5% of all monthly changes. Not only did the index for Number of Employees fall, but so did the index for Average Workweek, although it still remains in the upper end of its historical range.
Not Much Pickup in New Highs Wed, Sep 2, 2020 Every day in our Daily Sector Snapshot, we provide a look at the net percentage of S&P 500 stocks that are making new 52-week highs (percentage of new 52 week highs minus the percentage of new 52 week lows). Even though the S&P 500 has continued to hit new highs recently, the same cannot be said for much of the individual stocks that the index is comprised of. Historically for the S&P 500 when it has reached all-time highs, the average reading on the net percentage of new highs has stood at 12.35%. Today, it is around 5 percentage points lower at 7.33% and is off the post bear market low peak of 10.1% from July 23rd. The same can also be said for each of the eleven sectors. At the moment there is only one sector, Materials, that is currently at its highest level since the bear market low. Every other sector is currently off-peak with no stocks reaching new highs in Energy, Real Estates, and Utilities. Meanwhile, Consumer Staples has seen its share of stocks at new highs fall the most dramatically recently with the reading as of yesterday's close the lowest since August 13th. Financials also continue to show positive readings but those remain far more muted than what was observed prior to the pandemic. On the other hand, unsurprisingly the sector with the highest net percentage of new highs currently is Technology at 16.9%, but that too is off the peak of nearly 20% from just about a week ago. Granted, for Tech that reading has generally been trending higher recently as it also has for Health Care, Industrials, Communication Services, and Consumer Discretionary.
Historic August Opens Door To Worst Month Of The Year What a month August has been so far, with the S&P 500 Index up more than 7%, for the best August since 1984. Not to be outdone, this is the first time in history August saw two separate 6-day (or more) win streaks. Last, with one day to go, the S&P 500 has gained 16 days so far this month, for the most since 16 in April 2019. Meanwhile, it is the most up days for any August since 2003. “Well, 2020 has laughed at many of these things, but be aware September is indeed the worst month of the year on average,” explained LPL Financial Chief Market Strategist Ryan Detrick. “But what caught our attention was both September and October have a negative return during election years, with October the worst month of the year. Could investors get election jitters again in 2020?” As show in the LPL Chart of the Day, September tends to be a weak month. In fact, it is the weakest month on average since 1950. Additionally, the last two times August was up more than 5% were 1986 and 2000; the S&P 500 fell 8.5% and 5.4% in September those years. Breaking things down by just an election year shows that August actually tends to be strong. That obviously played out this year, but now will the weakness we usually see in September and October play out? Finally, after today, the S&P 500 will be up 5 consecutive months. Looking at the other years that saw a similar summer rallies, there tended to be more strength the final 4 months of the year, with only the Federal Reserve policy mistake of December 2018 blemishing this impressive track record. Yes, this record equity run is extremely stretched, but we would continue to use any pullbacks as an opportunity to add to longer-term core equity holdings, as the economy continues to come back quicker than most expected.
Correction Crushing Sentiment Thu, Sep 10, 2020 With the Nasdaq entering a correction in under a week and the S&P 500 dropping just over 7% from last Wednesday's closing high to Tuesday's low, investor sentiment has understandably taken a hit. After a four-week stint in which the percentage of investors reporting as bullish in the American Association of Individual Investors (AAII) survey stayed above 30%, this week less than a quarter of respondents are bullish. At 23.71%, bullish sentiment is at its weakest level since the first week of August when it was 23.29%. Additionally, the 7.09 percentage point decline was the largest one week drop in bullish sentiment since mid-June when it fell 9.91 percentage points. The decline in optimism was obviously met with a similar-sized increase in pessimism. The percentage of investors reporting as bearish rose 6.68 percentage points this week to 48.45%. That is the highest reading since the last week of July when bearish sentiment stood slightly higher at 48.47%. It was also the largest one week gain to bearish sentiment since June 18th. As shown in the chart below, that is at the high end of the past few months' range but is still off the highest readings of the pandemic when more than half of respondents reported as bearish. With the big moves in bullish and bearish sentiment, the bull-bear spread moved deeper into negative territory (which it has been in for a record 29 weeks now) falling from -10.97 to -24.74 this week. That brings the spread back to similar levels to the end of July. Since the pandemic began, there have only been five other weeks that the spread has been lower: the last week of July, June 25th, May 7th and 14th, and April 23rd. In other words, bearish sentiment continues to dominate. Meanwhile, over a quarter of respondents are neutral on the market. 27.84% of respondents to the AAII survey reported as expecting no change in the S&P 500 over the next six months which was little changed from 27.43% last week and is basically right in line with the average of 25.77% since the bear market low in March.
