Macro Update, And More On Bear Market History

Just completed the weekly scoring of our proprietary macro index. As you’d expect, it’s not pretty.

The overall weekly score came in at an all-time low (including back tests) of -58.93, with only 9% of our data points (all yet to be updated for March) scoring positive, 68% negative and 23% neutral. Marking the 25th consecutive week in the red. Yes, things were trending lower for months before the outbreak. 

Click each insert below to enlarge…

PWA Index backtested scores plotted along the S&P 500 Index:

Here’s the latest on a handful of our inputs:

US Auto Sales

Mortgage Purchase Applications

Jobless Claims

Bloomberg Consumer Comfort Survey

Small Business Optimism

So, in the face of what is the worst macro setup I’ve faced in my 35-year career, stocks are down less than 20% from their all-time high. Remarkable! Or is it?

Well, yes, it is, however, retracing the initial liquidity-panic selloff of a bear market (or a correction) to the tune of 50% isn’t at all unusual.

Here’s from this week’s message:

“Typically, the first phase (liquidity panic) bear market (or correction) selloff gets retraced by at least 38%, which we’ve now achieved. More often we see retracements of 50% to 62% (sometimes 76%).

A few recent examples:
The 2015 selloff was retraced right to 50% before retesting the initial low. The 2016 retracement rolled back over between the 38% and 50% levels. The early 2018 correction saw a 76% retracement before it rolled back over. The 20% correction of Q4 2018 experienced an early rally that retraced right to 62%, rolled back over to the initial low, then retraced 62% again, before finally plunging to the ultimate bottom.”

And here’s the 2008 experiencing with its first big rally retracing 50% of the initial decline:

Same for the previous (tech bubble) bear market:

And here’s today’s:

Yes, this one’s been crazy swift so far!

We have to go back to the 1929 experience to match up:

Of course this time could indeed be different. And due to the fact that the present recession will take the honors from ’08 as the Greatest Recession Since the Great Depression it’s being met with far and away the greatest level of monetary and fiscal stimulus the world has ever seen. 

On that note, I’ll leave you with a little something I posted earlier today:

The Multi-Trillion Dollar Question

In my pre-market note this morning I stated what I view as the “multi-trillion dollar question”:

“Of course the multi-trillion dollar question is, amid what’ll be the worst recession since the Great Depression, will Fed, and fiscal, intervention save stocks from their third -50% bear market experience in a row?

The question of course begs a ‘no’ answer, but then again, stimulus measures this go-round come with zero limits.”

Hedgeye’s Keith McCullough in his macro commentary this morning just inspired me to re-post the above and offer up his more direct rendition:

“After the longest U.S. economic cycle, while putting the most amount of debt on corporations in world history, and now the most amount of debt on the Federal Reserve’s balance sheet in U.S. history, and the most fiscal spending in U.S. history, what could possibly go wrong if the U.S. economic cycle after 129 months, like it did after 120 months in 2000, just doesn’t recover? Take a deep breath and think about that.”

It’s critically important amid this huge volatility (in both directions) that we remain patient, calm, cool and collected — as we explore the key questions (such as those above) while remaining immersed in the data as things play out.

Happy Easter my friends!
Please stay safe!


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