The Bear Thread

S&P 500 Equalweight Lagging Badly
Wed, Jul 14, 2021

If you've been following the market over the last couple of months, you've likely noticed that the "mega-cap" stocks have been the main driver of the broad market's move higher. You can really see this trend when looking at the performance disparity between the cap-weighted S&P 500 (SPY) and the equal-weight S&P 500 (RSP). (Just to be clear, the main S&P 500 index that's tracked closely across the investment landscape is a cap-weighted index, meaning larger stocks have a bigger impact on its performance than smaller stocks. The lesser-followed equal-weight S&P 500 weights all 500 stocks in the index equally. In the equal-weight S&P 500, Apple (AAPL) -- the largest stock in the index -- and Unum Group (UNM) -- the smallest stock in the index -- have the exact same impact on the index's performance.)

Yesterday was once again a bad day for most stocks as the equal-weight S&P 500 (RSP) fell more than 0.90% on the day. At the same time, the cap-weighted S&P 500 actually closed slightly higher on the day. As shown below, RSP has been stuck in a sideways pattern for the past two months, essentially going nowhere. SPY, on the other hand, has experienced a nice leg higher and is now very extended above its 50-day moving average. Over the last 12 trading days, SPY has closed at a new high 8 times while RSP has averaged a daily move of -0.02%. While the mega-cap growth stocks spent the time from late 2020 through early 2021 in consolidation, it's not the smaller cap stocks in the index that look to have fallen asleep. Click here to view Bespoke's premium membership options and sign up for a trial to any one of them.



While RSP has been trading sideways for the past couple of months, it's actually still slightly ahead of SPY on a year-to-date basis.



As shown below, RSP's YTD lead over SPY has been declining rapidly since peaking in May/June, however.



It's the last two months that have caused RSP to give up nearly all of its 2021 outperformance versus SPY. As shown below, RSP is only up 0.33% over the last two months, while SPY is up 4.64%.



The recent underperformance we've seen from RSP is definitely outside the norm. Below we show the rolling 2-month performance spread between RSP and SPY since RSP began trading in 2003. There have only been two other periods where we've seen the 2-month performance spread turn more negative for the equal-weight S&P versus the cap-weighted S&P. The first was in late October/November 2008 when the entire market was falling rapidly during the Financial Crisis. The second was in late March 2020 during the COVID Crash. These two examples show that we normally see RSP significantly underperform SPY like this when the broad market is falling; not when it's rallying to record highs on a seemingly daily basis.

 

July monthly options expiration day and week mixed

Since 1982, the Friday of monthly options expiration week has a bearish bias for DJIA declining 22 times in 39 years with two unchanged years, 1991 and 1995. On Friday the average loss is a significant 0.28% for DJIA and 0.29% for S&P 500. NASDAQ’s record is even weaker, down 24 of 39 years with an average loss of 0.43%. DJIA posts the best full-week performance, up 24 of 39 with an average 0.41% gain. The week after options expiration leans bearish for S&P 500 and NASDAQ over the longer-term with average losses. In recent years the track record had been improving until 2015’s across the board, greater than 2% loss.

 

Fewer Bulls Without More Bears
Thu, Jul 15, 2021

The S&P 500 is flat on the week but the index did tag record highs on Monday. In spite of this, sentiment has turned lower as the AAII survey showed bullish sentiment fall four percentage points to 36.2% this week. That took out the low of 36.4% from the week of May 27th to make for the lowest reading since the last week of October.



Some of those declines were picked up by bearish sentiment which rose to 26.8% from 24.5%. Whereas bullish sentiment is at one of the lowest levels in months, that is only the highest level in bearish sentiment since May 13th.



With bearish sentiment having risen only slightly while bullish sentiment experiences a more significant decline, the bull-bear spread has fallen to 9.4. That is at the low end of the past several months' range.



Instead, the losses to bullish sentiment have been picked up by the neutral sentiment camp as this week's reading topped 37%. While late May and early June saw similar to slightly higher readings, that level of neutral sentiment is elevated relative to the historical average of 31.43%.



