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Market/Model Commentary
At the end of the trading week the "Risk Reduction Level - I" model portfolio remains active as defined by our 5-factor model. Please click on the below magenta link to review the suggested allocations if required.
(The 5-factor model reverted to RED on 28 Feb, 2020 and the Risk Reduction Level - I model was initiated 04 Mar 2020).
(The 5-factor model reverted to RED on 28 Feb, 2020 and the Risk Reduction Level - I model was initiated 04 Mar 2020).
ECAM 5-Factor Model
(Valid from 28 February 2020 to Present Date)
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RED |
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ECONOMIC FACTOR SUB-MODEL TECHNICAL FACTOR SUB-MODEL VALUATION FACTOR SUB-MODEL SENTIMENT FACTOR SUB-MODEL LIQUIDITY FACTOR SUB-MODEL |
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"Slow and Steady wins the race"
The Hare and the Tortoise
Aesop (Greek slave & fable author 620 BC - 560 BC)
"Technical Analysis is a windsock, not a crystal ball"
Carl Swenlin (Technical Analyst)
"Investing is the intersection of economics and psychology"
Seth Klarman (Hedge fund Manager, Baupost Group)
The Hare and the Tortoise
Aesop (Greek slave & fable author 620 BC - 560 BC)
"Technical Analysis is a windsock, not a crystal ball"
Carl Swenlin (Technical Analyst)
"Investing is the intersection of economics and psychology"
Seth Klarman (Hedge fund Manager, Baupost Group)
Current Overview
It’s not hyperbole today to use “depression” to describe the unfolding deep global economic downturn as this is expected to be the most serious global macroeconomic shock since 1929.
Coronavirus uncertainty makes it impossible to forecast the length and severity of the economic collapse. In the best case, the rapidly expanding outbreak in Europe and the U.S. subsides over the coming weeks/months. Even so, economies around the world will take huge hits. And prospects for the coronavirus to reemerge next winter (and emerge more powerfully during the southern hemisphere’s approaching winter season) will keep risk-taking well-contained for many months to come.
Coming out of the previous crisis in 2009, the global economy had the benefit of a powerful “locomotive” of accelerating expansions in China and the emerging markets more generally. Looking ahead, currently the global economy is without “locomotives” and the past 11 years of financial engineering have evolved into one massive global financial Bubble financing a precarious synchronized global economic expansion.
Here’s what I think (but am really hoping I am wrong). I seriously doubt this Bubble is revivable and the unwind will likely unfold over weeks and months. Extraordinary central bank measures will spur rallies and hopes for recovery. At times, it will appear that liquidity is returning. Yet the Bubble will not be reflated.
Confidence has been shattered. Faith that central banks have everything well under control has been broken. Myriad fallacies have been exposed. Central banks can’t guarantee liquid markets, especially in a Bubble-induced highly levered speculative environment. The entire derivatives universe has been operating on the assumption of liquid and continuous markets. History is unambiguous: markets experience bouts of illiquidity, dislocation and panicked crashes. The fantasy that contemporary central bank monetary management abrogates illiquidity and market discontinuity risks is being debunked. Leverage has to come down – and I believe it will stay down for years to come.
Coronavirus uncertainty makes it impossible to forecast the length and severity of the economic collapse. In the best case, the rapidly expanding outbreak in Europe and the U.S. subsides over the coming weeks/months. Even so, economies around the world will take huge hits. And prospects for the coronavirus to reemerge next winter (and emerge more powerfully during the southern hemisphere’s approaching winter season) will keep risk-taking well-contained for many months to come.
Coming out of the previous crisis in 2009, the global economy had the benefit of a powerful “locomotive” of accelerating expansions in China and the emerging markets more generally. Looking ahead, currently the global economy is without “locomotives” and the past 11 years of financial engineering have evolved into one massive global financial Bubble financing a precarious synchronized global economic expansion.
Here’s what I think (but am really hoping I am wrong). I seriously doubt this Bubble is revivable and the unwind will likely unfold over weeks and months. Extraordinary central bank measures will spur rallies and hopes for recovery. At times, it will appear that liquidity is returning. Yet the Bubble will not be reflated.
Confidence has been shattered. Faith that central banks have everything well under control has been broken. Myriad fallacies have been exposed. Central banks can’t guarantee liquid markets, especially in a Bubble-induced highly levered speculative environment. The entire derivatives universe has been operating on the assumption of liquid and continuous markets. History is unambiguous: markets experience bouts of illiquidity, dislocation and panicked crashes. The fantasy that contemporary central bank monetary management abrogates illiquidity and market discontinuity risks is being debunked. Leverage has to come down – and I believe it will stay down for years to come.
Latest Updates
What has transpired since 19 Feb continues to have the "look" of the 1929 and 1987 crashes (Dow Jones Industrial Average charts shown below).
Here is a "zoomed in" version to give you some idea of the structural setup.
Both the 1929 and 1987 crashes were true market "panics". Nothing better measures herd behavior/panic better than Elliott Wave theory. More information on the current setup is at the bottom of this page but the below chart should give us some direction if this panic continues. This is the roadmap we are following at present until better information becomes available.
S&P 500 Historical Data
(source: Robert Shiller)
(source: Robert Shiller)
The recent stockmarket collapse has been historic. Below is the number of days it took the S&P 500 index to decline -30% since 1926 (at 22 days, it beat the 1929-1934 great depression market collapses).
Professor Robert Shiller (Yale University) has documented 14 complete bear markets within the S&P 500 index using monthly closing data back to 1871 (not including the one we are currently within). The data has been reconstructed to represent the US stock market for the dates before the S&P 500 began in 1926.
His definition of a complete bear market is a decline > -20% from a peak (the start of the bear market) which ends when a new all time high is achieved (the end of the bear market).
His definition of a complete bear market is a decline > -20% from a peak (the start of the bear market) which ends when a new all time high is achieved (the end of the bear market).
- The average length of a bear market from peak until recovery has been 3.95 years.
- The fall length from the peak until bottom i.e. a peak to trough time was 1.45 years.
- The longest bear market during the 1930s Great Depression was 15.33 years.
- The longest time the stock market fell was 2.75 years.
Below is the maximum monthly drawdowns since 1871 (black line indicates the -20% draw-down). The current drawdown is not shown.
- The average drop in a bear market using monthly data has been -33.9%.
- The maximum monthly drop of -81.8% percent during the 1930s.
Notice again that these are total returns (inc. dividends). The drawdowns have been worse during periods with higher starting valuations, as measured by Shiller CAPE or P/B. At the beginning of this current bear market both measures were at historical extremes.
Market Overview
- Global equities partly rebounded from their market collapse this past week with a return (as measured by the Dow Jones Global Index) of +10.41%.
- Global composite bonds had strong week with a global benchmark return of +3.38%. Bonds had continued to perform very well in this slowing global macro environment over the past 2 years but their performance this past 3 weeks is very concerning as it appears the COVID-19 fear is now migrating to other asset classes (essentially all asset classes/commodities/currencies except the USD).
- Global economic growth remains at 3 year lows with stagnant movement in global services offsetting contraction in global manufacturing. There had been encouraging signs of global economic stabilization early in 2020 but the COVID-19 outbreak (a "black swan" event) has derailed any global economic recovery. The probability of a global recession (including within the U.S.) has risen dramatically.
DOW JONES GLOBAL INDEX
(DAILY CLOSE)
DOW JONES GLOBAL INDEX
(WEEKLY CLOSE)
Weekly Global Macro Review
U.S. Equities
Stocks rebounded from three-year lows, as investors appeared encouraged by further aggressive monetary policy actions and the passage of an unprecedented level of fiscal stimulus. On Tuesday, the Dow Jones Industrial Average had its best day since 1933, and the S&P 500 Index experienced its largest daily rally since October 2008, with all the major U.S. equity indexes surging by around 9% to 11%. By the close of business on Thursday, the Dow had marked its best three-day stretch since 1931, although the major indexes surrendered a portion of their gains to close out the week.
Stocks rebounded from three-year lows, as investors appeared encouraged by further aggressive monetary policy actions and the passage of an unprecedented level of fiscal stimulus. On Tuesday, the Dow Jones Industrial Average had its best day since 1933, and the S&P 500 Index experienced its largest daily rally since October 2008, with all the major U.S. equity indexes surging by around 9% to 11%. By the close of business on Thursday, the Dow had marked its best three-day stretch since 1931, although the major indexes surrendered a portion of their gains to close out the week.
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S&P 500:
DJIA: NASDAQ 100: S&P 400 Mid-cap: Russell 2000 Small Cap: |
+10.3%
+12.8% +8.5% +13.0% +11.6% |
Heavily beaten-down energy shares outperformed as oil prices stabilized somewhat and U.S. officials put pressure on Saudi Arabia to end its price war with Russia. Airline shares also bounced back at midweek as news arrived of a $60 billion bailout package for the industry as part of the stimulus bill, and a rebound in Boeing boosted the industrials sector. Utilities shares were also strong, while communication services shares lagged.
The week got off to a poor start as a $2 trillion stimulus bill failed to clear a procedural hurdle in the Senate for the second time in two days, with Democrats objecting to a lack of transparency in how a $500 billion loan program would be used and overseen. Markets snapped back Tuesday, however, after House Speaker Nancy Pelosi stated that she was hopeful that a deal would be reached imminently. At his daily press conference, President Donald Trump stressed the need to act quickly and stated his hope that the economy would begin moving back to normal by Easter (April 12).
Around midnight Tuesday, the White House and congressional leaders finally agreed on a $2.2 trillion stimulus package, including $350 billion in support for small businesses, along with $1,200 direct payments to lower- and middle-income adults and $500 per child. The bill also expanded unemployment insurance and provided additional funding for providers of health care services. The Senate passed the legislation unanimously (by a vote of 96 to 0) on Wednesday, and the House passed the bill by a voice vote on Friday.
The Federal Reserve expanded its own stimulus measures, boosting both equity and fixed income markets. On Monday morning, the Fed announced that it was setting no limit on its purchases of Treasuries and agency mortgage-backed securities while also beginning to purchase investment-grade corporate bonds. In addition, the Fed revived the Term Asset-Backed Securities Loan Facility (TALF)—originally launched in 2008—which is designed to support bonds backed by student and auto loans as well as other types of asset-backed securities. The central bank also said that it was taking steps to assure the flow of credit to municipalities and announced plans for a lending program for small businesses.
Traders noted that glimmers of hope in the battle against the pandemic also seemed to support sentiment at midweek. New York Governor Andrew Cuomo stated Wednesday that a slowing growth rate in hospitalizations may be evidence that social distancing could be working, and signs emerged of slowing rates of growth in new infections and deaths in Italy and Spain, although the situation remained dire (see below). Reports also surfaced of progress in developing home testing kits for the coronavirus. Economic data were predictably grim, however, with a record 3.3 million Americans filing for unemployment in the week ended March 21.
US Bonds
U.S. Treasury yields decreased as the Fed’s purchases of Treasuries and expanded funding, credit, and liquidity facilities aided market functioning. (Bond prices and yields move in opposite directions.) The Fed’s announcement that it will begin purchasing corporate debt in both the primary and secondary markets, as well as progress by lawmakers in approving an economic stimulus plan, supported the performance of investment-grade corporate bonds. The improved sentiment prompted many issuers to come to the market, and the volume of new deals reached the highest weekly total on record. The issuance was met with solid demand from domestic and overseas investors.
High yield bond investors continued to be mindful of cash balances due to the pace of recent outflows from the asset class. However, market sentiment improved as the week progressed amid strong equity gains in response to the federal government’s historic stimulus plan.
The week got off to a poor start as a $2 trillion stimulus bill failed to clear a procedural hurdle in the Senate for the second time in two days, with Democrats objecting to a lack of transparency in how a $500 billion loan program would be used and overseen. Markets snapped back Tuesday, however, after House Speaker Nancy Pelosi stated that she was hopeful that a deal would be reached imminently. At his daily press conference, President Donald Trump stressed the need to act quickly and stated his hope that the economy would begin moving back to normal by Easter (April 12).
Around midnight Tuesday, the White House and congressional leaders finally agreed on a $2.2 trillion stimulus package, including $350 billion in support for small businesses, along with $1,200 direct payments to lower- and middle-income adults and $500 per child. The bill also expanded unemployment insurance and provided additional funding for providers of health care services. The Senate passed the legislation unanimously (by a vote of 96 to 0) on Wednesday, and the House passed the bill by a voice vote on Friday.
The Federal Reserve expanded its own stimulus measures, boosting both equity and fixed income markets. On Monday morning, the Fed announced that it was setting no limit on its purchases of Treasuries and agency mortgage-backed securities while also beginning to purchase investment-grade corporate bonds. In addition, the Fed revived the Term Asset-Backed Securities Loan Facility (TALF)—originally launched in 2008—which is designed to support bonds backed by student and auto loans as well as other types of asset-backed securities. The central bank also said that it was taking steps to assure the flow of credit to municipalities and announced plans for a lending program for small businesses.
Traders noted that glimmers of hope in the battle against the pandemic also seemed to support sentiment at midweek. New York Governor Andrew Cuomo stated Wednesday that a slowing growth rate in hospitalizations may be evidence that social distancing could be working, and signs emerged of slowing rates of growth in new infections and deaths in Italy and Spain, although the situation remained dire (see below). Reports also surfaced of progress in developing home testing kits for the coronavirus. Economic data were predictably grim, however, with a record 3.3 million Americans filing for unemployment in the week ended March 21.
US Bonds
U.S. Treasury yields decreased as the Fed’s purchases of Treasuries and expanded funding, credit, and liquidity facilities aided market functioning. (Bond prices and yields move in opposite directions.) The Fed’s announcement that it will begin purchasing corporate debt in both the primary and secondary markets, as well as progress by lawmakers in approving an economic stimulus plan, supported the performance of investment-grade corporate bonds. The improved sentiment prompted many issuers to come to the market, and the volume of new deals reached the highest weekly total on record. The issuance was met with solid demand from domestic and overseas investors.
High yield bond investors continued to be mindful of cash balances due to the pace of recent outflows from the asset class. However, market sentiment improved as the week progressed amid strong equity gains in response to the federal government’s historic stimulus plan.
Europe/UK
European shares rose over the week, snapping four consecutive weeks of losses, as unprecedented economic stimulus measures in Europe and the U.S. calmed markets and spurred bottom-picking. But stock markets remained well below record highs. After a week of wild gyrations, the STOXX Europe 600 Index and the German, French, and Italian benchmarks rebounded between 5% and 8%.
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German DAX:
French CAC: Italian MIB: Spanish IBEX: U.K. FTSE 100: |
+7.9%
+7.5% +6.9% +5.2% +6.2% |
Italy, Spain, and the UK imposed severe restrictions on population movement and gatherings as confirmed cases of coronavirus infections and deaths from COVID-19, the disease caused by the coronavirus, surged. Spanish Prime Minister Pedro Sanchez extended the state of emergency for another 15 days. The UK approved Draconian emergency legislation, requisitioned large conference centers to set up critical care centers for the sick, and launched a financial support package for the self-employed. British Prime Minister Boris Johnson on Friday confirmed that he had tested positive for the coronavirus, although he said his symptoms were mild and he planned to continue leading the government while self-isolating.
Germany banned meetings of more than two people. Chancellor Merkel entered self-isolation for two weeks after a doctor who gave her a vaccine tested positive. She has passed two tests and will soon take a third.
European Union (EU) finance ministers suspended the bloc’s deficit rules so that governments could increase spending to protect their economies. The ministers also discussed a plan for using the European Stability Mechanism, the EU’s bailout fund, to provide a “pandemic crisis support safeguard.” However, during a video-conference summit, EU leaders failed to agree on a collective strategy to combat a deep EU recession, with Germany and the Netherlands rejecting a proposal to issue joint bonds. The leaders mandated the Eurogroup of finance ministers to report back in two weeks with proposals for a joint response. Meanwhile, the European Central Bank said it would remove some of the self-imposed limits on its €750 billion of asset purchases to support the economy, triggering a rally in peripheral bonds.
An intensification of the coronavirus outbreak led to a record collapse in eurozone business activity in March, according to a survey of purchasing managers by IHS Markit. The composite index of services and manufacturing posted the largest monthly fall since comparable data were first collected in July 1998. Demand for goods and services fell dramatically, while supply chain disruptions stymied production. Jobs were cut at the fastest rate since mid-2009 as companies shuttered and a large part of the economy was shut down. IHS Markit said the data indicated that gross domestic product would contract at a quarterly rate of about 2%.
The British pound fell to a record low against a basket of currencies of the UK’s major trading partners on a stronger U.S. dollar and rising expectations of more stimulus to prop up the economy. The pound’s broad effective exchange rate slid to 72.92 by the market’s close Tuesday, although it then climbed to 75.54 by the end of the week, according to a daily reading made by the central bank. In the rush to buy U.S. dollars last week, the pound fell heavily to $1.14 from $1.31 at the beginning of March. It retraced some losses this week, climbing to $1.19. The Bank of England held its key bank rate at 0.1% but said it was ready to increase its £645 billion bond-buying program, if needed.
Germany banned meetings of more than two people. Chancellor Merkel entered self-isolation for two weeks after a doctor who gave her a vaccine tested positive. She has passed two tests and will soon take a third.
European Union (EU) finance ministers suspended the bloc’s deficit rules so that governments could increase spending to protect their economies. The ministers also discussed a plan for using the European Stability Mechanism, the EU’s bailout fund, to provide a “pandemic crisis support safeguard.” However, during a video-conference summit, EU leaders failed to agree on a collective strategy to combat a deep EU recession, with Germany and the Netherlands rejecting a proposal to issue joint bonds. The leaders mandated the Eurogroup of finance ministers to report back in two weeks with proposals for a joint response. Meanwhile, the European Central Bank said it would remove some of the self-imposed limits on its €750 billion of asset purchases to support the economy, triggering a rally in peripheral bonds.
An intensification of the coronavirus outbreak led to a record collapse in eurozone business activity in March, according to a survey of purchasing managers by IHS Markit. The composite index of services and manufacturing posted the largest monthly fall since comparable data were first collected in July 1998. Demand for goods and services fell dramatically, while supply chain disruptions stymied production. Jobs were cut at the fastest rate since mid-2009 as companies shuttered and a large part of the economy was shut down. IHS Markit said the data indicated that gross domestic product would contract at a quarterly rate of about 2%.
The British pound fell to a record low against a basket of currencies of the UK’s major trading partners on a stronger U.S. dollar and rising expectations of more stimulus to prop up the economy. The pound’s broad effective exchange rate slid to 72.92 by the market’s close Tuesday, although it then climbed to 75.54 by the end of the week, according to a daily reading made by the central bank. In the rush to buy U.S. dollars last week, the pound fell heavily to $1.14 from $1.31 at the beginning of March. It retraced some losses this week, climbing to $1.19. The Bank of England held its key bank rate at 0.1% but said it was ready to increase its £645 billion bond-buying program, if needed.
