Homebuilder Sentiment In The Doldrums Thu, Apr 15, 2021 While housing data is still running hot, recently it has hit a bit of a rough patch as indicators like weekly purchase applications have shifted lower (we noted some of the reasons for this in last night's Closer). This morning's release of homebuilder confidence gave further pause. The NAHB's Housing Market Index measuring homebuilder confidence rose by one point to 83 in April. Albeit higher month over month, the index has been in a couple of point range over the past few months and several points off the record high of 90 from November. While that range is still above any levels observed prior to the past year, it shows homebuilders are still optimistic but less so than last year. Of the three indices contributing to the headline number, Present and Future sales have been a bit stagnant while Traffic has experienced a much more notable rise. That index has risen to 75 which is the highest level since the record of 77 in November. In other words, there still appears to be demand but it is not translating directly into sales. Breaking down sentiment by geographic region shows varying levels of optimism. Starting with the bad news, sentiment in the Midwest is the worst having fallen without much respite over the past several months. Meanwhile, the Northeast has also continued to pull back but sits just off the record highs of 87 from November and February. The South and West, on the other hand, both rebounded in April but remain further off their prior highs.
Sell in May??? Post-Election-Year “Worst Months” Mixed Our Seasonal Switching Strategy, which is based upon the “Best Six Months” in conjunction with our MACD Technical Buy and Sell Signal signals, has a solid long-term track record of outperformance with potentially less risk compared to a buy and hold approach. Since 1950, DJIA’s average annual gain has been 8.5%. Over the same time period, DJIA has lost an average 0.7% during the “Worst Six Months,” May through October, and gained an average 8.8% during the “Best Six Months,” November through April. In post-election years, the historically worst performing year of the four-year cycle (page 130, STA 2021), the “Worst Months” have not been all that bad with more positive periods than negative, but average gains over the six or four month (NASDAQ’s Worst Months are July-October) period are still paltry. It is also worth noting that the one election year with a double-digit “Worst Months” S&P 500 gain, 1980, was followed by a tough “Worst Months” in 1981 (shaded in light grey in table).
Most Shorted Stocks Underperform But Not Without Exceptions Mon, Apr 19, 2021 GameStop (GME) is in the news again today and rallying over 6% with the announcement that the company's CEO, George Sherman, will be stepping down and that 'roaring kitty' has increased his stake. Earlier this year, the stock was the most heavily shorted stock in the Russel 3,000 with well over 100% of the float sold short. Today, 'only' 19.5% of shares are sold short. Although GME is seeing a decent-sized move higher, breaking the Russell 3000 into deciles based on short interest shows the stock is more of an outlier in terms of the relationship between performance and short interest. As shown below, the first decile comprised of the least shorted stocks in the index is outperforming averaging a decline of 60 bps while the tenth decile (which includes GME) of the most heavily shorted stocks is down the most at 2.08%. Alongside the ninth decile, these two groups of the most heavily shorted names are down an average of more than 2%. Additionally, stocks belonging to the top three deciles of the least shorted stocks all have a higher percentage of stocks trading higher on the day, but that relationship is less consistent for the other deciles. As shown in the second chart, the decile of the most shorted stocks actually has a more middling reading of 18.09% while the sixth decile has the lowest percentage of stocks higher today. In other words, there is a wider range of performance of more heavily shorted stocks than the stocks that are less heavily bet against. The chart below shows these same deciles and the standard deviations of the groups' performance today. The fifth decile has the largest range of performance today as a result of the two single biggest movers of the index both belonging to this decile. Those are Marlin Business Services (MRLN) and Haemonetics (HAE) which are up 48.95% and down 33.71%, respectively. Without those names, the reading is less extreme at 1.68. Again controlling for those names, the most shorted stocks would have the highest standard deviation of returns at 2.73. To show this further, in the table below we show the 15 biggest gainers and decliners in today's session. As previously mentioned, the biggest gainer is Marlin (MRLN) which is rallying almost 50% on news that it will be taken private. Meanwhile, Haemonetics (HAE) has been cut down by a third after a supply agreement was not renewed. Both of these stocks belong to the fifth decile in terms of short interest. As for the other biggest movers, many that belong to the top couple of deciles can be found on both sides of the ledger. So again, although the most heavily shorted stocks are on average the biggest decliners today and vice versa, there are a number of exceptions.
