Contrarian Indicators Point to Market Bottom


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Twitter: @SoberLook


The Daily Shot: 10-Mar-20
Equities
Credit
Rates
Commodities
Energy
Emerging Markets
China
Asia – Pacific
The Eurozone
Europe
Canada
The United States
Global Developments
Food for Thought



 

Equities

1. Stocks plummetted on Monday, with investors, spooked by the oil crash and the coronavirus epidemic. It was the worst one-day decline since the financial crisis.
 

 
However, stock futures are higher this morning, pointing to a rebound. Investors are taking some comfort in government stimulus efforts globally.
 

Source: @bpolitics   Read full article  

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2. CNN’s Fear & Greed indicator suggests that, at least in the near-term, the market has bottomed.
 
Source: CNN Business  
 
3. Volatility indicators are also signaling stabilization (extreme fear).
 
VIX:
 

 
VIX futures 1st – 7th contract (the slope of the VIX futures curve):
 

 
The put/call ratio:
 

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4. Another contrarian indicator is the NAAIM exposure index (investment managers’ allocation to stocks), which declined by the highest amount since 2008. It looks like capitulation.
 
Source:  
 
This survey suggests that the latest market rout forced many retail investors out of stocks.
 
Source: MagnifyMoney   Read full article  

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5. Sector correlations hit a multi-year high.
 

 
6. The share of S&P 500 stocks trading below their 200-day moving average dipped below 20%.
 

 
7. The S&P 500 forward P/E ratio is now below 15.5.
 

 
8. 78% of S&P 500 stocks now have a dividend yield that is above the 10yr Treasury.
 
Source: @StrategasRP  
 
9. US trading volumes spiked in recent days.
 
Source: Bloomberg
 
10. M&A activity has been surprisingly robust.
 
Source: @markets   Read full article  
 
11. Next, we have some sector performance updates (over the past six months).
 
Energy and …
 

 
… MLPs (pipeline firms):
 

 
Metals & Mining:
 

 
Tech:
 

 
Industrials and defense:
 


 
Healthcare:
 

 
Consumer Staples:
 

 
Banks:
 

Source: S&P Global Market Intelligence  

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12. Finally, here are some factor/style relative performance charts.
 
Cyclical vs. defensive sectors:
 

 
Value vs. growth:
 

 
Momentum:
 

 
Low vol:
 

 
Post-IPO stocks:
 

 
Small caps …
 

 
… nearing support:
 
Source: @DantesOutlook  


Back to Index

 

Credit

1. Spreads finally blew out, and the investment-grade CDX (“index” of credit default swaps) performed its function as a cheap macro hedge (for those who got in below 50 bps).
 

 
The high-yield CDX spread also widened sharply.
 

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2. Energy-sector high-yield bond spreads widened to the highest level since early 2016 as oil crashed.
 

 
We are probably looking at a number of credit downgrades in the sector.
 
Source: @apark_  

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3. Commercial paper spreads have also widened.
 
Source: @jessefelder, @markets   Read full article  
 
4. The widening of CMBS spreads has been unusually quick.
 
Source: Morgan Stanley Research, @tracyalloway  
 
5. BDCs, which tend to be lenders to medium-size businesses, took a spill.
 

 
6. Here is the relative performance of corporate bonds by rating.
 
Source: Gavekal   


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Rates

1. The Fed decided to boost repo financing to make sure that money markets continue to function smoothly.
 
Source: CNBC   Read full article  
 
2. This chart shows the number and size of Fed rate moves since 2000.
 
Source: Commerzbank Research  
 
3. Next, we have the attribution of Treasury yield changes year-to-date.
 

 
4. Treasury volatility spiked to the highest level in a decade.
 

 
5. The yield curve is steepening.
 

 
6. The iShares 20+ year Treasury ETF (TLT) is overbought.
 
Source: @DantesOutlook  
 
7. The 30yr Treasury yield is below the US core CPI.
 
Source: Gavekal   
 
8. The spread between the 10-year Treasury and the 10-year Bund yield has tightened significantly.
 
Source: Pantheon Macroeconomics, @TheMarketEar  


Back to Index

 

Commodities

1. Let’s start with some updates on precious metals.
 
Here is a long-term chart of the Dow Jones Industrial Average/gold ratio.
 
Source: Incrementum  
 
Russia’s central bank has the highest value of gold reserves as a percent of GDP versus the rest of the world’s central banks.
 
Source: Incrementum  
 
Setbacks occur more frequently in US stocks, but they typically recover very quickly. On the other hand, US bonds and gold fall less in the short-term but take longer to recover.
 
Source: Norbert Keimling; Star Capital  
 
Fitch expects Australia’s gold-mining sector to see modest production growth over the coming years, supported by a strong pipeline, rising gold prices, and competitive operating costs. Below is the number of new projects & mine expansions.
 
Source: Fitch Solutions Macro Research  
 
Silver net-speculative long positioning is at the highest level since 2017.
 
Source: Longview Economics  

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2. Will copper hold long-term support?
 
