March Jobs Report Day: Trading Historically Bullish Yesterday’s ADP private payroll report was a broad miss with just 117k new jobs being added versus expectations for 225k. Such a sizable miss likely means Friday’s official government tally will not have as big of an impact as weakness is likely widely expected now. Historically, March’s job report release day (February numbers) has a bullish track record over the last 21 year. DJI, S&P 500 and Russell 1000 have the best record up 71.4% of the time. Small-caps, measured by the Russell 2000 also held up well. Average gains on the day have been mild between 0.07% for NASDAQ and 036% for Russell 2000.
Historic Surge for the Energy Sector Wednesday, March 3, 2021 The energy sector has certainly been on a wild ride over the course of the past year, perhaps the wildest of all of the S&P 500 sectors. The outbreak of the pandemic in 2020 caused such a demand shock that oil futures traded for a negative value for the first time in history, implying that someone would pay you to take delivery of their oil! Well, that’s in the rear-view mirror for the energy market now. Year to date, the S&P 500 energy sector is up over 29% as of March 2, according to data from FactSet, more than double the return of the financial sector, the second strongest sector thus far in 2021. As shown in the LPL Chart of the Day, the S&P 500 energy sector is trading at a blistering 30% above its 200-day moving average, the most ever using data back to 1990. While this might seem bearish on the surface, previous surges above 20% have historically bought above average returns over the next year rather than below average. “The case can be made that energy could be a bit stretched in the near-term, but momentum often breeds more momentum,” added LPL Financial Chief Market Strategist Ryan Detrick. “Energy has been unloved for quite some time, but we may be in the early innings of a larger rally for the energy sector as the global economy continues to improve.” A confluence of events may be spurring the boom in the energy sector. An expanding global economy, a historic winter storm that shut down major oil producing states like Texas and Oklahoma, and an output agreement from members of OPEC+ have sent oil prices soaring to their highest level since early 2019. It’s not just oil, either. Copper and lumber have surged past their 2019 highs as well. It’s no secret that inflation expectations have been on the rise, and the surge in commodity prices are likely adding further credence to the market’s view of higher inflation. We have continued to warm up to the energy sector, including upgrading our view on oil in January and then our upgrade from negative to neutral in our February Global Portfolio Strategy publication.
Versatile Outperformers Tue, Mar 9, 2021 There's still a lot of time left in the day, but the tone of the equity market has been much different today compared to Monday. Whereas Monday saw tech stocks get creamed while cyclical areas of the market rallied, today we're seeing tech stocks rebound while cyclicals lag. To illustrate, within the entire S&P 500 there are just 14 stocks that have so far managed to outperform the index by at least one percentage point both yesterday and today. The table below lists each of those stocks, and looking through them, they aren't the flashy, high-profile names that you always see discussed in the media. Who said boring is a bad thing? In terms of sector representation, there's also no clear trend as eight of the eleven sectors are represented by the list of just fourteen names! Below we show six-month price charts of each of the 14 names listed above from our Chart Scanner tool. Here again, no clear technical theme links the stocks together. While stocks like AES, Global Payments (GPN), McKesson (MCK), and Ross Stores (ROST) remain close to six-month highs, others like Ball (BLL), Domino's (DPZ), and Market Axess (MKTX) aren't far from six-month lows.
NASDAQ Bounces Off Support As Dow, S&P 500 & Russell 2K Log Record Highs, But Beware the Ides of March We’ve been tracking the NASDAQ 100 Index ($^NDX) (represented by the ETF Invesco QQQ Trust ($QQQ) as a proxy for the market’s technical picture. It contains many of the tech stocks that have been driving the economy and market for the past year through these Covid times as well as for quite a while prior – and likely to do so for some time to come. There has definitely been some rotation out of this sector of late as DJIA, S&P 500 and Russell 2000 logged new highs today. But we would like to see confirmation with new highs in NASDAQ and NDX. The NAS and NDX are still lagging, but today’s stronger rally in the techs is encouraging. In this updated technical picture you can see that as the NDX logged a 10% correction from its February 12 closing high of 13807.70 to its closing low on Monday March 8 of 12299.08 it bounced off key support just above 12200 (intraday low on Friday March 5 was 12208.39). Check last week’s technical analysis post for reference to previous support levels that were broken. This 12200-level lines up with the October high which is also the high of that W-123 swing bottom pattern we mentioned last week. Back then it was key resistance that we cleared in late-November and early December. It now forms key support and lines up with the uptrend line from the September and October lows we discussed in our Almanac Investor December eNewsletter Outlook just before Thanksgiving. However, as the Ides of March are upon us, we must remind you that the end of March has a propensity to decline, sometimes rather precipitously as noted in the 2021 Stock Trader’s Almanac in the March Almanac and several places on pages 30-39. The Week After Triple Witching is often prone to weakness with DJIA down 22 of last 33 and the last few days often succumb to end-of-Q1 selling pressure. If any late-March weakness materializes it should be a solid buying opportunity for top-ranked April, the last month of the Best Six Months.