Overall, the AAII survey has shown individual investors have become increasingly less optimistic, albeit not outright bearish, over the past few weeks. And while that may be the case for this group, equity newsletter writers have been another story. The sentiment survey from Investors Intelligence (II) covering this section of the market participantshas maintained a more optimistic outlook. This week, 61.2% of respondents reported as bullish which is the highest reading since April. That also comes in the top 5% of all readings since the start of the survey in the early 1960s.

In the chart below, we show the spread in the bullish sentiment readings of the AAII and Investors Intelligence surveys. This week, that spread fell down to -25 (meaning the percentage of respondents reporting as bullish in the AAII survey is 25 points lower than in the Investors Intelligence survey). That is the lowest reading in the spread since October and it is also in the bottom 5% of all periods.



There have been 20 times in which the spread has dipped below -25 without having done so in the prior six months. As shown, these instances are not particularly rare with about a year or two between each one. But what is notable about the current instance is how elevated the bullish sentiment readings are for each survey. As for what this means for the performance of the S&P 500, in the near term performance has tended to have a negative bias, but moves higher are much more consistently seen in the months to a year after.

 

The COVID Trade Is Back
Mon, Jul 19, 2021

Each of the major indices are down well over 1% with the Dow and small-cap Russell 2,000 down even more having fallen over 2% as of this writing. Meanwhile, Treasury yields are falling and at multi-month lows. The main reason being attributed to the risk-off move today is jitters over the rising prevalence of the Delta variant. To give some evidence to this being the catalyst, in the chart below we show the relationship between individual S&P 500 stocks' performance today and back during the COVID crash from February 19th to March 23rd of last year. As shown, there is a general correlation that exists between the performance of the two periods. Some of the best performers today were also some of the best performers during the crash and vice versa. For example, Consumer Staples was the sector that held up the best during the COVID Crash last year with the average stock in the sector falling 24.04% versus an average decline of 38.7% for the entirety of the S&P 500. Today, several of the sector's names are the top performers on the day as the average stock in the sector is only down 19 bps versus an average decline of nearly 2% for all S&P 500 stocks.

 

Homebuilder Sentiment Strong But Sliding
Mon, Jul 19, 2021

Homebuilder sentiment peaked back in November with the NAHB's Housing Market index topping out at 90. In the time since then, it has reversed lower by 10 points to 80 this month with higher prices and various shortages being the main reason reported by the NAHB for the decline. The drop leaves the index at the lowest level since last August, although it's still above any pre-pandemic reading. In short, homebuilders remain historically optimistic but not to the same extent that they were in late 2020.



Playing into that decline in the headline number was a single point drop in Present Sales and a much larger six point decline in Traffic. The Present Sales index, which has the highest weighting on the headline number at nearly 60%, fell to 86 which ties the pre-pandemic record high from December 1998. The Traffic Index holds the second-largest weight at roughly 27%, and its larger decline was the main driver of the overall drop in sentiment. This month's decline was particularly large ranking in the 3rd percentile of all monthly moves. Although traffic has moved sharply lower, it too remains healthier than any period prior to the pandemic. One other silver lining is that Future Sales rose 2 points to move back above 80. While that is far from setting any sort of new high as the index still needs to climb another eight points to reach its record, it does point to some improvement in homebuilder outlook.



Looking across each of the four regions broken up by the report, only the Midwest saw an overall improvement in July whereas each of the others fell by 2 points. Once again, those drops still leave the indices at historically solid levels.



Even though the NAHB's reading on homebuilder sentiment headed lower once again this month and there is a broader weakness across equities today, the S&P Homebuilders (XHB) has managed to so far hold up at support. As shown below, XHB tested support at the June low near $69 on the initial drop at this morning's lows. That will continue to be a level to watch going forward, although it is also in a bit of a no man's land. XHB currently finds itself smack dab between its 50 and 200-DMAs.



