Bullish Returns During the Year Of the Ox Mon, Feb 8, 2021 Friday starts off the Chinese Lunar New Year. Celebrations will last for about two weeks though the official legal holiday is seven days long. As such, Chinese markets will be closed from Thursday (New Year's Eve) through next Wednesday. The Chinese lunar calendar is also associated with a cycle of 12 animal zodiac signs, and 2021 will be the year of the ox. While we would be the first to caution against investing based on zodiac signs, ironically, the year of the ox has historically been met with some of the most bullish market performance in the US. As shown below, in the first week of Chinese New Years that have been marked by the Ox, the S&P 500 has seen an average gain of 0.17%. Only the years of the pig, rabbit, and tiger have seen a stronger performance in the first week of the Chinese lunar year for the S&P 500. But as for annual performance, from the start of the Chinese lunar year until the end, years of the ox has been marked by the best performance for the S&P 500 with a 13.56% average gain. The past few years that were the year of the ox were 2009, 1997, and 1985. The year of the tiger, which the last one was in 2010, comes in with the second-best performance. As for the performance of the S&P 500 in the shorter term—particularly around the time when the Chinese markets are closed—in the chart below we show the average intraday performance for the first five trading days of the Chinese New Year for all years since 1990. Despite market closures abroad, the US tends to move steadily higher- and that's no bull!
Why Bulls Will Like The Year Of The Ox Wednesday, February 10, 2021 “Bulls make money, bears make money, and pigs get slaughtered.” Old Wall Street saying. The Chinese New Year (often called the Lunar New Year) will kick off Friday, February 12, and with it will begin the Year of the Ox. Although we would never suggest investing based on the zodiac signs—it is important to note that the Year of the Ox has historically been quite strong for equities. Not to mention we are saying goodbye to the year of the Rat. Good riddance to the Rat, as the last two years of the Rat were 2008 and 2020, not the best years for many reasons! Since the Chinese New Year typically starts between late-January and mid-February, we looked at the 12-month return of the S&P 500 Index starting at the end of January dating back to 1950. And wouldn’t you know it? The Year of the Ox has been up more than 13% on average (with a median advance of nearly 18%); suggesting bulls are smiling indeed! “The year of the Ox is the second of the 12 animal signs of the Chinese zodiac, and the Ox is considered a symbol of diligence, persistence, and honesty. Equity returns indeed are quite persistent during the Ox, as it is the third best return out of the 12 Zodiac signs,” explained LPL Chief Market Strategist Ryan Detrick. The LPL Chart of the Day shows how all the 12 Zodiac signs have done historically, with the Goat, Tiger, and Ox as the best, while the Rooster and Snake have been the worst. We want to stress that no one should invest purely based on the zodiac signs. This relationship is random and the sample size is small. Still, here’s hoping that the Year of the Ox plays out well for the bulls once again!
Good and Bad From Jobless Claims Thu, Feb 11, 2021 Last week's initial jobless claims print was higher by 33K to 812K which means it was unchanged from the prior week's reading. While this week's number didn't meet expectations of a decline to 760K, it is not all bad news considering claims did drop to 793K which is the lowest level since the first week of the year. On a non-seasonally adjusted basis, consistent with seasonal patterns, claims continue to fall with a 36.6K drop this week down to 813.1K. That is the lowest level in the unadjusted number since the week of November 27th when claims stood nearly 100K lower. As for other programs, initial jobless claims through the Pandemic Unemployment Assistance (PUA) program also declined by a little over 34K this week just as they did last week. At 334.5K, PUA claims are at the lowest level since the week of January 8th. Combined with regular state claims, total initial claims stood at 1.148 million, down by 71K week over week and marking a fourth consecutive weekly decline. While total initial claims remain off the lows of just above 1 million from November, this week's print marked a five-week low. Regular state continuing claims—lagged one week to initial jobless claims—persistently keep moving lower with the most recent week falling to a new pandemic low of 4.545 million from 4.69 million last week. That week over week decline was a fourth straight also meaning 18 