2022 US Stock Market Snapshot Thu, Dec 15, 2022 With just a couple more weeks left in the year, the S&P is down 18.2% year-to-date, which is tracking for the worst year since the Financial Crisis in 2008. As shown below, we've seen huge monthly volatility throughout the year within an overall downtrend. If December's declines hold, we'll have seen a move of 3% or more in either direction in eleven of twelve months this year. September has (so far) been the worst month with a decline of 9.3%, while July was the best month with a gain of 9.1%. In terms of weekday performance, Mondays, Thursdays, and Fridays have averaged declines this year, while Tuesdays and Wednesdays have averaged small gains.
5 Things To Know About Recessions And Bear Markets Posted on December 16, 2022 “I am an optimist because I don’t see the point in being anything else.” Abraham Lincoln With all the talk about a pending recession and stocks in a bear market, today, I wanted to share some more thoughts and stats on recessions and bear markets. First things first, we do not currently anticipate a recession in 2023, which is quite opposite of the general consensus. You can read more about that here and here. What exactly is a bear market? For the definition of a bear market, we are using the traditional definition, which is an index down 20% or more from the recent peak. Yes, there isn’t much difference between 19.8% and 20.0%, so we will also include some near bear markets as well, but when we say bear market, that is what we mean. First, do all bear markets take place in a recession? Turns out they don’t, as stocks, indeed can have a bear market without a recession. The worst ever was the 34% bear during the Crash of 1987, which all took place without a recession. Second, taking things a step further, here we broke down the performance based on if the bear market took place in a recession or not. Take note; we did include some ‘near bear markets’ this time to get more instances. Plus, a near bear feels like a bear market if you are in it. What still amazes us about the table below is that the average bear market without a recession was 24%, and this recent bear was 25%. Assuming we avoid a recession and October was indeed low, this was right on the bullseye. Now take another look at the table above. The last few bear markets recovered quite quickly. In fact, the last three bear markets that didn’t have a recession recovered in four, four, and three months. Something to think about here, as stocks are two months off the October lows. Third, this has been making the rounds lately and has been adding to some of the worries. Looking at all the bear markets that took place around a recession, not once did the bear market end before the recession started. In other words, if we are indeed headed for a recession in 2023, this could suggest that new lows may also be quite likely. Incredibly, bears don’t end for another nine months on average after the recession started, before they find their ultimate low. Again, we don’t see a recession, so this wouldn’t be the case now, but the data is quite compelling. Fourth, the month of October tends to be a bear-market killer. Most bears have met their end during the month of October, more than any other month. Below, we break down those previous 17 bear (or near bear) markets. The bottom line six of them ended in October, and we think there’s a very good chance number seven just happened. Fifth and lastly, if October was indeed the bear market low, be open to the idea of higher prices over the coming two years. While not a predictor of future behavior, history shows the markets were up more than 40% a year off of the bear-market lows and up almost 60% two years off of them. During uncertain and volatile situations (like the ones that markets have treated us to in 2022), it can be hard to imagine a positive path forward, and all we see are the obstacles. Stepping back a bit can be a helpful reminder of the resiliency of the markets over the long term. Dr. Seuss said, “Sometimes the questions are complicated, and the answers are simple.” To me, bear markets can be confusing and complicated, but the answer has always been that they indeed do eventually end, and historically better times will come when they do.
