The Recession Is Over, So What Happens Next? Tuesday, July 20, 2021 The National Bureau of Economic Research (NBER) announced yesterday that the COVID-19 recession is over. If things don’t feel all that different, it’s because they announced the recession ended in April 2020. Yes, that’s last year. We are now in the 15th month of the new expansion. This delay is perfectly normal. NBER doesn’t change a recession call once it’s made, so they need to have a high degree of confidence in the supporting data. Waiting until 15 months after the recession is over is actually the average since they started making recession calls in real time in the 1970s. “Stock markets gave us an early signal on the end of the recession back in March 2020,” said LPL Research Chief Market Strategist Ryan Detrick. “The S&P 500 tends to bottom before a recession ends and it did this time as well, despite the narrow window of the shortest recession ever. It just took a while for the economic data to catch up.” As shown in the LPL Chart of the Day, the recession lasted only two months, the shortest on record, but also one of the steepest, the economy contracting more in just two months than any other recession back to 1948. So what happens now? Based on history, we are likely in for several more years of economic expansion. Expansions are on no particular timetable but the average length of an expansion does tell us something about how long it usually takes for the kind of economic excesses to build up that usually cause recessions. While post-World War II expansions have lasted as little as 12 months, the average is more than five years and the last four expansions have averaged over eight years. Absent an unexpected shock, we would not be on the lookout for a recession until the Federal Reserve (Fed) raises its policy rate several times. Recessions are usually accompanied by an inverted yield curve, where short-term interests are higher than long-term rates, not the normal situation. Since the Fed has a lot of influence over short-term interest rates, they often play some role in the yield curve inverting. The Fed usually won’t start to raise rates until the economy starts to strengthen and will continue to raise rates as it heats up. Raising rates several times is a signal that excesses have started to build that make the economy more vulnerable to a recession. Raising rates also adds to that vulnerability by pushing up short-term borrowing costs. While rate hike expectations have come forward, they still put a recession several years away. In the Fed policy committee’s latest economic projections, the consensus view was for no rate hikes in 2021 or 2022, and two rate hikes in 2023. While those projections will change based on what’s actually happening in the economy, if it held true it likely would not be enough to signal increased danger of a recession. But just because we don’t see a recession on the horizon does not mean it’s an all clear for markets. As discussed in our Midyear Outlook 2021: Picking Up Speed, we do still view the overall economic backdrop as supportive. But we are also in the second year of a bull market, which tends to be choppier than the first year, although the S&P 500 Index does typically still see gains. NBER’s announcement is something to celebrate, but it does not signal smooth sailing ahead. Still, most bear markets are associated with recessions, and with plenty of fiscal stimulus still in play, the Fed’s policy rate still near zero, and the labor market continuing to see strong improvement, even if slower than expected, absent a shock we are not expecting a recession any time soon, and that’s usually good news for markets.
Is It Time For A 5% Pullback? Wednesday, July 21, 2021 Monday’s big down day was a harsh reminder of how markets actually can produce volatility. It was the worst day of the year for the Dow and only the second drop of 1% or more for the S&P 500 Index in just over two months. As we noted recently in Three Things That Worry Us, there are many reasons to think that after more than a 90% rally (and virtually a double on a total return basis), the S&P 500 could finally be ready for a break. From less stocks participating, to weak seasonality, to a lack of bears, to typical choppiness during year two of a bull market, the summer months could be ripe for an eventual pullback (down 5-9%) or even a 10% correction. “The truth is investors have been very spoiled by the recent stock market performance,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Incredibly, we haven’t seen as much as a 5% pullback since October. Although we firmly think this bull market is alive and well, let’s not fool ourselves into thinking trees grow forever. Risk is no doubt increasing as we head into the troublesome August and September months.” As shown in the LPL Chart of the Day, the average year sees three separate 5% or more pullbacks for the S&P 500 with not a single one happening yet in 2021. This doesn’t mean a 5% correction is directly around the corner, but note that most stocks are actually already down as much as 10% off their recent highs, suggesting the internals of the market are a tad weak and risk is higher than normal. Looking at 10% corrections, the S&P 500 has averaged exactly one a year since 1950. Of course, with the historic volatility last year we saw four separate 10% corrections, though there hasn’t been a 10% correction since March 2020. Again, this could be getting long in the tooth after the 90% plus rally from the lows. Overall, worries over inflation, yields, the Delta COVID-19 variant, peaking economic data, or something else will get the headlines for any market weakness. We know that year two of bull markets can be choppy and frustrating, but the truth is earnings remain extremely strong, justifying stocks at current levels. It is just that sometimes stocks need to catch their breath, and we wouldn’t be surprised at all if that happened over the coming months.