What is a 200-Day Moving Average Again? Tue, Apr 20, 2021 If we've learned anything over the last two trading days after what seemed like a one-way move higher for the S&P 500, it is that equities can also go down. Even after the declines of the last couple of days, though, the S&P 500 still remains close to 4% above its 50-day moving average (DMA) and more than 10% above its 200-DMA. While there have been a handful of days since the COVID lows where the S&P 500 has dipped below its 50-DMA, there hasn't been a single day since last June where the S&P 500 came even close to testing its 200-DMA. We're only in late April now, but as long as the S&P 500 doesn't see a significant fall in the next two months, it has the potential to go a full year without closing below its 200-DMA. When the 200-DMA does finally come into play again, many investors may not recognize what it is. The chart below shows the percentage of time over a rolling one-year period that the S&P 500 traded above its 200-DMA. At 89% now, the current level is hardly remarkable by historical standards. Right before the COVID crash last year, the percentage reached as high as 97.6%, and three years ago in March 2018, it was up at 100%. What is remarkable about the chart, though, is how elevated this moving average has been for so long. The last time it was below 50% was back in December 2009! It's easy to tell by looking at the chart, but thanks to short and swift pullbacks in the post-financial crisis period, this current streak without a sub-50% reading is the longest on record. To put a little more meat on the example, after the current streak of nearly 11.5 years, the next longest streak stretched over a period of just under ten years spanning from April 1991 through March 2001 while the one behind that was less than five years (ending in May 2008). And you only thought the market had been defying gravity recently!
A Majority of Investors Are Still Bullish Thu, Apr 22, 2021 Sentiment continues to run in favor of the bulls though there has been some moderation in the past couple of weeks. Bullish sentiment as measured by the AAII weekly sentiment survey peaked at 56.9% in the second week of April but has since fallen in back-to-back weeks falling 4.2 percentage points to 52.7%. While lower recently, this is the first time since the last two weeks of 2017 and the first week of 2018 that bullish sentiment has remained above 50% for three weeks in a row. Before that, you would have to go back to early 2011 to find another period with bullish sentiment being above 50% for several weeks in a row. Outside of the early 2000s, such readings have been relatively uncommon. Even though bullish sentiment has pulled back, fewer respondents are reporting bearish sentiment. Only 20.5% of respondents reported as pessimistic this week compared to 24.6% last week. That is 0.1 percentage points above the low of 20.4% from April 8th which was also the lowest level of bearish sentiment since April 2019. With both bullish and bearish sentiment lower, that means neutral sentiment picked up the difference rising 5.2 percentage points to 26.8%. That was the largest one-week increase in neutral sentiment since a 10 point rise from November 12th to November 19th of last year. Back then, neutral sentiment rose to a slightly higher level of 29.29%. While individual investors have become less bullish over the past couple of weeks, the opposite is true of newsletter writers. The Investors Intelligence survey of this group has seen bullish sentiment rise for three weeks in a row reaching 63.7% this week. That is the highest level since at identical reading in the second week of the year. Although it has not been particularly long since the last comparable reading, we would note that it is elevated relative to history. In the chart below we show bullish sentiment over the past 50 years. Outside of now and late last year, the last time bullish sentiment was as high was in late 2017/early 2018. You would have to go all the way back to February of 1987 or earlier to find another time before that when sentiment was as high as it is now. Additionally, less than 20% of respondents are also looking for a correction. Readings around these levels were not necessarily uncommon in the early 2000s and prior, but relative to the past 15 years or so such a low reading has been rarer.
Dips in Short Supply Thu, Apr 22, 2021 While many areas of the market have seen sizable pullbacks this year, the broader market has been stingier. Just this morning, a client was lamenting the fact that they had a decent amount of cash, but the market just wasn't providing opportunities to get in. So far this year, the S&P 500's largest decline from a peak (on a closing basis) has been 4.23%, and given that we're not even four full months into the year, we initially thought that 4% seemed normal enough especially when the earlier months of the year tend to be positive. In order to see how this year stacks up to prior years, the chart below shows the duration into each year (on a percentage basis) that the S&P 500 first closed down 5% or more from its YTD peak. Years in green indicate that there wasn't a single point in the entire year that the S&P 500 experienced a 5% decline. The last occurrence was in 2017, and there have been a total of seven years since 1928. As we near the end of April, we're nearly a third of the way into 2021, and compared to the 'average' year, we've already gone longer without a 5% pullback. Since 1928, the S&P 500 usually experiences its first 5%+ pullback 28% of the way into the year, which coincidentally enough works out to April 15th - the day before Federal taxes are typically due! In fact, at this point in prior years, the S&P 500 has already experienced its first 5%+ pullback more than 65% of the time. Believe it or not, in 30% of all years since 1928 the first 5% drop occurred in the month of January. Based on prior years, the market to this point has in fact been stingy in terms of providing opportunities for investors to add exposure, although based on today's reports of new capital gains tax increases from the Biden Administration, that window may soon open.
Twin Deficits and the US Dollar Thursday, April 22, 2021 It was a particularly challenging year for the greenback in 2020, where the world’s reserve currency acted as a “safe haven” asset at the height of the March 2020 market volatility, only to fall over the remainder of the year. With the U.S. outpacing much of the developed world in economic growth in 2021, Treasury yields have been rising and the dollar has strengthened, bucking the consensus view for dollar weakness. We view the “twin deficits” of the U.S. economy—the combination of the budget deficit and the current account deficit—as a long-term structural driver of a weaker U.S. dollar. As a historical net importer, the U.S. has usually carried a trade deficit (leading to a broader current account deficit in the process), while the flood of pandemic aid has stretched the budget deficit and ballooned the sum of the twin deficits to all-time lows as a percent of gross domestic product (GDP). As shown in the LPL Chart of the Day, changes in the twin deficits have been a relatively accurate predictor in the long-term trend of the value of the US dollar: With the twin deficits reaching all-time lows, it’s hard to be bullish the US dollar over the long-term relative to its major counterparts. “The short-dollar trade has certainly been a frustrating one for investors this year, but the long-term trend continues to point lower,” added LPL Financial Chief Market Strategist Ryan Detrick. “However, a counter-trend rally like we saw in the first quarter might have been enough to flush out some of the crowded consensus for a lower dollar.” U.S. economic growth has outpaced our developed nation counterparts to begin 2021, but expectations for growth in the rest of the world may be playing catch up. In particular, the 30-year German bund yield broke out to its highest level since the onset of the pandemic, suggesting growth expectations for one of our major trade partners may be on the rise. A soft dollar has a variety of investment implications. While we continue to favor U.S. stock market exposure over developed international markets, investments overseas may benefit from the tailwind of the softer dollar. Meanwhile, commodities have historically benefitted from a weaker dollar, and may be positioned for further upside as economic activity in the rest of the world heats up. For more on our tactical market views, check out our April Global Portfolio Strategy.
S&P 500 Up Over 10% First Four Months – Preceded Flat May to late-October As of yesterday’s close, S&P 500 was up 11.5% year-to-date. Provided these gains hold through the end of April, this year will be just the seventeenth time since 1950 that the S&P 500 has finished the first four months of the year with a gain exceeding 10%. The best January to April span occurred in 1975, up 27.3% (S&P 500 was in the early stages of a new bull market following the bear ending 10/3/1974 in which the S&P 500 declined 48.2%). The next best year was, 1987 (most will remember what happened later that year) and the most recent year was 2019 (a solid year from beginning to end). In the above chart we have plotted all 17 previous years in which the S&P 500 was up over 10% January through the end of April. Along side for comparison is “All Years,” “Post-Election Years,” and 2021 through yesterday. In the previous 17 years, gains tended to fizzle in early-May before gaining some additional ground from around mid-June to mid-July before once again stalling out till late September with more weakness lasting until late-October. On average, by late-October arrived, gains from the previous three months were given back and since the start of May S&P 500 gained around 2.5% on average. You don’t have to go away in May but considering the historically modest gains from early-May to late-October, it may not quite be worth sticking around.
Bulls Get The Jitters Thu, Apr 29, 2021 The S&P 500 has traded in the tightest range between its weekly high and low (1.02%) since the last week of 2020's under 1% range. Even though there has been a tight range, the S&P 500 is up 40 bps over the past five days through yesterday's close, and in the process, it has pinged up to record highs multiple times on an intraday basis this week. Regardless, the lack of any distinguished push in either direction has sent some jitters among individual investors. The percentage of respondents to the AAII sentiment survey reporting as bullish fell 10.1 percentage points week over week to 42.6%. That is the lowest reading in bullish sentiment since the first week of March and was the largest one-week drop since the week of November 19th when it fell 11.5 percentage points. There are a handful of comparable periods in the history of the survey that bullish sentiment has fallen at least 10 percentage points from a reading above 50% while the S&P 500 traded higher over that same week. In the table below, we show the 16 past times this has happened without another occurrence in the prior 6 months. As shown, this most recent instance marks one of the smaller changes in bullish sentiment of these and is also one of the few periods that the S&P 500 was not higher by at least 0.5% in the week leading up to these moves in sentiment. Overall, these types of moves have not been positives for forward performance of the S&P 500; particularly in the near term. Short-term returns are typically weak with average declines one week, one month, and three months out. We would note that while the average one-week return is negative, the S&P has actually been higher over the next week the last seven times dating back to 2003. Six and twelve months later have more often been met with positive returns. In fact, the vast majority of instances over the past two decades have resulted in the S&P 500 higher over those time frames. But on an average and median basis, those returns have been smaller than the norm. The losses to bullish sentiment were shared nearly equally between bearish and neutral sentiment. Bearish sentiment rose 5.2 percentage points to 25.7% which is the highest reading since mid-February. That was also the biggest one-week uptick in market pessimism since September. The combined moves in bullish and bearish sentiment meant the bull-bear spread dropped by 15.3 points to 16.9. While that is only the lowest level in the spread since the first week of March, it was the biggest one-week decline since last June. Neutral sentiment picked up the difference rising by five percentage points. Similar to the bull-bear spread and bullish sentiment, that is highest reading since early March.
Bad Starts to May for the Nasdaq and Russell 2000 Tue, May 11, 2021 One week ago in our Chart of the Day, we noted how the Nasdaq 100 was having a rough start to May. One week later that has continued to be the case as the declines keep coming. Looking at the Nasdaq Composite (which has a longer history than the Nasdaq 100) the index is down again today as of this writing which leaves it down nearly 5% month-to-date. From a seasonal perspective, early May is not exactly the best time of year, but even with that in mind, since the index began in 1971, that ranks as the second-worst performance through the first seven trading days of May on record. Only 2000 saw weaker performance in the same time span, but it was much larger at nearly twice the magnitude of this month's drop. Additionally, while the decline MTD is steep, 2000 saw a much larger decline that was an entire 4.5 percentage points larger than this year. So far this month, other major US indices are also lower with the exception of the Dow which is still up 0.72% MTD even after the past couple of days of declines. That is the best start to any May since 2018 and is roughly twice as strong as the average performance through the first seven trading days of all Mays since 1971. The S&P 500, on the other hand, is lower month to date but that 1.33% decline does not really stand out compared to past years as it does for the Nasdaq or the small-cap Russell 2000. The Russell 2000 more closely resembles the Nasdaq. It is on pace for a 3.64% decline MTD which like the Nasdaq is the worst start to the month of May since 2000. The only other years that come close to as weak in terms of performance were declines of over 3% in both 2012 and 1979.
Small Businesses Growingly Concerned About Inflation Tue, May 11, 2021 In today's Morning Lineup, we covered some of the details of this morning's release of the NFIB's monthly survey on small business sentiment. The survey showed rising prices, tight labor market conditions, and overall improving demand. The NFIB also surveys businesses on what they consider to be their single most important issues. For the majority of businesses, cost or quality of labor and government requirements or taxes are the most prevalent. In total, 64% of businesses reported one of these as the biggest problem. Meanwhile, the percentage of businesses reporting weak sales as the most pressing issue continues to fall which is indicative of a further recovery in demand. One other interesting decline was in the issue of competition from 'big business'. Only 7% of businesses reported this as their biggest problem which is the lowest reading since October 2017. While up 1 percentage point in April, cost or availability of insurance is also still around some of the lowest levels of the past decade. While that mention of costs has ticked only slightly higher similar to the cost of labor which rose 1 percentage point in April, inflation more broadly is increasingly on the minds of small businesses. 6% of businesses reported higher prices as the biggest issue which is triple the reading from February and is the highest level since August 2013.Click here to view Bespoke's premium membership options for our best research available.
NDX Uptrend Broken, Support Under Pressure It’s May and the market is selling off a bit, so seasonally speaking all is well but, technically speaking the market is under pressure. We continue to look to the NASDAQ 100 (NDX) as a leading indicator. NDX components are the largest technology companies that are the main barometers of the global economy and economic growth. Invesco QQQ Trust (QQQ), what we affectionately call the “Qs” is the exchange traded fund (ETF) that tracks NDX. Top holdings are: Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet – AKA Google – (GOOG & GOOGL), Tesla (TSLA) and FaceBook (FB). As we head into the last hour of trading the market is trying to rally the close. DJIA has been hit hardest today like due to heightened inflation fears and concerns that the Colonial Pipeline cyber-attack has exposed an infrastructure weakness and could drive energy prices higher. Tech’s resilience today, especially the NDX is encouraging, however as noted in the chart here the near term uptrend from the March lows has been broken (big yellow box on the right) and support at 13200 came under pressure today. You can see NDX is trying to reclaim the pink 50-day MA around 13375 and the green dotted pivot point support line at 13386. If these levels don’t hold there is some support at 13000 where the uptrend since September runs into at present. After that the March lows come into play again in the 12200-12420 area. Either way we have likely seen the bulk of the upside for the time being. Seasonality is back on track and the Worst Six Months, May-October, are upon us. We issued our Best Six Months Seasonal MACD Sell Signal on April 22 and it continues to appear timely. No need to sell everything is May, but it sure is a good time to consider a “Reposition in May.”
"Inflation" Trends Wed, May 12, 2021 You know it's getting bad when inflation starts to trend on Twitter, but that's where we find ourselves this morning with the terms '#GasShortage2021' and '#inflation' both trending on our Twitter feed. On Google, the frequency of searches for the term inflation looks like it's on its own path straight to the moon. These real-time indicators of concerns over inflation also manifested themselves in the 'official' inflation data this morning as y/y CPI surged to 4.2%, eclipsing the prior post-financial crisis highs. Not only that, but if CPI is unchanged on a m/m basis in May (highly unlikely), the y/y reading will climb to 4.3% given the decline last May. If we assume that May's m/m change is the same as the average so far this year, it would imply a 4.8% y/y change. Even assuming that inflation only rises at the average m/m rate so far this year may be conservative at this point. That's because the rate of increase on a m/m basis has now accelerated for six straight months. Going all the way back to the 1940s there's never been a streak that long. Just for some perspective, if CPI increases by the same rate in May as it did in April, headline CPI will clock in at 5.1%. While the current level of CPI looks very high relative to the post-financial crisis period, from a longer-term perspective, it still has yet to show signs of breaking out from its thirty-year range. Based on the pain from prior spikes, let's hope it stays that way.
Bullish Sentiment Down Big Thu, May 13, 2021 The past week has been one of the worst short term runs for the major indices of the past several months, and sentiment this week is reflecting that negative price action. Bullish sentiment as measured by the AAII weekly sentiment survey took a spill, dropping 7.8 percentage points to 36.5%. Whereas just over a month ago bullish sentiment hit a multi-year high at 56.9%, this week's reading was the lowest since the last week of October. The over 20 percentage point decline in that time was the biggest drop in a span of five weeks since a 22.73 percentage point decline in the five weeks ending February 8th, 2018. In the table below, we show the past 11 periods in which bullish sentiment fell by at least 20 percentage points in five weeks without another occurrence in at least a year. Overall, they have consistently preceded solid runs for the S&P 500 with frequent moves higher that are on average larger than the norm. One and three months later have both seen the S&P 500 trade higher 81.8% of the time and a half year to a full-year out has seen the index lower only one time (in 2007). Additionally, each of the prior instances since 2009 has been marked by the S&P 500 trading higher across all time frames. With bullish sentiment lower, bearish sentiment gained 3.9 percentage points. At 27%, it is at the highest level since early February though still a few percentage points above the historical average of around 30%. That has resulted in the bull-bear spread dropping 11.7 points to 9.5. That is the first single-digit reading in the spread since the first week of February, but it still indicates that overall sentiment remains biased towards the bulls. While bearish sentiment has only risen modestly, neutral sentiment is flying. After gaining another 4 percentage points this week, neutral sentiment hit the highest level since the second week of 2020. Similar to bullish sentiment, the move higher in neutral sentiment over the past few weeks has been one of the largest in roughly three years.
May Monthly Option Expiration Week: Recent Weakness DJIA Down 10 of Last 12 Trading around May’s monthly option expiration is mostly a mixed bag over the longer-term since 1990. DJIA has been down fifteen of the last thirty-one May monthly expiration days with an average loss of 0.08%, median performance is exactly 0.00%. The full week has a slight bearish bias for DJIA and S&P 500 with records of 16 declines and 15 advances over the past 31 years. More recently, DJIA has suffered declines in ten of the last twelve monthly expiration weeks. S&P 500 has one additional weekly gain since 2009, down nine of last twelve. NASDAQ has declined in eight of the last twelve. The week after has been best for S&P 500 and NASDAQ.
Increased Caution Across Sentiment Indicators Thu, May 20, 2021 The S&P 500 has been holding up at its 50-DMA in the past week while more speculative areas of the market (i.e. crypto) have experienced wild swings. As a result, sentiment on the part of individual investors has not seen much of a move. The American Association of Individual Investors' weekly reading on bullish sentiment was little changed this week climbing half of one percentage point to 37%. Although that was not a large move in the past week, sentiment has taken a big hit over the past month having fallen from well above 50%. In spite of that big drop and even though sentiment is around the lowest levels of the past half-year, the current sentiment level is within one percentage point of the historical average. In other words, optimism is low versus recent history but is very much middling from a longer term perspective. Meanwhile, bearish sentiment fell 0.7 percentage points to 26.3%. Unlike bullish sentiment, that is a bit lower than the historical average of 30.5% Those corresponding moves meant the bull-bear spread climbed to 10.7 from 9.5 the prior week. Excluding last week, that is still one of the lowest readings since February. Neutral sentiment has been the star of the show recently. The gain this week was tiny at only 0.2 percentage points, but nonetheless, it marked the fifth consecutive week in which neutral sentiment has risen. At 36.7%, it is now at the highest level since the second week of 2020. The Investors Intelligence survey of equity newsletter writers took a less optimistic tone this week as bullish sentiment fell 4.1 percentage points to a ten-week low of 54.5%. Bearish sentiment was unchanged at the highest level since the end of March. The survey also questions respondents on whether or not they expect a correction. That reading rose 4.1 percentage points to 28.3% in the biggest one-week uptick since the last week of April when it rose 4.7 percentage points. That leaves the reading at the highest level since the week of March 10th. Before that, you would need to go back to September 23rd to find as high of a reading. Another sentiment reading that has taken an even more dramatically negative tone lately has been the National Association of Active Investment Managers Exposure Index. This index measures how exposed to equities managers are where readings of 200 would mean they are leveraged long, 100 would be fully invested long, 0 would be neutral, -100 is fully short, and -200 is leveraged short. This week saw the index fall another 2.65 points after a massive 40-point decline last week. That is the lowest level since last March and April of last year. Altogether, while sentiment still favors bulls, there has been a more cautious tone that has been reflected in managers reducing exposure to equities. Click here to view Bespoke's premium membership options for our best research available.
Is A Head & Shoulders Top Forming? Support at the 13000 level for the NASDAQ 100 ($NDX) held – for today. The big tech index barometer (tracked by the widely held exchange traded fund (ETF) Invesco QQQ Trust ($QQQ) is not out of the woods just yet though. We have been keen on this benchmark as proxy for the market’s trend of late. Last Friday we noted that NDX found support at 13000 on Wednesday May 15. Using a wider support band current near term support is between the black line support levels in the 13000-13200 range on the chart below. NDX closed in positive territory in the late day rally above 13200. The uptrend from the September/October lows is now running into this 13000-13200 level. But if you zoom out on the NDX as we did in the chart above you can see a potential Head & Shoulders Top forming with the Left Shoulder at the February highs and the Head at the April highs. Yes, that does sound sinister. But we are still bullish on the full year; though remain cautious and defensive through Q3 and into October – AKA the Worst Six Months… Cash may be king here in the near term so perhaps you may want to skip some of the market noise and get outdoors and spend some quality time with friends and family. That is likely going to be the post-pandemic summer doldrums play even more this year. Vaccinations are up, masks are down and folks are traveling and getting outside and away from the markets and closing positions. So consider sidestepping this likely sideways market over the next several months and wait for the fatter pitch this fall. Check recent posts for more background and rationale.
Post-Election-Year June: Third Worst S&P 500 Month June has shone brighter on NASDAQ stocks over the last 50 years as a rule ranking sixth with a 0.9% average gain, up 28 of 50 years. This contributes to NASDAQ’s “Best Eight Months” which ends in June. June ranks near the bottom on the Dow Jones Industrials just above September since 1950 with an average loss of 0.2%. S&P 500 performs similarly poorly, ranking ninth, but essentially flat (0.1% average gain). Small caps also tend to fare well in June. Russell 2000 has averaged 0.8% in the month since 1979. In post-election years since 1953, June still ranks poorly and its average loss for DJIA increases to –1.1% while S&P 500′s modestly positive performance becomes a 0.6% loss. DJIA struggles the most, advancing in just four post-election year Junes (1977, 1985, 1997 and 2017). Russell 2000 fares best, up seven times in ten years with an average gain of 1.2%. NASDAQ lands in the middle, advancing 50% of the time with an average gain of 0.4%
Economic Surprise Index Tips Negative For The First Time In A Year Fri, May 21, 2021 While the overall trend of economic data has been for further improvement, things have slowed recently relative to expectations. In the charts below, we show the charts of the Citi Economic Surprise indices for the US, Emerging Markets, the Eurozone, and the entire world. Broadly speaking, positive readings indicate that economic data is coming in better than forecasts while negative readings indicate the opposite. Every region of the globe has pulled back over the past couple of months but for the most part, current readings remain at the high end of their historical ranges. In fact, the indices for Emerging Markets, Eurozone, and the whole globe all sit in the top 3% of all readings in their histories. The one place that is not the case is the US. Since last summer, the surprise index has been trending lower off of record levels, and just yesterday, it hit it tipped negative for the first time since June 2nd of last year. Lasting 248 trading days, this was the longest streak of consecutive positive readings in the index's history dating back to 2003. The only other streak that lasted nearly as long was a 189 day long one which came to an end in June 2018.
Memorial Day Trading: Generally Dull Before Long Weekend In the Stock Trader’s Almanac we show how the market trades around Memorial Day. In the table below we went back to 1971, the year the Uniform Monday Holiday Act took effect, moving Memorial Day and most other federal holidays to Monday. In what used to be the “May/June Disaster area” the S&P was down 15 of 20 Mays from 1965 to 1984. Then May was the best month from 1985 to 1997. In recent years, the Friday before Memorial has become getaway day on The Street and volume is often diminished and trading uninspired. With many areas of the country open now and travel beginning to pick back up, this trend is likely to continue. Average performance on each of the two trading days prior to the long weekend is rather lackluster for S&P 500 and NASDAQ. NASDAQ does have a higher frequency of gains during the days, but average performance is still tepid.