Japan
Japanese stocks recorded strong gains for the week with the Nikkei 225 Stock Average surged +17.1%.
A record increase in the number of new infections in Tokyo prompted Tokyo’s Governor Yuriko Koike to urge residents to stay indoors over the coming weekend. The governor warned that the world’s biggest city could face an “explosive spike” in new cases following the report of 41 new infections in Tokyo on Wednesday (up from 16 and 17 cases reported on Monday and Tuesday, respectively). The governor also asked universities to delay the start of the new school year, which is set to begin in April. Although there is speculation that other surrounding regions will mirror the recommendations for Tokyo, the economy minister said that the administration was not thinking of declaring a state of emergency at this time.
In its March review, the Japanese government downgraded its overall assessment of the economic conditions to “severe” from moderate recovery in February. The downgrade reflects the impact of the coronavirus and faltering private consumption, capital spending, imports, and business confidence. It also marks the first time since 2013 that “recovery” has not been cited in its monthly assessment.
The Nikkei reported that Prime Minister Shinzo Abe and his cabinet are working to implement an economic stimulus package totaling ¥56 trillion ($500 billion) now that the fiscal budget for 2020 passed. The stimulus effort represents approximately 10% of the country’s gross domestic product (GDP) and would be the largest in Japanese history. The initiative, including cash payments to households whose incomes have been impacted by the coronavirus outbreak, are expected to begin in May and approximate ¥200,000 to ¥300,000 ($1,800 to $2,700) per eligible household. Additional stimulus measures include direct government spending and loans from financial institutions.
The government also intends to issue coupons and gift certificates for restaurants and other businesses that have been impacted by the outbreak. Earlier this month, the Bank of Japan committee members voiced their support for additional financing and other measures to stabilize financial markets.
Prime Minister Abe announced the postponement of the Tokyo Olympic Games until summer 2021. International Olympic Committee President Thomas Bach had been under intense pressure in recent weeks from athletes and governments to delay the games. The delay is expected to cause about a 1% contraction in Japan’s GDP in the coming fiscal year.
China
The major indices rose until midweek before flattening off with the Shanghai Composite gaining +1.0% on the week.
China was the first country to get hit by the coronavirus and is the first country to bring the outbreak under control. Only two new local cases were reported between March 17 and March 24. A small number of new imported cases continue to be reported—around 40 daily—as Chinese citizens return from overseas. However, China's tightened immigration controls are proving effective at screening and detecting these imported cases.
The coronavirus deep freeze in China is beginning to thaw, and signs of spring are appearing with increasing frequency. Schools in areas deemed free of the coronavirus have begun to reopen, though they will remain under close supervision, beginning with Qinghai, Guizhou, and Xinjiang. The economically important coastal province of Jiangsu is aiming for the full opening of all schools and colleges by April 13. Museums and some national restaurant chains that have been closed since late January are also beginning to reopen.
The release of China's industrial profits data brought the economic costs of containing the coronavirus outbreak into sharper focus. The National Bureau of Statistics announced that proceeds from industrial enterprises designated as having achieved national scale declined 38.3% (on a year-over-year basis) during the January–February period. That was the sharpest decline in at least a decade, according to Reuters. The electronic equipment and motor vehicle divisions ranked among the hardest hit subgroups during the period.
So far, China has not delivered on major fiscal relief, though some additional stimulus is expected. New domestic projects intended to boost economic activity will be implemented at the local government level. Press reports say that after two years of fiscal deleveraging, local government infrastructure project needs have grown significantly. However, China's public sector finances are under growing pressure from the national lockdown. Tax receipts in January and February fell 9.9% from the previous 12-month period, to RMB 3.52 trillion. Total central government revenues declined 11.2%, and those of local governments fell 8.6%, according to new data from China's Ministry of Finance.
Japanese stocks recorded strong gains for the week with the Nikkei 225 Stock Average surged +17.1%.
A record increase in the number of new infections in Tokyo prompted Tokyo’s Governor Yuriko Koike to urge residents to stay indoors over the coming weekend. The governor warned that the world’s biggest city could face an “explosive spike” in new cases following the report of 41 new infections in Tokyo on Wednesday (up from 16 and 17 cases reported on Monday and Tuesday, respectively). The governor also asked universities to delay the start of the new school year, which is set to begin in April. Although there is speculation that other surrounding regions will mirror the recommendations for Tokyo, the economy minister said that the administration was not thinking of declaring a state of emergency at this time.
In its March review, the Japanese government downgraded its overall assessment of the economic conditions to “severe” from moderate recovery in February. The downgrade reflects the impact of the coronavirus and faltering private consumption, capital spending, imports, and business confidence. It also marks the first time since 2013 that “recovery” has not been cited in its monthly assessment.
The Nikkei reported that Prime Minister Shinzo Abe and his cabinet are working to implement an economic stimulus package totaling ¥56 trillion ($500 billion) now that the fiscal budget for 2020 passed. The stimulus effort represents approximately 10% of the country’s gross domestic product (GDP) and would be the largest in Japanese history. The initiative, including cash payments to households whose incomes have been impacted by the coronavirus outbreak, are expected to begin in May and approximate ¥200,000 to ¥300,000 ($1,800 to $2,700) per eligible household. Additional stimulus measures include direct government spending and loans from financial institutions.
The government also intends to issue coupons and gift certificates for restaurants and other businesses that have been impacted by the outbreak. Earlier this month, the Bank of Japan committee members voiced their support for additional financing and other measures to stabilize financial markets.
Prime Minister Abe announced the postponement of the Tokyo Olympic Games until summer 2021. International Olympic Committee President Thomas Bach had been under intense pressure in recent weeks from athletes and governments to delay the games. The delay is expected to cause about a 1% contraction in Japan’s GDP in the coming fiscal year.
China
The major indices rose until midweek before flattening off with the Shanghai Composite gaining +1.0% on the week.
China was the first country to get hit by the coronavirus and is the first country to bring the outbreak under control. Only two new local cases were reported between March 17 and March 24. A small number of new imported cases continue to be reported—around 40 daily—as Chinese citizens return from overseas. However, China's tightened immigration controls are proving effective at screening and detecting these imported cases.
The coronavirus deep freeze in China is beginning to thaw, and signs of spring are appearing with increasing frequency. Schools in areas deemed free of the coronavirus have begun to reopen, though they will remain under close supervision, beginning with Qinghai, Guizhou, and Xinjiang. The economically important coastal province of Jiangsu is aiming for the full opening of all schools and colleges by April 13. Museums and some national restaurant chains that have been closed since late January are also beginning to reopen.
The release of China's industrial profits data brought the economic costs of containing the coronavirus outbreak into sharper focus. The National Bureau of Statistics announced that proceeds from industrial enterprises designated as having achieved national scale declined 38.3% (on a year-over-year basis) during the January–February period. That was the sharpest decline in at least a decade, according to Reuters. The electronic equipment and motor vehicle divisions ranked among the hardest hit subgroups during the period.
So far, China has not delivered on major fiscal relief, though some additional stimulus is expected. New domestic projects intended to boost economic activity will be implemented at the local government level. Press reports say that after two years of fiscal deleveraging, local government infrastructure project needs have grown significantly. However, China's public sector finances are under growing pressure from the national lockdown. Tax receipts in January and February fell 9.9% from the previous 12-month period, to RMB 3.52 trillion. Total central government revenues declined 11.2%, and those of local governments fell 8.6%, according to new data from China's Ministry of Finance.
Weekly Significant Macro Events
COVID-19 Virus Watch Headlines:
March 23 – New York Times (Keith Bradsher and Ana Swanson): “American front-line medical personnel are running desperately short of masks and protective equipment as they battle the coronavirus outbreak. China, already the world’s largest producer of such gear by far, has ramped up factory output and is now signaling that it wants to help. Reaching deals won’t be easy. Increasingly acrimonious relations between Washington and Beijing are complicating efforts to get Chinese-made masks to American clinics and hospitals. A breakdown over the last few days in the global business of moving goods by air around the world will make it costly and difficult as well.”
March 23 – Axios (Zachary Basu): “In a national address on Monday, U.K. Prime Minister Boris Johnson became the latest world leader to order a nationwide lockdown in an effort to stop the spread of the coronavirus. Why it matters: Johnson warned on Sunday that a surge of coronavirus cases over the next two weeks could cripple the country's National Health Service, and that the U.K. is only ‘a matter of weeks’ behind Italy… ‘I urge you, at this moment of national emergency, to stay at home, protect our NHS, and save lives,’ Johnson said. The government will reassess the lockdown in three weeks.”
March 23 – CNBC (William Feurer): “Coronavirus RNA survived for up to 17 days aboard the Diamond Princess cruise ship, lasting far longer on surfaces than previous research has shown, according to… the Centers for Disease Control and Prevention.”
March 23 – Wall Street Journal (Dawn Lim): “A broad set of bond exchange-traded funds are trading out of sync with their underlying assets, testing investors’ faith in a fast-growing part of the investment world. Bond ETFs of BlackRock Inc., Vanguard Group and others traded at historic discounts to the net asset value of their underlying bonds in recent days. BlackRock’s iShares iBoxx USD Investment Grade Corporate Bond ETF closed down at a discount of over 5% late last week, a record since 2008. The $28 billion bond fund, with the ticker LQD, typically trades within a fraction of a percent of the bonds it is designed to track. It closed at a discount of over 1.5% every day of the past week.”
March 23 – Bloomberg (Justina Lee): “The record volatility unleashed by the coronavirus outbreak has spurred quant traders to throw in the towel at an unprecedented pace. The silver lining: they now have much less to sell. Systematic clients on Credit Suisse Group AG’s prime-brokerage platform have slashed their equity positions by 45% this month compared with the end of last. After taking into account falling prices, the market-neutral funds, which take no directional bets on the benchmark, offloaded 15% of their bets in the five days through Thursday. That’s a record deleveraging spree in a decade of data.”
March 24 – Reuters (Crispian Balmer and Angelo Amante): “Fatalities in Italy from coronavirus have surged in the last 24 hours, the Civil Protection Agency said on Tuesday, dashing hopes the epidemic in the world’s worst hit country was easing after more encouraging numbers in the previous two days… The total number of confirmed cases hit 69,176 on Tuesday, but with Italy testing only people with severe symptoms, the head of the Civil Protection Agency said the true number of infected people was probably 10 times higher.”
March 24 – Associated Press (Emily Schmall and Sheikh Saaliq): “India will begin the world’s largest lockdown, Prime Minister Narendra Modi announced…, warning that anyone going outside risked inviting the coronavirus inside their homes, and pledging $2 billion to bolster the country’s beleaguered health care system. ‘To save India and every Indian, there will be a total ban on venturing out of your homes,’ Modi said, adding that if the country failed to manage the next 21 days, it could be set back by 21 years. India’s stay-at-home order puts nearly one-fifth of the world’s population under lockdown.”
March 24 – CNBC (Clive Cookson): “White House officials… urged anyone leaving the New York City metropolitan area to self-isolate and monitor themselves carefully for 14 days as President Donald Trump called the region a ‘hot spot’ for coronavirus cases. ‘For anyone in the New York metropolitan area who has traveled, our task force is encouraging you to monitor your temperature, be sensitive to symptoms,’ Vice President Mike Pence… said… ‘And we are asking anyone who has traveled out of the New York City metropolitan area to anywhere else in the country to self isolate for 14 days.’”
March 24 – Financial Times (Clive Cookson): “The end of winter is traditionally a time for celebration. Not so in 2020, as the arrival of spring in the northern hemisphere has been overshadowed by stringent lockdowns put in place to slow the spread of the coronavirus. Yet in the battle against the pandemic, some scientists see hope in the arrival of warmer and sunnier weather. If Covid-19 conforms to the seasonal pattern of other respiratory infections, the coming months will help the suppression of the virus — at least temporarily. Some studies have suggested that the new coronavirus will indeed follow the marked seasonality shown by its genetic cousins that have been circulating among humans for many years.”
March 26 – Reuters (Michael Berens): “Home healthcare providers, the lifelines to 12 million vulnerable Americans, are scrambling to decide how to serve patients who show symptoms of coronavirus — and how to ensure that the providers themselves neither catch nor spread it. A Texas-based company operating in 26 states instructed its caregivers to leave the homes of clients who recently traveled from states with ‘widespread community transmission’ or who had contact with anyone screened for coronavirus, regardless of whether that person tested positive…”
COVID-19 Fallout Headlines:
March 21 – Reuters (Tim McLaughlin): “Goldman Sachs… poured more than $1 billion into two of its prime money-market portfolios this week due to heavy investor withdrawals, according to a filing with the U.S. securities regulator… The bank repurchased securities from its two funds on Thursday after investors withdrew a net $8.1 billion from them during a four-day stretch…”
March 23 – CNBC (Yun Li): “Twenty-two days. That’s all it took for the S&P 500 to fall 30% from its record high, the fastest drop of this magnitude in history. The second, third and fourth quickest 30% pullbacks all occurred during the Great Depression era in 1934, 1931 and 1929, respectively, according to data from Bank of America Securities. ‘This is not good company for 2020,’ Stephen Suttmeier, a technical research strategist at the bank, said... ‘The 2020 correction continues to make history, having already claimed the title as the third fastest end to a bull market going back to 1928.’”
March 23 – Financial Times (Henry Sanderson): “Traders have reported a growing global shortage of gold bars, as the coronavirus outbreak both disrupts supply and stokes demand, with one business comparing the frenzied buying of the yellow metal with the consumer rush for toilet roll. Retail investors in Europe and the US have bought up gold and silver bars and coins over the past two weeks in an effort to protect their money from the collapse in global stock prices and many currencies. But Europe’s largest gold refineries have struggled to keep up because of the region’s widening shutdown.”
March 24 – Financial Times (Editorial Board): “Regulators scrambled to strengthen the banking system after the 2008 financial crisis. That made banks safer but their actions pushed the risk of rising defaults into the shadows. While the banks — designated as systemically important — repaired and tidied up their balance sheets, asset managers, hedge funds and others stepped into the gap, providing credit to the non-financial economy. Investor money flowed in, searching for yield. Now those shadow banks… are causing worries about systemic risk as the impact of coronavirus spreads. An index tracking US Business Development Companies, listed lenders to small businesses, has halved since February. Many Real Estate Investment Trusts, which have relied on the short-term money markets to boost dividend payouts, are also being pummeled. Money market mutual funds invested in corporate debt have been hit by disruptive mass redemptions. Junk bond exchange traded funds have traded at often large discounts to their underlying assets.”
March 24 – Reuters (Hideyuki Sano): “Banks borrowed a total of $89.3 billion in the Bank of Japan’s two dollar funding operations on Tuesday, the central bank said after it offered three-month and one-week funds to market players who were seeking dollar funding. The takeup was well beyond its previous record of $50.2 billion, hit on October 21, 2008…”
March 25 – CNBC (Jeff Cox): “The coronavirus crisis has brought another first to U.S. financial markets — negative yields on government debt. Yields on both the 1-month and 3-month Treasury bills dipped below zero Wednesday, a week and a half after the Federal Reserve cuts its benchmark rate to near zero and as investors have flocked to the safety of fixed income amid general market turmoil.”
March 25 – Bloomberg (Bill Austin): “Investors withdrew from equity and fixed income mutual funds in the week ended March 18 for the third straight week of outflows, according to the Investment Company Institute. Outflows totaled $135 billion, compared with $27.9 billion the prior week. Investors withdrew $175.5 billion from mutual funds year-to-date.”
March 26 – Bloomberg (Emily Barrett, Ruth Carson and Greg Ritchie): “In a matter of weeks, bond investors have seen some of their firmest market convictions swept away in a massive confluence of government stimulus and central bank intervention. Now, they’re being forced to rework their strategies for a new era. Core tenets such as what constitutes a safe asset, the value of bonds as a portfolio hedge, and expectations for returns over the next decade are all being reconsidered as governments and central banks strive to avert a global depression. Underlying much of the uncertainty is the risk that trillions of dollars in monetary and fiscal stimulus could create an eventual inflation shock that will trigger losses for bondholders. ‘I’ve never, ever, ever seen anything like this before,’ said Nader Naeimi, head of dynamic markets at AMP Capital Investors… ‘You have enormous buyers of debt meeting massive coordinated fiscal stimulus by governments across the globe. For bond investors, you’re caught between a rock and a hard place.’”
March 26 – Bloomberg (Andy Kostic and Olivia Raimonde): “U.S. corporate investment-grade funds reported a record $38 billion outflow, extending an unprecedented rout as investors flee for havens assets amid the global market meltdown. That exceeds the prior record of $35.6 billion set just last week as the selloff from the spreading coronavirus intensified.”
March 26 – Bloomberg (Jacqueline Poh): “Companies globally have tapped $200 billion in revolving and new credit lines since March 9 to combat the coronavirus crisis impact. Borrowers in the Americas accounted for 80% of that. Borrowers from the Americas including General Motors and Whirlpool have either drawn down on revolving facilities or raised additional financing totaling $160b this month…”
March 23 – New York Times (Keith Bradsher and Ana Swanson): “American front-line medical personnel are running desperately short of masks and protective equipment as they battle the coronavirus outbreak. China, already the world’s largest producer of such gear by far, has ramped up factory output and is now signaling that it wants to help. Reaching deals won’t be easy. Increasingly acrimonious relations between Washington and Beijing are complicating efforts to get Chinese-made masks to American clinics and hospitals. A breakdown over the last few days in the global business of moving goods by air around the world will make it costly and difficult as well.”
March 23 – Axios (Zachary Basu): “In a national address on Monday, U.K. Prime Minister Boris Johnson became the latest world leader to order a nationwide lockdown in an effort to stop the spread of the coronavirus. Why it matters: Johnson warned on Sunday that a surge of coronavirus cases over the next two weeks could cripple the country's National Health Service, and that the U.K. is only ‘a matter of weeks’ behind Italy… ‘I urge you, at this moment of national emergency, to stay at home, protect our NHS, and save lives,’ Johnson said. The government will reassess the lockdown in three weeks.”
March 23 – CNBC (William Feurer): “Coronavirus RNA survived for up to 17 days aboard the Diamond Princess cruise ship, lasting far longer on surfaces than previous research has shown, according to… the Centers for Disease Control and Prevention.”
March 23 – Wall Street Journal (Dawn Lim): “A broad set of bond exchange-traded funds are trading out of sync with their underlying assets, testing investors’ faith in a fast-growing part of the investment world. Bond ETFs of BlackRock Inc., Vanguard Group and others traded at historic discounts to the net asset value of their underlying bonds in recent days. BlackRock’s iShares iBoxx USD Investment Grade Corporate Bond ETF closed down at a discount of over 5% late last week, a record since 2008. The $28 billion bond fund, with the ticker LQD, typically trades within a fraction of a percent of the bonds it is designed to track. It closed at a discount of over 1.5% every day of the past week.”