Bulls and Bears Dead Even Thu, Jul 22, 2021 For the third week in a row, bullish sentiment has slid with this week's reading from the AAII falling to 30.6%. With a cumulative 18-percentage point decline in that time, bullish sentiment is now at the lowest level since October 1st, 2020. An identical share of respondents to the survey reported as bearish this week. That is only the 47th time in the survey's history that an equal share reported as bullish and bearish with the most recent other occurrence being the end of October 2020. Now back above 30%, bearish sentiment is at the highest level since the first week of February which is also essentially right in line with the historical average for bearish sentiment (30.53%). Identical readings in bullish and bearish sentiment means the spread between the two is at zero. As shown below, that is the first non-positive reading in the spread since the last week of January. As previously mentioned, throughout the history of the AAII's survey going back to the late 1980s, there have only been 47 instances of identical readings in bullish and bearish sentiment, or when the bull-bear spread equals zero, including the most recent instance. In the chart below we show the average performance of the S&P 500 over the next weeks and months following those instances. As shown, across the board the S&P 500 has tended to underperform the norm with the one-week and one-month periods averaging a decline. Again, while the gains are smaller than normal, the S&P 500 has at least been higher 71.7% of the time six months out and 84.4% of the time one year later. Not all of the losses to bullish sentiment turned bearish. Neutral sentiment rose 1.7 percentage points for a second week in a row. At 38.7%, neutral sentiment is at the highest level since June 10th.
Europe Back on the New High List Fri, Jul 23, 2021 It has been a period of sideways trading right near record highs for European equities since mid-June. After a break below its 50-day moving average and an apparent break of its uptrend, European equities were quick to rebound and this morning are trading right at record highs once again. While European equities are right back at record highs this morning, from the perspective of a US investor, the picture doesn't look nearly as bright. After a gap lower right after it traded at its last record high in mid-June, the STOXX 600 in dollar adjusted terms was hugging its 50-DMA for more than a month before breaking down earlier this week. And while the STOXX 600 was quick to rebound back above its 50-DMA in local currency terms, on a dollar adjusted basis, it hasn't gotten there yet. Obviously, the key culprit in the divergence between the performance of the two indices is the dollar. As shown in the chart of the US Dollar Index below, the last time the STOXX 600 was hitting new highs in mid-June, the dollar was right near 52-week lows. After the June FOMC meeting, though, the Dollar spiked higher and has continued climbing ever since, and that is clearly acting as a weight on the performance of US investors' international investments.
Fifth District Manufacturing Flying Tue, Jul 27, 2021 As we noted in our update of our Five Fed Manufacturing Composite featured in last night's Closer, July regional Fed manufacturing indices have been showing broadly strong readings. The fifth and final Fed bank's index released today out of, coincidentally enough, the fifth district added some fuel to the fire. The Richmond Fed's composite reading was anticipating a 2 point decline from 22 last month. Instead, last month's reading was revised higher by 4 points, and July saw another uptick to 27. That is the second-highest reading on record behind March 2008 when the composite came in a single point higher. While the composite index as well as multiple other sub-indices like those for employment, prices, and inventories were at or just off of records, breadth in terms of the month-over-month changes was more mixed. Of the 17 sub-indices, 9 were higher, 1 was unchanged, and 6 were lower. The area of the report to have seen the most significant deterioration in July was New Orders. The index fell 11 points to 25. Granted, that is coming off of a record high, and the July reading remained in the top 5% of all months. Order Backlogs also fell m/m although the decline was much smaller at only a single point. One interesting dynamic of the readings on Backlog of Orders is the difference between current conditions and expectations. Whereas the current conditions index is in the top 2% of all readings, the expectations component saw an 8 point decline and is now in the bottom decile of readings. Overall, while order growth decelerated, it is still running at a very strong clip. As such, shipments were higher with that index rising 6 points to 21; the highest level since March. While shipments rose, there still appear to be significant disruptions to supply chains. Vendor Lead Times were unchanged in July just off of the record high from two months ago. While that reading has yet to see much improvement, the region's businesses do seem optimistic that the lead times will improve but not necessarily return to normal down the road as expectations plummeted 12 points. Given those supply chain disruptions, inventories continue to decline at record rates. The indices for both raw materials and finished goods fell to fresh record lows. Meanwhile, unlike other regional Fed reports, prices paid have gotten little relief accelerating to an 11.16% annualized rate. Prices Received also rose to a record high of 6.9%. In addition to input and final good prices, wages also came in at a record high alongside the index for Number of Employees. Forward-looking indicators point to continued strong labor demand going forward too as expectations for the Number of Employees also set a new record. Granted, that did not coincide with a record in the reading on wage expectations. In other words, higher pay has appeared to have enticed more workers but we are potentially hitting a limit on firms' willingness (or ability) to pay higher wages. Additionally, alongside the higher wages and an increase in employment, there was an improvement in the Availability of Skills index which has been around record lows of late (meaning there has been a lack of candidates with necessary skills).