Signs of Life in Europe? Friday, March 12, 2021 Few equity sectors on earth have been as poor as European financials since the Global Financial Crisis. The sector still sits more than 50% below its 2007 all-time highs, hampered by regulations, low to negative interest rates, and all around slow growth in the Eurozone. However, despite those headwinds, the sector has benefitted from a recent rotation to value, and has certainly been assisted by rising interest rates, a phenomenon we discussed earlier this week. Not only is performance for European financials improving in absolute terms, as global equities continue to recover from the worst of the ongoing COVID-19 pandemic, but since early October the sector has outperformed the S&P 500 by more than 20 percentage points. As shown in the LPL Chart of the Day, the pattern relative to the S&P 500 appears to be on the verge of breaking out of a nearly year-long technical base, similar to where US financials stood just two months ago. While we don’t think European financials are going back to all-time highs anytime soon, remember, the sector still needs to gain 12% from current levels just to eclipse its 2020 pre-pandemic highs, a bar that certainly now seems attainable in 2021. “We remain broadly skeptical of foreign developed equities compared to their U.S. counterparts,” explained LPL Chief Market Strategist Ryan Detrick. “However, financials are the largest sector within Europe and improving performance and the continued rotation to cyclical value stocks make this a development to keep an eye on.” For now, we recommend sticking with US financials, which we recently upgraded in our latest Global Portfolio Strategy report, and is now the second best performing sector year to date, trailing only energy.
March Quarterly Options Expiration Week Historically Bullish: DJIA, S&P 500 & NASDAQ Up 10 of Last 13 Stock options, index options, index futures, and single-stock/ETF futures all expire at the same time four times each year, March, June, September and December. This event is often referred to as Quadruple Witching or as we prefer to call it in the Stock Trader’s Almanac (2021 page 106), Triple Witching. March’s option expiration week performance is second only to December’s and has a bullish bias. DJIA and S&P 500 have recorded weekly gains in about twice the number of weeks as declines. NASDAQ’s track record since 1983 is slightly softer with 23 advances and 15 declines, but all three indices have logged gains in options expiration week in ten of the last thirteen years. However, the week after is bearish for DJIA, S&P 500 and NASDAQ. S&P 500 is weakest, down eight of the last nine. Last year as covid-19 began spreading globally and economies began to shut down, DJIA and S&P 500 suffered their worst weekly declines during March’s quarterly options expiration.
