Weekly S&P500 #ChartStorm - 18 Mar 2018

Those that follow my personal account on Twitter will be familiar with my weekly S&P 500 #ChartStorm in which I pick out 10 charts on the S&P 500 to tweet. Typically I'll pick a couple of themes and hammer them home with the charts, but sometimes it's just a selection of charts that will add to your perspective and help inform your own view - whether its bearish, bullish, or something else!

The purpose of this note is to add some extra context beyond the 140 characters of Twitter. It's worth noting that the aim of the #ChartStorm isn't necessarily to arrive at a certain view but to highlight charts and themes worth paying attention to.

So here's the another S&P 500 #ChartStorm write-up!

1. S&P500 Seasonality: First up is a look at how the S&P500 is tracking against its historical average seasonal pattern. On this one I would look more at where the seasonal tendency lies in the coming months than where the market has been tracking as such, and the key takeaway there is that from a seasonal standpoint there is some upside bias in the next couple of months, followed by the "sell in May" doldrums. For a few reasons I think this ties in well with some of the other dynamics such as valuation, monetary policy, and earnings cycles. So watch out for that seasonal soft patch further out.

Bottom line: The market is in the middle of a positive seasonal patch.

2. Monthly Seasonality Statistics: Next stop is the same topic, but by month (previous was by business day), and a little more detail on the statistical side. Again it shows how March/April - but particularly April have historically been strong performing months - and the red/orange months ahead give caution for what's to come. But also worth noting aside from the average return is the proportion of time returns were positive: April is first equal on this stat. But even then, if you notice the worst drawdown for April, it was still -9%, which goes to show you can't rely on seasonality as a signal, but rather you bring it in as another factor to round out a broader thesis.

Bottom line: The monthly seasonal stats show April is historically the best performing month.

3. Foreign Flows: This very interesting graph from hedgopia shows the rolling annual net-flows from foreigners into US equities. Indeed, the 12-months to January saw a substantial $140B of net inflows from offshore. So I guess you could say that foreigners are all-in on US stocks. I would note though that the flows do not appear to be standardized i.e. not deflated by market cap/index/cpi, so in that respect you could argue that $140B today is much smaller than around $190B at the dot com peak and $200B at the 2007 peak (i.e. if you inflation adjusted the $190B in 2000, it would be about $275B in today's dollars). So in that sense, this could be more of a momentum signal rather than a contrarian signal as such - in that it would need to reach a true/new extreme to be considered a contrarian signal. Nonetheless the chart is still very interesting. - particularly the turnaround vs 2016.

Bottom line: Foreigners have been heavy net-buyers of US stocks.

4. QE Stocks: Along with the big secular bull market since 2009, there has been basically a secular bull market in the sum of global central bank balance sheets. Easy monetary policy was obviously helpful for the economic recovery and of course it's a well established understanding that easy monetary policy is typically supportive for stocks, but it's worth noting that stocks can and do go up without central bank balance sheets rising, so in that sense I would be skeptical of comments that it's a fake market or manipulated etc. But anyway, it certainly puts things in perspective.

Bottom line: The strong run in the S&P500 has been matched by an equally strong run in central bank assets.

5. Asset Prices and Flows: On a similar line, this power-chart shows the path of the benchmark index for both bonds and stocks and for good measure also shows the cumulative flows across 4 key aspects in the bottom panel. Out in front on the flows is corporate buybacks at $4 trillion, which even exceeds the total expansion of the Fed's balance sheet, and far outweighs retail equity fund flows and bond fund flows. No signs of any 'great rotation' here.

Bottom line: Corporate buybacks have exceeded retail equity fund flows almost 7 to 1.