What's Wrong With This Picture?

The chart below compares the S&P 500 since the beginning of 2009 to the weekly bullish sentiment reading from the American Association of Individual Investors (AAII).  The two lowest readings in sentiment during this period came on 3/5/09 (18.92%) and 4/11/13 (19.31%).  If you look closely at the chart, the level of the S&P 500 during these two weeks couldn't have been farther apart.  In early March 2009, the S&P 500 was trading at multi-year bear market lows, while on 4/11/13, the S&P 500 closed at an all-time high.  In other words, investors were as bearish at the depths of the financial crisis as they were when the market hit an all-time high, and that pretty much sums up the state of sentiment during this entire bull market.

Over the last two weeks, we have seen a modest rebound in bullish sentiment, which now stands at 28.29%.  However, even after the rebound, bullish sentiment is currently lower than it has been in more than 85% of all prior weeks during this bull market, and it's well below the average of 37.8%.

Germany Back Above 50-Day Moving Average

European equities including the German DAX have been notable laggards this year.  After falling below its 50-day moving average (DMA) for the second time in just over a week, the DAX broke below the support of its January and February short-term lows last week.  While that was a seemingly negative technical formation, it didn't last long.  In the last three days, the DAX is now up over 4%, and just today the index moved back above its 50-DMA and its short-term downtrend from the mid-March high.  Is this the beginning of a turnaround for German equities and the rest of the region, or just another technical head fake?

Consumer Staples at a Crossroads?

Heading into today, the S&P 500 Consumer Staples sector had been on an amazing run higher so far in 2013.  As a defensive sector, Staples stocks usually underperform when the market is in rally mode, but that certainly hasn’t been the case this year, as most stocks in the sector are up by double-digit percentages already.  One of the big winners in the sector has been Procter & Gamble (PG), which reported earnings this morning.  As shown in the chart below...

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Brent - WTI Spread Drops to a 52-Week Low

While gold has been hogging the headlines of the commodity space in recent weeks, there has been a notable move within the oil space over the last several weeks as well.  It was only a little more than two months ago that a barrel of Brent crude oil (global benchmark price) was $23 more than a barrel of WTI (US benchmark price).  Today, the spread between the two dropped to $10.50, which is the lowest level since January 2012. 

Historically (prior to the last three years), WTI crude has traded right around the same level as Brent crude, so there is still a ways to go before we get back to that type of environment.  It is still encouraging, though, to see the spread between the two benchmark prices narrowing.  Gas prices have typically been more sensitive to moves in Brent crude oil, so any move that makes Brent crude oil cheaper on a relative and/or absolute basis is good for prices at the pump.

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Mediocre Earnings and Revenues

Below is an updated look at the earnings and revenue beat rates for stocks that have reported so far this earnings season.  Last Friday we noted that the earnings beat rate stood at 58%, while the revenue beat rate was much lower at 43.9%.  Another 250 companies have already reported this week, which is more than double the amount that had reported all season from April 8th through April 19th.  As shown below, the earnings beat rate has taken a hit with this week's reports added into the mix.  As it stands now, 56.9% of the 458 US companies that have reported have beaten earnings estimates.  This would be the lowest reading seen since the bull market began, so the remaining companies that still have to report have some work to do!

While the earnings beat rate has dropped this week, the revenue beat rate has ticked up, albeit by a very small amount.  As shown below, the current revenue beat rate this season stands at 44.1%, up from the 43.9% reading we posted last Friday.

While the overall numbers have been nothing to write home about this season, the companies that have reported have not been selling off like you might think.  Overall, the average stock that has reported this season has actually gained 0.07% on its report day.

If you're looking for more in-depth analysis on earnings, we offer a plethora of earnings-related reports to our Bespoke Premium subscribers.  You can learn more about this service here.

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Crude Inventories Rise; Gasoline Stockpiles Plummet

Crude oil and gasoline inventories both came in below forecasts this week.  In terms of crude oil, traders were expecting inventory levels to rise by 1.8 million barrels, while the actual build came in at just over half that (947K barrels).  In spite of the lower than expected increase in inventories, though, there have only been four other weeks since 1984 where inventories were higher than they are now.