Big Expectations Out of New York Mon, Mar 15, 2021 This morning the New York Fed released its monthly reading on the region's manufacturing sector. The headline index was expected to move up to 15 from February's reading of 12.1. Instead, the increase was even larger as the index rose 5.3 points to 17.4. In addition to that being the ninth consecutive month that the region's manufacturing sector expanded, it also surpassed the summer high of 17.2 making for the strongest reading since November 2018. In addition to the headline number moving higher, every other indicator also continues to show expansionary readings painting a broadly positive picture for the region's manufacturers. The only indices to show any deceleration in March were those for New Orders and Number of Employees. Six-month expectations also remain positive, although there were more of these that were lower on a month-over-month basis. As previously mentioned, New Orders was one of just two areas in the report to experience a deceleration in March. Falling to 9.1, this month's reading sits in the middle of its historical range still consistent with a seventh straight month of growth in new orders. Other related indicators remain much stronger though. With orders still growing, the index for Unfilled Orders expanded for a second month in a row climbing to the highest level since February of last year. Shipments picked up even more significantly. The index rose 17.1 points to 21.1. That is the ninth-largest month-over-month increase since the start of the survey in 2001. The most recent moves of similar or larger size were 29.1 and 42.3 point increases in May and June, respectively, of last year. As with the headline number, that is now the highest level since November 2018. Although shipments are accelerating, Delivery Times were also higher. That index now sits in the top 3% of readings In spite of those long lead times and high demand, inventories are rising with that index gaining 1.6 points to the highest level in just over a year. Like delivery times, that stands in the top decile of readings. Looking to the future, responding firms broadly expect higher inventory levels six months down the road. That index climbed 4.6 points to 19.5 which is the second-highest reading on record behind a print of 20.3 in January 2018. Another area of the report that continues to come in notably high is prices. Generally speaking, price increases and expectations for price increases are being reported at one of the highest clips of the past decade. Both indices for Prices Paid and Received currently are in the top 3% of all readings. Starting with a look at Prices Paid, March marked the eighth month in a row that the index rose month-over-month as it has reached the highest level since May of 2011. Similarly, expectations came in at the highest level in nine years. While Prices Received have only risen three months in a row, it is also at the highest level since May of 2011 and expectations are at the highest level since April of 2011. While current and future indices are moving in sync with one another with regards to prices, those for employment moved in opposite directions. The index for Number of Employees was still consistent with further employment gains in March, but the index fell to the lowest level since November. While hiring growth decelerated, responding firms are much more optimistic when it comes to employment six months down the road. That index climbed 14.8 points to 31.4. That was the fourth-largest uptick on record. The only larger one-month moves were in March 2008 (+22.8 to 31.9), October 2001 (+20.5 to 12.3), and September 2004 (+16.1 to 29.2). The index is now at the highest level since June 2010. As for Average Workweek, things were a bit more modest with the current conditions index rising to the highest level since October. Again, the index for expectations was even stronger rising to a two-year high.
Irish Eyes Shine on Market Last 27 Years and Thursday After Wednesday St. Patrick’s Day Saint Patrick’s Day is the only cultural event that perennially lands in March. Since 1950, the S&P 500 posts an average gain of 0.27% on Saint Patrick’s Day (or the next trading day when it falls on a weekend) and a gain of 0.05% the day after. S&P 500 median values are 0.23% on Saint Patrick’s Day and 0.03% on the day after. More recently since 1994, Saint Patrick’s Day market performance has been improving. S&P 500 has been up 20 times in 27 years with an average gain of 0.76%. In the nine years when St. Patrick’s Day falls on a Wednesday like this year since 1950, S&P 500 gains have been meager, up only three times with an average gain of 0.02%. Thursdays have been better, up five times with an average gain of 0.34%.
The Bull Market Is About To Turn One Wednesday, March 17, 2021 “The stock market is a giant distraction to the business of investing.” Jack Bogle, founder of Vanguard First off, we hope everyone has a happy and safe Saint Patrick’s Day! We’ve had a lot of green out there over the past year and here’s to some more today and over the rest of 2021. One year ago yesterday was one of the worst days in the history of the stock market, with the Dow losing 12.9%, the fourth worst day ever. In fact, only the ’29 crash, the ’87 crash, and the day after trading starting (after being halted for multiple months) in the midst of World War I in December 1915 were worse. As the great Jack Bogle explained above, sometimes stock market volatility distracts us from our long-term goals. Many investors panicked and sold this time a year ago, only to see stocks soar higher, while bonds struggled and cash didn’t do anything. One of the most important takeaways from 2020 for long-term investors: it is important to have a plan in place before the skies turn dark. As this current bull market nears the one-year anniversary of the March 23, 2020 lows, there will be a lot of reflection on how far we’ve come and where we could be going. The bottom line is the economy is recovering at a record pace, stocks are at all-time highs, and we’ll have the NCAA Tournament this year. Those are three things to be very grateful for. So what happens now is the logical question? “The good news is previous bull markets have never been lower during the second year of their existence,” explained LPL Chief Market Strategist Ryan Detrick. “Although it won’t be an easy ride, investors need to remember that history is on the bulls’ side, as this bull market is still just an infant and continued gains are quite likely.” As shown in the LPL Chart of the Day, the previous six bull markets since World War II all saw gains during their second year. The average bull market was up 43% one year in and up to 61% two years off the lows. It is worth noting that the current bull market is up close to 75%, making it the strongest start to a new bull market ever, besting the start to the 2009 bull market. But be aware, that bull was up 68% one year off the lows, but up 94% two years off the lows. In other words, strong gains continued (the green line below).