of the past 20 weeks have been met with a decline in continuing claims. The addition of other programs adds another week's lag to the data. That means the most recent data on continuing claims across all programs covers the week of January 22nd. In spite of the consistent declines in regular state continuing claims, the overall picture including these other programs muddies the water. There have been significant upticks in other programs that led total claims to significantly rise from 17.87 million to 20.47 million; the highest level since late November. Again, that uptick was not on account of regular state claims. In fact, it was one of the only programs to see a decline week over week falling by 29.6K. On the other hand, PUA claims rose by 1.497 million which comes after a 1.636 million increase two weeks prior. That was not the only program to see a week over week increase of over 1 million though. Pandemic Emergency Unemployment Compensation (PEUC)—which is an extension program for those whose benefits have or are set to expire—saw claims rise by 1.173 million. That is the single largest uptick since the program began earlier in the pandemic. Those surges between the two programs meant that they also account for much larger shares of total claims than before. While the regular state claims only account for around a quarter of total claims- the lowest share since the pandemic related programs began in March- PUA claims take up 42.6% of all claims and PEUC claims account for 23.3%. That is the most since mid-December for both of these programs. While those significant increases are a concern and should continue to be watched for a better read on how material of an increase they are, it is possible that the upswings are due to continued catching up in reporting after these programs narrowly avoided expiration at the end of last year. For example, looking at individual states, PEUC claims out of California alone nearly tripled rising by over 1 million between the weeks of January 16th and January 23rd. Ohio also saw these claims more than double. As for PUA claims, after reporting zero claims the previous week, Colorado and Ohio reported claims of 30,659 and 10,156, respectively.
Trading Before Presidents’ Day Weekend Mixed, However Nice Improvement Last 10 Years The longer-term track record of the market’ performance ahead of Presidents’ Day weekend has not been so strong. From 1990 through 2010, DJIA, S&P 500 and NASDAQ suffered numerous and sizable declines especially on Friday. However, more recently, since 2011, the Thursday and Friday before Presidents’ Day have been improving (shaded in light grey in table below). DJIA on Friday has the best record over the last ten years, up ten times with an average gain of 0.58%.
Small Cap Growth Taking the Lead Tue, Feb 16, 2021 One of the topics we covered in last Friday's Bespoke Report was the outperformance of small caps over the past year. Even on a much shorter time horizon, that outperformance has been evident. As shown in the snapshot of our Trend Analyzer below, in the five days ending last Friday and on a year to date basis, both Small Cap Growth (IJR) and Small Cap Value (IJS) have been two of the top-performing ETFs in our US Styles screen while large-cap counterparts have also been higher but with more modest gains. With a particular focus on growth stocks, while the S&P SmallCap 600 Growth (IJT) ETF was up the most of these ETFs last week with a 3.96% gain, the S&P 500 Growth ETF (IVW) was the second-worst performer after 'only' rising 1.05%. That continued a trend that has been in place YTD with the performance spread between the two ETFs topping ten percentage points. We are coming up on the one-year anniversary of the last highs on February 19th, 2020 just before the COVID crash. For most of the past year since then, large-cap growth (IVW) had actually been outperforming small-cap growth (IJT), but since the new year began, small-cap growth has jumped ahead. Now, the S&P Small Cap Growth ETF (IJT) is up 35.31% since the 2/19/20 high compared to a 28.16% gain for the S&P 500 Growth ETF (IVW). As shown in the second chart below, IJT had been catching up on IVW for some time now though. The relative strength line of IJT versus IVW had been in a downtrend for most of the past five years meaning large-cap growth had been generally outperforming the small-cap counterpart. Since the lows last March, the line trended sideways meaning neither one saw significant outperformance, but come the fall, the line has taken off in favor of small caps. With more outperformance in the past week and a half, that line has turned sharply higher once again reaching the highest level since December of 2019 last week.