March 23 – Bloomberg (Justina Lee): “The record volatility unleashed by the coronavirus outbreak has spurred quant traders to throw in the towel at an unprecedented pace. The silver lining: they now have much less to sell. Systematic clients on Credit Suisse Group AG’s prime-brokerage platform have slashed their equity positions by 45% this month compared with the end of last. After taking into account falling prices, the market-neutral funds, which take no directional bets on the benchmark, offloaded 15% of their bets in the five days through Thursday. That’s a record deleveraging spree in a decade of data.”
March 24 – Reuters (Crispian Balmer and Angelo Amante): “Fatalities in Italy from coronavirus have surged in the last 24 hours, the Civil Protection Agency said on Tuesday, dashing hopes the epidemic in the world’s worst hit country was easing after more encouraging numbers in the previous two days… The total number of confirmed cases hit 69,176 on Tuesday, but with Italy testing only people with severe symptoms, the head of the Civil Protection Agency said the true number of infected people was probably 10 times higher.”
March 24 – Associated Press (Emily Schmall and Sheikh Saaliq): “India will begin the world’s largest lockdown, Prime Minister Narendra Modi announced…, warning that anyone going outside risked inviting the coronavirus inside their homes, and pledging $2 billion to bolster the country’s beleaguered health care system. ‘To save India and every Indian, there will be a total ban on venturing out of your homes,’ Modi said, adding that if the country failed to manage the next 21 days, it could be set back by 21 years. India’s stay-at-home order puts nearly one-fifth of the world’s population under lockdown.”
March 24 – CNBC (Clive Cookson): “White House officials… urged anyone leaving the New York City metropolitan area to self-isolate and monitor themselves carefully for 14 days as President Donald Trump called the region a ‘hot spot’ for coronavirus cases. ‘For anyone in the New York metropolitan area who has traveled, our task force is encouraging you to monitor your temperature, be sensitive to symptoms,’ Vice President Mike Pence… said… ‘And we are asking anyone who has traveled out of the New York City metropolitan area to anywhere else in the country to self isolate for 14 days.’”
March 24 – Financial Times (Clive Cookson): “The end of winter is traditionally a time for celebration. Not so in 2020, as the arrival of spring in the northern hemisphere has been overshadowed by stringent lockdowns put in place to slow the spread of the coronavirus. Yet in the battle against the pandemic, some scientists see hope in the arrival of warmer and sunnier weather. If Covid-19 conforms to the seasonal pattern of other respiratory infections, the coming months will help the suppression of the virus — at least temporarily. Some studies have suggested that the new coronavirus will indeed follow the marked seasonality shown by its genetic cousins that have been circulating among humans for many years.”
March 26 – Reuters (Michael Berens): “Home healthcare providers, the lifelines to 12 million vulnerable Americans, are scrambling to decide how to serve patients who show symptoms of coronavirus — and how to ensure that the providers themselves neither catch nor spread it. A Texas-based company operating in 26 states instructed its caregivers to leave the homes of clients who recently traveled from states with ‘widespread community transmission’ or who had contact with anyone screened for coronavirus, regardless of whether that person tested positive…”
COVID-19 Fallout Headlines:
March 21 – Reuters (Tim McLaughlin): “Goldman Sachs… poured more than $1 billion into two of its prime money-market portfolios this week due to heavy investor withdrawals, according to a filing with the U.S. securities regulator… The bank repurchased securities from its two funds on Thursday after investors withdrew a net $8.1 billion from them during a four-day stretch…”
March 23 – CNBC (Yun Li): “Twenty-two days. That’s all it took for the S&P 500 to fall 30% from its record high, the fastest drop of this magnitude in history. The second, third and fourth quickest 30% pullbacks all occurred during the Great Depression era in 1934, 1931 and 1929, respectively, according to data from Bank of America Securities. ‘This is not good company for 2020,’ Stephen Suttmeier, a technical research strategist at the bank, said... ‘The 2020 correction continues to make history, having already claimed the title as the third fastest end to a bull market going back to 1928.’”
March 23 – Financial Times (Henry Sanderson): “Traders have reported a growing global shortage of gold bars, as the coronavirus outbreak both disrupts supply and stokes demand, with one business comparing the frenzied buying of the yellow metal with the consumer rush for toilet roll. Retail investors in Europe and the US have bought up gold and silver bars and coins over the past two weeks in an effort to protect their money from the collapse in global stock prices and many currencies. But Europe’s largest gold refineries have struggled to keep up because of the region’s widening shutdown.”
March 24 – Financial Times (Editorial Board): “Regulators scrambled to strengthen the banking system after the 2008 financial crisis. That made banks safer but their actions pushed the risk of rising defaults into the shadows. While the banks — designated as systemically important — repaired and tidied up their balance sheets, asset managers, hedge funds and others stepped into the gap, providing credit to the non-financial economy. Investor money flowed in, searching for yield. Now those shadow banks… are causing worries about systemic risk as the impact of coronavirus spreads. An index tracking US Business Development Companies, listed lenders to small businesses, has halved since February. Many Real Estate Investment Trusts, which have relied on the short-term money markets to boost dividend payouts, are also being pummeled. Money market mutual funds invested in corporate debt have been hit by disruptive mass redemptions. Junk bond exchange traded funds have traded at often large discounts to their underlying assets.”
March 24 – Reuters (Hideyuki Sano): “Banks borrowed a total of $89.3 billion in the Bank of Japan’s two dollar funding operations on Tuesday, the central bank said after it offered three-month and one-week funds to market players who were seeking dollar funding. The takeup was well beyond its previous record of $50.2 billion, hit on October 21, 2008…”
March 25 – CNBC (Jeff Cox): “The coronavirus crisis has brought another first to U.S. financial markets — negative yields on government debt. Yields on both the 1-month and 3-month Treasury bills dipped below zero Wednesday, a week and a half after the Federal Reserve cuts its benchmark rate to near zero and as investors have flocked to the safety of fixed income amid general market turmoil.”
March 25 – Bloomberg (Bill Austin): “Investors withdrew from equity and fixed income mutual funds in the week ended March 18 for the third straight week of outflows, according to the Investment Company Institute. Outflows totaled $135 billion, compared with $27.9 billion the prior week. Investors withdrew $175.5 billion from mutual funds year-to-date.”
March 26 – Bloomberg (Emily Barrett, Ruth Carson and Greg Ritchie): “In a matter of weeks, bond investors have seen some of their firmest market convictions swept away in a massive confluence of government stimulus and central bank intervention. Now, they’re being forced to rework their strategies for a new era. Core tenets such as what constitutes a safe asset, the value of bonds as a portfolio hedge, and expectations for returns over the next decade are all being reconsidered as governments and central banks strive to avert a global depression. Underlying much of the uncertainty is the risk that trillions of dollars in monetary and fiscal stimulus could create an eventual inflation shock that will trigger losses for bondholders. ‘I’ve never, ever, ever seen anything like this before,’ said Nader Naeimi, head of dynamic markets at AMP Capital Investors… ‘You have enormous buyers of debt meeting massive coordinated fiscal stimulus by governments across the globe. For bond investors, you’re caught between a rock and a hard place.’”
March 26 – Bloomberg (Andy Kostic and Olivia Raimonde): “U.S. corporate investment-grade funds reported a record $38 billion outflow, extending an unprecedented rout as investors flee for havens assets amid the global market meltdown. That exceeds the prior record of $35.6 billion set just last week as the selloff from the spreading coronavirus intensified.”
March 26 – Bloomberg (Jacqueline Poh): “Companies globally have tapped $200 billion in revolving and new credit lines since March 9 to combat the coronavirus crisis impact. Borrowers in the Americas accounted for 80% of that. Borrowers from the Americas including General Motors and Whirlpool have either drawn down on revolving facilities or raised additional financing totaling $160b this month…”
Covid-19 Weekly Statistics (29 March 2020 @ 1500 GMT)
|
Global Recorded Cases
684,636 Previous Week
318,650 1 week
Rate of Change (+114.86%) |
Global Active Cases
506,056 Previous week
208,968 1 week
Rate of Change (+142.17%) |
Global Recovered
146,400 Current Recovery Rate
81.98% Previous Week
Recovery Rate (87.53%) |
Global Deceased
32,180 Current Death Rate
18.02% Prev week
Death Rate (12.47%) |
|
Trend
Decreasing? |
Trend
Increasing |
Trend
Downtrend |
Trend
Uptrend |
Website Links
(click below to view)
(click below to view)
* John Hopkins University
* World-o-Meter Statistics
*World Health Organization (WHO) Situation Reports
*The Lancet COVID-19 Resource Centre
*medRxiv COVID-19 Research Papers
* World-o-Meter Statistics
*World Health Organization (WHO) Situation Reports
*The Lancet COVID-19 Resource Centre
*medRxiv COVID-19 Research Papers
Commentary:
- The total number of recorded and active global cases continues to rise at an exponential rate. This is to be expected as the total confirmed cases is a function of the virus rate-of-spread (currently estimated to be 2.8x per each infection with Italy currently at > 4.0x) as well as most countries now expanding their testing.
- In what is an encouraging data point, the weekly rate-of-change in global recorded cases has now reduced for the 1st time since the global outbreak began (as of Sunday, 29 March @ 1500 GMT). The number is very volatile (and is dependent upon the number of tests outstanding at any given time) so the next few days will either confirm or refute this potential change in trend.
- The trend in the current death rate vs. current recovery rate remains very concerning. The global death rate had been in continual decline since we began monitoring the beginning of the outbreak in mid-January (from > 50% death rate to a low of 5.68% on Sunday, 08 March). However, since the low on 08 March it has risen quickly and continues to deteriorate with a current death rate of > 18%. Until the death rate reverses course this continues to be a very serious concern.
Weekly Market Monitor
U.S. Indices
Dow +12.8% to 21,637. S&P 500 +10.3% to 2,541. Nasdaq +9.1% to 7,502. Russell 2000 +10.5% to 1,128. CBOE Volatility Index -0.8% to 65.54.
S&P 500 Sectors
Consumer Staples +7.3%. Utilities +17.1%. Financials +15.7%. Telecom +10.%. Healthcare +10.8%. Industrials +20.7%. Information Technology +15.8%. Materials +13.8%. Energy +20.5%. Consumer Discretionary +15.%.
World Indices
London +6.2% to 5,511. France +7.5% to 4,351. Germany +7.9% to 9,633. Japan +17.1% to 19,389. China +1.% to 2,772. Hong Kong +3.% to 23,484. India -0.3% to 29,816.
Commodities and Bonds
Crude Oil WTI -3.6% to $21.62/bbl. Gold +9.7% to $1,628.2/oz. Natural Gas +3.9% to 1.667. Ten-Year Treasury Yield +1.5% to 138.6.
Forex and Cryptos
EUR/USD +4.21%. USD/JPY -2.63%. GBP/USD +7.09%. Bitcoin +7.2%. Litecoin +4.3%. Ethereum +2.3%. Ripple +16.2%.
Dow +12.8% to 21,637. S&P 500 +10.3% to 2,541. Nasdaq +9.1% to 7,502. Russell 2000 +10.5% to 1,128. CBOE Volatility Index -0.8% to 65.54.
S&P 500 Sectors
Consumer Staples +7.3%. Utilities +17.1%. Financials +15.7%. Telecom +10.%. Healthcare +10.8%. Industrials +20.7%. Information Technology +15.8%. Materials +13.8%. Energy +20.5%. Consumer Discretionary +15.%.
World Indices
London +6.2% to 5,511. France +7.5% to 4,351. Germany +7.9% to 9,633. Japan +17.1% to 19,389. China +1.% to 2,772. Hong Kong +3.% to 23,484. India -0.3% to 29,816.
Commodities and Bonds
Crude Oil WTI -3.6% to $21.62/bbl. Gold +9.7% to $1,628.2/oz. Natural Gas +3.9% to 1.667. Ten-Year Treasury Yield +1.5% to 138.6.
Forex and Cryptos
EUR/USD +4.21%. USD/JPY -2.63%. GBP/USD +7.09%. Bitcoin +7.2%. Litecoin +4.3%. Ethereum +2.3%. Ripple +16.2%.
WEEKLY ASSET CLASS MONITOR
|
Asset Class
|
Region
|
ETF Ticker
|
Weekly
Return |
Year-to-Date
Return |
|
Equities
|
World
U.S. Europe Asia Pacific Emerging Market |
VT
VTI VGK VPL VWO |
+10.68%
+10.47% +14.20% +10.21% +5.95% |
-23.43%
-22.04% -26.84% -21.31% -25.86% |
|
Bonds
|
U.S. Bonds
International Bonds |
BND
BNDX |
+4.73%
+2.04% |
+3.05%
-0.09% |
|
Real Estate Equities
|
U.S. Real Estate
International Real Estate |
VNQ
VNQI |
+17.38%
+13.78% |
-23.92%
-28.31% |
|
Precious Metals Equities
|
Global Gold Miners
Global Junior Gold Miners |
RING
GDXJ |
+19.81%
+21.29% |
-16.08%
-29.22% |
GLOBAL EQUITY MARKET MONITOR
For the past 3 years global equities:
- peaked 26 Jan 2018.
- chopped in a trading range until Oct 2018.
- declined into the 24 Dec 2018 bottom.
- advanced +36% to the 12 Feb 2020 peak, and
- collapsed -37% into the most recent low associated with the COVID-19 outbreak.
Below is the percentage returns for each of the previously discussed monitored equity regions since the global equity peak 12 February 2020 (peak shown by horizontal thin green line on each of the regional charts).
Since their peak 12 Feb 2020 global equities have declined -25.44% (inc. dividends).
RETURNS SINCE EQUITY MARKET BOTTOM (24 DEC 2018)
The last significant market turn (before the current downturn) was the bottom achieved 24 Dec 2018. Below are the returns for the various monitored equity regions since that date.
Since the 24 Dec 2018 lows global equities have returned +7.88% (inc. dividends).
Since the 24 Dec 2018 lows global equities have returned +7.88% (inc. dividends).
Hedgeye Risk Management LLC
"I skate to where the puck is going to be; not where it has been."
Wayne Gretzky
Wayne Gretzky
As we appear to be approaching a potential turning point in global growth, we continue to utilize global macroeconomic data provided by our data partners at Hedgeye Risk Management. Their data remains one of the most accurate available when attempting to forecast future macroeconomic shifts globally so we use their data to anticipate where the "puck may go" in global macroeconomics.
The Hedgeye Growth/Inflation/Policy (GIP) model uses 90 high frequency inputs per quarter within a Bayesian Inference algorithm to adjust in real-time for the current quarter along with 24 month rate-of-change base effects for future quarters. The forecast is subject to actual economic data as it is released in real time within the quarter so we continue to monitor each economic data point as it is released.
Hedgeye classify each countries model outputs according to the following "quadrants":
Quad 1 (Dark green):
The Hedgeye Growth/Inflation/Policy (GIP) model uses 90 high frequency inputs per quarter within a Bayesian Inference algorithm to adjust in real-time for the current quarter along with 24 month rate-of-change base effects for future quarters. The forecast is subject to actual economic data as it is released in real time within the quarter so we continue to monitor each economic data point as it is released.
Hedgeye classify each countries model outputs according to the following "quadrants":
Quad 1 (Dark green):
- Growth rising/Inflation falling.
- Overweight equities/credit; underweight fixed income.
- Growth rising/Inflation rising.
- Overweight equities/credit; underweight fixed income.
- Growth falling/Inflation rising.
- Overweight fixed income; underweight equities/credit.
- Growth falling/Inflation falling.
- Overweight fixed income; underweight equities/credit.
Below is a view of the top 20 largest countries/regions with their latest Quad outputs for the current quarter (4Q19) and subsequent 3 future quarters. In general, it can be said the data had indicated selected European and Asia Pacific regions were forecast to outperform the U.S. in 2020 but the recent coronavirus outbreak will precluded this from happening.
Of course data is backward looking so until we get some better information on the true economic impact COVID-19 is having the below data must be viewed with skepticism.
Recession Warning Indicators
Below we continue to show the latest Ned Davis Research Global Recession Probability model which triggered a "high risk" global recession warning in the 3rd quarter of 2018. Encouragingly this model has now reduced the risk of global recession to "moderate" with a reading below 70 but we suspect the COVID-19 outbreak may reverse this back upwards.
Adding to our concern about potential recession concerns, below is the US recession probability model published by the New York Federal Reserve. The reading at the end of June 2019 rose above 30% for the 1st time since 2007; the threshold that has accurately predicted a pending recession within the US in the following 12 months since 1960. The forecast has fallen since its late-summer peak and now is at the 30% threshold; a pattern very similar to the 2001 and 2007 recession warning. This remains on our radar.
Below is a study for each occurrence when the New York FED Recession Probabilities model has been above 30 for 2 consecutive months (end of July 2019). As can be seen, at 6 month and later intervals the market returns (S&P 500 index) are mixed.
CEO Confidence Surveys
We monitor CEO confidence survey's closely as CEO's are the single best source of insight into current and future business conditions. Below is their latest thoughts.
CEOs Shrug Off Market Correction, Coronavirus As Short-Term Issues In Early-March Poll
(By Melanie C. Nolen -March 9, 2020)
(By Melanie C. Nolen -March 9, 2020)
"Chief Executive’s latest survey of U.S. CEOs—fielded March 3-5 in the middle of wild swings in stock markets and growing fears over the spread of COVID-19—shows their optimism in future business conditions undeterred despite the headwinds.
At 7 out of 10 on our 1-10 rating scale, CEO confidence in the business landscape for the year ahead remains at its highest level since the third quarter of 2018. CEOs say their sustained optimism stems from the belief that the impact of the coronavirus on American businesses will subside, and trade negotiations with China and other international partners will continue, even as more companies find new ways to support their supply chain.
In the meantime, however, confidence in current business was rated 6.6/10, down 7.5 percent since last month, retreating to lows unseen since September 2017. Forty-one percent of CEOs we surveyed say the coronavirus is having a “severe” or “major” impact on their confidence in the current environment, as it brings about supply chain disruption and the risk of slowing consumer spending.
At 7 out of 10 on our 1-10 rating scale, CEO confidence in the business landscape for the year ahead remains at its highest level since the third quarter of 2018. CEOs say their sustained optimism stems from the belief that the impact of the coronavirus on American businesses will subside, and trade negotiations with China and other international partners will continue, even as more companies find new ways to support their supply chain.
In the meantime, however, confidence in current business was rated 6.6/10, down 7.5 percent since last month, retreating to lows unseen since September 2017. Forty-one percent of CEOs we surveyed say the coronavirus is having a “severe” or “major” impact on their confidence in the current environment, as it brings about supply chain disruption and the risk of slowing consumer spending.