Large Cap Growth Leaves Small Cap Growth in the Dust Wed, Jul 28, 2021 Looking at the styles screen of our Trend Analyzer, growth stocks have been clear winners of late, but that does not necessarily include all growth stocks. Whereas the Growth ETF (VUG) or S&P 500 Growth ETF (IVW) are up over 2% over the past five days through yesterday's close and are sitting on year to date percentage gains in the high teens, the small-cap focused Russell 2000 Growth ETF (IWO) is actually down over the past week and is barely up on the year. Taking a closer look at the dynamic between small and large-cap growth, as shown below IWO has been trending lower for basically all of 2021 after a strong run higher at the end of last year. Meanwhile, IVW has been trending in a steady, largely uninterrupted, uptrend. Given that strong run at the end of last year, IWO had been outperforming IVW by a large degree for most of the past year. But small-cap weakness and large-cap strength has meant the two are now up by roughly the same amount (~40%) versus one year ago. A massive degree of that outperformance has come in the past month alone. In the bottom right-hand chart below, we show the rolling one-month performance spread of the two ETFs. While it has come back down slightly today, at yesterday's close, there was a 10.9 percentage point spread between the one-month performance of IVW and IWO. That is the widest dispersion between the one-month performance of the two ETFs since April's record level when the spread reached 12.82 percentage points. Since the Russell 2000 Growth ETF began trading exactly 21 years ago, there have only been a handful of other periods in which small-cap growth underperformed by such a wide degree. The other most recent period was March of last year, October 2008, and then late summer of 2002.
Neutral Sentiment Surge Continues Thu, Jul 29, 2021 The AAII's weekly sentiment survey saw an equal percentage (30.6%) of respondents report as bullish and bearish last week. This week saw a much more optimistic pivot as 36.2% of respondents reported bullish sentiment. While higher, bullish sentiment is still at one of the lowest levels since last fall. At 36.2%, bullish sentiment is also now just below the historical average of 38%. While the AAII reading on bullish sentiment was higher but still muted, the Investors Intelligence survey of newsletter writers showed bullish sentiment fall 8.1 percentage points to 53.1%. While that is not a particularly low reading (the lowest since only the end of May), it was the largest one week decline since October 2019. In other words, bullish sentiment is not necessarily collapsing, but it has lost some footing. With more bulls in the AAII survey, fewer respondents reported bearish sentiment. In fact, less than a quarter of investors reported bearish sentiment this week. That is down 6.5 percentage points from the prior week; the largest one-week decline since a 6.6 percentage point decline in the first week of June. The inverse moves in bullish and bearish sentiment resulted in the bull-bear spread to rise 12.1 points. While off the lows, it is still not as strong of a reading as has been seen for most of this year. In fact, the current reading is 5.5 points below the average since the start of the year. The most impressive sentiment reading this week was neutral sentiment. Over the past four weeks, neutral sentiment has risen 10.5 percentage points without a single decline in that time. That is the biggest four-week rise since mid-May when it had risen 14.9 percentage points. Now as the predominant sentiment with just below 40% of respondents reporting as such, neutral sentiment is at the highest level since the first week of 2020 when this reading was 1.2 percentage points higher.