Homebuilder Stocks Hold Steady In Spite of Sentiment Mon, Dec 19, 2022 The economic calendar is particularly light today with the only release in the US being homebuilder sentiment from the NAHB. In spite of mortgage rates sitting 0.8 percentage points below their early November peak, homebuilder sentiment has continued to fall reaching a new low of 31 in December versus expectations for a modest increase to 34. December's reading is now only one point above the spring 2020 low of 30. The two-point drop in December was entirely a result of the decline in present sales. That reading fell from 39 to 36, matching the April 2020 low. Meanwhile, future sales saw a large increase rising from 31 to 35. That is only back up to the same level as October and a historically muted reading, but the month-over-month increase was the largest since September 2020. The index for Traffic went unchanged at 20 which is the lowest level since April 2020. The regional readings on homebuilder sentiment echo the weakness from the headline levels, albeit there has been slightly more variability. For starters, the Northeast has seen sentiment hold up the best as current readings are a bit more elevated off of COVID lows. The Midwest is also handily above the spring 2020 lows, but there was massive deterioration with a 5-point drop this month. Meanwhile, the West dropped another 3 points to match the new post-COVID low and the weakest reading since January 2012. Finally, the South was the only region to see improvement in December with the index rising 2 points, but even with that, it is right near the lowest levels since the pandemic. Homebuilder stocks, proxied by the iShare US Home Construction ETF (ITB), traded lower in the wake of today's release after months of outperformance. As shown below, the ETF is trading well above its moving averages compared to the S&P 500 which has moved back below both its 50 and 200-DMAs in the past few days. As such, the relative strength line for homebuilders has continued to move higher. Click here to learn more about Bespoke's premium stock market research service.
Mega-Caps Down $5 Trillion in Market Cap, AMZN Now Down $1+ Trillion Tue, Dec 20, 2022 As we approach the end of 2022, below is an updated look at the drawdown in market cap that we've seen in the US equity space since major indices peaked on the first trading day of the year. Using the Russell 3,000 as a proxy, the US stock market has seen an $11.7 trillion drawdown from the peak on 1/3/22. The max drawdown was $13.6 trillion at the low on 9/30, so we've seen market cap increase by just under $2 trillion since then. In dollar terms, this drawdown has been more extreme than anything investors have ever experienced. That's pretty deflationary if you ask us! Of the $11.7 trillion drawdown in US equity market cap, just over $5 trillion of the drop has come from six companies! Below is a look at the six current and former "trillion dollar market cap" club members that have now collectively lost about $5.07 trillion in market cap from their peaks. As shown, Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Meta (META), and Tesla (TSLA) have all lost at least $750 billion in market cap from their highs. And Amazon (AMZN) is the first to lose more than $1 trillion in market cap! Just a few years ago, no company had a market cap of more than a trillion dollars, and now we have a company that has lost more than a trillion dollars in market cap. For all six of these companies, their current drawdowns are easily their biggest on record. Apple (AAPL) has lost $880 billion, Alphabet (GOOGL) is down $846 billion, Meta (META) and Tesla (TSLA) are both down more than $760 billion, and Microsoft (MSFT) is down $784 billion even though it was down close to a trillion at its lows in November.
Malaise Among Individual Investors Thu, Dec 22, 2022 The misery of 2022 has continued when it comes to investor sentiment. In the latest weekly AAII poll, bullish sentiment declined from 24.3% down to 20.3%. That's the lowest reading since the end of September and less than five points above the YTD low of 15.8% from mid-April. As shown in the chart above, there hasn't been a single week this year where bullish sentiment has been above its historical average of 37.6%, and the only week where sentiment was even close to its historical average was at the start of the year. With just one week left in the year, barring a historic one-week surge, 2022 will go down as the first year in the history of the AAII survey where there wasn't a single week that bullish sentiment was above average. Talk about malaise.