Asset Class Return Monitor
(for week ending 27 March 2020)
(for week ending 27 March 2020)
Equities Legend:
Bonds Legend:
Currencies Legend:
Commodities Legend:
- Vanguard Total World Stock ETF (VT): (Cyan)
- Vanguard Total U.S. Stock Market ETF (VTI): (Red)
- Vanguard FTSE Europe ETF (VGK): (Lime Green)
- Vanguard FTSE Asia Pacific ETF (VPL): (Dark Blue)
- Vanguard FTSE Emerging Markets ETF (VWO): (Pink)
Bonds Legend:
- Vanguard Total U.S. Bond Market ETF (BND): (Black)
- Vanguard Total International ex-U.S. Bond ETF (BNDX): (Green)
Currencies Legend:
- U.S. Dollar Index (Cash Settlement EOD) ($USD): (Orange)
- Euro (Philadelphia Index) ($XEU): (Maroon)
Commodities Legend:
- PowerShares DB Commodity Index Tracking Fund (DBC): (Purple)
- SPDR Gold ETF (GLD): (Sky Blue)
Past Week Asset Class returns
- Over the past week world equities (as measured by the Vanguard Total World Stock ETF (shown in CYAN) gained +10.68%.
- European market equities were the top performing equity region this past week with Emerging market equities lagging.
- U.S. bonds (Black) and International bonds (Green) were higher on the week.
- Commodities were higher on the week with the USD strongly lower.
Year-to-Date (2020) Asset Class returns
- Thus far in 2020 global equities (as measured by the Vanguard Total World Stock ETF (shown in CYAN) have lost -23.43%.
- Asia Pacific equities have been the top performing equity region thus far in 2020 with European markets lagging.
- Bonds have shown positive returns thus far in 2020 in both International Bonds (Green) under-performing U.S. bonds (Black).
- Commodities have had substantially negative returns for 2020 with the USD index positive.
Typically bull/bear markets follow a cycle of investor psychology which peaks with euphoria and ends with despair. We do not think we have reached the despair level yet (we are in the "denial-pessimism" area).
It must be reemphasized a complete market cycles is composed of 2 distinct cycles/phases: a "bull 1/2 cycle" and a "bear 1/2 cycle". The 11 year bull 1/2 cycle ended in Feb 2020 with the global spread of COVID-19 and we are now within the bear 1/2 cycle.
A large part of the expected declines in bear markets hinges upon how "expensive" markets were when the bear market begins. In this measure, we have a long way to fall given the overvaluation at the market peak.
We illustrate the recent market overvaluation via 3 charts produced by Crestmont Research (as of 01 March with data from 1871-to-present). While it is not necessary to understand exactly how the data is plotted, it is important for every investor to realize where current valuations stand relative to this 149 years of history.
In the following graphs note the following:
A large part of the expected declines in bear markets hinges upon how "expensive" markets were when the bear market begins. In this measure, we have a long way to fall given the overvaluation at the market peak.
We illustrate the recent market overvaluation via 3 charts produced by Crestmont Research (as of 01 March with data from 1871-to-present). While it is not necessary to understand exactly how the data is plotted, it is important for every investor to realize where current valuations stand relative to this 149 years of history.
In the following graphs note the following:
- the Crestmont Price/Earnings (P/E) ratio at the end of Feb 2020 was at 35.3 and was the most expensive market valuation in U.S. stock market history (since 1871). It peaked well above both the 2007 peak (24.7) and 1929 peak (26.4) as shown on the 1st chart.
- when compared to inflation the current Crestmont P/E remains above the very top region of the bubble zone defining the 1998-2000 bubble peak as shown on the 2nd chart.
- the Crestmont P/E was 162% above its geometric mean; well above the 2000 peak (151%) and 1929 peak (96%) as shown on the 3rd chart.
The Math of Losses
- a 20% loss requires a 25% gain to return to breakeven
- a 30% loss requires a 43% gain to return to breakeven
- a 40% loss requires a 67% gain to return to breakeven
- a 50% loss requires a 100% gain to return to breakeven
- a 60% loss requires a 150% gain to return to breakeven
This is why it is so important to not let losses continue in the face of a bear market and why we advocate phased movements into cash as our 5-factor model reverts towards Red. The below graphic represents how we move within equity markets through a complete market cycle:
World Regional Equity Monitor
We use the following U.S. exchange traded funds to monitor equity performance for the various world regions:
- World Equities: Vanguard Total World ETF (Cyan)
- U.S. Equity: Vanguard Total Market ETF (Red)
- Asia Pacific Equity: Vanguard FTSE Pacific ETF (Blue)
- European Equity: Vanguard FTSE Europe ETF: (Lime Green)
- Emerging Market Equity: Vanguard FTSE Emerging Market ETF (Pink)
1 Year Rolling Regional Equity Performance
- Over the past 12 month rolling period regional equity performance has been negative for the various monitored regions.
- The strongest equity region over the past 12 month has been U.S. Markets with European market equities lagging.
- Overall world equity performance (as measured by the Vanguard Total World ETF) have returned -12.76% (including dividends) over the past 12 month rolling period.
3 Month Rolling Regional Equity Performance
- Over the past 3 month rolling period the strongest performing world equity region has been Asia Pacific markets with European markets the weakest.
- Weak regional equity returns have been evident over the past quarter (3 months) in all regions (3 month flip occurred as of 26 Feb 2020 market close on COVID-19 panic).
1 Month Rolling Regional Equity Performance
- Over the past 1 month rolling period the strongest performing world equity region has been Asia Pacific markets with Emerging markets the weakest.
- Weak global equity returns are evident over the past month for all monitored regions.
Past Week Regional Equity Performance
- Over the past week major equity regions were substantially higher with European markets outperforming other regions.
Latest Global Equity "Big Picture"
World equity market returns are monitored via the following index and ETF equity charts:
Dow Jones Global Market Index
(market cap weighted index)
For the week the Dow Jones Global Index has a gain of +10.41%. As can be seen on the 1st line chart above chart, price has now broken below the 65 week moving average and has broken the strong support at the Dec 2018 lows @ 334-341.
On the 2nd weekly "zoomed-in" candlestick chart it can be seen price has broken 2 key technical support zones:
On the 2nd weekly "zoomed-in" candlestick chart it can be seen price has broken 2 key technical support zones:
- 377-380 (support for most of 2018 outside the crash into Dec 2018)
- 341 (Dec 2018 weekly close)
Value Line Geometric Index and Global Dow Index
(equal weighted indexes)
The Value Line Geometric Index ($XVG) is the median price performance of 1700 U.S. companies equal weighted (as opposed to most indexes which are market cap weighted) into an index. The Global Dow index ($GDOW) is a measure of the top 150 international companies equal weighted within the index.
These indexes are important as they equal-weight the price performance of all the companies held within the respective index. This removes the distortions associated with a small group of highly valued companies (which may be performing well) masking the performance of struggling companies and represents a good overview of overall equity performance.
These indexes are important as they equal-weight the price performance of all the companies held within the respective index. This removes the distortions associated with a small group of highly valued companies (which may be performing well) masking the performance of struggling companies and represents a good overview of overall equity performance.
The below charts are the daily line charts of both indexes. The Value Line Geometric Index (upper chart) has now broken below its previous range (red box), below its 200 day moving average (green line) and below the Dec 2018 support @ 446.06 (significant technical damage).
The Global Dow Index (lower chart) has now broken below its previous range (red box), below its 200 day moving average (green line) and below the Dec 2018 support @ 2633.00 (significant technical damage).
The Global Dow Index (lower chart) has now broken below its previous range (red box), below its 200 day moving average (green line) and below the Dec 2018 support @ 2633.00 (significant technical damage).
Value Line Geometric Index ($XVG) Daily
Global Dow Index ($GDOW) Daily
Below is a 40 year daily chart of the Value Line Geometric Index which clearly shows the critical price support/resistance @ 508-523 (1st achieved in 1998). Price has now broken this support + the uptrend line from the 2016 lows and is challenging support @ 278-295 which stretches back to 1987.
iShares MSCI ACWI ETF
(market cap weighted ETF)
The iShares MSCI ACWI (All Country World Index) ETF is used as a benchmark to compare the performance of the various broad-based equity funds available in the Emirates Group Provident Scheme (EGPS) A/B/C accounts. It serves as a benchmark to determine how equity markets are performing on a worldwide basis. This assists in determining 2 parameters; whether to be invested in equities and also which funds within the EGPS offer the best performance relative to the benchmark.
The ETF is composed of the following regional components/weightings:
The ETF is composed of the following regional components/weightings:
ACWI Monthly Chart (since 2009)
Global equity markets have fallen substantially from their Feb 2020 peak but have held the Dec 2018 closing price (yellow box) @ 62.65. A close below the YELLOW support zone would be a very bearish development (not valid until months end).
For the month of March ACWI has lost -14.64%. It closed the month of February below the 12 month simple moving average (a bearish development).
For the month of March ACWI has lost -14.64%. It closed the month of February below the 12 month simple moving average (a bearish development).
ACWI Weekly Chart
This past week ACWI gained +11.52%. Price closed below the 65 week simple moving average (shown in BLUE) and below multiple levels of previous support. However, it remained above the last significant decline level from Dec 2018 @ 60.78.
World Equity Market Regional Relative Rotation Graphs
Below is a graph of 25 major regional equity market ETF's + ACWI (our world equity benchmark) shown on a Relative Rotation chart measured weekly with a 10 week look-back period (which forms the "tail" of the ETF). This graph allows us to observe over time how various regional ETF's are moving relative to both each other and also relative to cash.
- Leading (Green): (Momentum Positive + Price Relative Strength Positive)
- Weakening (Yellow): (Momentum Negative + Price Relative Strength Positive)
- Lagging (Red): (Momentum Negative + Price Relative Strength Negative)
- Improving (Blue): (Momentum Positive + Price Relative Strength Negative)
Given the cyclical nature of momentum and price within equity markets, in general the RRG charts will cycle in a clockwise manner (though not necessarily will each pass through all 4 quadrants as it is possible to rotate through an adjacent quadrant only).
Weekly Regional (Country) Relative Rotation Graphs (long term)
As can be seen on the above table, a large number of the monitored countries have transitioned into the RED "Lagging" quadrant. In addition, ACWI (our world equity fund benchmark) has also transitioned into the RED "Lagging" quadrant this week. This remains negative for global equities.
The RRG trend analysis status is NEGATIVE for world equities:
- ACWI price Relative Strength (horizontal axis): NEGATIVE
- ACWI price Momentum (vertical axis): NEGATIVE
Coincident Equity Market Indicators
Crude Oil
Crude oil was moderately lower over the past week and closed below the lows set in 2016 @ $29.02. Firm crude oil prices typically point to increasing demand on the back of world economic growth improvement and the current trend break remains equity bearish.
Gold
Gold was substantially higher over the past week and remains above its recent breakout level. The summer 2019 breakout above $1400 indicates increased uncertainty in equities with a move to the safety of gold. As long as gold continues to advance it remains equity bearish.
Commodities
Commodities were unchanged lower over the past week and closed below 4 year lows. This remains equity bearish until the downtrend reverses.
U.S. 30 Year Treasury Bond
U.S. 30 year bonds were modestly higher on the week. Rising bond prices indicate a "flight to safety" trade associated with weakening economic data and the current trend reversal is equity bearish.
Current 5-Factor Model Indications
The combined 5-Factor quantitative model is currently RED (bearish). This indicates the level of risk at present is tilted towards the downside and a reduction in risk is suggested. The 5-Factor model currently has the following sub-model readings:
Economic Model
The Economic model switched to YELLOW in early August 2018 (it was GREEN from May 2016) on the back of subtle but gradually declining world growth. It had been subtly improving but the recent global COVID-19 outbreak is certain to circumvent this improvement (yet to be reported in the actual data). The model is composed of numerous inputs including data from the following sources:
Forward Forecast Data:
Current Data:
Forward Forecast Data:
- OECD Composite Leading Indicators (CLI)
- BlackRock Macro GPS Growth/Inflation forecast monitor
Current Data:
- J.P. Morgan Global Purchasing Managers (PMI) Index
- World Bank Monthly Global Economic Report
- DHL Global Trade Barometer
OECD Composite Leading Indicators
(09 March 2020)
* In an unprecedented move, the OECD has cancelled their latest Composite Leading Indicator update due to the COVID-19 outbreak. Below is their announcement:
09/03/2020 - The release of the OECD Composite leading indicators (CLIs), originally scheduled for 9 March 2020, has been cancelled. The next release will be 8 April 2020.
OECD’s CLIs are designed to anticipate turning points in economic activity. They are constructed using a suite of underlying indicators that are selected on the basis of their forward-looking properties in relation to future movements in the economic cycle. The CLIs have proved to be an effective tool, including during periods of extreme volatility such as the financial crisis, the European debt crisis or the more recent slowdown, precisely because the underlying sub-components have been able to capture and reflect economic agents’ expectations about future movements in the economic cycle (see OECD Statistics Working Papers).
At this time, CLI sub-components for many countries are not yet able to capture the effects of the more widespread Covid-19 outbreak.
Timely as they are, sub-components are not able to capture significant unpredictable changes in the macro-economy nor in expectations that may have occurred in the days and weeks following their collection. In Europe, for example, tendency surveys were collected before the scale of the Covid-19 outbreak in Northern Italy became known. In countries such as China, Japan and Korea, which were all much closer to the epicentre of the outbreak, the effects have already started to appear in CLI sub-components, and so too, in our current assessment for these countries, which is easing growth momentum. However, the rapidity of the outbreak in other countries in recent weeks, has meant that the impact has not yet been reflected in the CLI sub-components for these countries.
The 8 April release of the OECD CLIs will reflect this information.
Given the lack of an update, we will continue to publish the last available CLI from 10 February 2020 until updated information becomes available.
09/03/2020 - The release of the OECD Composite leading indicators (CLIs), originally scheduled for 9 March 2020, has been cancelled. The next release will be 8 April 2020.
OECD’s CLIs are designed to anticipate turning points in economic activity. They are constructed using a suite of underlying indicators that are selected on the basis of their forward-looking properties in relation to future movements in the economic cycle. The CLIs have proved to be an effective tool, including during periods of extreme volatility such as the financial crisis, the European debt crisis or the more recent slowdown, precisely because the underlying sub-components have been able to capture and reflect economic agents’ expectations about future movements in the economic cycle (see OECD Statistics Working Papers).
At this time, CLI sub-components for many countries are not yet able to capture the effects of the more widespread Covid-19 outbreak.
Timely as they are, sub-components are not able to capture significant unpredictable changes in the macro-economy nor in expectations that may have occurred in the days and weeks following their collection. In Europe, for example, tendency surveys were collected before the scale of the Covid-19 outbreak in Northern Italy became known. In countries such as China, Japan and Korea, which were all much closer to the epicentre of the outbreak, the effects have already started to appear in CLI sub-components, and so too, in our current assessment for these countries, which is easing growth momentum. However, the rapidity of the outbreak in other countries in recent weeks, has meant that the impact has not yet been reflected in the CLI sub-components for these countries.
The 8 April release of the OECD CLIs will reflect this information.
Given the lack of an update, we will continue to publish the last available CLI from 10 February 2020 until updated information becomes available.
The OECD Composite Leading Indicator (CLI) is designed to provide a 6-9 month lead time on turns in economic performance. As such, it is a useful "look-forward" tool we use to attempt to predict regional economic weakening/strengthening turn points.
The latest readings suggest continued stabilization at below average global economic growth in a number of regions. This is an encourage 1st step but it is too soon to declare the worst of the global slowdown is over.
Latest Overview:
10/02/2020 - "Composite leading indicators (CLIs) designed to anticipate turning points in economic activity relative to trend six to nine months ahead, point to stable growth momentum, albeit below long-term trends, in the OECD area as a whole. However, these CLIs have been estimated using data collected before the WHO’s recent declaration of a public health emergency following the novel coronavirus outbreak in China. It is not yet possible to incorporate the potential negative impact of the coronavirus outbreak on global activity, particularly on supply chains and tourism linkages.
With this important caveat in mind, stable growth momentum remains the assessment for Japan, Canada and the euro area as a whole, including France, Italy, and now also Germany. In the United States and the United Kingdom, the CLIsare tentatively pointing to growth gaining momentum from below-trend.
Prior to the novel coronavirus outbreak, tentative signs of growth gaining momentum were also emerging in the industrial sector of China, but there is a high degree of uncertainty about near-term developments. Amongst other major emerging economies, the assessment anticipated growth gaining momentum in Brazil, remaining stable in Russia, and decreasing in India."
The latest readings suggest continued stabilization at below average global economic growth in a number of regions. This is an encourage 1st step but it is too soon to declare the worst of the global slowdown is over.
Latest Overview:
10/02/2020 - "Composite leading indicators (CLIs) designed to anticipate turning points in economic activity relative to trend six to nine months ahead, point to stable growth momentum, albeit below long-term trends, in the OECD area as a whole. However, these CLIs have been estimated using data collected before the WHO’s recent declaration of a public health emergency following the novel coronavirus outbreak in China. It is not yet possible to incorporate the potential negative impact of the coronavirus outbreak on global activity, particularly on supply chains and tourism linkages.
With this important caveat in mind, stable growth momentum remains the assessment for Japan, Canada and the euro area as a whole, including France, Italy, and now also Germany. In the United States and the United Kingdom, the CLIsare tentatively pointing to growth gaining momentum from below-trend.
Prior to the novel coronavirus outbreak, tentative signs of growth gaining momentum were also emerging in the industrial sector of China, but there is a high degree of uncertainty about near-term developments. Amongst other major emerging economies, the assessment anticipated growth gaining momentum in Brazil, remaining stable in Russia, and decreasing in India."
The OECD (Total) Composite Leading Index topped in Dec 2017 @ 100.76 and is now well below 100 (indicating global economic growth below average). It remains below the previous correction lows of 2012 and 2016 but as of the most recent readings it appears to have bottomed (a potentially bullish development for future global growth).
Below is our latest heat-map of the Composite Leading Indicators for various monitored regions. The CLI is designed to predict business cycle changes 6-9 months in advance so the Peak/Trough dates can be used to predict turning point months for the various regions.
- Red/Green numbers indicates above/below average future projected economic growth.
- Red/Green boxes indicates CLI rate of change month/month and year/year.
As can be seen, the heat-map indicates all regions (and most countries) continue to have CLI's < 100 (indicating below average projected economic growth over the next 6-9 months). However, there are signs of a potential bottoming in the rate of change in all regions on a month/month basis (green boxes).
Should a number of major regions turn positive on a year/year basis (far right column) we would feel more comfortable to declare the global growth slowdown is over.