Services Consumption Lifts GDP Growth Thursday, July 29, 2021 Lofty expectations for second quarter gross domestic product (GDP) growth were left somewhat wanting as a decent headline number fell short of expectations. Peering under the hood, though, we think this is still a fairly solid report. The Bureau of Economic Analysis released its preliminary estimate for second quarter GDP this morning, showing the U.S. economy grew at a 6.5% annualized pace against the Bloomberg median forecast for 8.4%. While this represented a small acceleration from the first quarter’s 6.3% pace, investors viewed the headline number as a mild disappointment in light of the heightened expectations. The composition of the growth, though, largely reinforces the prevailing narratives of a strong consumer juxtaposed with supply chain bottlenecks, restricting growth. “The positive takeaway from today’s report is that we are clearly seeing a rebound in the in-person consumption of services,” said LPL Financial Chief Investment Strategist Ryan Detrick. “This indicates a confidence by consumers to reengage with the parts of the economy beaten down most by COVID, and continued momentum here will be key if we are to see the consumer continue to power overall growth.” As seen in the LPL Chart of the day, the US consumer continued to do the heavy lifting, offsetting weakness in most other major GDP components. Business fixed investment came in strong and demonstrated business’ attempts to ramp up output to meet surging demand. Residential investment had a more predictable decline, as well-documented labor shortages and high materials costs are restricting new projects. The volatile inventory components, though, did represent a drag. Looking forward, we expect continued growth in the third quarter but with a different composition. Consumer spending should still be respectable, but likely will recede a bit due to the fading impact of past government transfer payments. New momentum in services as in-person commerce picks up should continue under the hood. Picking up the slack; though, business investment should continue to recover, and net exports may improve as the rest of the world plays catch-up to the U.S. in their recoveries, consuming more of our goods and services. Government spending and inventories also both have favorable outlooks. The Delta variant of COVID-19 presents a risk to the outlook, but we see strong reason to remain optimistic. The U.S. is lagging the U.K. in its exposure to the Delta variant, and if we model our trajectory after theirs, which obviously is an imperfect comparison, we expect to see a peak in cases in the coming weeks. In fact, the U.K. is already on a strong path to recovery despite doomsday headlines. Domestically, COVID-19 cases are spiking in areas with the lowest vaccination rates. But, there is evidence that these are also the states experiencing the highest uptick in new vaccinations, which should help self-correct the trends. Positivity rates can be thought of as the fastest-twitch indicator, with hospitalization trends following in the ensuing weeks. Through that lens we see that some of the hardest hit states may have already seen their positivity rates peak. We upgraded our 2021 forecast for U.S. real GDP growth earlier this year from 5–5.5% to 6.25–6.75%, and while there are sure to be bumps along the way, we expect to see the economy continue growing at a strong pace as activity further normalizes over the course of the year.
Materials Go For Ten Mon, Aug 2, 2021 While the S&P 500 finished last week slightly lower, the general theme across each of the eleven sectors was mean reversion. As shown in the snapshot of our Trend Analyzer below, the best performing sectors were those that are coming from oversold territory or below their 50-DMAs: Materials (XLB), Energy (XLE), and Financials (XLF). XLB was the top performer of these with its 2.8% gain resulting in it exiting oversold territory, and Friday's close saw the sector finish above its 50-DMA for the first time since June 14th. Conversely, some of the sectors that have recently been at more overbought levels like Consumer Discretionary (XLY) and Communication Services (XLC) were the worst-performing sectors. XLY came back within one standard deviation of its 50-DMA on that move. Over the past few weeks in our Sector Snapshot, we have noted the consistent oversold readings that the Materials sector has seen, but as noted above, the strong run recently has brought it back not only within a standard deviation of its 50-DMA but above its 50-DMA for the first time in a month and a half. Additionally, it hasn't been just the last five trading days. Friday's higher close extended the sector's winning streak to nine days long. As of this morning, the sector is again higher and looking to extend its streak to double digits. If the Materials sector keeps alive its winning streak, it would be the first double-digit winning streak since an 11-day long streak for Consumer Discretionary ending on July 6. As shown in the second chart below, for the Materials sector that would be the first 10-day winning streak since last June and before that, you would need to go back to the end of 2013 for a streak as long. While still uncommon, there is also some historical precedence for other nine-day-long streaks scattered throughout the past few decades. Looking at those past winning streaks of nine or more days long, the current one has actually seen a relatively modest gain through the first nine days of 5.91%. Similarly, the S&P 500 is up by a below-average amount through the first nine days of those prior streaks.