Pullback Seen Around the World Wed, Sep 9, 2020 Through yesterday's close, the S&P 500 has fallen just under 7% from its high on September 2nd. Compared to other major global stock markets that we track in our Global Macro Dashboard, only China has also fallen over 5% in the past week. The average global stock market of these 23 markets is down 1.8% since 9/2. Only three—South Korea, Sweden, and the UK—have risen in the past week. In other words, stocks have dropped around the globe but the US and China's declines have far outpaced the rest of the world. One interesting point of the past week is these declines have only brought US stocks off of their 52-week highs. As of last Wednesday, whereas US equities were at a record high, the average global stock market was over 10% below its 52-week high. As shown below, other than the US, the only other country that was within 1% of a 52 week high last week was China; the second-largest decliner in the past week. After those large declines in the past week, the US and China stand out far less than they did last week in terms of distance from 52 week highs. That dynamic of the US outpacing its global peers is nothing new though. As shown in the chart from our Global Macro Dashboard below, the US has consistently outperformed the rest of the world over the past ten years (a rising line indicates outperformance and vice versa). While its relative strength has been more mixed over the past ten years, China has similarly seen its equities outperforming recently.
Active Managers Do an About Face Fri, Sep 11, 2020 The National Association of Active Investment Managers (NAAIM) has an index which tracks the exposure of its members to US equity markets. Each week, members are asked to provide a number that represents their exposure to markets. A reading of -200 means they are leveraged short, -100 indicates fully short, 0 is neutral, 100% is fully invested, and 200% indicates leveraged long. Two weeks ago, in our Bespoke Report, we highlighted the fact that the exposure index had moved to one of the highest levels in its 15-year history. Now, just two weeks later, these same active managers have reigned in their exposure considerably as this week's reading dropped from just under 100 to 53.1. This week's drop was the second-largest one week decline in the index's history and just the 10th time that the index lost more than a third (33 points) in a single week. The most recent occurrence was back in early March in the middle of the Covid crash, and every other prior period where the index saw a similar drop, the S&P 500 was also down every time by an average of 2.3%. Therefore, it's not much of a surprise to see the big drop this week given the big declines in the market. But what about going forward? Do big drops in the NAAIM Index mean a bounce back for markets or further declines?
The Most and Least Heavily Shorted Stocks in the Russell 1,000 Thu, Sep 10, 2020 Below is an updated look at the most heavily shorted stocks in the Russell 1,000. Each of these 30 stocks has at least 15% of its equity float sold short. At the top of the list is Nordstrom (JWN) with 38.66% of its float sold short. With a YTD decline of 61.86%, the shorts have crushed it with JWN this year. With its huge portfolio of office and retail real estate, Brookfield Property REIT(BPYU) has the second highest short interest in the Russell 1,000 at 33.7%. BPYU is down 35.7% YTD. There are plenty of other well-known companies on the list of the most heavily shorted stocks. Examples include American Airlines (AAL), Virgin Galactic (SPCE), LendingTree (TREE), Wayfair (W), Dick's Sporting Goods (DKS), ADT, TripAdvisor (TRIP), Beyond Meat (BYND), and Kohl's (KSS). One name that is no longer on the list of most shorted stocks is Tesla (TSLA). When we provided an update on short interest back in February (a pre-COVID world), Tesla (TSLA) had more than 17% of its float sold short, but that number is all the way down to 8.3% as of the most recent filing. These 30 stocks with the highest short interest are down an average of 3.01% since last Wednesday (9/2) when the S&P 500 made its last closing high. That's actually a little bit better than the 3.55% average decline for the rest of the stocks in the Russell 1,000. And year-to-date, these 30 stocks are up an average of 0.60% versus an average gain of 0.81% for the rest of the index. That's not much of a difference! Below is a list of the 30 least shorted stocks in the Russell 1,000 as a percentage of equity float. None of these stocks have more than 0.71% of their float sold short, and they're mostly made up of more conservative names in the Health Care and Consumer Staples sectors. Johnson & Johnson (JNJ) has the lowest short interest as a percentage of float in the Russell 1,000 at just 0.36%. Microsoft (MSFT) -- one of the key mega-cap Tech names -- has the second lowest short interest, followed by Merck (MRK), Eli Lilly (LLY), and Medtronic (MDT). Somewhat surprisingly, Amazon (AMZN) is the sixth least shorted stock in the entire Russell 1,000. While AMZN is still thought of as a high-flying momentum name by many investors, its short interest levels tell a much different story, painting it as more of a non-cyclical stock like Pepsi (PEP), Procter & Gamble (PG), or Coca- Cola (KO). While the 30 most heavily shorted stocks in the Russell 1,000 are up 0.60% YTD, the 30 least shorted stocks in the index are up much more at +8%. This group has MSFT, AMZN, HD, and AAPL to thank for that strong performance!
