The Bull Thread

March Jobs Report Day: S&P 500 Advances 75% of Time

Today’s ADP National Employment Report showed 298,000 jobs were added in February and suggests Friday’s job report could also be robust. Over the past 16 years, the market has generally responded favorably to February’s jobs report released in March. Over the last 16 years DJIA, S&P 500 and Russell 1000 have advanced 12 times. Russell 2000 has advanced one less time. NASDAQ’s record is mixed, up 8 down 8. With the exception of NASDAQ, average gains range from 0.04% for S&P 500 and Russell 1000 to 0.33% for Russell 2000.

 

Happy Birthday To The Bull
Posted by lplresearch

Eight years ago tomorrow, the S&P 500 closed at 676.53, which was the low close for the worst bear market in equities since the Great Depression. No one would have ever believed it possible at the time, but at 97 months old, this now ranks as the second-longest bull market since World War II. On a percentage basis though, both the 1950s* and 1990s bull markets saw larger percentage gains.



Per Ryan Detrick, Senior Market Strategist, “We don’t believe bull markets die of old age; they die of excesses. This bull might be old, but we aren’t seeing the same type of overspending, overborrowing, or overconfidence we’ve seen at other major market peaks. This doesn’t mean there won’t be pullbacks along the way, because there will be, but it does suggest this old bull could still have a few tricks up his sleeve.”

To put things in perspective, on a price basis (so no dividends included) the S&P 500 was actually lower in both 2011 and 2015—not to mention it didn’t make any new highs for 14 months from May 2015 until July 2016. And who could forget the 15% correction that ended in February 2016. So many think this bull market was simply straight up, but it has been anything but. Like all long bull markets, there were many scary times along the way.

Last, be aware that at the same stage of its bull market, the 1990s bull was up 255% now versus the current bull, which is up 250%. That bull went on to go as high as up 417% before it peaked some 18 months later. We aren’t calling for that, but pointing out that just because something might seem old, that doesn’t mean it will die right away.

 

Can We Expect Green for Saint Patrick’s Day?
Posted by lplresearch

Saint Patrick was a fifth-century missionary and bishop in Ireland. By the seventh century he was revered as the patron saint of Ireland. His death occurred on March 17, and for this reason we celebrate his life, Irish heritage, and pretty much the color green on this day.

Per Ryan Detrick, Senior Market Strategist, “Although it is purely random, you have to find some humor in the fact that a day that celebrates the color green is also historically a strong day for equities. In fact, going back 20 years, on March 17 the stock market has been higher 80% of the time – one of the most likely days to finish green out of the entire year. Luck of the Irish indeed!”



As we noted at the start of the month, March has been the strongest month for the S&P 500 Index on average in each of the past 10 years and one of the strongest the past 20 years, though the majority of those gains have taken place during the second half of the month (right in time for the NCAA Tournament).



Where could you potentially find some green in your investments here and now? Technology, financials, and bank loans all look attractive. Here are some quick bullets on why we like each:

Technology – Strong fourth quarter 2016 earnings, higher business confidence (possibly lifted by expected corporate tax reform), technology’s role as a productivity enabler, and valuations are all supportive. Trade policy is the big risk here.

Financials – Steepening yield curve, deregulation, expanded credit access, strong fourth quarter 2016 earnings, and positive revisions are all supportive. The sector is consolidating recent gains.

Bank loans – Libor is elevated, making floating rate securities (like bank loans) more attractive. Should interest rates continue to rise, floating rates may perform better than longer-term bonds – as they are less sensitive to rising rates.

 

Years Like 2017: March Edition
Mar 16, 2017


It’s hard to believe that we’re already fifty trading days into the year, meaning that 2017 is already just about 20% in the books. The best way to characterize 2017? We’d say “so far, so good.” With a gain of 6.5%, 2017 ranks as the third best start to a year in the last ten years, behind both 2012 and 2013, and in both of those years, the index finished the year higher than it was on 3/15. Today, we wanted to take this one step further and look at past years that started off looking the most similar to 2017.

To that end, as we do throughout the year, we analyzed years where the S&P 500’s closing prices had the greatest correlation to the closing prices so far in 2017. Then, for each year, we provided a summary including the correlation coefficient between closing prices for that year to the S&P 500 YTD through 3/15, how the S&P 500 performed YTD in each year through 3/15, and then how the index performed over the remainder of the year, including maximum gains and losses from the 3/15 closing level.

 

Irish Eyes Smile on Market Last 23 Years, but S&L Crisis Blackens St Patrick’s Day Fridays

Saint Patrick’s Day is the only cultural event that perennially lands in March. Over the years gains the day before Saint Patrick’s Day have proved to be slightly better than the day itself and the day after. Perhaps it’s the anticipation of the patron saint’s holiday that boosts the market and the distraction from the parade down Fifth Avenue that causes equity markets to languish. Perchance it’s the all the green folks don that stirs up thoughts of money and market gains. More likely, it’s the fact that Saint Pat’s usually falls in historically bullish Triple-Witching Week.

Whatever the case, since 1950, the S&P 500 posts an average gain of 0.22% on Saint Patrick’s Day (or the next trading day when it falls on a weekend), a gain of 0.14% the day after and the day before averages a 0.25% advance. S&P 500 median values are 0.18% on the day before, 0.23% on Saint Patrick’s Day and 0.07% on the day after.

In the nine years when St. Patrick’s Day falls on a Friday – also Triple Witching Day – like this year, since 1950, the day before (Thursday) produced an average gain of 1.01%; while Friday advanced a paltry average 0.01% and the following Monday suffered an average loss of -0.06%. The 1989 Savings and Loan Crisis impacts Friday Saint Patrick’s Day heavily with Seaman’s Corporation, parent of Seaman’s Bank for Savings of New York, announcing an agreement with the Feds that would prohibit it from paying dividends on common stock shares, knocking the stock down 45% on the day. On the same day the Feds also seized 6 S&Ls in South FLA. S&P 500 was down 2.25% March 17 1989 and 0.95 the following Monday.

However, over the last 23 years market performance on Saint Patrick’s Day and the day after have improved, up 78% of the time on the Holiday with an average gain of 0.69%. Since there is no major financial crisis afoot and March Triple Witching has been more bullish recently, the odds are for market upside tomorrow.

 

S&P 500 Streak w/o a 1% loss ended today - Now what?

Today the S&P 500 ended its daily streak of trading days without a 1% or greater decline at 109. Since 1950, there are only 9 other S&P 500 streaks of this duration or longer. The longest streak was 184 trading days in 1963. The average gain during the past 9 streaks was 15.16%. S&P 500 fell short of this mark this time at 11.30%. Compared to S&P 500 streaks lasting 89 trading days or longer this list has six fewer and shows additional weakness 3-Months after the streak ended.

The chart above is the average performance of these past 9 streaks 30 trading days before the streak ended and 60 trading days after comparing 79 trading day and longer streaks to 89 day and longer streaks to 109 trading days and longer. Weakness near the end of the chart, 60 trading days is approximately 3 calendar months later.

Arguable today’s retreat was overdue. Perhaps it was due to some early end-of-quarter profit taking and portfolio restructuring triggered by President Trump’s slipping approval rating and the possibility that health care reform may not happen as quickly as promised. This potential failure has led to speculation that other Administration major policy changes such as tax cuts and infrastructure spending roll out will be delayed or worse yet, not happen at all. It seems like a stretch at this point to jump to the conclusion that the Trump Administration is not going to have any success. We believe the market is still on track for double-digit full year gains and DJIA could still easily reach 23,000 to 24,000 by yearend.

 

End-Of-Q1 Weakness May Be Over

Over the past 27 years the DJIA and S&P 500 have declined 17 times and advanced 10 with an average loss approaching of about 0.75% near the end of March. Excluding advancing years, the average decline is right around 1.6% for DJIA and S&P 500. End-of-quarter portfolio restructuring likely plays a role as managers lock in any gains and establish positions for the next quarter. These declines can begin on either the fourth-to-last trading day or the third.

However, coming into this stretch with March down month-to-date as it is this year has mitigated losses on several occasions. Of the 7 times this DJIA was down MTD in March since 1990 month-end was up 5 times. For the S&P, the 7 down MTDs were followed by 4 gains. So perhaps the healthcare disappointment had managers restructuring a wee early and the next few days will be stronger than usual. Depends what comes out of DC though…

 

April is DJIA’s Best Month of the Year–Up 11 Straight

April marks the end of our “Best Six Months” for DJIA and the S&P 500. On April 3rd, we will begin looking for our Seasonal MACD Sell Signal and corresponding early signs of seasonal weakness. We will use this signal to begin to take a more defensive posture in the Almanac Investor Stock and ETF Portfolios.

April 1999 was the first month to gain 1000 DJIA points. However, from 2000 to 2005, “Tax” month was hit, declining in four of six years. Since 2006, April has been up eleven years in a row with an average gain of 2.6% to reclaim its position as the best DJIA month since 1950. April is second best for S&P and fourth best for NASDAQ (since 1971).

Typical post-election blues have done little to damper April’s performance since 1953. April is DJIA’s second best month in post-election years, gaining 1.9% on average. April is fourth best for S&P 500 and NASDAQ. Although post-election year 2005 did suffer a 3% DJIA decline.

 

Historically Slow Grind to Recover Losses from 8-Day or Greater Losing Streak

Prior to yesterday’s solid gains, DJIA had declined in eight consecutive trading sessions. The last DJIA losing streak of similar duration was in July 2011. Since 1950, DJIA has suffered 21 daily losing streaks of eight or more trading days. The longest was 12 trading days in January 1968, the worst based upon total decline was in October 2008 when DJIA shed 22.11% in eight trading days. DJIA’s recent streak ended with DJIA down a modest 1.91%. Historically, it took DJIA more than 60 trading days to recover the losses accumulated during the streak. This is can be seen in the top chart of DJIA’s performance 30 trading days before and 60 trading days after the previous 21 streaks.

DJIA’s most recent losing streak resulted in the smallest decline of all other streaks. The most similar streak with a mild total decline occurred in 1989 (shaded grey in table below). In 1989, DJIA was quick to recover and was 5.99% higher one month later and 13.27% higher three months later. If Q1 earnings are generally solid and economic data remains firm a repeat of that past performance is not completely outside the realm of possibility.

 

First Trading Day of April DJIA and S&P 500 Advance 77.3% of the Time

According to the Stock Trader’s Almanac 2017 (50Th Anniversary Edition), the first trading day of April is DJIA’s second best first trading day of months based upon total points gained. Only May’s first trading day is stronger. Looking back at the last 22 years, in the tables below, we can see DJIA and S&P 500 have both advanced 77.3% of the time with average gains in excess of 0.5%. NASDAQ and Russell 2000 have slightly weaker track records and smaller average gains, but are both still up more frequently then down with modest average gains.

 

What Happens After A Big First Quarter For Equities?
Posted by lplresearch

Although the S&P 500 Index just missed out on a five-month winning streak in March with a 0.04% loss, the good news is it still gained 5.5% in the first quarter. This came out to the best quarter overall since the fourth quarter of 2015, and it was the best first quarter gain since 2013. Given that the S&P 500 went on to gain another 17.8% in the final three quarters of 2013, the big question is: What does a big first quarter mean?

Going back to 1950*, this was the 25th time the S&P 500 gained 5% or more during the first quarter. The good news for the bulls is the returns after a big first quarter have been broadly stronger across the board.

Here are some stats to consider after the S&P 500 gains 5% or more in the first quarter:

• April has been up 2.0% on average versus the average April gain of 1.5%.
• The second quarter has gained 3.2% on average versus a 1.7% average return.
• The rest of the year, the S&P 500 has been up 9.6% on average versus the average return in the final three quarters of 6.4%.
• Last, incredibly, the full year has been higher 23 out of 24 times, with only 2011 lower. On a total return basis (including dividends), all 24 years have been higher.

Per Ryan Detrick, Senior Market Strategist, “Although you’d think a big first quarter could lead to some near-term weakness, it sure doesn’t look like that. In fact, continued strength and a good deal of outperformance are perfectly normal after a big first quarter. Of course, all years are different and there are many other factors to consider; however, this does help to suggest that any pullbacks could be used as buying opportunities and that the bull market is still alive and well.”

 

It Has Been 100 Days Since The S&P 500 Did This
Posted by lplresearch

How persistent has the rally been since the U.S. election? We’ve shown this many ways, but here’s yet another great example. Yesterday, the S&P 500 Index closed for the 100th trading day in a row above its 50-day moving average. Using historical data back to 1928*, this is only the 18th time the S&P 500 has ever made it to 100 days and the first time it has happened in more than six years.

Although 100 days is a long time, it still has a long ways to go to reach the record of 257 days set in 1995, as noted in the chart below:



When you see there was a streak of more than 100 days in 2007, ahead of the Financial Crisis, the next question is, do these trends signal a potential warning? As the next chart shows, that fortunately doesn’t appear to be the case. Per Ryan Detrick, Senior Market Strategist, “Looking at the other times the S&P 500 traded above its 50-day moving average for 100 days or more, the subsequent 1-, 3-, and 6-month average returns are better than the average return for all comparable periods. In other words, you might think these long runs should lead to a well-deserved break, but history suggests that isn’t always the case.”



Last, note that the recent 100-day return was only 9.1%, the weakest out of all the previous streaks. In fact, only one other time did a streak return less than 10%, and that was in 1964. Is this a sign of a weakening trend? Or could it be a market that still has plenty left in the tank? Please continue to follow LPL Research as we continually analyze that important question.

 

Bulls Not Out Of Breadth
Posted by lplresearch

One year ago this week, April 12, 2016 to be exact, one of the more significant technical indicators, the New York Stock Exchange (NYSE) Composite Advance/Decline (A/D) line, broke out to a new high for the first time in a year. As we noted at the time, this type of internal market strength was a good sign for equities over the intermediate term, despite the skepticism expressed by many over equities and the economy. Fortunately this signal was correct, as just three months later (July 2016) the S&P 500 Index broke out to new highs for the first time in more than a year (May 2015).

First a step back, an A/D line shows how many stocks are advancing versus declining on a various index or stock exchange. If more stocks’ prices are rising than falling, that is considered a sign of underlying strength and suggests that stocks may have room to run. The flip side is, if many stocks are declining yet the overall index hasn’t yet broken lower, it is a warning sign something could be wrong as relatively few stocks are propping up the index.

Per Ryan Detrick, Senior Market Strategist, “A year ago when we saw the NYSE Advance/Decline line make new highs it helped support the bullish case for equities, no matter what scary headlines were out there—I’m looking at you Brexit and the U.S. election. Why bring it up now? It made another new all-time high last week— further supporting higher prices and the notion of buying on all inevitable dips.”



As the chart above shows, market breadth can provide warning signs for future equity weakness. In both the late ‘90s and leading up to the financial crisis in ’07-’08, market breadth broke down ahead of equity prices. With new highs taking place currently for market breadth, this is one positive for the bulls as we enter earnings season and the historically tricky summer months.

Last, the NYSE Composite A/D line is part of our Five Forecasters, which we examined in closer detail recently in How Much Is Left In The Tank?

 

Daily Grind Persists, But Market Still Delivering Above Average Performance

As of todays close, DJIA is up 4.53% year-to-date. S&P 500 is up 5.3% and NASDAQ is best at 9.2%. When compared to the average performance at this point during the year in past years ending in seven (7th Years of Decades), All Years, All Post Election Years or the 1st Year of New Administrations, the market’s performance thus far in 2017 is above average. Each pattern in the below charts shows some average gain during the full month of April. The choppiest is the 7th Year of Decades.

 

When Will The Bullish April Seasonality Start?
Posted by lplresearch

Hard to believe it, but in a few days, April will be half over. As we noted at the start of the month, April has historically been one of the best performing months for the S&P 500 Index. In fact, over the past 20 years, it has been the strongest month of the year.



Per Ryan Detrick, Senior Market Strategist, “As strong as April has been in the past 20 years, here’s the catch—most of the gains have tended to occur in the second half of the month. In fact, as of April 14, the S&P 500 has been up only 0.2% on average, yet has finished up 2.0% by month end. In other words, the slow start to April in 2017 is perfectly normal, and history would suggest a bounce over the second half of the month is potentially still in play.”

Big picture, the S&P 500 continues to cling to support from its upward sloping 50-day moving average, barely closing above this trendline yesterday (April 11, 2017) for the 105thconsecutive trading session—the longest streak in six years. The CBOE Volatility Index (VIX), meanwhile, closed above the 15 level (versus a median of 14.6 since the start of 2012) for the first time since the day after the U.S. election, suggesting some fear over geopolitical concerns could be creeping into the markets. To wrap it all up, consensus expectations are for earnings to have their best quarter since late 2011, and this could help to justify the big rally since the election. However, it’s likely to be anything but a smooth ride as volatility potentially heats up.

 

What Could A Government Shutdown Mean For Equities?
Posted by lplresearch

Although we consider it unlikely, the U.S. government could shut down later this month for the first time since 2013 if a must-pass spending bill does not clear Congress. Shutdowns have been rare the past two decades, but they happened quite often in the ‘70s and ‘80s. Per Ryan Detrick, Senior Market Strategist, “There has been slight underperformance on average during times of a shutdown, but recent history suggests markets look past Washington’s squabbling, regardless of the length of a shutdown. The previous two shutdowns in 1995/1996 and 2013 did little to slow down those bull markets, despite each lasting more than two weeks.”



Two final things to consider:

• The last two times a government shutdown happened when Republicans controlled both the House and Senate (as they do now), the market rose.
• The previous 18 shutdowns started in September, October, November, or December. This could be the first shutdown in any other month, making an April shutdown all the more interesting.