Continuing Claims Below Three Million Thu, Aug 5, 2021 This week's initial jobless claims number did not quite live up to expectations. From last week's revised level of 399K, claims were expected to fall to 383K. The actual reading was 2K higher, but that still marks the lowest level since the joint pandemic low of 368K from the weeks of July 9th and June 25th. As we have noted over the past few weeks, mid-summer has historically seen a seasonal drift lower in jobless claims. In fact, the current week of the year has seen unadjusted claims fall two-thirds of the time throughout the history of the data. With that in mind, unadjusted claims were likewise lower this week falling to 323.76K from 344.37K last week. Adding in claims from the Pandemic Unemployment Assitance (PUA) program, claims totaled 418.24K. That was a 19K decline week over week and the lowest level of claims of the pandemic. For PUA claims in particular though, there was actually a modest 1.4K increase versus the prior week. Delayed an additional week, continuing claims saw a more substantial decline dropping 366K versus last week. That was much larger than the 14K decline that had been penciled in by forecasts. Not only was it a large decline versus expectations, but it was the biggest one-week decline in adjusted continuing claims since the week of November 20th when they fell by 562K. That significant decline now leaves national claims below 3 million for the first time since March 2020. On an unadjusted basis, regular state claims came in at a pandemic low below 3 million for the first time. But adding in all other programs, which creates another week's lag (most recent data is through the week of July 16th), total claims came in just below 13 million. While lower, that is still above the pandemic low of 12.59 million from two weeks prior. Every program with the exception of the STC/Workshare program is currently above the lows from two weeks ago. The Extended Benefits program is up the most in that time, currently 141.18K above the levels from two weeks ago. Granted, regular state programs, PUA, and PEUC programs account for much larger shares of total claims.
Cyclical Sector Turnaround Wed, Aug 11, 2021 In today's Morning Lineup, we noted the charts of the sector ETFs for Materials (XLB), Financials (XLF), and Industrials (XLI) and how each sector has begun to catch a bid this month. Of the eleven sectors, Financials are up the most in August with just under a 6% gain. Utilities are actually the runner-up with a 3.09% gain in spite of the coincident uptick in rates this month. Materials and Industrials are also up nicely with gains of 2.42% and 1.55%, respectively. Shown another way, below are relative strength charts of each of these sectors from our Sector Snapshot. When these lines are rising, they indicate the sector is outperforming the broader market and vice versa when the line is trending lower. Recently, each of these sectors have seen sharp turns higher after having been in downtrends for most of the spring and summer. In the case of Financials and Materials, those downtrends actually broke multi-month uptrends that had been in place since late 2020. The bounce in the relative strength line of Industrials, on the other hand, comes as it tested the past year's uptrend line. Click here to view Bespoke's premium membership options.
More New Lows for Claims Thu, Aug 12, 2021 Initial jobless claims matched expectations at 375K this week. That is a 12K decline from last week's upwardly revised level of 387K (originally 385K) while also marking the third week in a row in which initial claims have fallen. Additionally, that brings claims to the lowest level since the start of the pandemic. Taking into account both unadjusted regular state and pandemic unemployment assistance (PUA) programs, claims were actually slightly higher this week. Combined claims rose from 420.13K to 425.07K. Albeit higher, that is still the second-lowest level of the pandemic period. The slight increase was entirely a result of PUA claims which rose by nearly 10K. Most of that increase was on account of a 6K increase in Michigan. Meanwhile, non-seasonally adjusted regular state claims continue to have seasonal tailwinds, falling by 5.2K. Continuing claims showed further improvement falling to 2.866 million at the end of July versus 2.98 million the prior week. With back-to-back declines, continuing claims are once again at pandemic lows. Florida, Texas, and New Jersey were the states to report the largest declines. Including all programs adds another week's lag to continuing claims meaning the most recent print is through the week of July 23rd. Total combined claims fell to 12.07 million that week with sizable declines across programs. Pandemic Emergency Unemployment Compensation (PEUC) saw the largest decline with claims falling 393.6K that week, and PUA and regular state claims were also not far behind with over 300K declines of their own. Those offset a 159.2K increase from the extended benefits program. Overall, while continuing claims broadly continue to trend lower, there are still 8.7 million claims between pandemic programs (PUA and PEUC) now with less than a month until the programs' expiration.
Bulls Stay in Charge Thu, Aug 12, 2021 As equities have continued to trend higher in the past week, sentiment has modestly improved across various indicators. Overall, sentiment remains in favor of bulls but not to any sort of extreme. For starters, the most recent reading of the National Association of Active Investment Managers' (NAAIM) Exposure Index rose to the highest level since mid-June. Meanwhile, the Investors Intelligence survey of equity newsletter writers saw bullish sentiment rise to 56.4%, the highest in a month, and bearish sentiment fall to 15.9%, the lowest in a month. The AAII's weekly survey saw similar results. The reading on bullish sentiment rose 0.9 percentage points to 37% this week. That is the highest level since the week of July 8th, but that is still a percentage point below the historical average and is also below most readings observed this year. While bullish sentiment was higher, bearish sentiment was little changed falling just 0.2 percentage points to 31.5%. Pulling back only slightly, bearish sentiment continues to be elevated relative to the past several months' readings. It is currently ~1 percentage point above the historical average. The moves in bullish and bearish sentiment mean the bull-bear spread rose slightly in favor of bulls. The spread rose from 4.4 last week to 5.5 this week. Neutral sentiment matched bearish sentiment at 31.5%. That was down slightly from 32.2% last week and is right back in line with the historical average.