Historic Strength Out of Philly Thu, Mar 18, 2021 It's hard to get a report much stronger than this morning's release of the Philadelphia Fed's Manufacturing Report. The report showed the region's manufacturing economy expanded rapidly in March across categories with similarly strong optimism with regards to the future. The headline number was expected to see only a 0.9 point increase from last month's reading of 23.1. Instead, it more than doubled, leaping 28.7 points versus February's reading. That is the largest one-month gain since the record 57.6 point increase in June of last year. Other than that, only September and October of 1980 have seen larger monthly moves in the data going back to 1968. Not only was the size of the move large, but at 51.8, the index reached the third-highest level on record behind March (58.5) and April (53.6) of 1973. Similarly, while not at the same sort of historic high, the expectations component of this month's report also experienced a massive uptick that ranks in the top 1% of all monthly moves. Given that strength in general business activity, it should come as no surprise that every index for current conditions came in the top decile of all readings with the same applying to some of the month over month moves. As for the indices regarding future expectations, the current levels are more modest relative to their historic ranges with only those for Delivery Times, Inventories, Number of Employees, and Capital Expenditures notably elevated. Like the current conditions indices, though, many of these saw moves that stand around the top 5% of all periods or better. Demand was certainly a bright spot in this month's report. The New Orders Index rose 27.5 points to the second-highest level on record. Like the index for General Business Activity, the only time that the New Orders Index was higher was back in March 1973. While the one-month gain still stands in the top 1% of all monthly moves, there was actually a larger increase just two months ago when the index rose 28.1 points. Given the rapid acceleration in New Orders, Unfilled Orders also has risen sharply and has only been higher four other times. The most recent of these was back in January, but once again, prior to that, you would need to go all the way back to 1973 or earlier for readings as high as now. Considering the high level in new and unfilled orders, the reading in the Shipments Index was perhaps a bit more modest. In fact, the spread between the indices for Shipments and New Orders was at a record low in March. Although it is still at very healthy levels in the top 10% of all periods, at 30.5, the Shipments Index actually saw a stronger reading as recently as October. One potential factor in the difference between the growth in orders and products actually getting out the door could be related to supply chain disruptions. Higher readings in the Delivery Time Index indicate longer lead times. This month, the index rose up to 29.5 which is only a half-point below the record high in January. Meanwhile, the Inventories Index fell to the lowest level in four months. As a result of all of this, prices (particularly prices paid) continue to accelerate at a rapid pace. The Philly Fed noted that over 77% of the responding firms to the survey reported higher input prices compared to 55% last month. That lead the Prices Paid Index to increase 21.5 points to 75.9; a level that has not been observed since early 1980. Expectations are also on the rise but are more toned down as that index rose 14.1 points to the highest level since only April 2018. As for Prices Received, things are tamer albeit, at 31.8, this index is also at historically strong levels. While that is still several points below the higher level of 36.6 from two months ago, the last time readings above 30 were observed was back in the spring and summer of 2018. Today's report also showed some very interesting trends concerning the labor market. The index for the Number of Employees rose to 30.1. The only time that it was higher was in May and June of 2018. The region's firms also appear to want to continue to increase hiring down the road as the index for expectations reached 46.9. That is one of the highest levels on record with the last time such a level was reached being 1976. Even though firms are reporting more employees, the Average Workweek is skyrocketing. Last month, that index had reached 30.6 which was the second-highest reading on record. Fast forward to this month, the March print left both last month and the previous record of 34.2 from May 2018 in the dust. That increase in the average workweek is likely a result of firms doing more with less labor as they can't fill certain positions. The special questions asked in the survey shed some additional light on this as 64.3% of companies reported labor shortages and 44.6% of job vacancies have been open for 3 or more months.
