Daily Stock Market Articles

Dow Goes for Eight
Wed, Jul 19, 2023

Equities are again showing a positive tone today with each major US index trading higher, including a 0.44% gain from the Dow as of this writing. That puts the Dow on pace for its eighth straight daily gain. Looking throughout the index's 100+ year history, such a winning streak is not particularly uncommon, however it has been a few years since such a run has been observed. Assuming the Dow finishes the day higher, it would be the first 8-day winning streak since September 2019. While plenty of streaks ended at eight days, there has been precedence of the Dow continuing its streak for even longer. That includes a near-record streak of 12 days recently in December 2017 or the record streak of 13 days in early 1970.



In the chart below, we show the performance of the Dow over the first 8 days of each winning streak that has gone for eight or more trading days throughout the index's history. The Dow has risen 4.2% during the current stretch, which is essentially right in line with the past couple streaks from 2018 and 2019. That is also a little below the historical average of just under 5% (median: 4.6%).

 

Yes, There Were Clues That ’23 Would Be a Big Year for Stocks
Posted on July 19, 2023

“You can learn a lot by looking.” -Hall of Fame catcher Yogi Berra

Stocks had one of their best starts to a year ever after six months in 2023 and the fun has only continued so far in July. If you’ve followed us since late last year then you know that we expected a good year and said there likely wouldn’t be a recession either.

By early November of last year, we were on record saying the bear was over. This was a widely despised call, as it was wildly out of consensus. Nearly everyone else said stocks would move back to new lows and most economists were talking about a near-certain recession.

But were there clues? We’ve heard many say there were no warning signs that the bull was back. We’d disagree wholeheartedly, as there were many, many clues a big rally was coming. In this blog today I’ll share some of the exact same charts and tables we shared late last year and early this year that suggested a big rally was coming.

One clue was the average bear market without a recession was 23.0%, right in line with the 25.4% bear market we had just experienced. Given we said there was no recession coming, it didn’t make sense to see stocks fall significantly further.



We noted many times that October was a bear market killer, as six of the previous 17 bear markets ended in this month. Make that seven of the past 18.



Stocks historically do really well the year after a midterm election, something we weren’t going to go against. In fact, stocks have never been lower going back to World War II.



The odds of a recession were slim, given how strong the consumer and employment backdrop was. At the same time, recessions simply don’t start in pre-election years. Or at least we haven’t seen one start in a pre-election year going back to WWII.



Speaking of pre-election years, stocks tend to do quite well here, up nearly 17% on average. But when the year before was negative (like 2022), the average return jumps to 24.6% and has never been negative.



The S&P 500 gained more than 5% in back-to-back months in October and November. This isn’t what you see in the middle of a bear market, but something you tend to see at the start of new bull markets.



Going back to midterm years and pre-election years. When a midterm year is lower, then expect some fireworks that following year.



Another thing we knew was that the third year of a new President tends to see the very best returns.



In late November the S&P 500 finally moved above the 200-day moving average after more than seven months beneath it. Historically, stocks tended to soar from this point, up nearly 20% a year later.



What if October was the low, like we started to say in November? Well, enormous gains a year later wouldn’t be abnormal.



Another chart we shared many times late last year was a year off of the mid-term year lows, stocks tend to gain a lot, to the tune of more than 32% on average and never lower. We knew October 12 was the closing low at the end of the year, so we could make a safe assumption that big gains would be in store a year after those lows.



Inflation soared last year, but we expected it to come back this year. Simply put, stocks tend to do much better when inflation is lower than it was the year before.



It is really rare for stocks to be lower two years in a row. The odds of a big bounce back were high. Not to mention when the previous year falls 20% or more, the move back the next year tended to be huge. Stocks didn’t quite lose 20% last year, but it was close, suggesting higher prices in 2023.



So, everything I’ve said above were things we shared late last year, again, giving clues a bounce back was likely. Now we will look at things that happened in the early part of this year that added to the chances of a strong rally.

When the first five days are up nicely, like this year, the full year has tended to go well.