NY Manufacturing Finally Reaccelerating Tue, Feb 16, 2021 This morning's release of the New York Fed's February manufacturing report handily topped expectations. Whereas the report was expected to see the headline number rise from 3.5 in January to 6, instead, it more than doubled those forecasts coming in at 12.1. That is the first m/m increase in the headline index since September and also brings the index to the highest level since July. Although the past few months have been consistent with decelerating activity, February did mark an eighth consecutive month of growth for the region's overall manufacturing sector. Although the index for General Business Conditions has finally risen and now sits at multi-month highs, it is still in the middle of its historical range. On the other hand, there are several categories in the top deciles of their historical readings as every category showed growth in February. In the case of the indices for Unfilled Orders and Inventories, these positive readings were the first since March of last year. The only index that was lower in February was for Shipments which fell 3.3 points to 4. The indices for expectations six months from now were similarly strong as there were only two indices (Shipments and Number of Employees) that were lower month over month. Overall order growth accelerated in February. The New Orders Index rose 4.2 points to 10.8 which is the highest level since October. Given the further growth in New Orders, Unfilled Orders also grew. As previously mentioned, this month's 8.1 point month over month increase led to the first positive reading in this index in 10 months. Despite the growth in demand, Shipments experienced some deceleration albeit they are still growing. The index was also the only one in the report to fall month over month. Its 3.3 point drop leaves it in the bottom quartile of historical readings. Part of the reason for the slowdown in shipments could be supply-chain related given manufacturers in the region reported longer lead times as evident through the higher reading in the Delivery Time index. Rising 3.6 points to 9.1 in February, the index is at the highest level since August of 2018. The index for expectations six months out was even higher in the top 1% of all monthly readings as it reached 11- the highest level in three years. Not only are products taking longer to reach their destination but manufacturers are also paying more for them. The index for Prices Paid rose to the top 3% of all readings reaching the highest level since May 2011. Those higher prices appear to be getting passed along to customers as well with the index for Prices Received also rising to the highest level since May 2011. With firms generally remaining optimistic for the future, expectations for Capital Expenditures and Technology Spending have picked up. The latter has reached its highest level in two years while the index for Technology Spending is at the highest level since December 2019.
B.I.G. Tips - Retail Sales Surge Wed, Feb 17, 2021 Based on the latest Retail Sales report for January, it looks like the $600 stimulus checks that were sent out to both struggling (and non-struggling) Americans in later December and early January achieved their purpose. After three straight weaker than expected reports, Retail Sales for the month of January blew the doors off estimates, surging by 5.3% compared to expectations for an increase of 1.1%. After stripping out Autos and Gas, the increase was even more at close to 6%. To put this spread versus expectations into perspective, since the late 1990s, the only other times that Retail Sales topped expectations by more than four percentage points were last June coming out of the lockdowns and back in November 2001 after the 9/11 attacks. While December’s report was revised down, it did little to dent the positive impact of the January numbers. Not surprisingly, breadth in this month’s report was perfect. Of the thirteen sectors that comprise the total pie, all of them were higher on a m/m basis led by Electronics & Appliances, Furniture, and Online, which all spiked more than 10%. If the distortions resulting from the COVID lockdowns weren’t so fresh in our collective memories, we’d be calling these types of moves historic. On the downside, Health and Personal Care was the weakest sector, and it still increased over 1%! The characteristics behind the total level of sales have changed markedly in the post-COVID world.
February Monthly Options Expiration Week: S&P 500 Up 12 of Last 15 February’s option expiration day has been down more often than not over the past 27 years with an average loss of 0.23% for S&P 500. Despite a bumpy finish, expiration week as a whole has fared better, netting an average gain of 0.40% on the S&P 500 since 1994 with 17 of 27 winning weeks. More recently, S&P 500 has advanced in twelve of the last fifteen options expiration weeks. The week after however, has been down 14 of the last 17 years. It was the week after monthly options expiration last year when the market began to respond negatively to the rapidly developing global pandemic. All three indexes lost over 10% in the week with DJIA declining the most, off 12.36%.