Solid Global Growth Outlook but Multi-Speed Thursday, March 18, 2021 Last week we reviewed updated global economic growth forecasts from the Organisation for Economic Co-operation and Development (OECD), highlighting the significant increase in their gross domestic product (GDP) forecast for the United States this year. Clearly the Federal Reserve (Fed) 2021 is reading from the same playbook because they did the same thing yesterday. Here we look into another set of OECD data points but this time its global leading indicators. As we have noted with the US version from the Conference Board’s Leading Economic Index, we believe these indicators can provide useful insight into where economies may be headed in the near term. As you can see in our LPL Chart of the Day, leading indicators in Asia and the United States are pointing to better growth than in Europe. The global growth outlook is no doubt improving, but the recovery is multi-speed. “Global growth should continue to steadily rise as economies reopen and vaccines are deployed, consistent with the message from global leading indicators” according to LPL Financial Equity Strategist Jeffrey Buchbinder. “When we peel back the onion, we see a stronger picture in the United States and Asia, while Europe is more of a mixed bag. That reflects frustratingly slow vaccine distribution in the Eurozone.” The level of these indicators provide a valuable comparison across countries and regions. We also like to look at the momentum of these indicators to identify areas where the picture is getting better. On the chart below, you can see that the strongest momentum is found in Asia, particularly India and China, and the United States. Meanwhile, Japan is holding its own. On the flip side, the growth outlook in most European economies has stalled, particularly in the United Kingdom. While the paused rollout of the AstraZeneca vaccine is part of the problem across Europe, we expect a strong vaccine program in the UK to help turn its economy around soon despite the country’s below-average LEI level and deteriorating momentum. We continue to recommend investors focus their regional allocations on the United States and the Asia-heavy emerging markets. Global LEI data and the pace of vaccine distribution reinforce that positioning, as the global but multi-speed economic recovery from the pandemic continues. More risk tolerant investors may want to consider a tactical allocation to Japan, where appropriate, given the country’s relative success containing COVID-19 and bold stimulus efforts.
Historic Year for the S&P 500 Mon, Mar 22, 2021 Tomorrow will mark the one-year anniversary of the S&P 500's closing low from the COVID crash, and for most stocks in the index, it has been a historic year. Within the S&P 500, stocks in the index are up an average of 104.22% through Friday's close, and just three stocks - all from the Health Care sector - are actually lower. Leading the losers, Gilead (GILD) has declined over 10%. Recall that GILD performed well during the initial stages of the pandemic on the promising results of its drug Remdesivir in treating COVID patients, but once the market started to rally, it was left behind. The table below lists the top 25 performing stocks in the S&P 500 since the closing low on 3/23/20. Topping the list with a gargantuan gain of 763% is ViacomCBS (VIAC). After trading below $12 per share last March, the stock is close to triple-digits today. Behind VIAC, Tesla (TSLA), L Brands (LB), Etsy (ETSY), and Freeport-McMoRan (FCX) round out the top five, and all have gained in excess of 500%. Interestingly enough, despite the strength of the sector for what seems like years now, the only stock on the list from the Technology sector is Enphase Energy (ENPH). In fact, after ENPH, you have to go all the way down to the 53rd spot to find the next stock from the Technology sector (Applied Materials - AMAT, +186%). Leading the way higher, stocks in the Consumer Discretionary and Energy sectors are both up an average of over 150%, while Consumer Staples and Utilities are the only two sectors where each one's components are up an average of less than 50%. Just to the right of the S&P 500 in the chart below is the Technology sector which is one of five sectors where the average performance of its components is less than 100%. A gain of 96.1% in a year is nothing to sneeze at in any market environment, but just the fact that the average performance of stocks in the Technology sector since the March lows is now lower than the average of the S&P 500 illustrates the shift we have seen since the sector's peak relative strength last fall.
April Almanac: Top DJIA Month – Up 15 in a Row April marks the end of the “Best Six Months” for DJIA and the S&P 500. The window for our seasonal MACD sell signal opens on April 1st. From our Seasonal MACD Buy Signal on November 5, 2020 through yesterday’s close, DJIA was up 16.3% and S&P 500 had advanced 13.2%. These above average gains are encouraging and suggests seasonality is back on track after getting derailed by Covid-19 last year. April 1999 was the first month to gain 1000 DJIA points. However, from 2000 to 2005, “Tax” month was hit, declining in four of six years. Since 2006, April has been up fifteen years in a row with an average gain of 2.9% to reclaim its position as the best DJIA month since 1950. April is second best for S&P and fourth best for NASDAQ (since 1971). The first half of April used to outperform the second half, but since 1994 that has no longer been the case. The effect of April 15 Tax Deadline (moved to May 17 for 2021) appears to be diminished with numerous bullish days present on either side of the day. Traders and investors are clearly focused on first quarter earnings and guidance during April. This year, guidance is likely to be the greatest focus as the economy continues to reopen. Traders and investors will likely be looking for signs that “work-from-home” stocks can continue to grow and signs that leisure, hospitality, and travel are rebounding. Typical post-election year blues have done little to damper April’s performance since 1953. April is DJIA’s second best month in post-election years, gaining 1.9% on average. April is fourth best for S&P 500 and NASDAQ. Although post-election year 2005 did suffer a 3% DJIA decline.