Retail Sales Growth Slows But Still Positive Wed, Sep 16, 2020 With the weekly $600 UI benefits expiring during the summer, consumer spending took a hit in August as Retail Sales showed slower than expected growth. At the headline level, Retail Sales grew 0.6% compared to forecasts for growth of 1.0%. Ex Autos and Ex Autos and Gas, growth came in slightly better at 0.7% but still shy of forecasts. In addition to the weaker than expected August reading, July’s sales were also revised lower from 1.2% down to 0.9%. While Retail Sales still showed growth, the report was underwhelming on just about all fronts. While the level of growth was weaker than forecast, breadth within this month’s report was once again positive as nine out of thirteen different sectors saw m/m gains. The big leader by far was Bars and Restaurants which grew 4.7%, followed by Clothing, Furniture, and Building Materials which all saw month-over-month gains of over 2%. On the downside, Sporting Goods and Food and Beverage Stores both saw sales contract over 1%. Based on these moves, we’re still seeing a continuation of the trend of Americans returning to their prior spending habits before the onset of COVID. While the monthly pace of retail sales is back at all-time highs, the characteristics behind the total level of sales have changed markedly in the post COVID world. In our just-released B.I.G. Tips report, we looked at these changing dynamics to highlight the groups that have been the biggest winners and losers from the shifts.
Sector Weight Loss Mon, Sep 21, 2020 Since the S&P 500's last all-time high on September 2nd, the Technology sector has been the hardest hit group having dropped over 13%. As a result of those declines, the sector's weighting in the S&P 500 has dropped roughly 1.5 percentage points from 28.85% down to 27.35%. In terms of moves in sector weighting over 12-day spans since 1990, that stands in the bottom 2%. Comparatively, the sector that has taken the next biggest hit in terms of S&P 500 weighting is Communication Services which has fallen a much more modest 0.39 percentage points in that same time. Other than those two, only Consumer Discretionary has also seen its weighting in the index decline. As shown in the chart below, the Technology sector has now erased all of its weight gain from August, and it is back to similar levels from July. Granted, the sector still boasts its highest weighting since the dot com era. Meanwhile, the Energy sector has been the fourth worst-performing sector since the September 2nd high having fallen over 8%, but it has actually gained weight with its S&P 500 weighting having risen 0.06 percentage points to 2.3%. Inverse to the Technology sector, and granted it was a much less significant move, the Energy sector still has a historically low weighting (2.2%) that is unlike anything observed since at least 1990. The Financial sector also continues to get smaller and smaller. As shown below, the sector's current weighting is around its lowest levels of the past three decades. Remarkably, the Financial sector's weighting is now right around where it was at the lows of the Financial Crisis.
Technology Heavy as Energy and Financials Thin Out Mon, Sep 21, 2020 In an earlier post, we noted some of the recent changes in sector weightings; namely those of Energy, Financials, and Technology. Whereas Energy and Financials stood as the bulk of the weight of the S&P 500 back in the mid-2000s, since the Financial Crisis, the Tech sector has stolen share away. The COVID era has only exacerbated this trend as Energy and Financials' combined weighting has completely diverged from that of Technology. While Technology currently accounts for 27.37% of the S&P 500, Energy and Financials together now account for only 12.28%. These two sectors combined for a weighting of more than 32% at their peak just before the Financial Crisis! As shown below, for Technology, only the late 1990s/early 2000s has seen higher readings and there is basically no historical precedent (since at least 1990) for the low weighting of Energy and Financials. As for the spread between the combined weightings of Energy and Financials versus the weighting of Technology, only 2000 has seen similar readings to current levels (currently ~15). Click here to view Bespoke's premium membership options for our best research available.