BlackRock Macro GPS Growth/Inflation Forecast
(19 March 2020)
The BlackRock macro-GPS aims to give a forward forecast on the growth & inflation outlook for G7 economies. It combines new sources of information using new "big-data" sources – including internet searches and text mining of corporate calls - as well as traditional economic data. Other big data inputs include online job postings, inflation chatter, satellite images, e-invoicing and traffic patterns.
The BlackRock GPS forecasts the following:
The BlackRock GPS forecasts the following:
- the potential year-over-year GDP economic growth reading versus current consensus 3 months forward.
- the potential year-over-year Inflation reading versus current consensus 6 months forward.
BlackRock GDP Growth Forecast vs. Current Consensus
The BlackRock GDP growth forecast projects the greatest upside surprise in growth (versus current consensus) will be in Japan with the greatest downside surprise in growth (versus current consensus) in Spain. The forward forecast for G7 economic growth remains slightly above current consensus (encouraging).
BlackRock Inflation Forecast vs. Current Consensus
The BlackRock inflation forecast projects the U.K. will have the greatest upside surprise in future inflation (relative to consensus) with Japan having the furthest downside projected inflation relative to consensus.
J.P. Morgan Global Composite Purchasing Managers Index (PMI)
(04 March 2020)
(04 March 2020)
The Global Composite PMI Report is based on the results of manufacturing and service sector surveys covering over 18,000 purchasing executives in over 40 countries. Together these countries account for an estimated 89% of global gross domestic product (GDP).
Questions are asked about real events and are not opinion based. Data are presented in the form of diffusion indices, where an index reading above 50.0 indicates an increase in the variable since the previous month and below 50.0 a decrease. As such, using the PMI data gives us a real-time look at global growth.
Questions are asked about real events and are not opinion based. Data are presented in the form of diffusion indices, where an index reading above 50.0 indicates an increase in the variable since the previous month and below 50.0 a decrease. As such, using the PMI data gives us a real-time look at global growth.
- readings > 50 indicating economic expansion
- readings < 50 indicate economic contraction.
Global PMI Summary
Global Composite PMI Report Summary
Global Manufacturing 02 Mar: (current 47.2/previous month 50.4)
Olya Borichevska, from Global Economic Research at J.P.Morgan:
“The global manufacturing output PMI collapsed over seven points in February to 43.5, the second-largest monthly decline recorded going back to 1998. At this level, the PMI implies a contraction in global IP around a 5% annual rate pace. However much of the February output PMI drop owes to a 23- points tumble in China where the outbreak of the COVID-19 severely disrupted activity. Detail of the PMI report were negative across many components. However, the future output PMI stood out with its resilience. In other details, the trend in international trade was hit hard, with new export business falling to the greatest extent in a decade.”
Global Services 04 Mar: (current 47.1/previous month 52.0)
Olya Borichevska, from Global Economic Research at J.P.Morgan, said:
“The outbreak of COVID-19 disrupted global economic activity in February, with output and new business falling to the greatest extents since mid-2009. However, a lot of this owes to China where the composite PMI fell 24-pt as rates of decline in activity and new orders accelerated to survey records at manufacturers and service providers alike. The rest of the world fell a bit more than two points to near stagnation though we expect further declines as long as the disruptions continue. Business sentiment held up better, staying close to January's nine-month high.”
Global Composite 04 Mar: (current 46.1/previous month 52.2)
"Global economic output contracts at fastest pace since 2009"
“Disruption to demand, supply chains and international trade flows resulting from the COVID-19 outbreak led to the steepest drops in global economic activity and new business since mid-2009 in February. The downturn was especially marked in China, where output and new business contracted at survey-record rates at manufacturers and service providers alike.
The J.P.Morgan Global Composite Output Index – which is produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – fell to 46.1 in February, down sharply from 52.2 in January and its lowest level since May 2009. The more than six-point drop in the headline index was the second sharpest in the survey history, the current record being set in October 2001 (the month directly following the 9/11 attacks).”
Olya Borichevska, from Global Economic Research at J.P.Morgan:
“The global manufacturing output PMI collapsed over seven points in February to 43.5, the second-largest monthly decline recorded going back to 1998. At this level, the PMI implies a contraction in global IP around a 5% annual rate pace. However much of the February output PMI drop owes to a 23- points tumble in China where the outbreak of the COVID-19 severely disrupted activity. Detail of the PMI report were negative across many components. However, the future output PMI stood out with its resilience. In other details, the trend in international trade was hit hard, with new export business falling to the greatest extent in a decade.”
Global Services 04 Mar: (current 47.1/previous month 52.0)
Olya Borichevska, from Global Economic Research at J.P.Morgan, said:
“The outbreak of COVID-19 disrupted global economic activity in February, with output and new business falling to the greatest extents since mid-2009. However, a lot of this owes to China where the composite PMI fell 24-pt as rates of decline in activity and new orders accelerated to survey records at manufacturers and service providers alike. The rest of the world fell a bit more than two points to near stagnation though we expect further declines as long as the disruptions continue. Business sentiment held up better, staying close to January's nine-month high.”
Global Composite 04 Mar: (current 46.1/previous month 52.2)
"Global economic output contracts at fastest pace since 2009"
“Disruption to demand, supply chains and international trade flows resulting from the COVID-19 outbreak led to the steepest drops in global economic activity and new business since mid-2009 in February. The downturn was especially marked in China, where output and new business contracted at survey-record rates at manufacturers and service providers alike.
The J.P.Morgan Global Composite Output Index – which is produced by J.P.Morgan and IHS Markit in association with ISM and IFPSM – fell to 46.1 in February, down sharply from 52.2 in January and its lowest level since May 2009. The more than six-point drop in the headline index was the second sharpest in the survey history, the current record being set in October 2001 (the month directly following the 9/11 attacks).”
The Global Composite Output Index is shown below (darker thick blue line). As can be seen, global manufacturing (thin red line) has lead the global economic weakness while global services (thin light blue line) has until recently continued to show modest strength. However, the latest report indicates both manufacturing and services have drastically declined on the COVID-19 outbreak.
Global Output Index (Composite/Manufacturing/Services)
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Global Composite Output Index vs. Global GDP
Below is our PMI monitor for selected regions/countries.
- values > 50 indicate economic expansion
- values < 50 indicating economic contraction (shown in RED)
- trend GREEN indicates improvement over the past month with RED indicating a decline over the previous month.
The latest data points to a potential global economic contraction (RED numbers indicate economic contraction).
World Bank Global Yearly Outlook
(February 2020)
(February 2020)
• "Global growth is expected to edge up to 2.5 percent in 2020—up slightly from the post-crisis
low of 2.4 percent registered last year—as trade and investment gradually recover."
• "The recovery in global growth will reflect an expected pickup in emerging market and
developing economies (EMDEs), which are projected to grow 4.1 percent this year. However,
this will largely depend on a rebound in a small number of large EMDEs, most of which are
emerging from deep recessions or sharp slowdowns."
• "While growth could be stronger if reduced trade tensions lead to a sustained reduction in
uncertainty, the balance of risks is to the downside."
• "In an environment of limited macroeconomic policy space compounded by high debt levels,
EMDEs need to foster inclusive and sustainable growth by undertaking reforms to bolster
governance and business climates, improve tax policy, promote trade integration, and rekindle
productivity growth, while protecting vulnerable groups."
low of 2.4 percent registered last year—as trade and investment gradually recover."
• "The recovery in global growth will reflect an expected pickup in emerging market and
developing economies (EMDEs), which are projected to grow 4.1 percent this year. However,
this will largely depend on a rebound in a small number of large EMDEs, most of which are
emerging from deep recessions or sharp slowdowns."
• "While growth could be stronger if reduced trade tensions lead to a sustained reduction in
uncertainty, the balance of risks is to the downside."
• "In an environment of limited macroeconomic policy space compounded by high debt levels,
EMDEs need to foster inclusive and sustainable growth by undertaking reforms to bolster
governance and business climates, improve tax policy, promote trade integration, and rekindle
productivity growth, while protecting vulnerable groups."
DHL Global Trade Barometer
(December 2019)
The DHL Global Trade Barometer is a new and unique early indicator for the current state and future development of global trade. It is based on large amounts of logistics data that are evaluated with the help of artificial intelligence. Since global trade fuels the world economy, the DHL Global Trade Barometer not only provides an outlook on future trade, but also on the prospects for the global economy.
2020/03/25: Q2 Update postponed
The GTB stands for accuracy, reliability and credibility. However, the analyzed data is unable to assess the impact of such disruptive events as Covid-19. This is why we have taken the decision to postpone the GTB update for the second quarter of 2020 as this would present an inaccurate picture. The next update of our index will be published when the Covid-19 situation improves and the market data will be able to reflect first effects.
The GTB stands for accuracy, reliability and credibility. However, the analyzed data is unable to assess the impact of such disruptive events as Covid-19. This is why we have taken the decision to postpone the GTB update for the second quarter of 2020 as this would present an inaccurate picture. The next update of our index will be published when the Covid-19 situation improves and the market data will be able to reflect first effects.
U.S. Economic Growth & Inflation
Year-over-Year GDP growth
The Gross Domestic Product (GDP) in the United States expanded 2.30 percent in the fourth quarter of 2019 over the same quarter of the previous year. United States GDP Annual Growth Rate - data, historical chart, and calendar of releases - was last updated on February of 2020 from its official source.
Quarter-over-Quarter GDP growth
The US economy grew 2.1 percent in Q4, the same as in Q3 and matching forecasts, advance estimates showed. Consumer spending slowed sharply while net trade made the biggest contribution to growth since Q2 2009 amid a fall in imports. In contrast, negative contributions came from private inventory investment and nonresidential fixed investment. Considering full 2019, the economy advanced 2.3 percent, the least since 2016 and missing Trump administration's 3 percent target for the second year. United States GDP Growth Rate - data, historical chart, and calendar of releases - was last updated on February of 2020 from its official source.
Annualized Inflation
Annual inflation rate in the US eased to 2.3% in February of 2020 from 2.5% in January which was the highest rate since October of 2018. Figures came slightly higher than market expectations of 2.2%. Gasoline prices rose 5.2%, well below a 12.8% jump in January while inflation was steady for both shelter (3.3%) and food (1.8%). On a monthly basis, consumer prices edged up 0.1%, the same as in January and compared to forecasts of a flat reading. Main upward pressure came from cost of shelter (0.3%) and food (0.4%), with the food at home index rising 0.5%, its largest monthly increase since May of 2014. Those rises more than offset a 2% drop in energy cost, namely gasoline (-3.4%) and fuel oil (-8.5%). Other increases were also seen for prices of apparel, personal care, used cars and trucks, education, and medical care while cost of recreation and airline fares declined over the month. Excluding food and energy, prices rose 2.4% over the year and 0.2% on a monthly basis.
Eurozone Economic Growth & Inflation
Year-over-Year GDP growth
The Eurozone annual economic growth was revised slightly higher to 1.0 percent in the fourth quarter of 2019 from an early estimate of 0.9 percent. That was the weakest pace of expansion since the three months to December 2013, amid smaller increases in household consumption (1.2 percent vs 1.5 percent in Q3) and government spending (1.8 percent vs 2.0 percent) and a negative contribution from net external demand. Still, fixed investment rose at a faster pace (6.3 percent vs 3.2 percent). Considering 2019 full year, the Eurozone economy grew by 1.2 percent, the least since 2013.
Quarter-over-Quarter GDP growth
The Eurozone quarterly economic growth was confirmed at 0.1 percent in the last three months of 2019, the weakest since a contraction was recorded in early 2013. Household consumption rose at a softer pace (0.1 percent vs 0.5 percent in Q3) as well as public spending (0.3 percent vs 0.6 percent), while net external demand contributed negatively to the GDP, with imports climbing 2.2 percent (vs -1.3 percent in Q3) and exports advancing 0.4 percent (vs 0.6 percent in Q3). On a more positive note, fixed investment jumped 4.2 percent, recovering from a 3.8 percent contraction in the previous period. Among the bloc's largest economies, Spain's GDP growth picked up, while Germany's economy stalled and France and Italy fell into recession.
Annualized Inflation
The Eurozone inflation rate is expected to slow to 1.2 percent year-on-year in February 2020 from a nine-month low of 1.4 percent in the previous month, due to a decline in energy prices (-0.3 percent vs 1.9 percent). On the other hand, prices should rise at a faster pace for services (1.6 percent vs 1.5 percent), non-energy industrial goods (0.5 percent vs 0.3 percent) and food, alcohol & tobacco (2.2 percent vs 2.1 percent). The annual core inflation, which excludes volatile prices of energy, food, alcohol & tobacco and at which the ECB looks in its policy decisions, is likely to pick up to 1.2 percent from 1.1 percent.
Japan Economic Growth & Inflation
Year-over-Year GDP growth
The Gross Domestic Product (GDP) in Japan contracted 0.70 percent in the fourth quarter of 2019 over the same quarter of the previous year. Japan GDP Annual Growth Rate - values, historical data and charts - was last updated on March of 2020.
Quarter-over-Quarter GDP growth
The Japanese economy shrank 1.8 percent on quarter in the three months to December 2019, compared to the preliminary estimate of a 1.6 percent contraction and market consensus of a 1.7 percent decline. This was the steepest GDP fall since the second quarter of 2014, as private consumption went down 2.8 percent, following October's sales tax hike. In addition, business spending tumbled 4.6 percent, the most since the first quarter of 2009, while government spending rose 0.2 percent, the least in three quarter, and public investment growth eased to a year low of 0.7 percent. Meanwhile, net external demand added 0.5 percentage points to growth as exports fell less than imports.
Annualized Inflation
Japan's consumer price inflation unexpectedly fell to 0.4% yoy in February 2020 from 0.7% in the previous month, below market consensus of 0.8%. This was the lowest inflation rate since last October, as prices went up less for furniture & household utensils (2.1% vs 2.7% in January), culture & recreation (1.1% vs 2.1%), medical care (0.7% vs 0.8%), and transport & communication (1.4% vs 1.7%), reflecting decreases in crude oil prices. In addition, fuel, light & water charges, education and miscellaneous goods & services remained in deflationary territory. Meanwhile, inflation was unchanged for both food (at 1.2%) and housing (at 0.8%), while prices rose faster for clothes & footwear (1.3% vs 1.1%). On a monthly basis, consumer prices dropped 0.1%, after being unchanged in January. The annual core inflation rate, which excludes fresh food, fell to 0.6% from 0.8% remaining well below the Bank of Japan's 2% target.
China Economic Growth & Inflation
Year-over-Year GDP growth
The Chinese economy advanced 6.0 percent year-on-year in the September quarter of 2019, slowing from a 6.2 percent expansion in the previous quarter and compared with market expectations of 6.1 percent. It was the weakest growth rate since the first quarter of 1992, amid persistent trade tensions with the US, weakening global demand and alarming off-balance-sheet borrowings by local governments. GDP Annual Growth Rate in China averaged 9.39 percent from 1989 until 2019, reaching an all time high of 15.40 percent in the first quarter of 1993 and a record low of 3.80 percent in the fourth quarter of 1990.
Quarter-over-Quarter GDP growth
The Chinese economy expanded by a seasonally adjusted 1.5 percent on quarter in the three months to September 2019, following a 1.6 percent growth in the previous period and matching market consensus. GDP Growth Rate in China averaged 1.77 percent from 2010 until 2019, reaching an all time high of 2.40 percent in the first quarter of 2011 and a record low of 1.40 percent in the first quarter of 2016.
Annualized Inflation
China's annual inflation rate fell to 5.2 percent in February 2020 from an over eight-year high of 5.4 percent in January, as non-food prices rose at a softer pace due to clothing (0.5 percent vs 0.6 percent), rent, fuel & utilities (0.3 percent vs 0.5 percent), household goods & services (0.1 percent vs 0.2 percent), education, culture & recreation (1.0 percent vs 2.2 percent), healthcare (2.2 percent vs 2.3 percent) and other goods and services (4.4 percent vs 4.8 percent). In addition, transport & communication prices fell 1.6 percent (vs 0.9 percent in January). Meanwhile, food prices surged 21.9 percent, the most since April 2008, with pork prices rising at a steeper rate (135.2 percent vs 116 percent). Pork prices have been rising amid a prolonged African swine fever epidemic and some lock-downs and transport restrictions on the back of a virus outbreak. On a monthly basis, consumer prices rose 0.8 percent, much slower than a 1.4 percent gain in January.
Valuation Model
The Valuation model improved to YELLOW on the recent equity market collapse associated with COVID-19. We continue to update forecasts from a number of historically reliable sources (see section titled "Market Valuation"). Long term equity returns vary inversely with market valuation and at current price levels forward returns will be much lower than historical average returns (projected to be approximately 4% per year ex-inflation over the next 10 years).
Technical Model
The Technical model remained RED this past week. Global equity markets were near their most recent peak but the recent COVID-19 panic has substantially altered the technical picture.
Sentiment Model
The Sentiment model remained GREEN this week on the back of a negative sentiment among retail and institutional investors (sentiment acts as an inverse trading indicator).
Economic Stress Model
The U.S. Economic Stress model remained YELLOW this week with increasing U.S. financial stress associated with COVID-19. Our 1 year forward U.S. recession indicators for the U.S. both the U.S. and International have now reverted to "High Risk".
World Bond Asset Class Return Monitor
We use the following U.S. exchange traded funds to monitor bond performance for the various bond asset classes:
Total Market Bond Basket:
- U.S. Total Bond Market (BND): (Red)
- International (ex-U.S.) Total Bond Market (BNDX): (Blue)
- U.S. Gov't Treasury Bonds (GOVT): (Orange)
- Foreign Developed Market Gov't Treasury Bonds (BWX): (Pink)
- U.S. Corporate Bond (LQD): (Maroon)
- International Corporate Bond (PICB): (Black)
- U.S. High Yield Bond (JNK): (Purple)
- International High Yield Bond (IHY): (Green)
- U.S. Gov't Inflation Protected Bonds (TIP): (Lime Green)
- International Gov't Inflation-Protected Bond (WIP): (Cyan)
1 Year Rolling Bond Performance
- Over the past 12 months rolling period the top performing bond asset class has been U.S. Treasury Bonds with Int'l High Yield Bonds the worst performing.
- The U.S. Total Bond Market (RED) and the International (ex-U.S.) Total Bond Market (BLUE) have delivered positive returns over the past year.
3 Month Rolling Bond Performance
- Over the past 3 month rolling period the top performing bond asset class has been U.S. Treasury Bonds with Int'l High Yield Bonds lagging.
- U.S. Total Bond Market (RED) and International (ex-U.S.) Total Bond Market (BLUE) having delivered mixed returns over the past quarter (3 months).
1 Month Rolling Bond Performance
- Over the past 1 month rolling period the top performing bond asset class has been U.S.Treasury Bonds with Int'l High Yield Bonds lagging.