Claims Come In At A New Low for the Pandemic Thu, Mar 25, 2021 It took almost a year, but seasonally adjusted initial jobless claims have finally moved back below their pre-pandemic record level of 695K set in October 1982. At the lowest level in a year, this week's print came in below expectations of 730K at 684K. That was a 97K decrease from last week's upwardly revised level of 781K and the largest week over week decline since the week of February 19th when claims fell by just 1K more. We would also note that in this week's release the BLS announced this will be the last week before revisions to the seasonal factors are made meaning next week the series will likely look slightly different as a result of those revisions. On a non-seasonally adjusted basis, claims likewise improved dramatically. Regular state initial claims fell by just over 100K to 656.8K this week. Not only is that the lowest level for regular state claims in a year, but it was also the third-lowest reading on record for the Pandemic Unemployment Assistance (PUA) Program. The only lower weekly readings in PUA claims occurred in the very first week that they were introduced (April 17th, 2020) and the first week of 2021 when there were some lapses due to the signing of the spending bill. On a combined basis, total initial jobless claims between the two programs fell back below 1 million for the first time of the pandemic. As for the individual states that drove those declines, California, Illinois, and Ohio (which is an unwind of some very elevated levels for the state recently) saw some of the largest declines across both regular state and PUA programs. In regards to just the PUA programs, Indiana and Oregon also were large contributors to that decline. Continuing claims are lagged one week to initial claims so the most recent print for the week of March 12th would not reflect that big drop in the most recent initial claims data. Nonetheless, seasonally adjusted continuing claims have extended the declines that have consistently come over the past several months. In fact, of the past half-year (26 weeks), there have only been two times that the continuing jobless claims were not lower week over week. This week's decline marked a tenth consecutive week that claims were lower. Falling to 3.87 million, the current reading is the lowest of the pandemic and is now "only" about 2 million above levels from prior to the start of the pandemic. Including all auxiliary programs adds an additional week's lag to the data meaning the most recent data as of the first week of March would again not reflect the big drop in initial claims this week. As of the most recent data for the first week of March, total claims across all programs rose slightly to 18.99 million from 18.253 million at the end of February. That continues to be a somewhat elevated reading relative to the past few months though the recent drops in initial claims could mean that there is certainly potential for improvement on the horizon. Pandemic Emergency Unemployment Compensation (PEUC) claims were the biggest contributor to that uptick as claims from that program rose 734.69K. While this data predated it, the signing of the American Rescue Plan Act extended this federal program through September after it was supposed to end in mid-March. This program in particular extends benefits once they have expired. That means the increase in continuing claims comes from people who have been long-term unemployed. In fact, of all continuing claims, those from the PEUC program accounted for 29.2% which is a new high for the pandemic. Combined with other extension-type programs like Extended Benefits, that share is also at a new high of almost 35% of all claims.
The Big Winner of the Past Year: Commodities Thursday, March 25, 2021 It has been just over a year since the S&P 500 Index bottomed on March 23, 2020, and while global stock markets have provided historic returns since the low, the biggest winners come from a completely different asset class: commodities. As global activity quickly ground to a halt, commodity prices plummeted, with oil prices even trading for a negative value for the first time in history. Since March 23, 2020, commodity markets have roared back as the global economy has emerged from the shadow of COVID-19. As shown in the LPL Chart of the day, oil and lumber prices have more than doubled off the lows, while copper prices have pulled back a bit after reaching that feat back in February: “After likely their worst period in history, although I wasn’t around for the bubonic plague so I can’t be certain, commodity prices have roared back as the global economy continues to wake up,” added LPL Financial Chief Market Strategist Ryan Detrick. “The US and China are well ahead of other nations in terms of economy activity and output, so as the rest of the world plays catch up, we wouldn’t be surprised to see commodities rise even further.” The emergence from lockdowns and subsequent increase in activity has boosted prices from the outright deflationary environment we saw last spring, to a more reflationary environment in recent months, and this has pulled commodity prices along with it. The commodity market’s top performer, lumber, has seen a particular boom in prices as the “stay at home environment” benefitted the housing market, leading to all-time highs in housing starts in December—even surpassing the high water mark set before the pandemic began. Adding to the fervor, mortgage rates continued to set record lows, falling as low as 2.82%, according to the Bankrate 30-year national average. We upgraded our view on oil in our January Global Portfolio Strategy publication, as strong technical factors favored prices to accelerate higher. Further, oil prices have continue to benefit from a favorable supply environment, with OPEC+ maintaining output until global demand rises, though the risk of a global increase in production at higher prices remains a risk to our view.