Why Stagflation Isn’t in the Cards Thursday, August 12, 2021 The term stagflation has been increasingly circulating in the financial media as inflation readings have risen sharply in recent months. The term is often associated with the 1970s which saw runaway inflation—largely driven by sky-high energy prices—and lackluster economic growth. One way to gauge stagflation is to calculate what is commonly referred to as the Misery Index—inflation plus unemployment. As shown in the LPL Chart of the Day, the Misery Index today is nowhere near the extreme levels of the 1970s. In fact, not only that, the level of “misery” is near the long-term average of about 10 despite the highest inflation readings we’ve seen in over a decade. We expect inflation to soon begin to ease and the unemployment rate to continue its steady decline over at least the next year, which should bring this measure well below its long-term average and put an end to the stagflation fears that have been bubbling up recently. “We don’t believe the current environment is anything like the stagflation experiences of the 1970s,” explained LPL Financial Director of Research Marc Zabicki. “We think much of the elevated inflation readings we’re seeing now are transitory and related to pandemic bottlenecks and materials shortages. Meanwhile, the economic reopening and massive stimulus should provide a strong one-two punch to keep economic growth well above average through 2022.” That said, after the boosts from the reopening and stimulus pass, the U.S. economy may resume its pre-pandemic growth trend in the neighborhood of 2% real gross domestic product (GDP) growth. Bloomberg’s survey of economists points to just 2.3% real GDP growth in 2023, after 4.2% next year. Given the limited population growth in the United States, demographic headwinds as baby boomers retire, and low immigration rates, the opportunity for stronger economic growth than that may be limited. The other way to drive higher economic growth is through productivity enhancements which may also be tough to come by after all of the technology spending and efficiency improvements undertaken by corporate America during the pandemic. Slower growth isn’t necessarily a bad thing, as it tends to keep inflation at bay which can limit increases in interest rates. But it may mean slower earnings growth and potentially lower stock returns over the next several years. For the short-to-intermediate term, we remain comfortable staying overweight equities relative to fixed income. The economic growth and profit environment looks very favorable for the rest of this year and into early 2022, while we do not expect much return out of the bond market (though we like mitigating downside risk with bonds). Clearly there are risks in terms of the Delta variant. China’s regulatory crackdown and slowing growth is a concern. Our benign view of inflation could be wrong The Federal Reserve could make a policy mistake, causing interest rates to surge. Not our view, but possible.
Value Catching Back Up to Growth Fri, Aug 13, 2021 Up until the early summer, value stocks had consistently outperformed growth on a year-to-date basis. But once markets came back from the Fourth of July holiday, S&P 500 growth stocks had overtaken value in terms of year-to-date performance. While the two groups have generally trended higher together since then, in the past week (save for yesterday), the two have diverged as value has rallied and growth has seen a minor pullback. As a result, there is only a 1.3 percentage point difference between the two factor's YTD performance. Taking a look at the longer term relative performance of value and growth, the past year's stint of value outperformance has pretty much been a blip on the radar. As shown below, since the mid-2000s the ratio of value to growth has been in a consistent downtrend (meaning growth outperforms value) that accelerated early on in the pandemic. As could be expected with such dramatic outperformance of growth, the ratio of the two bottomed in the early fall of last year and regained some ground before peaking this past spring. Since then, the ratio of the two has been making a move back down to its lows.