The bullish trifecta was met as well. This is when stocks are up during the Santa Claus Rally period, the first five days, and during the month of January. Following the trifecta, stocks are up 17% on average for the full year and higher 90% of the time.



What if stocks fell the previous year and hit the trifecta? Things tended to get even better.



We saw extreme buying pressure to start the year, with the 10-day total of advances versus declines on the NYSE above 2.1, a very rare signal. As you can see in the table we shared in mid-January, six months after this signal stocks had never been lower. Six months later this year, that is still true.



Stocks gained in January and the gains were large, more than 5%, suggesting the full year was going to be up nicely.



But if the year before was negative and stocks added 5% in January, the full year did even better, up close to 30% and never lower.



Lastly, stocks tended to do quite poorly when a team from Philly won it all in baseball or football. With apologies to the great fans of the city of brotherly love, a narrow loss to the Chiefs in the Superbowl may just have given markets a little extra insurance. Sure, this is actually random and all, but I’m not arguing with history!



So there you have it. I just shared 20 tables and charts that we shared from October through January, which all told a similar story. Go all the way back up to the top and the quote from Yogi. The clues were there and you could learn a lot by watching. If you watched what the Carson Investment Research team was saying, this historic rally shouldn’t be much of a surprise.

This is a big reason why we moved our Carson House Views for equities from neutral to overweight all the way back in December. We expected markets to rebound in 2023, as we wrote in our 2023 outlook.

If using an evidence-based approach to investing makes sense to you, please continue to follow us. And for more of our views on what could be next, be sure to read our just released Mid-Year Outlook: Edging Closer to Normal.

 

Reality Check for Housing Starts
Wed, Jul 19, 2023

After a blockbuster report for May where Housing Starts and Building Permits both surged, there was a bit of a reality check in June. While Building Permits were expected to come in at 1.50 million, the actual reading came in at 1.44 million representing a 3.7% m/m decline and a drop of 15.3% y/y. One positive of this report, though, was that single-family units actually increased 2.2% and are only down 2.7% y/y even as multi-family units plunged 12.8% m/m and over 30% y/y. With respect to Housing Starts, the headline reading also missed estimates by 46K (1.434 mln vs 1.480 mln). Not only did June's reading miss forecasts, but May's reading was revised lower, so that the originally reported 231K beat was more like 159K. Even after that downward revision, though, Housing Starts declined 8.0% m/m and 8.1% y/y.



Following May's report, we noted that the 12-month moving average of Housing Starts had broken its streak of 12 straight declines, but this month, the moving average resumed its downtrend and fell to its lowest level since February 2021. Similarly, the 12-month moving average for Building Permits declined below 1.49 million for the first time since December 2020 and posted its 11th straight decline.



Taking a longer-term look at the 12-month moving average for Housing Starts, it remains in its well-established downtrend. As shown in the chart below, prior periods where this average peaked and started to rollover usually preceded recessions.



A comparison of Housing Starts versus the performance of homebuilder stocks is a perfect example of how the market tends to trade in advance of events. Just as homebuilder stocks peaked four months ahead of the peak in Housing Starts, they bottomed five months in advance of the recent low in the three-month moving average.

 

DJIA Advances for 8th Straight Day – Historically Bullish for Next 3 Months

For the 54th time since 1950, DJIA has recorded a daily winning streak of at least eight days. This is DJIA’s first 8-day winning streak since 2019. During the current streak DJIA has advanced 3.93%. Of the prior 53 daily winning streaks lasting eight or more trading days, 26 ended at 8 days, 14 ended at 9 days, 8 made it to 10 days, while 2 made it to 11 and 12 days. DJIA’s longest daily winning streak of 13 days was in January 1987. DJIA also enjoyed an 8-day winning streak in July 1987. Based upon the last 53 streaks, there is only a modest 50.9% chance of the current streak continuing to 9 days or longer.

Historically, daily winning streaks of 8-trading days or more have been bullish even after they ended. Over the 1-, 2-week, 1-, and 3-month periods after the daily winning streak ended DJIA was higher, 98.1%, 98.1%, 96.2% and 90.6% respectively. The only significant decline within 3 months of a daily streak end was a 19.22% loss in 1987.