A Humble Victory Lap Monday, March 29, 2021 It has been a little over a year since the S&P 500 Index bottomed on March 23, 2020, and it was certainly an eventful year, to say the least. It’s also been one year since we at LPL Research upgraded our view on equities from market weight to overweight in Road to Recovery Playbook Update believing there had been a shift in the risk-reward dynamic between stocks and bonds. It certainly was not an easy call, and it was made with the S&P 500 rallying roughly 15% from its low. Little did we know however, that the S&P 500 would stage the greatest one year rally in history. As shown in the LPL Chart of the Day, the rally from the 2020 low eclipsed the rallies from the 2009 and 1982 lows, climbing almost 75% since the low: Investing is a challenging endeavor, one that even the most seasoned and successful participants need to remain ever vigilant, for Mr. Market is always ready to serve a fresh batch of humble pie—a lesson we always keep in mind. “Few on the Street were willing to lean into the market turmoil and change their outlook on stocks, but it was a call that paid off for us,” added LPL Financial Chief Market Strategist Ryan Detrick. “Even though we turned out to be on the correct side of history, investing is a ‘what have you done for me lately’ industry, and we have to continue to remain disciplined with our approach.” Despite the historic rally off the low, we continue to overweight equities in our portfolios, as the backdrop of an expanding economy and favorable monetary conditions should be supportive of stocks over bonds going forward, but we acknowledge that year 2 of a bull market has a way of challenging investors.
First Trading Day of April: DJIA and S&P 500 Higher 69.2% of the Time According to the Stock Trader’s Almanac 2021, the first trading day of April is DJIA’s fourth weakest first trading day of all months based upon total points gained. However, looking back at the last 26 years, in the tables below, we can see DJIA and S&P 500 have both advanced 69.2% of the time (up 18 of last 25) with average gains of 0.27% and 0.22% respectively. NASDAQ and Russell 2000 have slightly weaker track records but are both still up more frequently then down. Five declines in the last eight years (the largest in 2020) have weighed on long-term performance.
Turn Off, Tune Out Wed, Mar 31, 2021 The first quarter of 2021 comes to a close today, and as fast as time seems to fly, it's been a long one. Take GameStop (GME). It may seem like months and months ago, but it wasn't until late January that the stock started to go crazy as the 'Reddit Rebellion' launched and caused a mad scramble by hedge funds to cover any and all of their short positions. Think about it. In under three months, we've seen at least two large funds (Melvin Capital and Archegos), not to mention the collapse of supply chain finance giant Greensill Capital. Sometimes we go an entire year without blowups of this magnitude. Despite the tumultuous headlines and market volatility along with the frustrating churn in the market lately, US equities are finishing off the quarter well. Stocks in the S&P 500 are up an average of 11.9% so far this year and grouped by sector they're all averaging gains. Leading the way higher, stocks in the Energy sector stand apart from every other sector with an average gain of over 20%. After Energy, stocks in the Financials and Consumer Discretionary sectors are both up an average of over 15%. On the other side of the chart, sectors underperforming are generally defensive in nature with Health Care and Utilities both averaging YTD gains of less than 5%. One notable underperforming sector given its size is Technology. With an average gain of 7.2% YTD, stocks in the Technology sector are underperforming the broader market by more than 4.5 percentage points. Given the underperformance of Technology YTD, we can't help but remember some market 'certainties' over the years that never quite came to fruition. Remember after the initial surge off the lows coming out of the Credit Crisis in 2008 and 2009? While Financials were the best performing sector coming off the lows, the rally in the sector ran out of steam and stalled out. All we kept hearing at the time was that 'the market couldn't rally without the Financials', but rally it did. Now, after Technology outperformed during COVID and through last Summer, the sector has stalled out, and we're hearing the same phrase now as we did back then with the only difference being that Technology has replaced Financials as the sector that the market couldn't rally without. Since September 2nd though, when we first started to see the 'Big Shift' in the