Tech Leading in New Highs Wed, Feb 17, 2021 The S&P 500 has been reversing from its record highs over the past couple of sessions, but on an individual stock basis there are still a large number of names that have reached new 52-week highs. As shown in the charts from our Daily Sector Snapshot below, through yesterday's close, a net percentage of just over 15% of the S&P 500 reached new 52-week highs. That is the strongest reading in new highs since January 12th. Outside of several days at the start of 2021, the only other days of the pandemic era with as high if not higher readings were September 2nd, October 9th, and November 9th. Most of the sectors are also seeing their number of new highs rise to strong levels. In addition to the S&P 500, yesterday's reading for Communication Services, Financials, Materials, and Tech all were in the top decile of all days since at least 1990. In the case of Materials, while new highs have been trending higher and yesterday's reading was historically strong, it was still well off the record highs from earlier this year. On the other hand, perhaps the most impressive sector in terms of net new highs has been Technology. Yesterday, 35.53% of the sector's stocks reached a new 52-week high. Not only is that the highest reading with respect to the other sectors, but that high reading also stands in the top 0.5% of all days for the sector since at least 1990. In other words, there have only been 38 other days since 1990 that the Tech sector saw as strong of a reading in net new highs as yesterday. The most recent of those was November 9th when 43.84% of the sector touched a new 52-week high. Overall, in the context of more broadly positive breadth with strong readings in new highs for other sectors, Tech's large number of new highs is an added plus for the broader market given the massive 28.08% weight of the sector.
Starts Stuck, Permits Parabolic Thu, Feb 18, 2021 The January report on Housing Starts and Building Permits was mixed relative to expectations, but the overall backdrop remains very strong. Starting with Housing Starts, they posted a decline of 6.0% m/m falling to 1.58 mln versus expectations for a much smaller decline, but keep in mind that it comes after a 10+ year high in December. Building Permits, which are less impacted by the weather, were much stronger in January. They surged to 1.881 million versus 1.704 mln in December and expectations for a much more modest level of 1.694 mln. Following January's increase, Permits are now less than 17% from their bubble high in 2005. Looking at the chart above, Permits have practically turned parabolic in the last few months. While it's somewhat arbitrary to look at a nine-month rate of change, the fact that Permits have just experienced their second-largest increase in that span is worth highlighting. What's also worth pointing out, too, is that while Permits are rebounding from a nine-month decline of just over 20%, the two prior spikes highlighted in the chart came following much larger declines. In terms of the breakdown of this month's report, the fact that multi-family starts and permits were key drivers of strength is a bit of a drawback. Single family-starts actually dropped more than 12% m/m while permits were up less than 4%. Multi-family units, meanwhile, were up over 15% for both starts and permits. On a regional basis, every region of the country saw declines in starts relative to December, while the Northeast was just barely higher.
Prices and Employment Surging in Philadelphia Thu, Feb 18, 2021 While the results were not as impressive as the Empire Fed report earlier this week, this morning's reading on the manufacturing sector from the neighboring Philly Fed did beat expectations. The headline number fell to 23.1 rather than the anticipated decline to 20. While it indicates some deceleration in the rate of growth, activity remains at the high end of the past several months' readings indicating solid growth, In terms of expectations, though they remain positive, they took an even bigger hit with the index falling from 52.8 down to 39.5. That month-over-month decline stands in the bottom decile of monthly moves. The decline in the headline number can be credited to broad declines in multiple categories. The only indices to move higher were those concerning employment as well as the indices for Inventories and Prices Paid. As for the indices for future expectations, the declines were even broader with only expectations of Prices Paid and Received moving higher. Indices concerning demand were all consistent with a deceleration in February with the biggest declines coming from Unfilled Orders and Delivery Times. After record and near-record readings last month, the declines in the Unfilled Orders and Delivery Times indices stood in the bottom 6.8% and 1.7% of all monthly moves, respectively. Even after those declines, Unfilled Orders is still in the top 6% of all readings, and Delivery Times is still in the top 2% of all readings. In addition to the decline in the Delivery Times index, the corresponding index for expectations fell to a negative reading this month for the first time since Dember of 2019. In other words, manufacturers are still reporting historically long lead times, but they do foresee improvements on the horizon. Inventories saw a big move higher in February. That index rose 7.4 points to a reading of 20, which is the seventh strongest reading on record. As for expectations, the Inventories index was one of the standout elevated readings. Whereas most indices for expectations are in the middle of their historical ranges, the Inventories index is in the 84th percentile. While the report showed prices continued to rise, there was a divergence between prices for final goods and inputs. Prices Paid have continued to accelerate with the index rising to 54.4 which is the highest reading since August of 2018. Conversely, Prices Received slammed on the brakes. The index collapsed from 36.6 last month to 16.7. While that is still above December's levels, it was the sixth-largest MoM decline on record and the biggest decline since December of 2008. Perhaps the strongest area of the report concerned labor. The index for Number of Employees rose once again reaching 25.3. That is the seventh-highest reading of all months since the survey data begins in 1968 and is the highest level for the index since July of 2019. Not only are the region's businesses taking on more employees, but the average workweek has also risen at a historic rate. The index for Average Workweek gained 12 points in February to 30.6. There has only been one higher reading in the history of the data and that was a reading of 34.2 in May of 2018.