 

Bulls Dominate
Thu, Jul 20, 2023

The past week has provided some positive developments on the inflation front that in turn sent equities higher. In response, readings on investor sentiment have shown a dramatic positive turn. The latest AAII survey showed more than half of respondents reported as bullish for the first time since April 22, 2021. As we noted in today's Morning Lineup, this week's reading ended an over two-year-long streak without a reading above 50% which was the third longest such streak on record.



Given the elevated reading of bullish sentiment, a minor share of respondents are reporting as bearish. In fact, that reading fell to 21.5% this week which is the lowest reading since June 2021.



Last year saw a record streak of weeks where bearish sentiment outnumbered bullish sentiment. With the total reversal in sentiment, the bull-bear spread now heavily favors bulls. The spread reached 29.9% this week for the highest reading since April 2021.



The gains to bullish sentiment have not entirely come from bears. Neutral sentiment is also reaching new lows, registering just 27.1% this week. Unlike bearish sentiment, that is only the lowest level since the last week of 2022.

In tonight's Closer we will discuss the surge in other sentiment indicators and what that has historically meant for S&P 500 performance.

 

Seasonal Bump Absent in Claims Data
Thu, Jul 20, 2023

Among the many economic indicators updated this morning, seasonally adjusted initial jobless claims came in stronger than expected, falling to 228K. That reversed the recent jump in claims observed throughout the late spring.



Looking at the non-seasonally adjusted data helps to explain the recent decline in the adjusted number. As shown below, barring the pandemic years of 2020 and 2021, claims remain at one of the higher readings for the current week of the year in recent history. Typically, in late June and early July, seasonal headwinds cause a significant bump in claims. This year, that increase has been relatively modest.



Pivoting to continuing claims, the indicator had been on the decline since early April, but the first two weeks of July have seen a modest turn higher. At those levels, continuing claims remain in the middle of the range from the few years leading up to the pandemic.

 

It’s a Bird. It’s A Plane! It’s … the US Economy!
Posted on July 20, 2023

We just got a bunch of data to round out the economic picture in the second quarter (Q2).

Long story short: Not only do we see no sign of recession, but it also doesn’t even look like the economy is looking for a “landing” at this point.

I realize this could change, but so far the data doesn’t indicate much weakness. Now, the monthly data can be volatile, and subject to revisions. So it helps to look at the last three months. Let’s walk through some of the highlights.

Consumption Was Strong

• Retail sales rose at a 4.7% annual pace in Q2.
• Core retail sales, excluding categories like vehicle and gas station sales, rose at a 6.3% annual pace.
• Even after adjusting for inflation, “real” retail sales rose at a 1.9% annual pace in Q2, and are currently running 6% above the pre-crisis trend!

The Supply Side Is Coming Back

• Vehicle production rose 7.6% in Q2.
• Production within the aerospace industry rose 4.7% in Q2.
• High-tech industries are running hot, with production up 3.9%, and almost 17% above pre-pandemic levels.
• Production of business equipment outside of vehicles and high-tech also looks to have bottomed, which is a positive sign for capex.

Construction is Booming

• Single-family housing permits and starts rose 11% in Q2.
• An index measuring homebuilder sentiment continues to move higher, indicating that builders are getting more positive about future demand.
• Meanwhile, total housing units under construction (single-family and multi-family) are near an all-time record.
• Combine that with a boom in manufacturing construction, and its not a surprise why construction payrolls have increased by 88,000 this year and are about 339,000 above pre-pandemic levels.

All These Points to Strong Economic Growth
The Atlanta Fed puts out a “nowcast” of quarterly real GDP growth that is updated with major economic data releases. Right now, it says the economy grew 2.4% in Q2, after adjusting for inflation.

If that is close to actual GDP growth in Q2, it would mean the economy grew 2.6% over the past year. That is not only stronger than the average 2.3% pace of growth between 2010 and 2019, but it also matches the pace of growth over the three years prior to the pandemic (2017-2019), when economic growth picked up.