- The U.S. Total Bond Market (RED) and the International (ex-U.S.) Total Bond Market (BLUE) have delivered negative returns over the past month.
Past Week Bond Asset Class Performance
- Over the past week U.S. Corporate Bonds were the top performing bond class with U.S. Treasury bonds lagging.
- The U.S. Total Bond Market (RED) and the International (ex-U.S.) Total Bond Market (BLUE) delivered higher returns over the past week.
Commentary:
It has been shown in repeated studies over many years a balanced portfolio consisting of both equities and bonds (with percentage holdings in each adjusted according to personal risk tolerances) remains the best methodology in managing a long term retirement portfolio (due to the independent/low correlated function each takes when navigating though various market cycles and economic conditions).
It is best to think of bonds and equities as 2 independent brains each looking at the market from a different perspective:
As such, both serve a useful purpose in a well balanced portfolio.
Bonds delivered flat returns throughout 2018 as rising inflation and strong growth persisted. However, recent economic weakness and subdued inflation had been favorable for both U.S. and International bonds throughout all of 2019 and into early 2020 (until this past weeks COVID-19 panic selling).
We are very cognizant of the fact bond yields remain at generational lows (bond prices overbought and at generational highs) and any significant economic recovery (with associated increases in inflation) has the potential to be very detrimental to bond fund returns. There is currently over $12 Trillion in negative yielding bonds globally (never before seen in 5000 years of history) so any sudden surge in global growth and/or inflation will have a devastating impact upon bond fund returns (hence the reason we place so much research into global macroeconomic conditions).
Rolling 12 month returns for bonds remain positive and we continue to monitoring closely US, German & Japanese rates to determine if (when) it may be appropriate to reduce bond positions. Our premise is these 3 bonds tend to be somewhat "tethered" due to capital flows so it would take a trend-change/breakout in all 3 key Treasuries in order to definitively state the global bull market in bonds is over.
It is best to think of bonds and equities as 2 independent brains each looking at the market from a different perspective:
- Equities: Corporate profits focused.
- Bonds: Economic growth and Inflation focused.
As such, both serve a useful purpose in a well balanced portfolio.
Bonds delivered flat returns throughout 2018 as rising inflation and strong growth persisted. However, recent economic weakness and subdued inflation had been favorable for both U.S. and International bonds throughout all of 2019 and into early 2020 (until this past weeks COVID-19 panic selling).
We are very cognizant of the fact bond yields remain at generational lows (bond prices overbought and at generational highs) and any significant economic recovery (with associated increases in inflation) has the potential to be very detrimental to bond fund returns. There is currently over $12 Trillion in negative yielding bonds globally (never before seen in 5000 years of history) so any sudden surge in global growth and/or inflation will have a devastating impact upon bond fund returns (hence the reason we place so much research into global macroeconomic conditions).
Rolling 12 month returns for bonds remain positive and we continue to monitoring closely US, German & Japanese rates to determine if (when) it may be appropriate to reduce bond positions. Our premise is these 3 bonds tend to be somewhat "tethered" due to capital flows so it would take a trend-change/breakout in all 3 key Treasuries in order to definitively state the global bull market in bonds is over.
ETF Bond Proxies
The current very strong bond bull market began 08 Nov 2018. Below is the performance of the 3 ETF's we use as "bond proxies" to monitor global bond performance:
- BNDW: Vanguard Total World Bond market ETF (BLUE)
- BND: Vanguard Total U.S. Bond market ETF (GREEN)
- BNDX: Vanguard Total International (ex-U.S.) Bond market ETF (RED)
Global bonds gained +3.38% over the past week. The recent lows will now become the benchmark lows we will be watching closely next week.
U.S. 10 year Treasury Yield
After rates bottomed in mid-2016 at all time lows (bond prices peaked as they are inversely correlated), they rapidly rose to resistance on the hope of future economic growth + inflation from mid-2016 to the 3rd quarter of 2018. However, disappointing economic data out of the U.S. has allowed rates to plunge once gain and have now set new record all-time yield lows.
German 10 year Bund Yield
German 10 year treasury yields peaked in early 2018 and plunged over the past 2 years to record all-time-lows of -0.72% on the back of recessionary economic conditions within the German economy. They have since rebounded but remain below resistance @ -0.19%.
Japanese 10 year Treasury Yield
Japan has been fighting deflation for decades and only recent unprecedented monetary policy by the BOJ appears to be having some effect upon deflation (and yields).
After bottoming at near -0.28% in mid-2016, yields rose to a peak of 0.16% before they once again plunged in 2019 to once again retest -0.28%. They have since bounced dramatically on the back of renewed hope the worst of Japan's economic woes may be behind it.
After bottoming at near -0.28% in mid-2016, yields rose to a peak of 0.16% before they once again plunged in 2019 to once again retest -0.28%. They have since bounced dramatically on the back of renewed hope the worst of Japan's economic woes may be behind it.
U.S. 30 year Treasury Yield
An extremely important longer-term chart we continue to watch is the yield on the U.S. 30 year treasury relative to its 100 month exponential moving average (red dotted line on the below chart going back to 1980) as well as the yield on the 10 year treasury with its 115 month EMA. As can be seen below, since the mid 1980's these moving average have acted as a cap on each attempted increase in yields.
Should any given month close with a yield higher than their respective moving average it would be strong confirmation the 35 year bull market in bonds is likely over.
* Note as of the end of Nov 2018 both the 30 year Treasury (top chart) and 10 year yield (bottom chart) closed above its long term moving average but have been unable to hold the breakout. We will continue to monitor this through 2020.
Should any given month close with a yield higher than their respective moving average it would be strong confirmation the 35 year bull market in bonds is likely over.
* Note as of the end of Nov 2018 both the 30 year Treasury (top chart) and 10 year yield (bottom chart) closed above its long term moving average but have been unable to hold the breakout. We will continue to monitor this through 2020.
Currencies
Below is the 12/3/1 month and weekly rolling returns for the 6 currencies that make up the U.S. Dollar index. The U.S. Dollar index is a weighted geometric mean of the dollar's value relative to the 6 currencies in the following list:
In addition, we also include the following for comparison purposes:
- Euro (EUR), 57.6% weight.
- Japanese yen (JPY) 13.6% weight.
- U.K. Pound sterling (GBP), 11.9% weight.
- Canadian dollar (CAD), 9.1% weight.
- Swedish krona (SEK), 4.2% weight.
- Swiss franc (CHF) 3.6% weight.
In addition, we also include the following for comparison purposes:
- The U.S. Dollar Index to allow comparison to its constituents.
- The Australian Dollar (not a part of the USD Index) as it is a popular commodity currency.
- Gold (priced in USD) as it typically acts more like a currency void of fiat printing.
1 Year Rolling Currency Performance
- Over the past 12 months rolling period the top performing major currency has been Gold with the Australian Dollar the worst performing.
3 Month Rolling Currency Performance
- Over the past 3 month rolling period the top performing currency has been Gold with the Australian Dollar lagging.
1 Month Rolling Currency Performance
- Over the past 1 month rolling period the top performing currency has been the Swiss Franc with the Australian Dollar lagging.
Past Week Currency Performance
- Over the past week the top performing major currency was Gold with the U.S. Dollar lagging.
U.S. Dollar: (Bullish Bias)
Commentary:
The USD index was down -4.80% over the past week. It has been very strong over the past several weeks (since the COVID-19 outbreak) as demand for dollars globally during the current deleveraging process outpaces demand in every other major currency.
Support / Resistance Levels (based upon close):
Weekly: 95.67 / 99.10
Monthly: 98.66 / 102.29
Support / Resistance Levels (based upon close):
Weekly: 95.67 / 99.10
Monthly: 98.66 / 102.29
US Dollar Index Daily charts
The 1 year daily chart (above) shows the range-bound chop between 95-99 for the past year. At weeks end the USD closed below the short term daily support @ 99.02 and has broken back into its 1 year trading range.
The 4 year daily chart (above) clearly shows the important daily close resistance for the USD over the past 3 years @ @ 97.21-98.43. Major daily support remains @ 95.07-95.28.
Over the past week the USD closed above its short term trend 50 and 200 day moving averages.
(Short Term Bullish)
(Short Term Bullish)
US Dollar Index Weekly charts
The weekly chart shows the steady -15% decline the USD index experienced from late Dec 2016-early Jan 2018 (from 103.82 to 88.15). It remained in a consolidation zone (88.89-90.33) for 3 months and then in late April 2018 it broke out of its weekly consolidation box into its current uptrend.
Price ended the week above support @ 98.86-99.19 and challenging resistance @ 102.95. It closed the week above the intermediate term trend 20 and 65 week moving averages.
(Intermediate Term Bullish)
Price ended the week above support @ 98.86-99.19 and challenging resistance @ 102.95. It closed the week above the intermediate term trend 20 and 65 week moving averages.
(Intermediate Term Bullish)
A longer term 20 year look-back at the USD shows the 91.66-92.33 weekly close area (thick RED line) has been a very significant bull/bear battle zone over the past 21 years (since 1998). It continues to hold the uptrend line from the 2011 bottom and appears to be within a large multi-year bullish ascending price channel.
US Dollar Index Monthly chart
For the month of March the U.S. Dollar index has gained +0.46%. Since bottoming in late 2011 the USD has been on a roller-coaster ride. It experienced:
Price closed February above the long term trend 10 month moving average returning the long term bias to Bullish until months end. It is attempting to break out of its past 3 year range (above 102.29) and remains above the previous monthly support @ 98.66-100.21.
(Long Term Bullish)
- a large acceleration in 2014-2015 (+27%),
- a consolidation in 2015-2017,
- a large drop in 2017-2018 (-15%) back to support and its uptrend line from 2011, and
- its recent rise back to the top of its previous consolidation zone.
Price closed February above the long term trend 10 month moving average returning the long term bias to Bullish until months end. It is attempting to break out of its past 3 year range (above 102.29) and remains above the previous monthly support @ 98.66-100.21.
(Long Term Bullish)
Euro (Bearish Bias)
The Euro gained +3.75% over the past week. It had shown remarkable longer-term resilience given ongoing European political uncertainty (Brexit, Spain, Germany, Italy) but has weakened since early 2018 due to eroding economic growth metrics out of the EU and the flight to USD safety trade associated with COVID-19.
Support / Resistance Levels (based upon close):
Weekly: 107.99 / 111.75
Monthly: 105.252 /108.99
Support / Resistance Levels (based upon close):
Weekly: 107.99 / 111.75
Monthly: 105.252 /108.99
Euro Daily Charts
The Euro topped out in early 2018 @ 125.10 and has been on a steady decline since. It remained confined to a down-trending price channel established in late 2018 but broke the downtrend recently.
On the 2nd daily chart price it can be seen how important the yellow band daily resistance zone @ 114.61-116.04 is going back to 2015. It remains below this key resistance level and closed the week above the short term trend 50 and 200 day moving averages.
(Short Term Bullish)
On the 2nd daily chart price it can be seen how important the yellow band daily resistance zone @ 114.61-116.04 is going back to 2015. It remains below this key resistance level and closed the week above the short term trend 50 and 200 day moving averages.
(Short Term Bullish)
Euro Weekly Chart
The weekly chart shows the Euro's steady decline from its early 2018 peak. It found support @ 107.99-108.46, recently bounced up towards resistance @ 114.47-114.62, and is now retesting support.
This past week the Euro closed the week between the intermediate trend 20 week + 65 week moving averages moving the intermediate trend to neutral.
(Intermediate Term Neutral)
This past week the Euro closed the week between the intermediate trend 20 week + 65 week moving averages moving the intermediate trend to neutral.
(Intermediate Term Neutral)
Euro Monthly
For the month of March the Euro has gained +1.13%. On a monthly closing basis it closed the month of February below the long term trend 10 month moving average maintaining the long term outlook bearish until months end. It is now testing monthly support @ 108.99.
(Long Term Bearish)
(Long Term Bearish)
UK Pound (Bearish Bias)
U.K. Pound Daily Charts
U.K. Pound Weekly Chart
U.K. Pound Monthly Chart
The British Pound gained +6.81% over the past week. Clearly the ongoing Brexit saga will continue to weigh heavily upon cable's performance over the next several years but now COVID-19 has added to the extreme volatility.
Critical levels to watch on the Pound remain the respective weekly and monthly reactionary closing prices following the Brexit vote in June 2016:
This past week the Pound closed the week below its short term trend daily 50 +200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. For the month of March it has lost -2.85% and closed the month of February above its long term 10 month moving average (which technically keeps the long term bullish until months end).
(Short Term Bearish)
(Intermediate Term Bearish)
(Long Term Bullish)
Support / Resistance Levels (based upon close):
Weekly: 121.54 /127.34
Monthly: 122.43 /125.76
Critical levels to watch on the Pound remain the respective weekly and monthly reactionary closing prices following the Brexit vote in June 2016:
- 136.76 weekly close (weekly close 20 June 2016 following vote results)
- 133.09 monthly close (monthly close 30 June 2016 following vote results)
This past week the Pound closed the week below its short term trend daily 50 +200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. For the month of March it has lost -2.85% and closed the month of February above its long term 10 month moving average (which technically keeps the long term bullish until months end).
(Short Term Bearish)
(Intermediate Term Bearish)
(Long Term Bullish)
Support / Resistance Levels (based upon close):
Weekly: 121.54 /127.34
Monthly: 122.43 /125.76
Australian Dollar (Bearish Bias)
Australian Dollar Daily Chart
Australian Dollar Weekly Chart(s)
Australian Dollar Monthly Chart
The Australian Dollar gained +6.35% over the past week and continues to be the weakest major currency. It has lost -44% from its 2011 peak and continues to set new 12 year lows.
For the month of March the Aussie dollar has lost -5.23%. It closed the week below the short term trend 50 + 200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. It closed the month of February below the long term trend 10 month moving average keeping the long term outlook bearish until months end.
(Short Term Bearish)
(Intermediate Term Bearish)
(Long Term Bearish)
Support / Resistance Levels (based upon close):
Weekly: 57.17 / 63.58
Monthly: 63.58 / 70.17
For the month of March the Aussie dollar has lost -5.23%. It closed the week below the short term trend 50 + 200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. It closed the month of February below the long term trend 10 month moving average keeping the long term outlook bearish until months end.
(Short Term Bearish)
(Intermediate Term Bearish)
(Long Term Bearish)
Support / Resistance Levels (based upon close):
Weekly: 57.17 / 63.58
Monthly: 63.58 / 70.17
Canadian Dollar (Bearish Bias)
Canadian Dollar Daily Chart
Canadian Dollar Weekly Chart
Canadian Dollar Monthly Chart
The Canadian dollar gained +3.52% over the past week. After topping in Aug, 2017, the Canadian Dollar had remained within a firmly established downtrend. It attempted to base throughout 2019 but the COVID-19 outbreak (its effect upon commodity prices) has threatened to alter the recent basing price action.
The Loonie closed the week below the short term trend 50 + 200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. For the month of March the Loonie has lost -3.78%. It continues to attempt to consolidate near recent lows and closed the month of January below the long term trend 10 month moving average changing the long term to bearish until months end.
(Short Term Bearish)
(Intermediate Term Bearish)
(Long Term Bearish)
Support / Resistance Levels (based upon close)
Weekly: 68.79 / 72.96
Monthly: 71.15 / 73.51
The Loonie closed the week below the short term trend 50 + 200 day moving averages and below the intermediate term trend 20 + 65 week moving averages. For the month of March the Loonie has lost -3.78%. It continues to attempt to consolidate near recent lows and closed the month of January below the long term trend 10 month moving average changing the long term to bearish until months end.
(Short Term Bearish)
(Intermediate Term Bearish)
(Long Term Bearish)
Support / Resistance Levels (based upon close)
Weekly: 68.79 / 72.96
Monthly: 71.15 / 73.51
Key Weekly Returns (week ending 27 March 2020):
|
Countries/Regions
World Equities ACWI (iShares MSCI ACWI Index Fund) North American Equities SPY (S&P 500 SPDRs) QQQ (PowerShares QQQ Trust) IWM (Russell 2000 iShares) EWC (Canada iShares) |
Characteristics
World Equity Fund U.S. Large Cap S&P 500 Index U.S. NASDAQ 100 Fund U.S. Russell 2000 Small Cap Fund Canada |
Week % Change
+11.52% +10.76% +8.80% +11.44% +10.13% |
Non-North America Equities
|
VGK (Vanguard European VIPERs) EPP (iShares MSCI Pacific ex-Japan ) EWJ (Japan iShares) EEM (iShares MSCI Emerging Markets) ILF (Latin America 40 Index iShares) Bonds
BND (Vanguard Total U.S. Bond Market) BNDX (Vanguard International Bond ETF) TIP (iShares Barclays TIPS Bond Fund) PCY (PowerShares Emerging Markets Debt Portfolio) |
Europe/U.K Pacific ex-Japan (inc. Australia + NZ) Japan Emerging Markets Latin America US Total Bond (44% Gov't Tsy, 56%Corp) World Investment Grade Bonds ex-US Inflation Protected Gov't Bonds Emerging Market Sovereign Debt |
+14.20% +6.97% +11.24% +6.25% +6.59% +4.73% +2.04% +3.79% +10.35% |
|
Commodities
DBC (DB Commodities Tracking Index Fund) DBA (PowerShares DB Agriculture Fund) GLD (SPDR Gold Trust Shares) SLV (iShares Silver Trust) DBB (PowerShares Metals Fund) USO (United States Oil Fund) |
Commodity Basket Soft Commodity Basket Gold Bullion Silver Bullion Industrial Metals Light Crude Oil |
+4.39% +1.00% +8.66% +15.66% +0.90% -9.51% |
Currencies
|
UUP (PowerShares DB US Dollar Bullish Fund)
FXA (Currency Shares Australian Dollar Trust) FXB (Currency Shares British Pound Sterling Trust) FXC (Currency Shares Canadian Dollar Trust) FXE (Currency Shares Euro Trust) FXY (Currency Shares Japanese Yen Trust) |
U.S. Dollar
Australian Dollar U.K. Sterling Canadian Dollar Euro Japanese Yen |
-4.57%
+6.41% +7.60% +3.03% +4.22% +3.07% |
Important Charts to Watch
Commodity Basket Index
For the past 4 years the deflationary debt overhang has gripped world economies and equity markets have run up on the "hope" a return to world growth would begin soon. This would typically be reflected in a rise in commodity prices.
Commodities (as measured by the Reuters/Jefferies CRB index, a basket of 19 commodities) bottomed in early 2016 (along with equities) and had been on a gradual rise. However, they have collapsed due to the COVID-19 situation. In order to confirm world growth is firming we would like to see commodities moving higher.
This past week price closed the week below the strong support @ 167.74-168.61 and below the early 2016 closing lows @ 160.36.