Stimulus Matters: Retail Sales Rebound Big in January Thursday, February 18, 2021 The US economy had a tumultuous year in 2020, to say the least, and after rebounding strongly in the third quarter, the holiday surge in COVID-19 cases increased the risk that the economy may stumble heading into the new year. The sharp increase in new COVID-19 cases led to additional curbs on activity to contain the virus, triggering a rise in weekly jobless claims, and many feared we might have a double-dip recession. Sensing a need to act, Congress passed a fifth relief bill at the end of December, including additional direct payments to households. The lame-duck injection of fiscal stimulus to the US economy was just what it needed. Following a weak retail sales number in December—ordinarily one of the strongest months for retail sales—consumer spending rebounded firmly in January, rising 5.3% month over month according to the US Census Bureau—the most in seven months—and greater than all of the estimates in the Bloomberg economist survey. Looking under the hood makes the headline number even more remarkable. As shown in the LPL Chart of the Day, the largest month over month increases came in categories associated with discretionary spending, including a 23.5% surge in spending at department stores: “Fiscal stimulus was just what the doctor ordered for the US consumer in January,” added LPL Financial Chief Market Strategist Ryan Detrick. “The boom in spending on discretionary categories could become a trend if a wave of pent-up demand gets unleashed on the economy in 2021.” Clearly, direct payments to households had a major effect on January’s retail sales, so does this mean that February sales will disappoint? Not exactly. Direct payments to households totaled roughly $166 billion, but the increase in January sales was only $29 billion and the savings rate remains high. Of course, not all of that money was spent on retail items, but there may be some gas left in the tank for February retail sales, particularly by individuals who didn’t receive their payments until later in the month or who will be receiving a credit on their federal tax returns. Earlier this month, we raised our gross domestic product (GDP) forecast for the US from 4–4.5% to 5–5.5%. Yesterday’s retail sales number puts us on a solid path toward achieving that target—and may even raise the prospects of exceeding it. The first quarter of 2021 is expected to be the weakest of the year, so the January surge in retail sales removes much of the risk of the US economy stumbling out of the gates as we begin 2021. However, a strong start to the year may embolden the call for a smaller price tag for President Biden’s fiscal stimulus proposal. Despite this, we ultimately believe a stimulus package north of $1 trillion is likely, which should prime the US economy for continued growth in 2021 as the battle against COVID-19 improves.
One Year Later: 3 Lessons Learned Since the Market Peak Friday, February 19, 2021 Today marks one year since the market began to price in the effects that COVID-19 would have on the world. The old market adage “stairs up, elevator down” certainly rang true over the coming weeks, as the S&P 500 recorded the fastest bear market (closing 20% below a previous all-time high) in history, accomplishing that feat in a mere 16 days. The stock market is a peculiar mechanism however, and despite the turmoil the world has experienced since the outbreak of the pandemic, the S&P 500 marched forward to set new all-time highs less than 6 months later on August 18 and hasn’t looked back. So after such a wild year since the market peaked on this day in 2020, what have we learned? 1. Markets are forward looking. While it’s difficult to pin down a date when we can expect our lives to completely return to normal, the stock market is already pricing in the normalization of daily life, even if that remains uncertain. Economic conditions around the world have been improving relative to how they were at the beginning of the pandemic. While pockets of weakness remain, the market is more concerned with where the economic conditions will be, not where they are currently. 2. Sector performance is dynamic. Investing in “stay at home” themed growth and technology stocks whose earnings were viewed to be relatively well insulated by the effects of the pandemic and subsequent lockdowns provided both downside protection during the March volatility as well as outperformance after the market bottomed. However, as shown in the LPL Chart of the Day, conventional early-cycle leadership from financials and energy stocks has emerged over the past three months: 3. Remember your timeline. Everyone would love to be able to pull their money at the exact top, avoid all major market corrections and reinvest at the bottom, but unfortunately, there is no holy grail timing mechanism and market volatility is the cost of admission for stock investing. “It’s our jobs as investors to focus on our long-term goals,” noted LPL Financial Chief Market Strategist Ryan Detrick. “Drawdowns and bear markets are part of the path to get there, and limiting the latest shiny object from affecting our decisions is key to any investment strategy.” If an investor pulled their money from the market during last year’s volatility, there have been a plethora of reasons to be hesitant to reinvest it, and the subsequent bounce from the lows happened in a flash, meaning they may have bought back in at a higher price than they originally sold. Thankfully, bear markets and extreme volatility like we experienced last year are rare, but they provide a unique learning opportunity for investors. No one truly knows what the future holds for the stock market, so making sure we learn from the past is crucial for long-term success as investors. For more on our market and economic views, check out our most recent Global Portfolio Strategy publication.
Best and Worst S&P 500 Stocks So Far in 2021 Mon, Feb 22, 2021 In the table below, we show the 30 best-performing stocks in the S&P 500 so far in 2021. Of the entire index, the two best-performing stocks come from the Communication Services sector and both have gained more than 70%. Discovery (DISCK) tops the list with a gain of 73.4% while ViacomCBS (VIAC) has surged 72.2%. Moving down the list, the next two best performers have been a couple of energy names with gains of more than 50%: Occidental Petroleum (OXY) and Marathon Oil (MRO). While they find themselves at the top of the list, they are far from alone. Of the 30 best performers, a third (including OXY and MRO) are from the Energy sector. One interesting thing to note of these names, while they have seen some of the strongest performance so far in 2021 and have nearly all more than doubled since the bear market lows last year, not a single one has yet to move back above levels they traded at when the S&P 500 peaked just before the COVID crash. Some are close, though, with Marathon Oil (MRO), Devon Energy (DVN), and Marathon Petroleum (MPC) all low-single-digit percentage points away from those levels. Additionally, absent from the list of the best-performing stocks are mega-cap names. In fact, of the top 30 best performers YTD, only two—Exxon Mobil (XOM) and Applied Materials (AMAT)—rank in the top 100 largest stocks in the S&P 500 in terms of market cap. Conversely, 12 rank in the bottom 100 stocks in the S&P 500. Flipping over to the worst-performing stocks in the S&P 500 this year, there are 17 stocks that have now fallen double digits. DaVita (DVA) is down the most of these with a decline of over 15%. Similar to the Energy sector's representation among the best performers, Health Care is the most prevalent sector among the worst performers; DVA being one of these. Additionally, the pattern of stocks with smaller market caps outperforming is evident in the worst performers in the S&P 500. The 30 best-performing stocks average a market cap of $34.68 billion while the worst performers average a market cap of $56.87 billion. Five of these worst-performing stocks rank in the top 100 largest stocks in the index while only four fall within the ranks of the smallest 100 S&P 500 stocks.
Another Big Beat in Regional Fed Data Mon, Feb 22, 2021 Just like last week's release of the Empire Fed Manufacturing report, this morning's reading on the manufacturing sector from of the Dallas Fed saw a much stronger than expected reading. Rather than the forecasted reading of 5, today's release more than tripled those estimates coming in at 17.2. Since at least 2009, that is the fifth biggest beat relative to forecasts on record. The last time the Dallas Fed report's headline reading exceeded expectations by this much or more was back in June, coming out of the depths of lockdowns. That reading of 17.2 indicates the region's manufacturing sector not only grew for a seventh consecutive month but also accelerated in February. Meanwhile, firms remain optimistic for their future as the future outlook index rose to the highest level since October of 2018. Breadth in this month's report was broadly positive though there were some areas of weakness. For the current conditions indices, every category with the exception of Inventories continued to show expansionary readings. Alongside inventories, only those categories concerning employment saw lower month-over-month readings. Additionally, the index for uncertainty experienced a sizeable 10.8 point decline. Again, most indices in the table above did move higher in February including all of those concerning demand. Indices for things like New Orders, the New Order Growth Rate, Shipments, Capacity Utilization, and Production were all higher in February though they remain off their peaks from several months ago. One exception though is for Unfilled Orders. That index more than doubled rising to 12.4 which is the highest level since July of 2018. That is also in the top 2.5% of all readings throughout the history of the survey dating back to 2004. Altogether, this means that orders came in at a more rapid pace in February leading order backlogs to grow at a historically strong rate. Consistent with other readings on the manufacturing sector of late, the Dallas Fed's report showed both prices paid and received are accelerating. Starting with the former, the index for Prices Paid rose another 2.4 points to 57.4. That is the seventh straight month over month increase for that index; a new record for most consecutive months with higher readings taking the index to its highest level in nearly a decade. While Prices Received are also on the rise with that index moving up to a reading of 23, they are not as historically elevated with the February number only the highest level since June of 2018. Granted, expectations would point to Prices Received more closely resembling Prices Paid at some point down the road. The index for future Prices Received rose to 44.9 which is the fourth highest reading on record behind September and October of 2005 and July of 2008. As previously mentioned, perhaps the weakest area of the report this month concerns employment. Most of these indices continue to indicate further employment growth in terms of the Number of Employees, Hours Worked, and Wages & Benefits, but the pace of improvement decelerated in February. While current readings on Wages and Benefits saw slower growth, though, expectations are far more elevated. That index rose to 52.1 which is in the top 5% of all readings in the history of the index.
Travel Stocks Red Hot Tue, Feb 23, 2021 The past year has been rough for the travel industry, but more recently these companies' stocks have been red hot. As shown in the snapshot of our Trend Analyzer below, there are several S&P 500 travel stocks (those in the airlines, cruise, and hotel industries) that are off the chart overbought. Only two names, Las Vegas Sands (LVS) and Wyndham Worldwide (WYND), did not close yesterday at least 2 standard deviations above their 50-DMAs, but even though they did not technically do so, they were very close to joining the rest of their cohorts in extreme overbought territory. Another remarkable aspect of these readings is that just last week some of these stocks were oversold. After more than 20% rallies in the past five days, cruise lines Royal Caribbean (RCL) and Norwegian (NCLH) have gone from oversold levels to deep into overbought territory. From a charting perspective, in spite of the very overbought conditions, many of these stocks have now broken out above their highs from a few months ago thanks to these recent gains. As shown in the snapshot of our Chart Scanner below, within the past couple of days stocks like Booking Holdings (BKNG), Carnival (CCL), Southwest Airlines (LUV), and Las Vegas Sands (LVS) to name a few have now broken out. Not only have they broken out, but some are even reaching 52-week highs as pre-pandemic levels roll off the chart. In fact, just yesterday, Alaska Air (ALK), Booking Holdings (BKNG), Expedia (EXPE), Hilton (HLT), Southwest (LUV), Las Vegas Sands (LVS), Marriott (MAR), MGM Resorts (MGM), and Wynn Resorts (WYNN) all reached 52-week highs. Click here to view Bespoke's premium membership options for our best research available.
Leading Indicators Signal Potential For Reacceleration Wednesday, February 24, 2020 Leading economic indicators are providing early signs that we may be exiting a recent soft patch and the economic recovery could be poised for a reacceleration. On Monday, February 22, the Conference Board released its January 2021 report detailing the latest reading for its Leading Economic Index (LEI), a composite of ten data series that tend to lead changes in economic activity. Many economic data points are backward looking, but we like the LEI, as it has a forward looking tilt to it. The index grew for the ninth month in a row, up 0.5% month over month in January, a slight increase from December’s 0.4% pace. Incredibly, its nominal value now sits just 1.5% below its all-time peak from July 2019. Seven of the ten components grew in January, while the other three declined. Building permits, average weekly manufacturing hours, and the Institute for Supply Management (ISM) New Orders Index led the way among positive contributors. Average weekly initial claims for unemployment insurance, average consumer expectations for business conditions, and manufacturers’ new orders for nondefense capital goods excluding aircraft all detracted from the composite’s growth in January. This report exhibited strong positive breadth among component series, but highlights that the labor market continues to weigh on the recovery. As seen in the LPL Chart of the Day, the monthly change in the index was slightly higher than in December, which has the potential to represent a break from the general downtrend seen since May 2020. While the monthly change has been positive since May 2020, the index has been increasing at a decreasing rate, as COVID-19 cases have risen and mitigation measures have hit the recovery. But, the good news is that could be changing. “Vaccination progress is the be-all and end-all for the durability of this recovery,” said LPL Financial Chief Investment Officer Burt White. “Stimulus has done an effective job of bridging gaps in the economy, but we need widespread vaccine distribution for the economy to stand on its own two feet. And we believe that point is not too far off.” After some initial rollout sputters, vaccines have largely been distributed to those most at-risk. Attention is now turning to the next phases of the population in line to be vaccinated: Those who tend to be more mobile and account for a greater share of economic activity. At present, we have two vaccines approved for emergency use authorization, and potential for a third in the coming weeks. Furthermore, we received data this week that at least one of the vaccines appears to not only be effective at preventing symptoms, but also at preventing transmission, a previously debated matter. This point will be key for getting people back to work. When paired with improving data in some parts of the economy and warmer weather on the horizon, we are hopeful that January is the start of the second wind in this economic recovery.
New Highs Picking Back Up Thanks to Cyclicals Wed, Feb 24, 2021 As equities bounce back today, a number of stocks are back up to 52-week highs intraday. As shown in the chart below, the reading on net new highs (percentage of stocks reaching new 52-week highs today minus the percentage reaching new 52-lows) for the S&P 500 is up to 16.8% which is on pace to be the highest level since January 12th. Over the past year, including today there have only been six days that the S&P 500 saw a stronger reading in net new highs. Looking across each of the eleven sectors, traditionally cyclical ones have stood out. Sectors that have been the best performers in the past week like Energy, Financials, Industrials, and Materials are also leading in new highs. The most impressive reading of these has been Energy. Over 34% of its stocks reached 52-week highs today which is the strongest reading since 5/17/18. While that is partially a result of big gains in these stocks recently, the higher number of new 52-week highs also has to do with higher prices of these stocks from prior to the COVID crash finally falling further into the rearview. For instance, as shown in the second set of charts below, even after its huge gains since the lows just over a year ago, the Energy sector still sits well below levels from prior to 2020. As for the other sectors, they not only have strong readings in net 52-week highs but also are making new highs in terms of price. Next to Energy, the reading for the Financials sector is the most notable at 38.46%; the highest since December 2019. While not at multi-year highs, Industrials and Materials have also seen some of the strongest readings in the number of new highs of the past year. AT 39.29%, Materials has the strongest reading of all sectors.
Recent Typical March Trading: Strength Early & After Mid-Month Over the recent 21 years, March has been a solid performing month for the market. Average gains over the period range from a low of 0.40% by NASDAQ to a respectable 0.90% by S&P 500. Prior to last March, gains were nearly twice as strong during 1999-2019. March has also been the #5 performing month by average performance for S&P 500 and Russell 1000 over the last 21 years. First trading day of March gains typically kick off the month, followed by choppy to lower trading until around the tenth or eleventh trading day when the market tends to rebound higher. Near month end the market tends to cool and can succumb to some end-of-quarter selling pressure.
S&P 500 Seasonal Pattern Suggests Weakness Likely Ending Soon In the above chart we have plotted five different S&P 500 seasonal patterns along side 2021 through today’s close. “All Years 1949-2020” and “All Years 1988-2020” represent longer-term and mid-term baseline patterns. “All Post-Election Years” includes every year that was a post-presidential-election year regardless of outcome. “1St Year Democratic President” applies to this post-election year and so does “Post-Election Year After Incumbent Party Loss.” When comparing 2021 to these various past seasonal patterns, this year’s performance is above average, and the S&P 500 is currently experiencing some of the weakness present in the other five patterns. Historical weakness (shaded in light blue) is most visible in the three post-election year patterns in February lasting until early to mid-March depending on the post-election year pattern. All three historical post-election year patterns suggest that current weakness could be ending soon.