What is amazing is that the economy accelerated after a poor first half of 2022 even as the Federal Reserve hiked rates aggressively, taking the federal funds rate from 0.25% to 5.25%.



Meanwhile, the unemployment rate remained steady at 3.6% over the past year, and headline inflation fell from 9% to 3%.

It really doesn’t get better than that. Perhaps more importantly, there is no reason to believe a major slowdown is in the cards at this point.

 

August Can Be Challenging in Pre-Election Years

Money flows from harvesting made August a great stock market month in the first half of the Twentieth Century. It was the best DJIA month from 1901 to 1951. Now it is the worst DJIA and second worst S&P 500, NASDAQ, Russell 1000, and Russell 2000 month over the last 35 years, 1988-2022 with average performance ranging from 0.1% by NASDAQ to a –0.9% loss by DJIA. Last year, DJIA, S&P 500, NASDAQ, and Russell 1000 all declined over 4% in August.

Contributing to this poor performance since 1988; the second shortest bear market in history (45 days) caused by turmoil in Russia, the Asian currency crisis and the Long-Term Capital Management hedge fund debacle ending August 31, 1998, with the DJIA shedding 6.4% that day. DJIA dropped 1344.22 points for the month, off 15.1%—which is the second worst monthly percentage DJIA loss since 1950. Saddam Hussein triggered a 10.0% slide in August 1990. The best DJIA gains occurred in 1982 (11.5%) and 1984 (9.8%) as bear markets ended. Sizeable losses in 2010, 2011, 2013, 2015 and 2022 of over 4% by DJIA have widened its August average decline.

In pre-election years since 1950, Augusts’ rankings improve modestly: #8 DJIA, #9 S&P 500, #10 NASDAQ (since 1971), #11 Russell 1000 and #10 Russell 2000 (since 1979). Average performance in pre-election years is positive except for Russell 2000. However, all five indexes have declined in August during the last three pre-election years, 2019, 2015 and 2011. It would appear, August’s pre-election year advantage is fading.

 

Most Confident Consumers in Two Years
Tue, Jul 25, 2023

In case you didn't see it already, today's report on Consumer Confidence from the Conference Board showed that consumers are more confident than they have been at any point in the last two years. While there are still no shortage of negative macro headlines, with employment remaining strong, inflation easing, and the stock market in a bull market, you can't fault consumers for being more confident than they have been in recent history.

For some perspective on the current levels of consumer sentiment, the chart below shows historical readings of Consumer Confidence with red dots showing each time that the monthly reading made a new two-year high. As you can see, these types of readings aren't rare, especially during prolonged economic expansions, and as a corollary to the saying that it's often darkest before the dawn, sentiment tends to be brightest right up until sunset.



In each of the prior periods where sentiment hit a two-year high just before the economy started to roll over, it was preceded by multiple occurrences of sentiment hitting new two-year highs. If we further filter out occurrences for periods when sentiment hit a two-year high for the first time in at least a year, the picture looks a lot different. In this case, there was never an occurrence just as the economy was on the verge of a recession, and most of them tended to occur early in the cycle rather than late. Interestingly enough, with all the debate over whether or not the economy is in a recession or not, the pattern of Consumer Confidence in the current period looks very much similar to the pattern during the double-dip recession of the early 1980s. Like the current period, back then there was a sharp drop and subsequent sharp rebound in confidence followed by another decline that failed to make a lower low. The only difference this time around is that following the initial COVID recession of 2020 there wasn't another recession in the next two years- at least not an officially declared recession.

 

1st 8 or 9 Days of August Weaker Pre-Election Years

First eight or nine trading days of August have exhibited weakness while mid-month has been better. This pattern holds in pre-election years with greater magnitude (dashed lines). Note the bullish cluster from August 15 through 17. This strength is visible above on trading days 11, 12 and 13. The end of August tends to be softer when traders evacuate Wall Street for a summer finale. The last five days were generally bearish from 1996 to 2013 but have been positive in seven of the last nine years. In 2022, S&P 500 dropped 4.5% in the last five trading days of August. S&P 500 has also only been up nine times on the penultimate day of August in the past 27 years.