Commodities (as measured by the Reuters/Jefferies CRB index, a basket of 19 commodities) bottomed in early 2016 (along with equities) and had been on a gradual rise. However, they have collapsed due to the COVID-19 situation. In order to confirm world growth is firming we would like to see commodities moving higher.
This past week price closed the week below the strong support @ 167.74-168.61 and below the early 2016 closing lows @ 160.36.
Equity Market Volatility
The Volatility Index (VIX) is a measure of expected price fluctuations of options on the S&P 500 index options over the next 30 days (technically the VIX is quoted in percentage points and represents the expected range of movement in the S&P 500 index over the next year, at a 68% confidence level i.e. one standard deviation of the normal probability curve). For example, if the VIX is 15, this represents an expected annualized change, with a 68% probability, of less than 15% up or down.
The VXV uses the same calculation but looks forward 3 months. When the VIX is greater than the VXV ($VIX:$VXV ratio > 1.0) the volatility structure is termed to be in "contango". It indicates traders are much more concerned about short term volatility than they are about longer term volatility and when that ratio returns to "normal" (< 0.93) it is typically a good sign market stress is easing (and a good time to add to equity positions).
As of this weeks market close volatility closed above the "VIX Trigger Event" area with the VIX above 16. The volatility structure is currently bearish for equities.
The VXV uses the same calculation but looks forward 3 months. When the VIX is greater than the VXV ($VIX:$VXV ratio > 1.0) the volatility structure is termed to be in "contango". It indicates traders are much more concerned about short term volatility than they are about longer term volatility and when that ratio returns to "normal" (< 0.93) it is typically a good sign market stress is easing (and a good time to add to equity positions).
As of this weeks market close volatility closed above the "VIX Trigger Event" area with the VIX above 16. The volatility structure is currently bearish for equities.
European Banks
Since the 2009 market bottom Europe has been the weakest major equity growth region. As such, we continue to remain concerned about European financial stocks (represented below using the iShares MSCI European Financials ETF).
Of particular concern is Deutsche Bank which remains near 12 year lows (down over 95% from its 2007 peak!) DB has a massive derivatives exposure (currently estimated at $40T notional with net exposure near $100B) and should they be put forced into a position whereby they need to restructure it could potentially lead to a catastrophic ripple effects worldwide.
They announced a significant restructuring effort in the 2nd week of July, 2019 so we are keenly monitoring their price performance into 2020 (now at new record lows).
Chinese Equities
The Shanghai Composite index was lower this past week and remains below the downtrend line from the most recent 2019 market peak (red dotted line). It continues to oscillate between support @ 2715-2820 and resistance @ 3050-3147.
Chinese growth remains key to both Emerging market performance as well as an indication of Developed markets demand. From its peak in mid-2015, the Shanghai index lost more than -50% to its recent lows. We would like to see significant strength return to China further indicating world economic growth has positively turned the corner but the recent coronavirus outbreak puts this in doubt.
Chinese growth remains key to both Emerging market performance as well as an indication of Developed markets demand. From its peak in mid-2015, the Shanghai index lost more than -50% to its recent lows. We would like to see significant strength return to China further indicating world economic growth has positively turned the corner but the recent coronavirus outbreak puts this in doubt.
PRECIOUS METALS
Precious metals (and their respective producers) remain an area we recommend all investors have at least a small position within at present. Precious metals perform well during times when real (inflation adjusted) interest rates are falling and/or when the USD is weak. Real global rates continue to fall (acting as a tailwind to PM's) while the USD has been strong (acting as a headwind to PM's). As such, PM's have risen but not at the rate they might once the USD reverses direction (something we expect may be forthcoming soon).
Below is a ratio price chart of gold stocks (HUI; the "Gold Bugs" Index) to gold bullion going back to 1996 when the HUI first came into existence. As can be seen, whenever the HUI:GOLD ratio dips to below approximately 0.14 (the GREEN zone on the chart) has been a low-risk opportunity to purchase gold stocks.
This past week gold stocks remained near the deep "low-risk vs. high-reward" range and remain near their cheapest valuations in 22 years. Historically purchases of gold equities when within this range have been a very good long term buying opportunities and it now appears gold stocks are attempting to play "catch-up" to the price of bullion.
This past week gold stocks remained near the deep "low-risk vs. high-reward" range and remain near their cheapest valuations in 22 years. Historically purchases of gold equities when within this range have been a very good long term buying opportunities and it now appears gold stocks are attempting to play "catch-up" to the price of bullion.
Even more bullish is Silver (chart below) which remains at a price ratio relative to the price of gold (GREEN zone on the chart < .0130) which has historically been a low risk entry point over the past 38 years.
Silver remains near at its "cheapest" price since 2008 and 1995 (chart circles). Both previous moves to this ratio led to large silver price gains.
To put the valuation into a longer term perspective, below is a chart of the Gold/Silver ratio (the opposite ratio to Silver/Gold) going back to 1687. Clearly it can be seen a gold:silver ratio > 80 has historically been an outlier over the past 100+ years (and greater than 100 is historic):
The current Gold:Silver ratio has now exceeded 100 and above 40 year highs. It can be seen each instance in the past 40 years where the ratio has crossed above 80 has resulted in very good long term gains in silver.
There is no guarantee the ratio will not go higher (allowing for further silver losses or range bound trade as in 1991-1994) but it is now at a level that deserves attention (cautious traders may want to wait for a reversal < 80 to avoid a potential range bound episode as the 1990's)
EVEN MORE BULLISH is the price of Platinum (chart below) which has exceeded the "buy zone" last seen in 1982! Platinum is 15-20 times rarer than gold and has rarely in history traded at a price below the price of gold (only 9.7% of the time going back to 1971). It is now the cheapest it has been GOING BACK TO AUGUST 1971 WHEN THE U.S. LEFT THE GOLD STANDARD on a relative basis:
- The current Platinum:Gold ratio remains well below 0.85 (red line on the chart below).
- A Platinum/Gold ratio < 0.85 has only occurred 4.7% of the time back to 1971.
- Prior to recent lows, the lowest Platinum:Gold ratio since August 1971 (when the USD was removed from the gold standard) was hit on 20 Sept 1982 when it hit a ratio low of 0.689 (Platinum $300.40/Gold $436.00).
- If Platinum were to return to its most common ratio relative to Gold (1.0x-1.25x which has been common 35% of the time) it would imply a price rise of approximately 50-90% from recent levels.
Platinum now sits on a price support extending back to 2004 and, combined with its ratio relative to the price of gold, represents a compelling long term buy point.
The following charts and commentary (in italics; bold print is our emphasis) are sourced from Kitco from commentary sourced in Feb 2017 when the ratio was near 0.85 (Platinum has become even cheaper on a relative basis since the data was published):
Platinum to gold ratios show wide variance over the 46 year period ranging from highs above 2.5 before and soon after Nixon began taking the United States off the gold standard to periodic lows below 1.0:
Platinum to gold ratios show wide variance over the 46 year period ranging from highs above 2.5 before and soon after Nixon began taking the United States off the gold standard to periodic lows below 1.0:
Our data set covers 553 months beginning in January 1971. The distribution of ratios in both tabular and chart format follows:
Platinum/Gold Ratio: % of Months
Platinum/Gold Ratio: % of Months
- < 0.85: 4.7%
- .85-1.01: 5.0%
- 1.0-1.25: 34.7%
- 1.25-1.5: 19.3%
- 1.5-2.0: 15.4%
- 2.0-2.5: 8.9%
- > 2.5: 2.0%
From our data set and the distributions of monthly average platinum-gold ratios from January 1971 thru January 2017, I glean the following:
From a compendium of sources, the average crustal abundance of both metals is around 4 ppb. Based solely on this fact, platinum and gold should trade at about the same price.
And indeed, our compilation shows that for nearly 50% of the time since gold was decoupled from the world’s reserve currency and allowed to trade freely on exchanges, the price ratio has ranged from 0.85 to 1.25. That said, since January 1971, the average price of platinum has been $637/oz and gold has been $518/oz for an overall ratio of 1.23:1. Clearly there are other factors other than the nearly equal crustal abundances that account for this historic price relationship.
A variety of supply and demand factors cause platinum to trade at a premium to gold:
Fluctuations in the relative prices of platinum and gold are largely driven by:
Platinum functions both as a precious and industrial metal. It is usually tied to the price of gold in both short- and long-term trading patterns. In times of financial distress and economic turmoil, platinum tends to behave more like gold with widespread hoarding.
The platinum-gold ratio can be used to ascertain whether one metal is over- or undervalued with respect to the other. The current monthly average ratio below 0.85 is unusual and indicates that platinum is severely undervalued with respect to gold *
* The ratio recently hit 0.55 and remains near a record low.
- A ratio of less than 0.75 is a single outlier that occurred once during the second half of 1982 when overall ratios averaged 0.81.
- Ratios <0.85 are quite unusual at 4.7%. They occurred for two months in the first quarter of 1975, the aforementioned six months in 1982, in June-July of 1985, and for an ongoing run of 16 months that commenced in October 2015.
- Ratios from 0.85 to 1.0 constitute 15.0% of the record.
- Pt:Au from 1.0 to 1.25 is the most common range and comprises 34.7% of ratios since 1971.
- The ratios between 1.25 and 1.5 occur 19.3% of the time.
- Ratios from 1.5 to 2.0 make up 15.4% of the record.
- The 2.0-2.5 interval covers 8.9% of the months in our compendium.
- The 11 monthly outliers at >2.5 comprise 2.0% of the total record and have not occurred since 1971.
From a compendium of sources, the average crustal abundance of both metals is around 4 ppb. Based solely on this fact, platinum and gold should trade at about the same price.
And indeed, our compilation shows that for nearly 50% of the time since gold was decoupled from the world’s reserve currency and allowed to trade freely on exchanges, the price ratio has ranged from 0.85 to 1.25. That said, since January 1971, the average price of platinum has been $637/oz and gold has been $518/oz for an overall ratio of 1.23:1. Clearly there are other factors other than the nearly equal crustal abundances that account for this historic price relationship.
A variety of supply and demand factors cause platinum to trade at a premium to gold:
- Platinum is a much smaller market. Cumulative world production of platinum is estimated to be about 5% of gold (9400 tonnes versus 182,000 tonnes). From 1994-2014, 3700 tonnes of platinum were mined versus 52,600 tonnes of gold or about 7% (source: USGS).
- Platinum is largely an industrial metal. Catalytic converters, electronics, petroleum and chemical catalysts, medical technologies, and many minor uses constitute over 60% of its annual demand. Around 30% is used in jewelry and 10% for investment demand. Also, 30% of the annual platinum supply now comes from recycling, mostly from catalytic converters. Some demand is consumed and lost to the marketplace.
- Gold is overwhelmingly a precious metal; 90% is used in jewelry and investments and only 10% in industrial applications. An estimated 98% of all the gold ever mined in the world remains available and held in jewelry, by central banks, in private hoards, and as fabricated products (source: USGS).
- About 70% of yearly platinum mine supply comes from South Africa, a geopolitically risky country. Much new platinum is a by-product of nickel-copper mining and smelting; therefore, annual platinum production is dependent on the supply-demand fundamentals and prices of these primary metals.
Fluctuations in the relative prices of platinum and gold are largely driven by:
- the overall growth and health of the world’s economy and in the case of platinum, the automotive industry;
- labor, power, currency, and political issues in South Africa that cause major perturbations in the platinum supply;
- safe haven hoarding of gold and to a much lesser extent, platinum, in times of economic uncertainty and major geopolitical events; speculators moving in and out of paper markets of both metals (bullion exchanges, ETFs, and derivatives) and to a lesser extent, central bank trading of physical gold.
Platinum functions both as a precious and industrial metal. It is usually tied to the price of gold in both short- and long-term trading patterns. In times of financial distress and economic turmoil, platinum tends to behave more like gold with widespread hoarding.
The platinum-gold ratio can be used to ascertain whether one metal is over- or undervalued with respect to the other. The current monthly average ratio below 0.85 is unusual and indicates that platinum is severely undervalued with respect to gold *
* The ratio recently hit 0.55 and remains near a record low.
Elliott Wave
We use Elliott Wave theory in conjunction with cycle analysis to attempt to "crystal ball" what to expect going forward. We have included some basic information below for those who might be interested followed by our current interpretation/analysis.
The Elliott wave principle is a form of technical analysis that some traders use to analyze financial market cycles and forecast market trends by identifying extremes in investor psychology, highs and lows in prices, and other collective factors. Ralph Nelson Elliott (1871–1948), a professional accountant, discovered the underlying social principles and developed the analytical tools in the 1930s. He proposed that market prices unfold in specific patterns, which practitioners today call Elliott waves, or simply waves. Elliott published his theory of market behavior in the book The Wave Principle in 1938, summarized it in a series of articles in Financial World magazine in 1939, and covered it most comprehensively in his final major work, Nature’s Laws: The Secret of the Universe in 1946. Elliott stated that "because man is subject to rhythmical procedure, calculations having to do with his activities can be projected far into the future with a justification and certainty heretofore unattainable."
The Elliott Wave Principle posits that collective investor psychology, or crowd psychology, moves between optimism and pessimism in natural sequences. These mood swings create patterns evidenced in the price movements of markets at every degree of trend or time scale.
In Elliott's model, market prices alternate between an impulsive, or motive phase, and a corrective phase on all time scales of trend, as the illustration shows. Impulses are always subdivided into a set of 5 lower-degree waves, alternating again between motive and corrective character, so that waves 1, 3, and 5 are impulses, and waves 2 and 4 are smaller retraces of waves 1 and 3. Corrective waves subdivide into 3 smaller-degree waves starting with a five-wave counter-trend impulse, a retrace, and another impulse.
In a bear market the dominant trend is downward, so the pattern is reversed—five waves down and three up. Motive waves always move with the trend, while corrective waves move against it.
In Elliott's model, market prices alternate between an impulsive, or motive phase, and a corrective phase on all time scales of trend, as the illustration shows. Impulses are always subdivided into a set of 5 lower-degree waves, alternating again between motive and corrective character, so that waves 1, 3, and 5 are impulses, and waves 2 and 4 are smaller retraces of waves 1 and 3. Corrective waves subdivide into 3 smaller-degree waves starting with a five-wave counter-trend impulse, a retrace, and another impulse.
In a bear market the dominant trend is downward, so the pattern is reversed—five waves down and three up. Motive waves always move with the trend, while corrective waves move against it.
Wave 1 (I): Wave one is rarely obvious at its inception. When the first wave of a new bull market begins, the fundamental news is almost universally negative. The previous trend is considered still strongly in force. Fundamental analysts continue to revise their earnings estimates lower; the economy probably does not look strong. Sentiment surveys are decidedly bearish, put options are in vogue, and implied volatility in the options market is high. Volume might increase a bit as prices rise, but not by enough to alert many technical analysts.
Wave 2 (II): Wave two corrects wave one, but can never extend beyond the starting point of wave one. Typically, the news is still bad. As prices retest the prior low, bearish sentiment quickly builds, and "the crowd" haughtily reminds all that the bear market is still deeply ensconced. Still, some positive signs appear for those who are looking: volume should be lower during wave two than during wave one, prices usually do not retrace more than 61.8% (see Fibonacci section below) of the wave one gains, and prices should fall in a three wave pattern.
Wave 3 (III): Wave three is usually the largest and most powerful wave in a trend (although some research suggests that in commodity markets, wave five is the largest). The news is now positive and fundamental analysts start to raise earnings estimates. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to "get in on a pullback" will likely miss the boat. As wave three starts, the news is probably still bearish, and most market players remain negative; but by wave three's midpoint, "the crowd" will often join the new bullish trend. Wave three often extends wave one by a ratio of 1.618:1.
Wave 4 (IV): Wave four is typically clearly corrective. Prices may meander sideways for an extended period, and wave four typically retraces less than 38.2% of wave three (see Fibonacci relationships below). Volume is well below than that of wave three. This is a good place to buy a pull back if you understand the potential ahead for wave 5. Still, fourth waves are often frustrating because of their lack of progress in the larger trend.
Wave 5 (V): Wave five is the final leg in the direction of the dominant trend. The news is almost universally positive and everyone is bullish. Unfortunately, this is when many average investors finally buy in, right before the top. Volume is often lower in wave five than in wave three, and many momentum indicators start to show divergences (prices reach a new high but the indicators do not reach a new peak). At the end of a major bull market, bears may very well be ridiculed (recall how forecasts for a top in the stock market during 2000 were received).
Wave A: Corrections are typically harder to identify than impulse moves. In wave A of a bear market, the fundamental news is usually still positive. Most analysts see the drop as a correction in a still-active bull market. Some technical indicators that accompany wave A include increased volume, rising implied volatility in the options markets and possibly a turn higher in open interest in related futures markets.
Wave B: Prices reverse higher, which many see as a resumption of the now long-gone bull market. Those familiar with classical technical analysis may see the peak as the right shoulder of a head and shoulders reversal pattern. The volume during wave B should be lower than in wave A. By this point, fundamentals are probably no longer improving, but they most likely have not yet turned negative.
Wave C: Prices move impulsively lower in five waves. Volume picks up, and by the third leg of wave C, almost everyone realizes that a bear market is firmly entrenched. Wave C is typically at least as large as wave A and often extends to 1.618 times wave A or beyond.
Wave 2 (II): Wave two corrects wave one, but can never extend beyond the starting point of wave one. Typically, the news is still bad. As prices retest the prior low, bearish sentiment quickly builds, and "the crowd" haughtily reminds all that the bear market is still deeply ensconced. Still, some positive signs appear for those who are looking: volume should be lower during wave two than during wave one, prices usually do not retrace more than 61.8% (see Fibonacci section below) of the wave one gains, and prices should fall in a three wave pattern.
Wave 3 (III): Wave three is usually the largest and most powerful wave in a trend (although some research suggests that in commodity markets, wave five is the largest). The news is now positive and fundamental analysts start to raise earnings estimates. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to "get in on a pullback" will likely miss the boat. As wave three starts, the news is probably still bearish, and most market players remain negative; but by wave three's midpoint, "the crowd" will often join the new bullish trend. Wave three often extends wave one by a ratio of 1.618:1.
Wave 4 (IV): Wave four is typically clearly corrective. Prices may meander sideways for an extended period, and wave four typically retraces less than 38.2% of wave three (see Fibonacci relationships below). Volume is well below than that of wave three. This is a good place to buy a pull back if you understand the potential ahead for wave 5. Still, fourth waves are often frustrating because of their lack of progress in the larger trend.
Wave 5 (V): Wave five is the final leg in the direction of the dominant trend. The news is almost universally positive and everyone is bullish. Unfortunately, this is when many average investors finally buy in, right before the top. Volume is often lower in wave five than in wave three, and many momentum indicators start to show divergences (prices reach a new high but the indicators do not reach a new peak). At the end of a major bull market, bears may very well be ridiculed (recall how forecasts for a top in the stock market during 2000 were received).