Mean Reversion Seen Around the Globe Wed, Sep 23, 2020 Each Wednesday, we publish our Global Macro Dashboard which provides a high-level summary of economic and market indicators of 23 of the world's largest economies. Included in this report we show the charts of each of these countries' stock markets and glancing across these charts, the US has not been alone in falling back below its 50-DMA. In the chart below, we show the average distance to the 50-DMA of these 23 countries. At the start of the summer, the global average 50-DMA spread was at the highest levels of the past five years after hitting multi-year lows just months earlier, but through the summer that reading gradually moderated. With weakness in equities around the globe since the start of the month, the average global stock market was 2.43% below its 50-DMA as of yesterday's close. That is the lowest reading since April. In other words, equity markets around the globe have mean reverted just like the US. In fact, there are only a small handful of these countries that are currently sitting above their 50-DMAs. Of these Switzerland, Sweden, and Japan are further above at over 1% while Russia and South Korea are a more modest 0.1% and 0.3% above their 50-DMAs, respectively. For the US, this month's declines only leave the S&P 500 roughly 1% below its 50-DMA which is actually one of the stronger readings (third highest) among countries that are trading below their averages. Currently, nine of these countries are more than 2% below their moving averages. Although major global equity markets are generally together in sitting below their 50-DMAs, the US is coming from a much different place than most other counties. For starters, other than the US, only South Korea and Taiwan reached new 52-week highs in September while South Africa is the only other country to have seen a 52 week high since the beginning of August. As shown in the table below, prior to the recent mean reversion (at the last high for the S&P on September 2nd), US equities were 9% above their 50-DMA. That compares to the global average of just 1.4% at the same time. The country that was the next most extended besides the US was South Korea at +4.8%. Since then, US equities have dropped 7.41%, with the month to date decline at 5.3% which is second only to Hong Kong's 5.7% drop. In other words, equities around the globe have experienced mean reversion, but price action in the US has been some of the most dramatic and perhaps most justified.
Nasdaq 100 Underwhelms Wed, Sep 23, 2020 Not surprisingly, September hasn't been a bull-friendly month for the Nasdaq 100. After a sharp decline from its record highs earlier this month, the index has made a series of lower highs and lows ever since. On 9/11, the Nasdaq 100 closed below its 50-DMA for the first time in several months, and while it quickly recovered above that level the following Monday, the bounce didn't last for long. This Monday, the Nasdaq 100 kicked off the week with another lower low, and while it recovered from those lows, the bounce-back ran out of steam just shy of its 50-DMA. As far as technical patterns go, it's never positive to see an index attempt to bounce back after breaking an uptrend only to see that rally run out of steam just shy of a key moving average. That's the pattern shaping up for the Nasdaq now, though, and until the string of short-term lower highs and lower lows breaks, the burden of proof remains on the bulls. For the broader market as a whole, the percentage of stocks trading above their 50-DMA has also started to dwindle. The chart below is from our Daily Sector Snapshot and shows the percentage of stocks in the S&P 500 finishing each day above their 50-DMA. Back in the early stages of the rally off the March lows, the percentage surged to just under 100%. From there, it started to drift lower, but even in early September more than three-quarters of stocks in the index were above their 50-DMAs. As September has progressed, however, the ranks of stocks above their 50-DMA have been more than cut in half to the current level of 35% - the lowest level in five months. Nothing goes up in a straight line, and pullbacks are part of the process, but September sure has been rough for many investors, who after the last few months may have forgotten that stocks do in fact move in two directions.
Restaurant Stocks Getting Burnt Wed, Sep 23, 2020 In our recap of last week's retail sales report, we noted how there is evidence of a trend of Americans returning to spending habits prior to the pandemic. Namely, that can be seen through spending at bars and restaurants which was the strongest category in August having grown 4.71% month over month. The past decade has seen spending at bars and restaurants as a percentage of total retail sales gaining share and eventually overtaking spending at food and beverage stores. In other words, Americans began to spend more eating out than eating in; that is up until the pandemic. COVID's reversal of this trend reached an apex in April, but more than half of that move has since been erased. Now bars and restaurants account for 10.2% of total retail sales versus 13.2% for food and beverage stores. So while bars and restaurants have taken a big hit and are far from out of the woods, recent months have seen improvements. While aggregate spending data for bars and restaurants is not yet back to pre-pandemic levels, the Russell 3000 Restaurants and Bars group has managed to recover all of its COVID-Crash declines. Since its low in mid-March, the index has been trending higher having rallied 63.8%. This index includes 35 stocks with a variety of niches ranging from fast food like McDonald's (MCD) to coffee chains like Starbucks (SBUX) and Dunkin (DNKN) to less grab-and-go oriented chains like Dave and Buster's (PLAY). Although the index may look like it has held up well at face value and is currently positive on a year to date basis, under the hood the individual stocks of the index are painting a weaker picture. Whereas the cap-weighted index is up 3.35% YTD, the average stock in the index is down 11.31%. In other words, the strength of the index is not so much a factor of broad strength of restaurant stocks, but instead is a result of solid performance of some key large-cap players like Chipotle (CMG), McDonald's (MCD), and Domino's (DPZ) to name a few.