Source: @DantesOutlook  
 
3. China’s steel prices have been declining.
 
Source: @WSJ   Read full article  
 
4. Lithium prices are down substantially since the 2018 peak.
 
Source: @technology   Read full article  
 
5. Sugar futures have given up most of the recent gains.
 

 
6. It was a rough day for US lumber futures.
 


Back to Index

 

Energy

1. Crude oil prices appear to have stabilized.
 

 
2. Oil implied volatility rose to multi-year highs.
 

 
3. Drilling at the largest US shale plays is unprofitable at current prices.
 
Source: @markets   Read full article  
 
4. OPEC governments need higher crude oil prices to balance their budgets.
 
Source: @adam_tooze, @davidfickling   Read full article  

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5. US consumers don’t buy more gasoline when prices are lower.
 
Source: Capital Economics  


Back to Index

 

Emerging Markets

1. Lebanon is defaulting.
 
Source: @WSJ   Read full article  
 
Will Argentina be next? Here is the credit default swap spread.
 

 
Followed by Ecuador?
 
Source: @markets   Read full article  

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2. How do oil prices impact these countries’ current accounts?
 
Source: @SergiLanauIIF  


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China

1. If it weren’t for pork prices, China would be facing disinflation, as the core CPI hits 1%.
 

 
Pork shortages have been the key driver of food inflation.
 

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2. Producer price inflation is back in negative territory, pointing to weakness in industrial profits.
 

 
3. Airline passenger traffic remains depressed.
 
Source: Goldman Sachs  
 
4. This chart shows the seasonality in China’s household incomes and industrial revenues.
 
Source: Gavekal    Further reading  


Back to Index

 

Asia – Pacific

1. Let’s begin with Japan.
 
The yen dropped 2% on global stimulus bets.
 

 
Japan’s Economy Watchers expectations index hit the lowest level since the financial crisis.
 

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2. Australia’s consumer confidence hit the lowest level since 2014.
 

Source: ANZ Research  
 
Business confidence has been deteriorating as well.
 
Source: ANZ Research  


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The Eurozone

1. The Eurozone’s Sentix indicator tumbled as a result of the epidemic.
 

 
Manufacturing activity is expected to follow.
 
Source: Pantheon Macroeconomics  

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2. Next, we have a couple of updates on Germany.
 
Trade balance:
 

 
Industrial production (the January figures don’t yet reflect the virus-related slowdown):
 


Back to Index

 

Europe

1. European banks have underperformed the broader market by over 20% since a year ago.
 

 
2. Sweden’s business activity rebounded last month, but it will be challenging to maintain this momentum in March.
 

 
3. UK online search activity points to sharp declines in discretionary services spending.
 
Source: Pantheon Macroeconomics  


Back to Index

 

Canada

1. Canada’s energy-heavy stock market tumbled 10% on Monday.
 

Source: @markets   Read full article  

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2. The labor market maintained momentum in February, but the situation is likely to worsen this month.
 

 
3. Residential construction indicators remain robust.
 
Building permits:
 

 
Housing starts:
 


Back to Index

 

The United States

1. The economy has been picking up momentum going into March.
 
Citi Economic Surprise Index:
 

 
Goldman’s Current Activity Indicator (CAI):
 
Source: Goldman Sachs  
 
However, financial conditions have tightened rapidly in recent days, which will interrupt the rebound in growth.
 

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2. The massive decline in oil prices will put pressure on energy CapEx.
 
Source: Oxford Economics  
Source: Capital Economics  

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3. The market expects a disinflationary environment in the US. Here is the long-term inflation expectations indicator.
 

 
4. Interest in mortgages and buying a home remains elevated amid record-low mortgage rates. The first chart is the Google search frequency for the word “mortgage.”
 
Source: Google Trends  
Source: Goldman Sachs, @TayTayLLP  
Source: Mortgage News Daily  

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5. The increase in corporate and household debt over the past five years has been well below the levels we saw ahead of previous recessions. The corporate interest-to-profits ratio, however, is in line with pre-recession levels.
 
Source: @TayTayLLP  


Back to Index

 

Global Developments

1. It seems to take about 40 days for the number of coronavirus cases to stop rising.
 
Source: BofAML, @ISABELNET_SA  
 
Here is the global trend.
 
Source: Oxford Economics  

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2. Next, we have a couple of forecasts for global growth.
 
Morgan Stanley:
 
Source: Morgan Stanley Research  
 
Oxford Economics:
 
Source: Oxford Economics  


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Back to Index

 

Food for Thought

1. Who can work from home?
 
Source: @WSJ   Read full article  
 
2. The US vs. German government debt-to-GDP ratio:
 
Source: Deutsche Bank Research  
 
3. Weekly media reach:
 
Source: Statista  
 
4. Quarterly changes in pay-TV subscribers:
 
Source: @WSJ   Read full article  
 
5. Small business owners’ views on the election impact:
 
Source: Gallup   Read full article  
 
6. CO2 emissions from energy:
 
Source: @financialtimes   Read full article  
 
7. Female labor force participation:
 
Source: IMF   Read full article  
 
8. Americans’ satisfaction with their personal life:
 
Source: Gallup   Read full article  
 
9. The most Googled “should I” question in each state:
 
Source: KRON4   Read full article  

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