No Worse Year for Sentiment Thu, Dec 22, 2022 The past few weeks had been uneventful when it comes to the AAII's weekly reading on investor sentiment. As we noted last week, the three-week range that bullish sentiment occupied had reached a record low hovering between 24.3% and 24.7%. In the latest release, sentiment finally moved but not in the most promising direction. Bullish sentiment dropped 4 percentage points down to 20.3% this week to make for the lowest reading since the end of September. With a decline in neutral sentiment as well, all of the increase went to bears with that reading rising to the highest level and back above 50% for the first time since late October. As a result of the large inverse moves of the two sentiment readings, the bull-bear spread shows a dramatic tilt towards an even more pessimistic bias with bears outnumbering bulls by 32 percentage points. That is the widest spread since the week of October 20th and lower than most of the past decade's range. With yet another week of bears outnumbering bulls, the record streak of negative readings in the bull-bear spread has grown to 38 weeks long; a full month longer than the previous record ending in October 2020. Historically, investor sentiment has acted as a contrarian indicator meaning low readings on optimism have typically been followed by stronger returns for the S&P 500. This time around, sentiment and prices have given each other little reason to turn around. In an earlier post, we noted how there has not even been a single week this year in which bullish sentiment has been above the historical average of 37.6%. Taking another look at just how depressed sentiment has been, the average bullish sentiment reading in 2022 has been less than 25%. The only years that had come close to such a low reading were 1988 (27.29%) and 1990 (27.08%). Playing into that low average has been the fact that there have been a record 30 weeks this year with bullish sentiment coming in below 25%. Meanwhile, bearish sentiment has averaged 46.17% this year, slightly above the previous record of 45.2% in 2008. With bearish sentiment tipping back above 50% once again this week, there have now been 17 weeks with such an elevated reading, tying the record from 2008 with one week to go.
The Best and Worst Performing Stocks of 2022 (through 12/22) Fri, Dec 23, 2022 Below are lists of the best and worst performing Russell 1,000 stocks year-to-date on a total return basis. We'll start with the worst first. Five stocks in the index are down more than 90% this year: Carvana (CVNA), Opendoor (OPEN), Novavax (NVAX), Upstart (UPST), and Affirm (AFRM). Another eleven are down more than 80%, which includes names like Coinbase (COIN), Twilio (TWLO), Wayfair (W), Lucid (LCID), and Roku (ROKU). Seventy-two percent of stocks in the Russell 1,000 are down YTD, but below are the names that have bucked the trend and gained the most. Just three stocks are up more than 100% YTD: Occidental Petroleum (OXY), Signify Health (SGFY), and Texas Pacific (TPL). Of the 38 names shown, 23 are from the Energy sector, with big names like Exxon Mobil (XOM), Chevron (CVX), and ConocoPhillips (COP) included. Exxon's 78.8% YTD gain is easily its biggest annual move higher since at least 1980. Merck (MRK) is the biggest of the non-Energy stocks that made the list with a YTD gain of 49.8%.
Russell 1,000 Stocks Down the Most from All-Time Highs Fri, Dec 23, 2022 As we wrap up an awful year for the stock market, below we highlight a list of the current Russell 1,000 stocks that are the farthest below their all-time highs. For the index as a whole, the average stock is down 15.85% YTD on a total return basis, while the average stock's price is about 38% below its all-time high. About 30% of stocks in the Russell 1,000 are currently at least 50% below their all-time highs, while about 10% of index members are at least 75% below all-time highs. Below we list the 38 stocks that are all down at least 85% from their all-time highs and it includes Palantir's (PLTR) 85.96% drop to Plug Power's (PLUG) near evaporation of 99.2%. Most of these names have come down from all-time highs that were made at some point in 2021, although some like PLUG, AIG, and Citi (C) made highs a long time ago. This list is a who's who of stocks that got caught up in the post-COVID retail investor buying spree. A name like Carvana (CVNA) hit its all-time high of $376.69 relatively recently in August of last year. It's at $4.13/share as of this morning. Upstart (UPST) traded above $400/share last October, and it's at $13 and change now. Roku (ROKU) got up to $490.40 last summer and is at $42 now or more than a full decimal point to the left!