B.I.G. Tips - This is No Way to Celebrate Wed, Sep 23, 2020 The chart below shows the rolling six-month rate of change for the S&P 500 dating back to the late 1920s. Even after the declines of the last three weeks, the current rally off the March lows represents the strongest six-month rate of change for the S&P 500 since 2009, and before that, you have to go all the way back to the early 1930s. Additionally, the last six months now ranks as just one of nine periods in the S&P 500's history where it rallied 40% or more in a six-month period. The declines this month haven't been enjoyable, but let's keep things in perspective.
Is Seasonality Driving Claims? Thu, Sep 24, 2020 Seasonally adjusted initial jobless claims have stubbornly remained in the elevated upper 800K range with this morning's release rising by 4K to 870K. That was worse than expectations of a reading of 840K which would have marked a 26K improvement from last week. While it was not an improvement, claims have been fairly stable with this week's increase not being particularly large as it only leaves initial claims at their highest levels since the first week of September when they were at 893K. In fact, although comparisons to pre-September readings are not perfectly like for like on account of the recent changes to the seasonal adjustment methodology, since the pandemic began the only smaller weekly move was a 2K decline in mid-July. On a non-seasonally adjusted basis, claims were also higher rising to 824.5K from a pandemic low of 796K last week. But just as with the seasonally adjusted number, that only brings claims to the highest level since two weeks ago. As shown in the second chart below, assuming this year follows the seasonal patterns that have been observed in the past, the 37th week of the year (last week) has, on an average basis, been the seasonal low for jobless claims with a steady rise in claims through New Year's. That means that this week's increase in non-seasonally adjusted claims could just as well be a factor of seasonality as a material worsening in the data. Meanwhile, seasonally adjusted continuing claims also missed expectations of 12.275 million with a reading of 12.58 million. While higher than expected, that was lower from last week's upwardly revised 12.747 million. Again, the caveat applies of comparisons not being perfectly like for like due to changes in seasonal adjustment, but that would mark the lowest continuing claims reading since the first week of April. Although the headline number for initial jobless claims was higher this week, including Pandemic Unemployment Assistance (PUA) total claims were actually lower. Initial PUA claims fell from 675K to 630K marking the lowest level of PUA claims (as well as total claims) in a month. While that is still a massive number of people filing for unemployment, it is an improvement and puts this week's print right inline with the average of what has been observed since the beginning of August. As for continuing claims, there was a steep drop in PUA claims for the most recent week (the first week of September). Claims dropped from 14.5 million to 11.5 million. That is the fewest continuing PUA claims since the first week of August. Combined with the standard unadjusted continuing claims, there were 24 million total claims which, while still a massive number, is the lowest reading since April.
Election Anxiety Weighs on October Market Performance October often evokes fear on Wall Street as memories are stirred of crashes in 1929, 1987, the 554-point drop on October 27, 1997, back-to-back massacres in 1978 and 1979, Friday the 13th in 1989 and the 733-point drop on October 15, 2008. During the week ending October 10, 2008, Dow lost 1,874.19 points (18.2%), the worst weekly decline in our database going back to 1901, in percentage terms. March 2020 now holds the dubious honor of producing the worst, second and third worst DJIA weekly point declines. The term “Octoberphobia” has been used to describe the phenomenon of major market drops occurring during the month. Market calamities can become a self-fulfilling prophecy, so stay on the lookout and don’t get whipsawed if it happens. But October has become a turnaround month—a “bear killer” if you will. Twelve post-WWII bear markets have ended in October: 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002 and 2011 (S&P 500 declined 19.4%). However, eight were midterm bottoms. Over the last 21 years, October’s performance has been solid. Average gains over the last 21-years range from 1.3% by Russell 1000 to 2.4% by NASDAQ. Small caps have still struggled though with Russell 2000 gaining a modest 0.5% Election-year Octobers rank dead last for Dow, S&P 500 (since 1952), NASDAQ (since 1972), Russell 1000, and Russell 2000 (since 1980). Eliminating gruesome 2008 from the calculation provides a moderate amount of relief, as rankings climb to mid pack. Should a meaningful decline materialize in October it is likely to be an excellent buying opportunity, especially for any depressed technology and small-cap shares.
