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Breadth Thrusts & Bread Crusts: The Fed's Still Playing Catch-Up

May 26, 2022
JC Parets

From the desk of Willie Delwiche.

The minutes from the May FOMC meeting were released this week, leading to renewed “will they or won’t they” discussions about potential rate hikes later this year. 

I’m old enough to remember when FOMC minutes weren’t really a thing. I liked it better then. I also preferred when Fed officials (both Board Governors and Regional Bank Presidents) were rarely seen, and even more scarcely heard. But I digress… 

When thinking about where rates have gone in the past and where they could go in the future, it’s helpful to remember the context of the Fed’s dual mandate (stable prices and full employment). The last three tightening cycles all began with lower inflation & higher unemployment rates than we have now.

[PLUS] Weekly Sentiment Report

May 25, 2022
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: Fear and concern are at the tip of every investor's tongue, yet their eyes remain on the market. For all the pessimism suggested by sentiment surveys, there’s still a great deal of hope as the desperate search for the bottom continues. Yes, put call ratios are on the rise but that’s mostly driven by falling call activity as last year’s speculative exuberance evaporates. Also, investors continue to favor equities over more defensive assets such as bonds and cash despite what they say. Caution remains warranted until attitudes change or market participants are forced to avert their gaze out of disgust. After we see evidence of improved price action (and likely a series of breadth thrusts), accumulated pessimism becomes fuel for a rally, but the timing of that turn is anybody’s guess at this point.

[PLUS] Weekly Macro Perspectives - Signs of Stress Start To Show

May 24, 2022
JC Parets

From the desk of Willie Delwiche.

They are cracks more than crevices at this point, but the fissures are there. And they are becoming more widespread. Signs of financial (and economic) stress are on the rise. While generally still at historically low levels, they merit watchful attention as the Fed moves forward with an accelerated program of interest rate hikes.

Evidence of stress is emerging across the fixed income landscape: high yield spreads are rising, corporate bond yields have the most upside momentum since the financial crisis and mortgage rates are at their highest levels in over a decade.

We are already seeing the implications of this in the housing market. New single-family home sales have fallen 20% over the past year while homes for sale have surged 35%.

As stresses continue to build, we could see renewed interest in traditional safe haven assets (especially Treasury Bonds). Whether this period ends up being labeled a recession (formal or otherwise) is an open question. But the data increasingly point to a meaningful deterioration in economic conditions.

[PLUS] Weekly Top 10 Report

May 23, 2022
Steve Strazza

From the desk of Steve Strazza @Sstrazza

Our Top 10 Charts Report was just published.

In this weekly note, we highlight 10 of the most important charts or themes we're currently seeing in asset classes around the world.

A Record-Setting Slide

The S&P 500 just booked its seventh consecutive down week. This is only the fourth time in history that the index has registered so many consecutive losing weeks. 

When we look back at the last three instances, the forward returns are mixed. The last time we experienced so many consecutive losing weeks was in the middle of the dot-com bubble crash in 2001. This was not a good time to buy stocks. 

On the other hand, when this happened back in 1970 it coincided with a major bottom. As for the instance in 1980, the forward returns were excellent, but a multi-year bear market followed soon after.

While this stat doesn’t give us an actionable signal over any material timeframe, it does suggest that markets are due for a relief rally.

[PLUS] Weekly Momentum Report & Takeaways

May 23, 2022
Steve Strazza

From the desk of Steve Strazza @Sstrazza

Check out this week's Momentum Report, our weekly summation of all the major indexes at a Macro, International, Sector, and Industry Group level.

By analyzing the short-term data in these reports, we get a more tactical view of the current state of markets. This information then helps us put near-term developments into the big picture context and provides insights regarding the structural trends at play.

Let's jump right into it with some of the major takeaways from this week's report:

* ASC Plus Members can access the Momentum Report by clicking the link at the bottom of this post.

Macro Universe:

[PLUS] Weekly Observations & One Chart for the Weekend

May 20, 2022
JC Parets

From the desk of Willie Delwiche.

The S&P 500 has now declined for seven consecutive weeks and on Friday passed the 20% pullback threshold (and on cue “Bear Market” headlines sprouted like dandelions in Spring). This is the index and its so-called “generals” (the mega-cap stocks that have the greatest weighting) catching down to what has been happening beneath the surface for months. Coming into this week, the average NYSE stock was down over 30% from its high, with the average NASDAQ stock down more than 45%. This week brings us to 26 consecutive weeks of more stocks making new lows than new highs. 

Breadth Thrusts & Bread Crusts: Is it different this time?

May 19, 2022
JC Parets

From the desk of Willie Delwiche.

“It isn’t even a bear market yet.” 

I heard that from someone earlier this week. I also read it somewhere else earlier today. 

I know what they mean, but the comment left me shaking my head anyway. 

Many are reluctant to call a bear a bear until the pullback exceeds 20%. I wrote about the shortcomings with this approach a few weeks ago. But old habits die hard. For now, with the S&P 500 down “only” 18% from its January peak, this current period is still being labeled a correction.

[PLUS] Weekly Sentiment Report

May 18, 2022
JC Parets

From the desk of Willie Delwiche.

Key Takeaway: The disconnect between what investors say and what they do continues to be overlooked by sentiment indicator tourists. While consumer sentiment (what they say) is near its lowest levels on record, household equity exposure (what they are doing) remains elevated. Moreover, many are trying to call peak pessimism (with no evidence that it has reversed) as a catalyst for a market bottom (with no evidence that the conditions for a sustainable rally are in place). Sentiment is a condition and that condition right now shows fear and concern continuing to build. Being contrary to a crowd that has not turned can lead to getting trampled.

Sentiment Report Chart of the Week: Learn Volumes By Looking Beneath The Surface

[PLUS] Weekly Market Perspectives - Risk Off Environment Persists

May 17, 2022
JC Parets

From the desk of Willie Delwiche.

In last week's Perspectives piece, we opted not to wade into the discussion of capitulation and proactive efforts to call a bottom. The best evidence of a bottom is only available after the fact and by that point, the focus is already on whether the ingredients for a sustainable rally are present. 

Our checklist is designed to move the conversation along in a productive direction. We are looking for conviction that rally attempts either are or are not sustainable. Among the indicators we are paying attention to in this regard is our Risk On / Risk Off Indicator. Our focus this week is on this and other Risk On / Risk Off metrics. Our Risk On / Risk Off Indicator is not based on a specific market signal but is the accumulated message across several pairwise comparisons within and across asset classes. 

The message right now is clear: The Risk Off environment we have been in since earlier this year remains intact.