August Seasonal Pattern Suggests Further Gains Mid-Month With about a third of August already in the record books, the market has thus far avoided typical seasonal weakness. August got off to a choppy start, but as of yesterday’s close DJIA, S&P 500, NASDAQ, Russell 1000 and 2000 are all positive and well above historical average performance for the full month of August. Fueled by the prospect of more fiscal spending, in the form of a much-needed infrastructure bill, DJIA is leading the way higher this month, up nearly 1.6% as of today. S&P 500 and Russell 1000 are a close second up around 1.5%. NASDAQ and Russell 2000 are the laggards, both with gains just under 1%. Compared to the historical average performance in August over the past 31 years, all five indexes are currently comfortably outperforming and are on course for a respectable month provided nothing pops up to knock them off their current course. Having already successfully sidestepped the usually weak first nine days of August, the market could be set for further gains to finish this week and next as mid-August has historically been the bright spot of the month. However, after a mid-month run the market has tended to stumble and drift sideways to lower through the end of the month. On average, only NASDAQ and Russell 2000 have managed to climb above their respective mid-month highs by month’s end.
One of the Best Weeks of the Year for Claims Thu, Aug 19, 2021 Initial jobless claims hit another pandemic low this week dropping to 348K from last week's 2K upwardly revised reading of 377K. That was also 16K below expectations and the first better than expected print in six weeks. While recent releases have disappointed relative to forecasts, this week did mark the fourth week in a row that claims have dropped. That is the longest stretch of consecutive declines since a six-week streak ending on June 4th. On a non-seasonally adjusted basis, initial claims fell to 308.57K which is again the lowest level since the start of the pandemic. Meanwhile, pandemic unemployment assistance claims ticked up to 109.38K from 103.85K the previous week. The main state driving that increase was Ohio which saw claims more than double. Maryland, Oregon, and California were the other states to have seen the biggest increase in PUA claims. Those increases also come even as the program is slated to end in just two weeks on September 4th. As for the decline in claims for unadjusted regular state programs, we would caution against reading too deep into the number on account of strong seasonal tailwinds. As shown below, the current week of the year (33rd) is tied at second for the week of the year that most often sees claims decline. As shown in the second chart below, there has only been one year, last year, in which claims were higher week over week in the 33rd week of the year. Seasonally adjusted continuing claims missed expectations by 20K this week, but at 2.82 million, this week's reading still marked a third consecutive decline. As such, claims are still at the lowest level of the pandemic and are closing in on coming within one million from the March 2020 levels. While the most recent reading on continuing claims was lower, purely looking at regular state claims does not show the full picture. Including all other programs creates some additional lag meaning the most recent data is through the last week of July. Through that week, total claims fell below 12 million for the first time of the pandemic, totaling 11.76 million. Driving that decline were 79.9K and 66.08K declines in regular state and PEUC programs. The biggest decline came from the extended benefits program, though. That program saw claims get more than cut in half after a significant uptick the previous week. Throughout the month of July, claim counts for the extended benefits program were particularly volatile. They started off the month with a sub-100K reading of 98.4K, then rose all the way up to 343.5K, dropped to 239.6K, then rose again to 398.8K before falling back down to 177.9K in the week of July 30th.
Nasdaq Crosses Another 1,000 Point Threshold Tue, Aug 24, 2021 It won't be official until the close, but with the Nasdaq crossing 15,000 for the first time today, it's on pace to cross its third 1,000 point threshold this year and the sixth since the pandemic began in early 2020. The table below lists each 1,000 point threshold that the Nasdaq has crossed over time along with the first day that it crossed that threshold, the number of days since the prior cross, what percentage that 1,000 point consists of relative to the prior threshold, and then how many upside and downside crosses the Nasdaq has had around that level on a closing basis. Of all the 1,000 point thresholds the Nasdaq has crossed over time, the only one that it never traded back below after crossing it was 6,000 back in April 2017. Besides 1,000, that was also the 1,000 point threshold that took the longest to cross above. After first crossing 5,000 back in March 2000, it took 6,256 days for the Nasdaq to top 6,000. Since then, though, the Nasdaq has been making quick work of 1,000 point thresholds. With the exception of the 486-day gap between 8K and 9K, every other 1,000-point threshold since 6,000 has taken less than a year to cross. Even in the midst of a global pandemic, it took the Nasdaq less than six months to get from 9,000 to 10,000. The long-term chart of the Nasdaq below includes red dots to show each time the Nasdaq first crossed a 1,000 point threshold along with the number of days for each one. Looking at the chart above may give you a feeling of lightheadedness given the seemingly parabolic nature of the last few years. An important thing to keep in mind, though, is that as a percentage of the index's price level, every 1,000 point threshold represents a smaller move in percentage terms. While the move from 9K to 10K represented a move of over 11%, the move from 14K to 15K represents only a little more than 7%. Looking at this chart on a log scale where each label on the y-axis represents a doubling of the index shows how modest the recent 1,000 point thresholds have been relative to earlier ones. Think about it this way, in the less than two years between when the Nasdaq first crossed 2K to when it crossed 5K for the first time (four different 1,000 point thresholds), it rallied 150%. Over the last four years, though, the Nasdaq has crossed 10 different 1,000-point thresholds, but the gain has also only been 150%.
6 Charts on Stocks Making New All-Time Highs Wednesday, August 25, 2021 The S&P 500 Index made yet another new all-time high yesterday, the 50th on the year. “The all-time record for any one year is 77 S&P 500 new all-time highs back in 1995,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Incredibly, 2021 is currently on pace for 78 new highs. There’s a long way to go, but this has been an amazing year and this is yet another way to show it.” As impressive as 50 new highs is, investors need to remember that new highs happen in clusters that can last decades. We’ve been sharing this chart for years, saying exactly that: previous periods of new highs lasted much longer than most expected. Mark Twain said history doesn’t repeat itself, but it often rhymes. If history rhymes once again, we could still have several more years of new highs. Another interesting stat about S&P 500 all-time highs is every month so far in 2021 has seen a new high, 8 for 8. Only once have all 12 months made a new all-time high and that was in 2014. This is somewhat surprising, given the S&P 500 gained only 11.4% in 2014, but it was a very slow and persistent move. Most investors (including this author) would guess it was 1995, but that spectacular year saw new highs in ‘only’ 10 months. Although August tends to be historically weak for stocks, that hasn’t been the case this year. In fact, the S&P 500 has made an incredible 9 new highs already this month, the most since 1929. No, we don’t think this is another 1929, but this is just another way to show how astounding this bull run has been. As shown in the LPL Chart of the Day, 50 new S&P 500 all-time highs before the end of August is quite a feat. In fact, only twice has the 50 level been cracked through the end of August, in 1964 and 1995. So what happens next? The rest of the year in 1964 the S&P 500 added 3.6%, while it added 9.6% in 1995. Below we looked at all the years with at least 30 new all-time highs through August and sure enough, better than average returns the rest of the year are common. The final 4 months gained 4.7%, versus the average final 4 months gain for all years of 3.6%. Now this is skewed due to 1987s crash, as that was the only time stocks were lower the final 4 months after more than 30 new highs by the end of August. Smoothing things out, the median return jumps up to a very impressive 5.4%, versus a median return of 3.6% for all years. 2021 is off to a roaring start and we continue to expect higher prices before all is said and done. The studies we did today do little to change our view. We’d use any potential weakness as an opportunity to add before potential higher prices.
NSA Claims Break Below 300K Thu, Aug 26, 2021 For the first time in four weeks, seasonally adjusted jobless claims came in higher with claims ticking up to 353K. Additionally, last week's reading was also revised 1K higher to 349K. Albeit higher, this week's print does remain at the low end of the range since the pandemic began and is less than 100K away from the March 13, 2020 level of 256K (the last print before claims rose into the millions). It continues to be a point in the year that regular state claims have the benefit of seasonal tailwinds. The current week of the year has historically only seen claims rise week over week 16.7% of the time on a non-seasonally adjusted basis. This week, claims fell by 11.7K resulting in the first sub-300K print of the pandemic. While regular state claims were lower, PUA claims rose for a fourth week in a row even with the program's expiration (September 5th) rapidly approaching. This week's 9.63K increase was the largest of the past few weeks bringing PUA claims up to 117.71K. That is the highest level since the week of April 23rd. Seasonally adjusted continuing claims were also disappointing this week. Last week's print was revised higher by 45K to 2.865 million, and while this week's number was lower at 2.862 million, it was worse than expectations for a decline to 2.72 million. Thanks to that higher revision, claims have now fallen for three weeks in a row and are once again at pandemic lows. Including all other programs adds another week of delay so the most recent read on continuing claims across all programs is through the week of August 6th. Total claims rose to 12.02 million that week versus 11.84 million in the final week of July. Two of the largest programs, regular state and Pandemic Emergency Unemployment Compensation (PEUC), saw significantly lower claim counts that were offset by increases in PUA and extended benefit claims. PUA claims rose back above 5 million due to a 104.71K increase erasing most of the decline from the second half of July. Extended benefits remain particularly volatile, and this week saw another big move with claims rising 173.5K. At 351.4K, this program is at one of the highest levels since April. While there are still several weeks until the data would catch up, through those most recent readings there are 8.8 million slated to lose benefits with the September 5th expiration for pandemic programs.