Falling FAANG+ Wed, Dec 28, 2022 Yesterday Amazon (AMZN) became the third of the mega-cap FAANG+ stocks (along with META and NFLX) to close below its closing low made during the COVID Crash in March 2020. Not only have all of AMZN's post-pandemic gains been erased, but it's now trading below its lowest close made during the COVID Crash! NYSE's FAANG+ index is described as an index of "10 of today's highly-traded tech giants." Given that most of the FAANG+ stocks account for a massive portion of the market cap weighted S&P 500, they are an impactful group. As shown below, the FAANG+ index peaked in early November last year and has dropped 46% since then. The drop more recently follows a failed breakout above the top of its downtrend channel as the index is now back to within 5% of this past November's low. On a relative basis, the group has been underperforming the broader market for even longer with a high in February of last year. Below is a look at the ten FAANG+ stocks. As shown, they came into the year with a combined market cap of $12.3 trillion, and they're ending the year with a combined market cap of just over $7 trillion. While Apple (AAPL) has fallen the least YTD in terms of share price change, it has lost the most in market cap at $844 billion. Amazon (AMZN) has seen its market cap fall the second-most at $843 billion, essentially getting cut in half. Tesla (TSLA), along with AMZN, is one of two names that lost their "$1 trillion market cap" club status this year. TSLA is now down 69% on the year, and its market cap has fallen from $1.06 trillion down to just $344 billion. The other FAANG+ stocks that are down 50%+ on the year include Meta (META), NVIDIA (NVDA), Netflix (NFLX), AMD, and Snowflake (SNOW). With markets continuing to drop in these final trading days of December, on an absolute basis, 2022 is going to go down as the biggest year of wealth destruction ever for the US equity market. In 2008, the Russell 3,000 saw its market cap fall by $6.7 trillion. As of today, the Russell 3,000's market cap has fallen about $11.2 trillion so far in 2022. $5.2 trillion of that $11.2 trillion decline has come from just the ten FAANG+ stocks shown below.
Country ETFs in 2022 Wed, Dec 28, 2022 Earlier today we published our Global Macro Dashboard which provides an overview of the main economic and market data of 22 major global economies. In the table below, we show the recent performance of the ETFs tracking those same countries. With 2022 drawing to a close, there are only two countries that are currently in the green for the year: Brazil (EWZ) and Mexico (EWW). Neither are up much, but up is up, especially in a year like this one. In terms of month-to-date change, Hong Kong (EWH) has risen the most with a 5.62% gain, while China (MCHI) is up a modest 0.46%. On the other end of the spectrum, Taiwan (EWT) has fallen sharply with an over 20% decline, but most of that drop is actually due to a $5.18/share long-term capital gain that the fund paid out earlier this month.
Continuing Claims Top 1.7 Million Thu, Dec 29, 2022 Initial jobless claims have not been of particular interest recently as the weekly indicator has seen choppy week-to-week moves that have yet to set any major new high or low. In the latest release, seasonally adjusted claims rose to 225K, matching expectations for the highest reading since the first week of the month. Looking at the four-week moving average to smooth out some of the choppiness, the number has fallen to 221K. This week was the third sequential decline in a row for the lowest reading since early November. On a non-seasonally adjusted basis, claims tend to drift higher at the end of the year and into the new year. For example, the current week of the year has historically seen unadjusted claims rise week over week 90% of the time since the data begins in 1967. That seasonal drift has appeared this year but to a lesser degree as the past couple of weeks' increase in claims has been slightly less strong than normal. Given this, claims are well below comparable readings from the years prior to the pandemic and up only slightly versus this point last year. Continuing claims remain the more worrisome portion of the weekly jobless claims report. The reading has continued to rise rapidly as this week's reading eclipsed 1.7 million for the first time since February. There are plenty of ways of measuring how fast continuing claims have risen, but looking at the 3-month rate of change, claims are up over 25%. As shown below, this large of an increase has never occurred outside of a recession.