market, the S&P 500 has nearly tripled the return of the Technology sector, and despite Tech's underperformance, the S&P 500 has still managed double-digit percentage gains. When it comes to the old conventional wisdom of the market, investors would be best served by doing the opposite of Timothy Leary by 'turning off' and 'tuning out' all the noise. In the tables below, we list the top and bottom twenty performing S&P 500 stocks so far this year. Starting with the winners, L Brands (LB) and Marathon (MRO) are both already up over 60%, while another five stocks have rallied 50%+. With the exception of HollyFrontier (HFC), which is up 39.9%, every other one of the top 20 stocks is up over 40% - in just three months! What's most notable about this table, though, isn't what's on it, but what isn't. Technology has a larger number of components in the S&P 500 than any other sector, but only one stock from the sector - Applied Materials (AMAT) - made the list of top performers, and only one other besides AMAT (Hewlett Packard Enterprise) made the top 50. At the other end of the spectrum, there are only 13 stocks in the S&P 500 that are down over 10% YTD, and the 20th worst-performing stock is down less than 9%. And while there was only little representation from the Technology sector on the list of biggest YTD winners above, there's no shortage on the list of losers with eight of the twenty coming from that sector. It's only been three months, but stretching back to early last September, the market has gotten along just fine without the help of Technology.
Are the Financials and Energy Sectors Due for Rotation? Wed, Mar 31, 2021 As we noted in today's Morning Lineup and an earlier post, the Energy sector far and away has been the best performing S&P 500 sector in Q1. The sector is on pace to close out the quarter with a gain of just under 30%. That is nearly double the return of the next best performing sector: Financials. Granted, Financials have likewise been on an impressive run, gaining over 15%. As shown in the charts below, going back to at least 1990, Q1 of 2021 is on pace to go down as the Energy sector's single largest quarterly gain on record. Amazingly, the next two quarters that stand as runners-up have both come within the past year. Those were last quarter when the sector rose 25.78% and Q2 of 2020 when it rallied 28.68%. For the Financial sector, this quarter's gain stands in the top decile of all quarterly moves of the past three decades, and that follows last quarter's 22.52% gain which stands in the top 5%. As shown in the charts below, for both sectors, gains of 15% or more in a single quarter have been fairly uncommon with only a handful of past instances. That brings to question if strong runs in one quarter result in rotation out of those sectors the following quarter. In the tables below, we show the performance of the Financials and Energy sectors from the end of quarters with gains of 15% or more. Starting with a look at Financials, that rotation has not necessarily always occurred as the sector has consistently risen over the following three months. Of the ten prior instances, there have only been two quarters, Q3 2009 and Q1 2012, in which Financials were lower by the end of the next quarter. Those were also some of the few times that Financials were lower at the end of the first and second month of the quarter. We would note, though, that the current instance is also the first time since 2009 that there have been back-to-back quarters that the sector has seen gains of 15% or more. Back during that last occurrence (Q3 2009), returns were in fact weaker after that second quarter of large gains. As for the Energy sector, of the nine prior instances where the sector rallied over 15%, this was the first time with two sequential quarters boasting 15% or larger gains. Additionally, rotation out of Energy stocks has been far more commonplace. As shown in the table below, from the conclusion of those quarters with big gains, the sector has averaged a decline throughout the next quarter.
Strength Day Before Good Friday Weakness Day After Good Friday (and Easter) land at the beginning of April this year. Historically the longer-term track record of Good Friday (page 98 of STA 2021) is bullish with notable average gains by DJIA, S&P 500, NASDAQ and Russell 2000 on the trading day before. NASDAQ has advanced 19 of the last 20 days before Good Friday. Monday, the day after Easter has exactly the opposite record since 1980 and is in the running for the worst day after of any holiday. Since 2004 the day after has been improving with S&P 500 up 11 of the last 17. The second day after Easter has exhibited consistent strength.