Wave A: Corrections are typically harder to identify than impulse moves. In wave A of a bear market, the fundamental news is usually still positive. Most analysts see the drop as a correction in a still-active bull market. Some technical indicators that accompany wave A include increased volume, rising implied volatility in the options markets and possibly a turn higher in open interest in related futures markets.
Wave B: Prices reverse higher, which many see as a resumption of the now long-gone bull market. Those familiar with classical technical analysis may see the peak as the right shoulder of a head and shoulders reversal pattern. The volume during wave B should be lower than in wave A. By this point, fundamentals are probably no longer improving, but they most likely have not yet turned negative.
Wave C: Prices move impulsively lower in five waves. Volume picks up, and by the third leg of wave C, almost everyone realizes that a bear market is firmly entrenched. Wave C is typically at least as large as wave A and often extends to 1.618 times wave A or beyond.
S&P 500 Weekly Elliott Wave Chart
For those who are new to Elliott wave, it is essential to understand as market participant psychology changes (and, as a consequence, the various waves unfold in specific patterns) objective analysis requires readjustment of counts as the waves unfold. Elliott wave is not a "crystal ball" but more a quantitative tool to analyze changes in market psychology as market conditions evolve. Elliott wave analysis can be quite confusing and intricate but in our experience we find it is best used as a "road map" towards the bigger picture.
Below is the current long term view of the equity market from 1929-Present. Clearly the 2008-2009 market decline was of such stature as to be historic (as "historic" as the 1929-1932 market crash). Given such, we have begun to think out of the box with respect to Elliott Wave as it has recently progressed.
In broadest terms markets cycle through 65-80 year "Grand Super-Cycles" (generally coinciding with generational demographic expansion/contraction). If one were to use the end of the 1929-1932 market crash/depression as the beginning point for a new Grand Super-Cycle, it could be argued a complete 77 year Grand Super-Cycle began in 1932 and ended in 2009. A 5 wave Super-Cycle advance (SC-1, SC-2, SC-3, SC-4, SC-5) occurred between 1932 and 2000 (68 years in length) followed by a 9 year Super-Cycle decline (SC-A, SC-B, SC-C) from 2000-2009 (culminating in the 2007-2009 market decline; the worst since the great depression). If this is the case we would have completed a full 77 year Elliott Wave Grand Super-Cycle pattern from 1932-2009 (5 wave Super-Cycle advance with a 3 wave Super-Cycle decline) and have embarked on a new 65-80 year Grand Super-Cycle beginning in March 2009.
We have marked this Grand Super-Cycle on the below chart with the 68 year SC-1 through to the SC-5 advance (1932-2000) followed by the 9 year SC-A, SC-B, and SC-C decline (2000-2009). If this is the case, an argument can be made the period from 2009-to-Present is unfolding as follows:
Below is the current long term view of the equity market from 1929-Present. Clearly the 2008-2009 market decline was of such stature as to be historic (as "historic" as the 1929-1932 market crash). Given such, we have begun to think out of the box with respect to Elliott Wave as it has recently progressed.
In broadest terms markets cycle through 65-80 year "Grand Super-Cycles" (generally coinciding with generational demographic expansion/contraction). If one were to use the end of the 1929-1932 market crash/depression as the beginning point for a new Grand Super-Cycle, it could be argued a complete 77 year Grand Super-Cycle began in 1932 and ended in 2009. A 5 wave Super-Cycle advance (SC-1, SC-2, SC-3, SC-4, SC-5) occurred between 1932 and 2000 (68 years in length) followed by a 9 year Super-Cycle decline (SC-A, SC-B, SC-C) from 2000-2009 (culminating in the 2007-2009 market decline; the worst since the great depression). If this is the case we would have completed a full 77 year Elliott Wave Grand Super-Cycle pattern from 1932-2009 (5 wave Super-Cycle advance with a 3 wave Super-Cycle decline) and have embarked on a new 65-80 year Grand Super-Cycle beginning in March 2009.
We have marked this Grand Super-Cycle on the below chart with the 68 year SC-1 through to the SC-5 advance (1932-2000) followed by the 9 year SC-A, SC-B, and SC-C decline (2000-2009). If this is the case, an argument can be made the period from 2009-to-Present is unfolding as follows:
- The market is currently within the early stages of Primary Wave III implying a long-term upwards trend for many more years.
- The market is currently within Major Wave ((3)) projecting upwards towards new all time highs.
- Intermediate wave ii wave completed in May 2019 and we are currently within intermediate wave iii expecting new all time highs.
Alternately, our original EWT weekly chart (shown below and our preferred count) we have been following since 2009 is annotated with "classic" Elliott Wave indications projecting we are within the ending stages of the 2009-present bull market (near the top of intermediate wave b of a wave IV decline to be followed by a final wave V advance to new all-time highs to end the bull market from 2009).
At present we remained torn between 2 possible Elliott Wave counts:
- If the market is within Major Wave 3 as per the 1st chart, we would expect a large multi-year advance in Major wave 3. This would project much higher equity prices into the future.
- Alternately, if the have completed Primary Wave III of the entire bull market advance from 2009-2018, a Primary Wave IV is currently in process (a-b-c). At its conclusion (target near 1800); we would project a Primary Wave 5 advance to new all-time highs to end the bull market.
The difference between the 2 counts is either a continued "new" bull market (scenario 1) or the last stages of a 11 year bull market with a large bear market on the horizon (scenario 2).
Market Valuation
U.S. (NYSE) Margin Debt
We have been studying with interest the current margin debt on US markets. For those who are unfamiliar, margin debt is the amount of "loans" taken out by market speculators to leverage up their equity positions. During normal bull markets margin debt will increase as the market continues to climb. This increased margin debt amplifies equity market prices. However, at some point speculators become nervous and begin to reduce their margin positions. This reduction in margin is like letting the air out of a balloon and deflates equity asset prices.
As can be seen on the below graphic, both the 2000 and 2007 market tops were signaled in advance by tops in margin debt (margin debt not inflation adjusted on this chart):
As can be seen on the below graphic, both the 2000 and 2007 market tops were signaled in advance by tops in margin debt (margin debt not inflation adjusted on this chart):
The following chart (source: Doug Short) shows US equity margin debt adjusted for inflation. As can be seen, in both 2000 and 2007 inflation-adjusted margin debt peaked and then began to decline leading to the tops in the S&P 500 index. As such, margin debt rollovers acts as a good lead indicator of possible future market weakness.
Since peaking in early 2018 margin debt has shown a significant decline. A similar decline occurred in 2015 (and did not derail the bull market) but the recent decline is a concern given how late we are in the market cycle combined with the extreme levels of margin debt relative to past market cycles.
U.S. Equity market Valuation Models
(Source: D. Short)
Below is a graph representing 4 different long-term valuation measures plotted back to 1900 (118 years):
As of 30 November 2019 the average of these 4 measures places the U.S. stock market (S&P 500 index) as being 139% overvalued relative to its long term geometric mean. This remains the 2nd highest valuation in the history of the stock market going back to 1900. This level is well over 2 standard deviations above the mean and above the market peaks in both 2007 and 1929. It is only surpassed by the 2000 dotcom bubble peak.
- The Crestmont Research P/E Ratio
- The cyclical P/E ratio using the trailing 10-year earnings as the divisor
- The Q Ratio, which is the total price of the market divided by its replacement cost
- The relationship of the S&P Composite price to a regression trendline
As of 30 November 2019 the average of these 4 measures places the U.S. stock market (S&P 500 index) as being 139% overvalued relative to its long term geometric mean. This remains the 2nd highest valuation in the history of the stock market going back to 1900. This level is well over 2 standard deviations above the mean and above the market peaks in both 2007 and 1929. It is only surpassed by the 2000 dotcom bubble peak.
Another popular valuation metric is know as the "Buffett-Indicator". In an interview with Fortune magazine back in 2001 Warren Buffett remarked "it is probably the best single measure of where valuations stand at any given moment."
The indicator measures the price of Corporate Equities (Mkt Cap) to Gross Domestic Product (GDP) as a ratio going back to the 1950's. As can be seen below, the ratio of equity prices relative to GDP currently stands at 144.6%. It recently exceeded the recent 2015 peak of 128.9% and is second only to the 2000 equity peak of 161.1% in terms of equity overvaluation relative to economic output.
The de-trended graph indicates it would take a -40% market decline to return valuations back to the long term de-trended regression line (shown in red on the 2nd chart).
7-Year Asset Class Real Return Forecast
(Source: GMO LLC)
(Source: GMO LLC)
Each month GMO (Grantham, Mayo, Van Otterloo & Co.) publishes a forward forecast for expected annual real rates of return (i.e. inflation adjusted) for a number of different asset classes with a 7 year forward outlook. They have historically had a very good track record (0.97 correlation) of estimating forward 7 year asset class returns based primarily upon current valuations combined with mean reversion. Charts are published following analysis of the previous months data.
I have followed GMO's methodology with interest for many years. In my experience I have found them to be conservative over the shorter term with a tenancy to make calls too early. HOWEVER, similar to Dr. John Hussman of Hussman Funds, they also tend to be right over the longer term. As such, we use their outlook as part of the valuation model within the ECAM 5 Factor model.
Above is their current forecast of expected real returns (after inflation) for the next 7 years broken down by asset class. It is clear based upon current market valuations GMO forecasts well below average annual investment returns in all asset classes with a 7 year forward time horizon (the dotted line is the historical real return of U.S. equities of +6.5% per year). This is important for those who may be soon retiring and expecting "average" returns on their equity and bond investments over the next 7 years. Current high market valuations make it a certainty forward returns over the next 7-10 years will be well below historical averages.
I have followed GMO's methodology with interest for many years. In my experience I have found them to be conservative over the shorter term with a tenancy to make calls too early. HOWEVER, similar to Dr. John Hussman of Hussman Funds, they also tend to be right over the longer term. As such, we use their outlook as part of the valuation model within the ECAM 5 Factor model.
Above is their current forecast of expected real returns (after inflation) for the next 7 years broken down by asset class. It is clear based upon current market valuations GMO forecasts well below average annual investment returns in all asset classes with a 7 year forward time horizon (the dotted line is the historical real return of U.S. equities of +6.5% per year). This is important for those who may be soon retiring and expecting "average" returns on their equity and bond investments over the next 7 years. Current high market valuations make it a certainty forward returns over the next 7-10 years will be well below historical averages.
12-Year US Equity Real Return Forecast
(Source: Hussman Funds)
(Source: Hussman Funds)
S&P 500 12 year forward projected annual returns (Mkt Cap-GVA)
S&P 500 12 year forward projected annual returns (margin-adjusted CAPE)
Balanced Portfolio 12 year forward projected annual returns
(60% in the S&P 500, 30% in Treasury bonds, and 10% in Treasury bills)
(60% in the S&P 500, 30% in Treasury bonds, and 10% in Treasury bills)
Dr. John Hussman uses a unique measure of estimating future equity returns over a 12 year period based upon market capitalization relative to gross corporate value added. He claims the measure has a 91.9% correlation to actual S&P 500 future returns over a 12 year horizon. As per his previous explanations:
"Across the scores of measures I’ve evaluated or created over three decades of research, the ratio of non-financial market capitalization to corporate gross value added (essentially corporate revenues, including estimated foreign revenues, excluding double-counting of intermediate inputs) is best correlated to actual subsequent market returns over a 10-12 year horizon".
As can be seen on the above chart, since 1950 his approach has correlated quite closely with future returns (blue line is his estimates and the red line the subsequent returns 12 years later). Currently his calculations project a "buy and hold" rate of return on the S&P 500 index of -0.6% nominal per year out to 2028 should one employ a "buy and hold" strategy. Clearly tactical asset allocation will be required as we transition to the back half of the current market cycle.
His recent conclusion:
" At present, the valuation measures that we find best correlated with actual subsequent S&P 500 total returns are at the most offensive levels in history, matching or eclipsing the 1929 and 2000 extremes. Even considering the level of interest rates, economic growth, and other factors, the S&P 500 currently stands about 2.8 times the level that we believe the index will revisit over the completion of the current market cycle, implying an interim market loss something on the order of -64%. Moreover, the most reliable valuation measures uniformly imply the likelihood of negative total returns in the S&P 500 over the coming 10-12 year period."
Clearly the high level of current market valuations does not bode well for the "buy and hope" investor.
"Across the scores of measures I’ve evaluated or created over three decades of research, the ratio of non-financial market capitalization to corporate gross value added (essentially corporate revenues, including estimated foreign revenues, excluding double-counting of intermediate inputs) is best correlated to actual subsequent market returns over a 10-12 year horizon".
As can be seen on the above chart, since 1950 his approach has correlated quite closely with future returns (blue line is his estimates and the red line the subsequent returns 12 years later). Currently his calculations project a "buy and hold" rate of return on the S&P 500 index of -0.6% nominal per year out to 2028 should one employ a "buy and hold" strategy. Clearly tactical asset allocation will be required as we transition to the back half of the current market cycle.
His recent conclusion:
" At present, the valuation measures that we find best correlated with actual subsequent S&P 500 total returns are at the most offensive levels in history, matching or eclipsing the 1929 and 2000 extremes. Even considering the level of interest rates, economic growth, and other factors, the S&P 500 currently stands about 2.8 times the level that we believe the index will revisit over the completion of the current market cycle, implying an interim market loss something on the order of -64%. Moreover, the most reliable valuation measures uniformly imply the likelihood of negative total returns in the S&P 500 over the coming 10-12 year period."
Clearly the high level of current market valuations does not bode well for the "buy and hope" investor.
Global Asset Class 10-year Expected Nominal Return Forecast
(data as of 31 December 2019)
(Source: Research Affiliates)
(data as of 31 December 2019)
(Source: Research Affiliates)
Below is the projected 10 year nominal (not inflation adjusted) returns for the majority of global assets.
Data continues to point to Emerging Market and EAFE (Europe, Africa and Far East) equities as providing the greatest returns over the next 10 years with Government Treasury bonds (worldwide) showing minimal returns due to low global interest rates.
Data continues to point to Emerging Market and EAFE (Europe, Africa and Far East) equities as providing the greatest returns over the next 10 years with Government Treasury bonds (worldwide) showing minimal returns due to low global interest rates.
Cycle Commentary
At left is a 20 year chart of the seasonal monthly performance of the Dow Jones Global Index.
The number at the top of the column is the percentage of time the month is positive and at the bottom is the average % gain/loss for the month.
As can be seen, over the past 20 years the period October-April yearly offers the highest potential global equity market returns (cumulative +5.5% average return) while the period May-September offers little in total return (-2.1% cumulative average return).
The number at the top of the column is the percentage of time the month is positive and at the bottom is the average % gain/loss for the month.
As can be seen, over the past 20 years the period October-April yearly offers the highest potential global equity market returns (cumulative +5.5% average return) while the period May-September offers little in total return (-2.1% cumulative average return).
In the interest of moving more towards more recent market action broken down by region, below is the past 10 years seasonal returns for our selected benchmark ETF's:
- Global Equities (VT)
- U.S. Equities (VTI)
- European Equities (VGK)
- Asia Pacific Equities (VPL)
- Emerging Market Equities (VWO)
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It is interesting to note over the past 10 years the month of September has begun to perform better than it has in the past. Also it is interesting to note the exceptionally poor equity returns in Europe during the month of June with very strong returns in July. This is an interesting phenomenon that can be used to potentially time regional equity exposure.
S&P 500 Seasonality (historical 50 year look-back annual seasonality)
"Turning to the months ahead, the performance for January and February is rather lacklustre compared to the months that bookend this start of year period. The S&P 500 Index has gained an average of 0.8% and 0.2%, respectively in the first two months of the year, based on the past 50 periods. These months are easily the weakest of the best six month trend for stocks. The large-cap benchmark has closed positive just over half of the time (56%) in January and February, making this winter lull little better than a flip of a coin in terms of the frequency of success.. Returns for January have ranged from a loss of 8.6% in 2009 to a gain of 13.2% in 1987. Performance tends to gyrate in the middle of January with the majority of the strength achieved in the first few days and last few days of the period".
Ned Davis Research 2020 Composite Model
The following is the composite directional model forecast for the S&P 500 index for 2020 based upon the following parameters (each equal weighted within the composite model) for data from 1928-2019:
- 10 year Decennial Market Cycle (Year ending in 0 = Last Year of Decade)
- 4 year Presidential Market Cycle (Year 4 = U.S. Election Year)
- 1 year Annual Seasonal Market Cycle
The 2020 composite model indicates:
- a strong open to the year in January with a pullback into end Jan/early Feb.
- generally strong equity markets from early February into late March/early April.
- a quick reversal into late May (typically associated with the political conventions to choose the candidate to run for president).
- a run-up into September associated with the U.S. presidential campaigns.
- a quick fall into the election associated with uncertainty.
- a rise into year end once the election has passed.
U.S. 4 Year Presidential Election Cycle
*2019 is Year 3
As can be seen on the chart above, historically since 1928 the 2nd year of the 4 year Presidential Cycle tends to provide the worst returns of the 4 year cycle.
While we do not make investment decisions strictly based upon cycle analysis, we are cognizant of the historical nature of these cycles and tend to be a bit more wary as they approach.
While we do not make investment decisions strictly based upon cycle analysis, we are cognizant of the historical nature of these cycles and tend to be a bit more wary as they approach.
Presidential Cycle S&P 500 returns (inc. dividends):
|
1988-Year 4: +12.40%
1989-Year1: +27.25% 1990-Year 2: -6.56% 1991-Year 3: +26.31% 1992-Year 4: +4.46% 1993-Year 1: +7.06% 1994-Year 2: -1.54% 1995-Year 3: +34.11% 1996-Year 4: +20.26% 1997-Year 1: +31.01% 1998-Year 2: +26.67% 1999-Year 3: +19.53% 2000-Year 4: -10.14% |
2001-Year 1: -13.04%
2002-Year 2: -23.37% 2003-Year 3: +26.38% 2004-Year 4: +8.99% 2005-Year 1: +3.00% 2006-Year 2: +13.62% 2007-Year 3: +3.53% 2008-Year 4: -38.49% 2009-Year 1: +23.45% 2010-Year 2: +12.78% 2011-Year 3: +0.00% 2012-Year 4: +13.41% 2013-Year 1: +29.60% |
2014-Year 2: +11.39%
2015-Year 3: -0.73% 2016-Year 4: +11.96% 2017-Year 1: +21.83% 2018-Year 2: -4.38% 2019-Year 3: +31.49% 2020-Year 4: |
U.S. Recessions and Equity Performance
Since 1929 there have been 14 recessions in the U.S. as follows:
Below is the equity performance during each of these periods:
