These charts focus on the S&P 500 (US equities); and the various forces and factors that influence the outlook—with the aim of bringing insight and perspective.
Hope you enjoy!
1. Bear Market vs Market Crash: This is probably the best image to use in a textbook to compare and contrast a bear market vs a market crash.
And p.s. forget about that “20% = bear/bull“ b.s., bear markets are a process, not a percent change. Current market action reflects removal of stimulus, correction of previous expensive valuations, and overall: a transition in the underlying business/financial cycle.S&P 500 — Bear Market Vs Market Crash
2. FIFO: Keep an eye on China…the Chinese tech sector basically provided the playbook for the NASDAQ: first to fall and likely first to bottom. From a macro standpoint, China is also many months ahead—they never really stimulated that much, and actually ran fairly tight monetary/fiscal settings last year. And as such we’d seen significant slowing there even before the lockdowns. But also looking further out, they are most likely to be first to pivot to stimulus down the track too. So keep an eye on China macro and markets!Nasdaq-100 Index vs MSCI China Index
3. CPI and PE Ratios: Everyone’s (current) favorite economic data report from the US was out this week and it showed annual CPI inflation running at an 8.6% clip.
On this chart that would imply a P/E ~11x (Current P/E is ~20x).US P/E Ratio Chart
4. Profit Pitfalls: Some might look at the previous chart and proffer a statement such as: «OK, so what if P/E ratios go lower, at least earnings are growing, right?»
Thing is, the outlook for profits looks precarious if CEO confidence is anything to go by… (n.b. profits are the “E“ in the P/E ratio: if P/E goes down it can mean that either E went up and P stayed the same or that P went down and E stayed the same, but if E goes down and P/E goes down, then that is the worst cast scenario for the P)US CEO Confidence Chart
5. Consumer Sentiment vs Stock Market Positioning: Consumers are extremely pessimistic, but yet they hold steady in their stock market holdings. This is either a broken correlation or a correlation that will break a lot of things… !Sentiment vs Positioning Chart
6. Household Equity Allocations: In case you doubt the data in the previous chart (which in fact is simply a survey of members of the AAII), here is the aggregate view across all US households: equity allocations are bigger than ever before.US Household Equity Allocations Chart
7. Futures Positioning: Meanwhile the pros are increasingly all-out: “Equity futures positioning (asset managers and leveraged funds) has now turned net short for the first time since the Brexit shock in **2016**”
(albeit, being futures positioning, there could be some hedging or L/S trades getting mixed into this)Futures Positioning Chart
8. Energy vs Technology: Everyone was so busying investing in tech and chasing dreams of the future, we forgot to invest in energy, and now: results.
To be fair, I would not expect that these two lines will cross again any time soon as such, but definitely expect some further rotation.S&P 500 Composition For Energy vs Technology
Source: @Josh_Young_1 @BisonInterests
9. Passive vs Active: Corollary to the previous chart, the push to passive means that many investors were mindlessly drifted into massive tech exposures and out of energy (and materials for that matter) by virtue of delegating their investment strategy to simply “buy the biggest stocks“ (at least for passive funds that follow market-cap based indexes).
(albeit, to be fair a lot of active funds were probably boots into tech/momentum too!)Ownership Of US Stock Market
10. Dividend Growth: Most income oriented investors probably focus on dividend yield, but this chart goes to show that growth of dividends also matters…Growth In Dividend Payments
got to include a goody for the goodies who subscribed.
this week’s bonus chart is a return traveler, updated to the latest. It shows a wide disconnect or dissonance between surveyed investor sentiment and actual portfolio allocations.Portfolio Allocation vs Surveyed Sentiment
Again, there is that big disconnect that makes us ponder: are investors overreacting in their surveyed assessment of the outlook, or is investor allocations the next shoe to drop (in other words, is there more selling to come as the black line meets the blue line—perhaps leaving folk feeling a bit black and blue!).
One detail though I would point out in passing is that bonds have fallen alongside stocks… “normally” when stocks are falling bonds are rallying, but not so in the year 2022 when everything is down except for cash & commodities.
If bonds had rallied, then investor % allocations to equities would naturally get drifted lower by mathematics rather than active allocation changes as such.
Aside from all that, here is another very curious chart: this time showing investors’ extreme pessimism at odds with economic sentiment (i.e. combined signal from surveys of consumers, small business, home builders, manufacturers, and big businesses).Investment Sentiment vs Economic Sentiment
However, one difference in this chart is that the black line looks to be more resolutely in the process of “catching down“ to investor sentiment.
Again, we have an open question: are investors being overly dramatic in their response to surveys, or is a recession right around the corner?
Answer that question and you probably solve the previous chart too.