 

Emerging Markets (EEM) Attempts a Break Out
Wed, Jul 26, 2023

Today we published our most recent Global Macro Dashboard which provides a high level summary of 22 major economies. Taking a look at those same countries' stock markets via US traded ETFs, 2023 has seen broad rebounds in equity prices across the globe. At the moment, the average country ETF is 4.55% away from a 52-week high after posting a double-digit YTD gain. Based on developed and emerging countries, there has been some divergence. Both last year and again this year, emerging market equities have seen modest outperformance relative to developed markets. That has also been the case in July with an average gain of 5.24% for EM countries versus a 2.85% rise for their developed market peers. South Africa (EZA) is up the most month-to-date with a 10.2% gain, while France (EWQ) is up the least with a gain of just 13 bps so far in July.



From a technical perspective, the gains in emerging markets—proxied by the iShares MSCI Emerging Markets ETF (EEM)—have resulted in a move above resistance at some of the past year's highs. As shown below, earlier in the spring and again only a couple of weeks ago, EEM attempted to retest the levels from last summer unsuccessfully. Today, EEM is back above those levels with the next resistance to watch being the January high at $42.50.

 

Where the Jobs Were
Thu, Jul 27, 2023

In last night's Closer, we discussed the latest job postings data from job listings website Indeed. Compared to the official reading on labor market demand -- the Job Openings and Labor Turnover Survey (JOLTS) -- which is released monthly at a two-month lag, this Indeed data is a daily look with much lower latency. The latest release as of Tuesday covers postings through July 21st. As shown below, postings remain in a downtrend in spite of a modest rebound in the latest month. Having tracked well with the official data, modeling JOLTS on the Indeed data would predict JOLTS to continue to fall to around 9.57 million for the June data scheduled to be released next week.



The Indeed data also provides a good deal of demographic granularity based upon geographic areas. As shown below, the first two years of the pandemic had been a boon for smaller metro areas as they generally saw healthier readings on postings than the largest cities. While that dynamic moderated through the back half of 2021 through early 2022, the past year has seen the trend return. As shown in the charts below, postings have fallen regardless of MSA size, but larger metros have experienced a much more substantial drop. The smallest metros, on the other hand, have seen a much more modest decline, especially over the past several months. Check out the big drop in the second chart below showing the spread between the largest and smallest metros:



The data also provides a breakdown based on job industry. In the table below, we show the change in each industries' postings since the pre-pandemic baseline of early February 2020. Currently, there are six groups with a lower reading on postings versus pre-pandemic: IT Operations & Helpdesk, Media & Communications, Marketing, Information Documentation and Design, Software Development, and Mathematics. Meanwhile, several health care and engineering related roles continue to sit atop the list with the greatest post-pandemic growth in job postings. Finally, we would also note that some industries like Human Resources and logistics-related industries that saw postings boom on account of strong hiring and stressed supply chains have moderated. Today, those same indices now have postings that are middle of the pack at best.

 

Jobless Claims Back to Improving
Thu, Jul 27, 2023

It was a solid morning for economic data with a number of indicators coming in better than expected. Weekly jobless claims were one of those with seasonally adjusted initial claims unexpectedly falling to 221K from 228K last week and the lowest level since the second half of February.



Before seasonal adjustment, claims fell significantly week over week as could be expected for this point of the year. The 44.5K drop this week was in line with the average historical drop for the current week of the year as claims have fallen 80% of the time. Going forward, there will continue to be seasonal tailwinds through the end of summer before the typical fourth quarter turn higher.



As for continuing claims, the seasonally adjusted reading likewise hit a new short-term low coming in at just 1.69 million. That is the lowest reading and first sub-1.7 million since the end of January. Combined with the initial claims reading, this recent data points to a return to strength in the labor market data following deterioration late last year through the early spring.