2022 Solidified as the Worst Year for Sentiment Thu, Dec 29, 2022 As we noted in an earlier post, today's release of the AAII survey gives us the final reading of the year on sentiment, solidifying a number of points as to just how dour the investor outlook has been. For starters, the bull-bear spread heavily favors bears, and that has been the case for some time now. As shown below, the spread has been negative (meaning a higher share of respondents are reporting as bearish than bullish) for a record 39 weeks in a row- over a month longer than the previous record which occurred recently in 2020. Across all weeks in 2022, bullish sentiment averaged a reading of merely 24.73%. Since the survey began in 1987, that is a record low. In fact, the previous lowest readings were a few percentage points higher at 27.29% and 27.08% in 1988 and 1990, respectively. Meanwhile, the average reading on bearish sentiment was historically elevated at a record of 46.2%, surpassing the prior record set in 2008 by one percentage point. Prior to 2008/2009, only 1990 saw a very high average reading for bearish sentiment. As we highlighted in an earlier tweet, given the low readings on bullish sentiment, there was not even a single week this year in which bullish sentiment came in above its historical average of 37.63%. Of course with a low share of survey respondents reporting as bullish, a larger share would be reporting as bearish. To match the impressive reading with no weeks seeing above-average bullish sentiment, nearly every week this year (51) has seen bearish sentiment come in above its historical average of 31%, tying the record high set in 2009. As previously mentioned, bullish sentiment averaged a reading below 25% this year. Given that reading, it should come as no surprise that 2022 also saw a record number of weeks (30) with bulls below 25%. Prior to this year, 1988 (one year after the survey began) was the prior record at 23 weeks. In other words, this year there were nearly two months more in which less than a quarter of investors reported as bullish than the previous record. Additionally, there had been 17 weeks in which over half of the responses were bearish. Similar to the number of weeks in which bearish sentiment was above average, that ties 2008 for the record high.
January Weaker Last 21 Years Recent January weakness can be seen in the chart. January has on average started out positive with DJIA, S&P 500, NASDAQ, Russell 1000 and 2000 all logging gains in the first half of the month, but weakness then creeps in. From around the seventh trading day to the end of the month declines have prevailed over the last 21 years.
Homebuilders Shrugging Off Mixed Data Wed, Jan 4, 2023 The national average for a 30-year fixed-rate mortgage has come well off its highs falling to 6.6% versus a high of 7.35% in early November. Despite the decline, mortgage rates remain at levels not seen since the early 2000s. We would also note that rates have gone on a series of wild swings in the past year. The second chart below shows the rolling 3-month change since 1998. Whereas most of the year saw rapid increases the likes of which have not been seen in the past quarter century, the current drop of 0.4 percentage points over the past few months has ranked as the largest since late 2020 and is just shy of a bottom decile reading of all periods. With mortgage rates giving buyers some relief, purchase applications had generally been on the rebound throughout November and December. However, the final week of 2022 saw a large reversal in purchase apps with a 12% week-over-week decline (potentially as a result of residual holiday seasonality) in the largest single-week decline since the last week of September. While it is hard to say if the final week of 2022's large decline was seasonal or a return to purchase apps that are more consistent with readings from earlier in the fall, 2022 tended to follow seasonal patterns. The year began with applications around some of the strongest levels of the past decade and they continued to rise into peak housing season in the spring with applications hitting their pinnacle in the first week of May. The typical seasonal drift was then exacerbated by the added headwind of higher rates, and applications finished the year with the worst reading since 2014 for the comparable week of the year. Additionally, looking at the drop for each year from the annual high through 34 weeks later (second chart), 2022's percentage drop was the second largest since 1990 behind only the 75.7% decline in 2013. Refinance applications have continued to hit new lows as this week saw yet another decline down to the lowest level since May 2000. Even though there are some silver linings in recent data, housing activity remains weak. Homebuilder stocks continue to look past that though and continue to shrug off much of the broader market choppiness. The past week has seen the homebuilders, proxied by the iShares US Home Construction ETF (ITB), rally 3.25%. That has largely erased the mean reversion from the second half of December and brings the ETF right up to resistance at the mid-August highs.
Bulls and Bears Back Off Thu, Jan 5, 2023 The S&P 500 has seen some choppy price action heading out of 2022 and into 2023, and that has seemed to have sent shivers down the spines of investors. Only 20.5% of respondents to the weekly sentiment survey run by AAII reported as bullish this week. That is down from 26.5% last week and is just shy of the recent low of 20.3% from two weeks ago. Although bullish sentiment dropped six percentage points week over week, there was not a shift to bearish sentiment as it also fell from 47.6% down to 42.0%. That is the lowest reading since December 8th. Given both bullish and bearish sentiment fell by similar amounts, the bull-bear spread moved down to -21.5, slightly below the previous week's reading of -21.1 and extending the record streak of negative bull-bear spread readings to 40 weeks. With both bullish and bearish sentiment falling, neutral sentiment surged to 37.5% which was the most elevated reading since the last week of March. Additionally, the 11.6 percentage point week-over-week increase was the largest since a 12.6 percentage point surge in July 2018. Although that may sound like an impressive and notable jump, historically double-digit increases in neutral sentiment in just one week have been followed by somewhat 'meh' returns. Both average and median performance are worse than the norm albeit the index has moved higher more than half the time one month to one year out. As the AAII survey continues to have an overarching negative tone, the same can be said for other surveys like the Investor's Intelligence and NAAIM readings. Combining all three of these into a composite, this week's reading was roughly 1 standard deviation below its historical average. While that implies sentiment is extremely bearish, that is only in the middle of the past year's range. Additionally, we would note that this composite has been negative (meaning these indicators in aggregate are more bearish than historically normal) for a full year. The only other time period since at least 2006 when that was also the case was in the 54 weeks ending June 2009.
Short-Term Treasury Yields Provide the Tell Mon, Jan 9, 2023 The yields on short-term Treasuries have been offering up some important tells recently. Below we highlight the yields on 6-month, 12-month, and 2-year Treasuries over the last 12 months. After trading with a positively sloped curve (the longer the duration, the higher the yield) through the first half of 2022, the yields on all three began to converge in late July/early August. In November, the 2-year yield started to drift lower, while yields on the 6-month and 12-month held firm. And just in the last week or so, we've seen the yield on the 12-month start to drift lower as well, while the yield on the 6-month has ticked slightly higher. As things stand now, the 2-year yield is at 4.18%, the 12-month is at 4.66%, and the 6-month is at 4.82%. This means the 2-year is inverted with the 6-month by 64 basis points, while the 12-month is now inverted with the 6-month by 16 basis points. Yields on these three Treasuries are telling investors (and the Fed) where "the market" expects the Fed Funds Rate to be over the duration of the maturities. Right now the market expects rates to peak at some point in mid-2023 before ultimately pulling back. The fact that no points on the Treasury curve are currently above 5% tells you what the market thinks about the Fed's unanimous support of getting the Fed Funds Rate above 5% and holding it there. It's not buying it. While "the market" sees inflationary indicators falling pretty much everywhere it looks, Fedspeak has so far been unwilling to acknowledge any meaningful progress. The more inverted we see longer duration yields become with the 6-month T-Bill, the more damage the hawkish Fedspeak will become.
Higher Rates Wards Off Small Business Expansion Tue, Jan 10, 2023 The National Federation of Small Businesses (NFIB) released its Small Business Optimism Index for December early this morning. The report showed optimism has begun to fade after a modest rebound in the past few months. The index fell back below 90.0 to the lowest level since the June of 89.5. The 2.1-point drop in the index was also the largest m/m decline since June ranking in the bottom 12% of all m/m moves on record. Given that lower reading, the December print is also now back below the spring 2020 lows putting it in the bottom decile of its historical range. Breadth within the report was abysmal with only one input to the headline index (current inventory) moving higher m/m while plans to increase inventories was the only input unchanged. The rest of the categories experienced significant declines, some of which rank in the bottom few percentiles of all monthly moves. As we noted in today's Morning Lineup, employment metrics were not a bright spot. Overall, labor market conditions continue to roll over. Hiring plans hit the lowest level since January 2021, and the percentage reporting job openings are hard to fill likewise dropped to the lowest levels since the start of 2021. On the bright side, compensation recovered from the November decline while firms also reported adding workers on a net basis. The economic outlook remains historically depressed with that index falling 8 points to -51. Although that still has 10 points further to fall to reach the June low, this index continues to hover well outside of historical norms. Given the lack of optimism, a net of only 5% of businesses report now as a good time to expand. Additionally, a higher percentage of businesses are also reporting weaker sales and expectations for weaker sales while observed earnings also continue to worsen in spite of the rollover in prices. As for a breakdown of the reasons small businesses are reporting now as a good time/not a good time to expand, economic conditions are the main reason given for pessimism. Of those responding now is not a good time to expand, 42% blamed economic conditions while the second highest share (9%) blamed the political climate. The joint next most common reason blamed for pessimism was interest rates and the cost of expansion. For the former, that is the highest reading since at least the start of the pandemic while the latter is the highest reading since July 2021. That high reading in cost of expansion is somewhat surprising given the drop in the higher prices index, however, that could suggest that costs of financing are lumped in with the "cost of expansion" category. We would also note that the stress of higher rates is also beginning to show up elsewhere in the report. While capital expenditure plans and actual changes to capital expenditures have not seen any major shifts, expected credit conditions fell to the lowest level in nearly a decade. Meanwhile, the availability of loans reached the worst level since September 2014.
Bears Back Down Thu, Jan 12, 2023 The S&P 500 has rallied impressively in the past week leading up to Thursday's CPI print, and bullish sentiment has lifted along with it. While the reading remains low, the percentage of respondents to the weekly AAII sentiment survey reporting as bullish rose from 20.5% up to 24%. Bulls were higher only two weeks ago when the reading was at 26.5% That rise in bulls has meant bearish sentiment has fallen to a notable level. For the first time since the first week of November and for only the eleventh time in the past year, bearish sentiment came in below 40%. Bearish sentiment has now fallen for three weeks in a row, which is the longest streak of consecutive declines since last August as well. Although bullish and bearish sentiment are sending a more optimistic tone, the bull-bear spread remains heavily in favor of bears at -15.9. That grows the record streak of negative readings to 41 weeks in a row. Last week, neutral sentiment leaped higher given the mid-single-digit declines in bulls and bears. Some of that move was given back this week with only 36% reporting as neutral. However, that remains an elevated reading at 4.6 percentage points above the historical average.
Is the Surge in Purchases and Refis Believable? Wed, Jan 18, 2023 Early this morning, the weekly release of mortgage purchases and refinance applications from the Mortgage Bankers Association posted outright impressive week-over-week increases for both metrics. Beginning with a look at purchases, the reading surged almost 25% week over week for the highest reading in the index since 9/23. Even though that was a massive move higher, the purchases index remains at the low end of the past several year's range and would be only slightly better than those readings observed in the spring of 2020. Refinance applications have been at some of the lowest levels in more than 20 years, and that continues to be the case even after rising well over 30% versus last week. Similar to purchases, that massive increase only brings refis back up to levels last seen in September. While a portion of those large improvements could potentially be the result of mortgage rates dropping to some of the lowest levels in the past few months, seasonality appears to be another and more plausible factor. Likely as a result of backlogs built up during the holidays, the second week of the year has plenty of precedent for outlier-like jumps in applications. As shown below, multiple times since the early 1990s the second week of the year has seen mortgage and refinance applications rise by at least 20% and 30% week over week, respectively. In other words, even if the surge in mortgage applications is eye-catching, we would caution against jumping to the conclusion that these increases are material without further follow-through in the weeks to come.