As for any catalysts to change that, hard data on housing starts will be released tomorrow and earnings are certainly another. As shown in the snapshot of our Earnings Explorer tool below, there are a handful of XHB stocks scheduled to report over the next week, and many others are also scheduled over the next few weeks. For the most part, these stocks have averaged positive reactions to earnings with D.R. Horton (DHI) averaging the strongest stock price reaction of any of those reporting this week.

 

DJIA Down Friday/Down Monday: Historically an Ominous Warning

Today’s retreat triggered the second DJIA Down Friday/Down Monday of 2021. The combination of a DJIA Down Friday* followed by a Down Monday** has been a rather consistently ominous warning, but they have also occurred at significant market inflection points (tops and bottoms). The last occurrence was in January. During that decline, DJIA quickly shed 3.16% from Monday’s close (1/25/21) through Friday’s close (1/29/2021) before quickly recovering its losses during the first week of February.

Since January 1, 2000 through todays close there have been 221 DJIA Down Friday/Down Mondays (DF/DM) including todays. From DJIA’s closing high within the next 7 calendar days to its closing low in the following 90 calendar days, DJIA has declined 212 times with an average loss of 7.21%. Declines following the DF/DM were greater in bear market years and milder in bull market years (see page 76 of Stock Trader’s Almanac 2021). The eight times when DJIA did not decline within 90 calendar days after were following DF/DMs on October 7, 2002; May 19, 2003; November 17, 2003; February 3, 2014; October 13, 2014; October 31, 2016; September 25, 2017 and October 9, 2017.

When DJIA’s close on Monday of the DF/DM is used as the starting point of the subsequent decline (a lower price), DJIA has declined an average of 5.73% over the next 90 calendar days, but there were 38 times when no further decline occurred. In the chart above, the 30 trading days before and 60 trading days after a DJIA DF/DM have been plotted alongside the 38 times there was no lower low after Monday.

Based upon the above chart, if DJIA recovers its recent losses within about 4-7 trading days, then the DF/DM that just occurred may have been the majority of the decline. However, if DJIA is at about the same level or lower than now after this window, additional losses are more likely over the next 90 calendar days.

*Friday or the last trading day of the week. **Monday or the first trading day of the next week.

 

The US Is The Lone Overbought Country
Wed, Jul 21, 2021

While the S&P 500 (SPY) may have had a string of weakness over the past week and a half resulting in a test of its 50-DMA, SPY has held up much better than many other major economies. Looking across the ETFs tracking the equity markets of each of the 23 major economies in or Global Macro Dashboard, the US, Switzerland (EWL), and Sweden (EWD) are the only countries that are up month to date with each country posting an over 1% gain. Conversely, China (MCHI) has been the worst performer having fallen 6.42% MTD. Additionally, alongside MCHI, Malaysia (EWM) and Japan (EWJ) are the only countries in the red year to date.

While EWD and EWL are up a similar amount to the US MTD, the US has been the only country of the 23 to have hit a 52-week high in July. Most of the rest of the world saw 52-week highs in the first days of June or earlier. In addition to the US being one of the only countries up on the month and recently putting in a 52-week high, the past couple of days' rally off of the 50-DMA has resulted in the US returning back to overbought territory. By comparison, Switzerland (EWL) and Taiwan (EWT) are the only other ETFs that are even above their 50-DMA whereas 13 countries are oversold.



To show the outperformance of the US relative to other geographies, in the chart below, we show the ratio of the S&P 500 to the MSCI World Index that excludes the US. Since June, the ratio has taken off surpassing the highs from last summer in the process. In fact, the ratio has risen over 6% over the past month which stands in the top 5% of all monthly moves. That is the biggest one-month uptick in the ratio since it rose 9 percentage points last April. Prior to that, July 2016 was the last time in which the US has seen as large of a degree of outperformance.

 

State Withdrawals Show Face
Thu, Jul 22, 2021

Initial jobless claims were anticipating a 10K decline to 350K this week. Instead, claims rose back above 400K to reach the highest level since the week of May 14th. The 51K uptick to 419K this week was also the largest one-week increase since the final week of March. Not only was the most recent reading worse, but last week's print was revised higher from 360K to 368K.



On a non-seasonally adjusted basis, it was a less dramatic increase with claims only rising 14.5K. Nonetheless, claims wound up above 400K. At 406.1K, it was the highest level in five weeks. Taking seasonality into account, NSA claims moving higher week over week during the current period of the year has historically been uncommon. Of all years since 1967, claims have only ticked higher during the current week of the year (29th week) 18.5% of the time.

Regular state claims were not the only area of deterioration though. PUA claims had fallen back below 100K last week, but the most recent print rose to 110.3K. That made for the largest increase in initial PUA claims since the week of June 18th as total combined claims between regular state and PUA programs is at the highest level in two months. Delving deeper into the data though, more than half of the uptick in the national count of PUA claims was on account of a single state: Indiana. PUA claims for that state rose from zero to 7,598 after a judge ordered the program to be restarted.



Continuing claims through regular state programs were also weaker than expected coming in at 3.236 million versus forecasts of 3.1 million. Similar to initial claims, last week's print was also revised higher by 24K. While expectations were calling for a larger decline and last week's print was not as strong, adjusted continuing claims are still at the lowest level since last March.



Delayed an extra week, the inclusion of all other programs are finally clearly showing the withdrawal of states from pandemic era programs. Total claims for the first week of July fell to 12.59 million from 13.86 million. That 1.27 million drop in a single week was the largest since March 12th. Obviously, the bulk of those declines were on account of PUA and PEUC programs while Extended Benefits and regular state programs also saw significant declines.

 

August has been a dangerous month for the market

August is the worst DJIA, S&P 500, Russell 1000 and Russell 2000 month over the last 33 years, 1988-2020 with average declines ranging from 0.4% by Russell 2000 to 0.8% by DJIA. For NASDAQ August ranks second worst over the same period with an average gain of 0.2%.

Contributing to this poor performance since 1987; the second shortest bear market in history (45 days) caused by turmoil in Russia, the Asian currency crisis and the Long-Term Capital Management hedge fund debacle ending August 31, 1998 with the DJIA shedding 6.4% that day. DJIA dropped a record 1344.22 points for the month, off 15.1%—which is the second worst monthly percentage DJIA loss since 1950. Saddam Hussein triggered a 10.0% slide in August 1990. Sizeable losses in 2010, 2011, 2013 and 2015 of over 4% on DJIA have widened Augusts’ average decline.

In post-election years, Augusts’ rankings are little changed. August is the worst month for DJIA and Russell 1000 and second worst for S&P 500, NASDAQ and Russell 2000. Average declines in post-election year Augusts swell to 0.8% by Russell 2000 to 1.7% by DJIA. Each index has also seen more declining post-election year Augusts than positive.

 

Dallas Manufacturing Slows With Some Silver Linings
Mon, Jul 26, 2021

Manufacturing activity in the Dallas Fed's region continued to expand at a strong clip in July albeit with some slowing. The index for General Business Activity came in at 27.3 rather than the expected increase from 31.1 to 31.6. That decline marked the third month in a row that the index has fallen since the multi-year high of 37.3 in April. While current conditions deteriorated, expectations have held up better with a modest decline of 0.2 points this month.



Most of the individual areas of the report saw a decline month over month in July with 12 of the 16 indices falling. Although most were lower, current levels remain broadly healthy with many in the top decile of their historic ranges. Expectations saw more broad declines with the only index to move higher month over month being Delivery Times. There were some particularly large double-digit declines in expectations for Shipments, Capacity Utilization, Inventories, and Prices Received.



One of the few areas of the report to see a move higher in July concerned new orders. The indices for New Orders and New Order Growth rate rose 0.1 and 2.4 points, respectively. Granted, those upticks still left both indices below their highs from earlier in the sping and expectations saw significant turns lower. While that could imply some slowing in demand, historic backlogs still exist. As shown in the bottom left chart below, outside of the spike in September 2005 and the past few months, the index for Unfilled Orders has never been higher even taking into account the declines over the past few months. Shipments also saw a small turn lower in July while the bigger move was in regards to expectations. Last month, expectations for shipments surged to the highest level since February 2006. This month, that reading reversed by 12.4 points; a month-over-month decline that ranks in the bottom 3% of all monthly moves.



Ironically, even though the reading on shipments worsened, supply chains appeared to have improved to some degree. Higher readings in the Delivery Time index indicate that products are facing longer lead times. Earlier this year the index surged to unprecedented levels, and while it still has a ways to go until it is back to normal, it did fall 7.2 points in July following a 3.2 point decline in June.



As with Delivery Times, prices have also found some respite after flying higher over the past several months. Prices Paid fell from a record high to 73.5 which is still the third-highest level of any month to date. Expectations also saw a sharp pivot lower falling 9.8 points to 43.8. That is at a similar level to three years ago. Prices Received are a similar picture pulling back from a record high to 40.9. Again even though this reading shows some slowing in price increases, there is no historical precedent for as high of a reading in the index. Additionally, expectations saw an even more dramatic decline as the index fell 15 points.

 

Modern 4-Year Cycle Theory Approaching Near Term High

Despite the recent uptick in volatility and today’s drop the S&P 500% is up 17.2% year-to-date. This is right in line with our 2021 Annual Forecast best case scenario made last December. Our updated outlook is for S&P 500 to finish the year in the 4300-4500 range or even higher.

However, as you can see in the chart of the Modern 4-Year Presidential Election Cycle we are due for a pause over the next couple of months before the rally resumes in the September/October timeframe. This illustration of the average 4-year cycle uses the S&P 500 back to 1949, which is the first full cycle post-WWII vs. other comparisons that use the Dow back 125 years to 1896.

We feel the more recent dataset is a better representation of the modern cycle where post-election years have been better and election years weaker – impacted by the undecided election in 2000 and the financial crisis of 2008. Midterm years are still lackluster with propensity for the significant bottoms and pre-election years are still the tops.

This creates the sweet spot of the 4-year cycle from Q4 in the midterm year through Q2 in the pre-election year. From the midterm low to the pre-election year high DJIA averages a 45% gain since 1950 and NASDAQ averages a 70% gain since 1974.

 

State Oddities and Claims
Thu, Jul 29, 2021

While last week's jobless claims number was already disappointing on account of increases in layoffs in the manufacturing and automobile industries in Michigan, Texas, Missouri, Illinois, and Ohio, and this week that reading was revised higher by 5K to 424K. Fortunately, the most recent print saw an improvement with claims falling to 400K. That compares to expectations of a drop back below 400K to 385K.



While the seasonally adjusted number did not improve by as much as expected, the non-seasonally adjusted number was much stronger at 344.7K. That leaves initial claims within 100K of the last sub-one million claims print from March 13th of last year. Given that disconnect between the seasonally adjusted and unadjusted numbers, it goes without saying that drops in the NSA number are due to seasonality and typical for this time of year. In fact, as shown in the second chart below, since 1967 when the data begins, claims have risen only 11% of the time during the current week (30th) of the year. That ranks sixth as the week of the year in which claims have most often fallen week over week.

Since mid-June, PUA claims have been fluctuating around 100K. Last week saw a rise up to 109.9K thanks to a big jump in Indiana following a judge's order for the program to be restarted. Indiana claims started to normalize this week and saw the largest drop of any state, national PUA claims came in back below 100K at 95.17K. That is the lowest level since the first week of June when PUA claims put in a low of 71.23K.





Lagged an additional week to initial claims, continuing claims snapped a streak of three weeks of improvement. Continuing claims rose to 3.269 million from 3.262 million in the prior week. That is only the highest level since the end of June.



Factoring in all other programs creates an additional week of lag making the most recent reading through July 9th. Continuing claims broadly saw a move higher across programs that week bringing total claims to 13.17 million from 12.59 million. That brought to an end a streak of ten consecutive weeks of declines. As for which programs, in particular, accounted for that uptick in claims, the biggest contributor was the Extended Benefits program. This program saw claims go from under 100K all the way up to 343.5K. While we cannot point to any particular reason for each state's increase, that large move higher was particularly thanks to two of the most populous states: Texas and California which saw weekly claims rise 180K and 67.1K, respectively. Throughout recent claims reports, there have been a handful of state-level idiosyncracies which impact aggregate claims counts, but overall the trend of improving claims on a national level remains in place.

 

Did You Know Stocks Historically Peak in Early August?
Monday, August 2, 2021

Hard to believe, but we are in August already! The good news is stocks are still firmly in a bull market, but the bad news is the calendar is a potential worry now. As shown in the LPL Chart of the Day, August and September have been historically two of the weakest months of the year. In fact, during a post-election year, August has been historically quite poor, with only February worse on average. Turning to September, it has indeed been historically the worst month of the year on average. Don’t forget that last year stocks saw nearly a 10% correction during this troublesome month.



Taking this a step further, stocks tend to peak in early August when a new party is in power in the White House. August 6 is the day stocks peak and they don’t bottom until September 25.



Meanwhile, during a post-election year stocks peak on August 3 and bottom on September 24. Again, showing how the next several weeks potentially can be dangerous.



It isn’t all bad news though. With the economy rebounding and earnings soaring, should we see any seasonal weakness, we’d use that as an opportunity to add to core equity positions. “The S&P 500 is up an incredible six months in a row,” explained LPL Financial Chief Market Strategist Ryan Detrick. “What most might not realize is that is a very bullish event. In fact, one year later it has been up 18 of 21 times with nearly a 12% average return. The bull might have a few tricks up his sleeve yet.”



Look for our latest Weekly Market Commentary out later today as we dive more into events that could move stocks in August.

 

Biggest Jump in Bearish Sentiment Since Last Spring
Thu, Aug 5, 2021

The S&P 500 has been moving sideways around record highs over the past couple of weeks. As such, bullish sentiment from the AAII was relatively flat this week. After a sizeable 5.6 percentage point jump to 36.2% last week, bullish sentiment fell 0.1 percentage points this week. With that reading, bullish sentiment is still 2 percentage points below the historical average of 38%.



Whereas bullish sentiment did not change much, bearish sentiment surged 7.6 percentage points. That was the biggest single-week uptick since June 18th of last year when it rose 9.73 percentage points. At that time though, just under half (47.78%) of respondents reported bearish sentiment compared to only 31.7% today which is only slightly elevated versus the historical average of 30.53%. In fact, the current level of bearish sentiment is now the highest since only February. Put differently, bearish sentiment has been muted recently, and while this week's increase was large, it does not leave sentiment at any sort of extreme level.



In spite of the large uptick in respondents reporting as bearish, sentiment continues to favor the bulls. The bull-bear spread remains positive at 4.4.



Given bullish sentiment went little changed, the rise in bearish sentiment borrowed almost entirely from those reporting as neutral. Neutral sentiment fell 7.5 percentage points to 32.2%. That is the lowest reading since the first week of July, and it was the largest week-over-week decline since April 8th. This week now marks the first time in three weeks that neutral was not the predominant sentiment reading.

 

Shorted Names Cool Into the Summer
Mon, Aug 9, 2021

This year has seen two bouts of interest in highly shorted names. The first in January when GameStop (GME) was the main stock in focus with a short interest as a percent of float above 100%, and again in late May/early June when AMC Entertainment (AMC) became the new poster child. As shown below, while those two stocks and a handful of other individual names have seen the spotlight this year due to massive short squeezes, in aggregate short interest as a percentage of free float across the US equity market has pulled back over the past couple of years. Some of that decline was erased from February to April, but since the spring, short interest has flatlined.



Below is a Bloomberg index that tracks the 100 most highly shorted US stocks rebalanced monthly and dating back to February 2020. The index remains well off the highs from this February when it surged on the initial squeeze in GME and various other names. The unwind since then has brought the index down to the longer-term uptrend line that has been in place in the index's year and a half history.



As for the two stocks that were the main short squeeze names earlier this year, AMC and GME, both stocks are still up huge on the year (1,571.14% and 823.19%, respectively) but have fallen well off their highs and have been trending lower.



Taking a look at what are currently the most heavily shorted stocks in the Russell 3,000, retailers take the top spot with the average stock having a 9.7% short interest as a percent of float. Pharmaceutical, Biotech, and Life Science stocks are the only other industry in which the average stock has a short interest above 9%. Autos in addition to Food & Staples Retailing are the other two sectors with notably elevated short interest. Conversely, Banks, Utilities, Insurance, and Commercial and Professional Services have a relatively low short interest versus the Russell 3,000 average of 5.5%.



Taking a more granular look, in the table below we show the stocks in the Russell 3,000 that currently have the highest short interest as a percent of float as well as their year-to-date performance. Recent IPO Reneo Pharmaceuticals (RPHM) tops the list with just under half of its shares sold short. That is as the stock has gotten crushed since its debut having fallen 40%. GreenBox (GBOX), Skillz (SKLZ), Beam Global (BEEM), and Workhorse Group (WKHS) round out the top five, all with more than 37% of their float sold short.

Looking across many of the other highly shorted names, though, big losses are pretty common on a year-to-date basis with 60% of these names in the red. That was not always the case, though. Performance was slightly better two months ago during the AMC saga and performance was even more positive at the GME high one month into the year.

 

Google Search Trends
Mon, Aug 9, 2021

One of the widely talked about pandemic trends has been an increased interest in the stock market. Quantifying this, below we show data from Google Trends. These indices track search interest for various terms where readings of 100 are the peak in interest for a given time frame, a reading of 50 would be when interest was half of that peak, and so on and so forth. Google searches for "Stocks" surged to record highs during last year's bear market and those highs were taken out earlier this year around the time of the meme stock mania in late January. The same could be said for searches for "Buy Stocks". Since then, that interest has unwound but current levels are still above most pre-pandemic levels. (Red dots indicate search levels during the week of August 9th over the last five years.)



The same could be said for search interest for various brokerages. Taking a look at the most popular, Robinhood, search interest spiked higher during the meme stock mania and GameStop (GME) short squeeze early this year before getting another boost in the spring around the time of the surge in AMC Entertainment (AMC). Interest has moderated since then, though, the past several weeks have seen a boost potentially as a result of the IPO of the company.



Inflation continues to be a macroeconomic subject that is closely watched, but for the time being, people are searching for it far less than earlier this spring. In May, searches for "Inflation" reached the highest point on record, and while they are still elevated, the reading has come down a bit. Searches for "Rising Prices" tell a similar story, though, it peaked earlier in the late winter.



With searches for inflation having surged in the past year, we thought it would be worth looking at search interest for some typical hedges like gold. While these searches also surged to a record recently, it should be taken with a grain of salt, after all, it is an Olympics year. As shown in the second chart below, historically the month in which the Olympics fall usually sees searches for gold spike.



Turning to a more speculative area of the market, below we show searches for crypto-related products. Bitcoin remains well above most other periods of the past five years but it has been declining and is back below the past year's range. Additionally, the highs from earlier this year were far from ever hitting the same interest as the craze in late 2017/early 2018. On the other hand, "Crypto", "Coinbase", and "NFT" search interest has come back down to earth after all reaching records earlier this year. These have also seen minor reversals recently with "NFT" in particular seeing a decent-sized bounce.



While those digital collectibles have seen interest turn around slightly, searches for "Collectibles" more broadly or a more specific term like "Rookie Card" have been drifting lower. Interestingly, searches for these collectibles certainly got a boost during the pandemic, but they actually began to trend higher just prior in late 2019.

 

A Record Share of People Leaving Jobs Are Quitting
Tue, Aug 10, 2021

Yesterday, the BLS released June data on job openings and labor turnover, also known as the JOLTS report. This alternative view of labor markets is released at a one month lag to the monthly employment situation report which includes the nonfarm payrolls number. In additional to openings, JOLTS also includes a look at quits and other separations from businesses which include retirements, firings, and other departures. Since the data begins in 2000, the average month has seen quits account for about 55% of total separations. Over the last three months, that number has surged to nearly 70% and is sitting at a record level. One thing we can say with great confidence about the current labor market: lots of workers are quitting for greener pastures.



Chart sources: BLS, FRED, Bespoke Investment Group calculations

 

Labor Concerns Grow and Inflation Worries Ease For Small Businesses
Tue, Aug 10, 2021

The NFIB released their July reading on small business sentiment this morning. In today's Morning Lineup, we highlighted the strength in labor market indicators included in the report. Included in that was the percentage of survey respondents reporting either the cost or quality of labor as their most important problem. As shown below, 9% and 26% reported as such respectively. On a combined basis, that is 35% of respondents reporting either of these issues as their biggest problem. That is the highest percentage since November 2019 when 36% reported as such. Government-related concerns came in as the biggest problem for the next largest share of businesses. 31% reported either taxes (19%) or government requirements and red tape (12%) as their biggest problems, up from 29% on a combined basis last month. While higher month over month, that is still multiple percentage points below the recent high of 35% from May. The other biggest issue that comes in behind labor and government is inflation. 11% of respondents reported that they worry about cost pressures which is actually down from 13% the prior month. While improved, that is still one of the highest readings to date outside of the string of record or near-record readings in 2008. Click here to view Bespoke's premium membership options.

 

Historically, Volatility & CBOE VIX Index Begin to Pick Up in August

After seven full trading sessions, this August has been rather sanguine when compared to historical average performance for the full month. Major indexes continue to trade at or near new all-time highs and the VIX index has been drifting lower rather quietly. Historically, the VIX has typically hit its annual low sometime during the month of July. So far in 2021, the VIX’s closing low was on July 2 at 15.07. This VIX seasonal low can be seen in the chart above just ahead of a seasonal climb to a peak that has generally arrived sometime during the month of October before declining again as the typical fourth quarter rally gains traction. VIX’s spike in March of 2020 is also visible in the above chart, pushing the late Q1 peak higher.

Digging deeper into VIX’s historical tendencies in August we present the following table comparing the change in VIX in August to the performance of the S&P 500 in August since 1990. S&P 500 has been higher 54.8% of the time over the last 31 years, but its average performance in August has been a loss of 0.6%. VIX, as one would likely expect has risen 61.3% of the time in August with an average increase of 9.4%. Shaded in the table are the Augusts where VIX (on a closing basis) was up over double digits. Every double-digit VIX gain in August was accompanied by a S&P 500 loss averaging 5.8%.


With the exception of 1995, every double-digit VIX decline in August was accompanied by a S&P 500 gain. Single-digit VIX moves were generally not that well correlated with August’s S&P 500 performance. This is also not that surprising as the VIX is attempting to estimate expected volatility over the next 30 days from the time of each tick of the index. (https://www.cboe.com/tradable_products/vix/faqs/)

 

University of Michigan Whiffs
Fri, Aug 13, 2021

The preliminary reading on August consumer sentiment from the University of Michigan was released this morning, and it was a major disappointment. The headline reading peaked back in April but this month's preliminary reading collapsed down to the lowest level since December 2011. That decline has been attributed to concerns over the Delta variant. As shown in the second chart below, the 11 point drop from 81.2 at the end of July to 70.2 today was the largest decline between two reports (either the preliminary and the prior final report or the final report and the preliminary reading) since the preliminary reading in April of 2020. The April 2020 reading was the largest drop on record at 18.1 points. Before that, October 2008 was the next largest and last double digit decline.





Not only was the release dramatically worse than the last update, but it was a huge miss relative to expectations. Using data from our Economic Indicators Database, today's release came in 11 points below expectations. The only other month going back to at least 1999 that even comes close was a 9.9 point miss in the preliminary reading in February 2004.