Is Jobless Claims Uptick Seasonality Or Something Worse? Thu, Oct 15, 2020 After falling in back to back weeks, seasonally adjusted initial jobless claims rose to 898K this week which was weaker than the forecasted decline to 825K and last week's level of 845K last week. Now just below 900K, claims are at their highest level since the week of August 21st (before the change in seasonal adjustment methodology meaning comparisons are not exactly like for like) which was also the last time claims were above one million. Additionally, the 53K week over week increase was the largest increase since the week of August 14th when claims rose by 133K. Non-adjusted claims have been a bit more choppy over the past few weeks, but this week marks the first back-to-back increases since the first half of September. Non-seasonally adjusted initial jobless claims rose to 885.9K this week from 809.2K last week. Similar to the adjusted number, that is the highest level since mid-August while the WoW increase was the largest since a 117.7K climb in the week of July 10th. While non-seasonally adjusted claims have deteriorated for two weeks in a row with particularly weaker results in the most recent print, we would note that seasonality could be a factor. In the charts below we show the level of claims for each given week of the year versus the historical average. As shown, the rise in NSA initial jobless claims is consistent with the seasonal rise that typically occurs from the fall through the end of the year. As for continuing claims (NSA), the most recent week (40th week of the year) marked the first reading below 10 million since March. While that is certainly a positive and a sizeable improvement—the first weekly decline greater than 1 million since the first week of August—going forward seasonality will be a headwind. As shown in the second chart below, the 40th week of the year has typically marked the seasonal low for the year as claims tend to rise through the year-end. Reporting of claims from the most populous state, California, is still paused and with the addition of seasonal headwinds, it is a bit tough to decipher whether the uptick in claims is a material worsening in the data as COVID cases have been on the rise or more simply seasonality. Pandemic Unemployment Assistance (PUA) claims would seem to more give more credit towards the latter. For initial claims, PUA claims fell to 372.9K this week, down for a fifth straight week. Behind the first week that PUA claims were reported (April 17th), that is the lowest count of initial PUA claims. For total claims (regular and PUA combined), this week's reading of 1.26 million marked a new pandemic low. Similarly, continuing claims are also reaching some of the lowest levels since early in the pandemic. Continuing PUA claims which are lagged another additional week have also continued to fall. The most recent reading for the last week of September came in at 11.172 million. That is the lowest amount since the first week of August. While new lows in continuing claims are being reached, we would also note that it does not mean all those people are necessarily returning to work. The Extended Benefits program continues relief for workers who have exhausted regular benefits during periods of high unemployment such as the current scenario. The basic program's extension is up to 13 additional weeks. These claims have been on the rise since July with a new high of 354.7K this week. While the decline in regular claims still outpaces these extensions, it is yet another point that, with some nuance, claims have generally improved but are still a mixed bag.
"Quitters" Wed, Oct 21, 2020 Like an old pair of "quitters" that keep falling down because their elasticity is shot, the market has had its own trouble staying up over the last few trading days. Today isn't over yet, but if the S&P 500 finishes around current levels it will mark the fourth straight day of finishing down at least half of one percent from its intraday high. Compared to the three days before, today's pullback from an intraday high has actually been pretty mild up to this point. Following Monday's 2%+ decline from the intraday high shortly after the open, yesterday, the S&P 500 traded down close to 1% from its afternoon high. These two reversals followed Friday's late-day sell-off when the S&P 500 finished the day down 0.75% from its intraday high. While it's disheartening to see the market erasing early gains as the day goes on, it's helpful to put the last four trading days into perspective. Over the last 25 years, it hasn't been uncommon for the S&P 500 to finish the day down at least 0.5% from an intraday high for four days in a row. The current streak, if it holds, would be the 158th such streak of four or more days. That works out to more than six a year. There have also been a number of streaks that were much longer than the current one. In fact, it was only a month ago that the S&P 500 went 11 straight days of finishing the day down at least 0.5% from its intraday high, and besides that streak, there have been five other streaks that spanned ten or more trading days.
