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 to explore 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 and color. 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. But inevitably if you keep an eye on the charts they tend to help tell the story, as you will see below.
So here's another S&P 500 #ChartStorm write-up!!
1. Starting off this week with some interesting perspective: this new bull market is slightly outpacing the rest (but not by that much...) @RyanDetrick kicks us off by putting this bull market into perspective. Since WWII, there has been no better bull market/recovery than that of 2020. The COVID flash bear market from February 19 to March 23 was a sharp 34% decline, but the 55%+ rally that has ensued since the bottom has already brought about fresh all-time highs on large cap US stocks.
History suggests there is more room to run, too. Buyers-beware though as corrections along the way are commonplace. 2020’s rally is pacing alongside the 2009 recovery quite well, but recall that it took the S&P 500 until early 2013 before making a new all-time high, eclipsing the October 2007 peak. Like 2009, there has been immense stimulus giving support to this great bull market, but the actions taken by the Federal Reserve and Congress are at a whole new level versus the Great Recession.
Bottom line: The S&P is up 57% from its March 23 closing low. The Nasdaq Composite is 70% higher. So far, this bull market beats any other rally since the 1940s according to LPL Research. Looking broadly at past advances, there appears to be room ahead for further gains.
2. Of course, some holdouts will say this is still just a bear market rally... (we'll find out one way or the other sooner or later) @edclissold counters with this chart showing the greatest bear market rallies on the Dow Jones Industrial Average – in 1929 and 2001. The Dow is often used as a proxy for the S&P 500 when we analyze market moves before 1950, so this will do. If we set the chart to align the bottoms at the same time, then 2020’s rally turns into one scary chart! Take a look at the other two periods – 1929-1930 and 2001-2002.
Both of the latter timeframes feature markets that peaked between five and six months after the low; 2020 is fast-approaching that key timing. What’s interesting is that six months after the March 23, 2020 low brings us to mid-late September – a rather notorious and ominous period of the year for stocks. Also consider there is heightened election risk this time around. Another interesting feature that we have talked about in prior ChartStorms is the contango in the CBOE S&P 500 VIX futures term structure. VIX futures show there is higher implied volatility from late September through mid-October.
Are the stars aligning for higher volatility and lower equity prices in the next few months? Perhaps we will just find out soon enough. It’s now easy to suggest that the bottom is in for stocks given the 57% rally on SPX, but that was a bold call in the days and weeks following March 23. History suggests it might be dangerous to make that proclamation – even today.
Bottom line: The 2020 bull market could be reaching a climax – if we follow the analogs of 1929 and 2001. While N= just 2, it’s something to mindful of as seasonality turns somewhat bearish. It’s fascinating to compare the COVID flash bear market and astounding recovery with others throughout history – it teaches us that each market has its own quirks, and focusing myopically on just one or two analogs may not be the right approach (so we looked at the bullish case from Ryan Detrick and the bearish case from Ed Clissold).
3. And there are plenty of spooky charts out there that make it less than a foregone conclusion either way... e.g. lending standards: We can look to charts besides price-action to garner clues into the state of the market – taking an ‘under-the-hood’ approach. The tightness of lending standards is one such indicator. You have to go back to late 2008 to find a period during which banks were stingier with their money.