While oil inventories are still well above average, the cushion for gasoline stockpiles is not nearly as fluffy, especially after last week's sharp decline.  While traders were expecting inventories to be unchanged from the prior week, the actual change was a draw of 3.928 million barrels, which is the largest weekly drop in more than a year (4/6/12)!  Earlier this week, we noted that gasoline prices were at a critical juncture, but with inventories dropping by such a large amount, it isn't any help for those hoping to see prices drop below $3.50.

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Netflix's (NFLX) Remarkable Run

Apple (AAPL) is currently the biggest "dog" in the market, but up until recently, there was another stock that was trading just as badly -- Netflix (NFLX).  After gaining more than 1,500% from its 2008 low to its high in July 2011, Netflix began plummeting on pretty much a daily basis, and it was hard to find an analyst or investor that didn't think the company was destined to go under when it was trading in the $50s last year.  

But America loves a comeback story, and there hasn't been a comeback story like Netflix in quite some time.  From its low last September, NFLX is now up 303% -- yes, the stock has tripled in a little under seven months!  And with its exclusive "House of Cards" hit, Netflix is once again a market darling.  If Netflix can do it, why can't Apple?  Apple shareholders can only dream of such a move right now.

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Apple Announces Monster Buyback and Boosts Yield to 3%

In tonight's earnings release, Apple (AAPL) announced a $50 billion increase in its buyback program and raised its dividend by 15%.  The buyback alone is massive and is actually a large enough total that there are only 69 companies in the United States with market caps larger than the buyback.  With regards to the dividend, shares of AAPL now yield 3.0% based on Tuesday's closing price.  At this level, AAPL now has a higher dividend yield than both 10 and 30-year US Treasuries, which yield 1.71% and 2.90%, respectively.  Additionally, the stock also now has a higher dividend payout than 393 of the companies in the S&P 500.  This is quite a change from just over a year ago, when the stock had no dividend at all.

S&P 500 and Sector Trading Range Charts

The S&P 500 has seen a bread and butter bounce off of its 50-day moving average this week.  Below is our trading range chart for the S&P 500 and its ten sectors.  For each chart, the blue shading represents the index's "normal" trading range, which is between one standard deviation above and below its 50-day (white line).  The red zone represents between one and two standard deviations above its 50-day, while the green zone represents between one and two standard deviations below its 50-day.  Moves into or above the red zone are considered overbought, while moves into or below the green zone are considered oversold.

While the S&P 500 has seen a nice bounce, it's still in a nice position to continue higher before it gets too extended again.

While the S&P 500 has moved back to the top of its range, there are plenty of sectors that have yet to do so.  Materials, Energy, Industrials and Technology remain below their 50-days and in short-term downtrends.  Apple's (AAPL) move higher after hours on earnings is a good sign for Technology, so the sector may make a push for its 50-day in the morning.  Of the cyclical sectors, Financials and Consumer Discretionary have definitely held up the best recently, and both are now back to the top of their trading ranges.  The four defensive sectors -- Consumer Staples, Health Care, Utilities and Telecom -- are on a different playing field, however.  All four are in strong uptrends and in extreme overbought territory.  

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Dow Drops 150 Points and Bounces Back 150 Points in 4 Minutes

A moment ago the AP tweeted out that there were two explosions at the White House and President Obama was injured.  Below is a snapshot of the Dow's action in the aftermath of that tweet.  As shown, the Dow fell 150 points immediately and dropped into negative territory but then bounced right back within a couple minutes after the AP thankfully responded that their Twitter account had been hacked.  Craziness.

Chart via Bloomberg:

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What's Bouncing and What's Not?

The average S&P 500 stock fell 3.74% from April 11th through April 18th, but they've bounced back an average of 2.38% since then.  So which areas of the market are bouncing the most and which are bouncing the least?  

Below is a chart highlighting the average performance of stocks in each sector during the pullback (4/11 to 4/18) and on the subsequent bounce (since 4/18).  As shown, Financial and Consumer Discretionary stocks have done the best on the bounce, with average returns of 3.12% and 3.34%, respectively.  

The worst performing sectors since April 18th have been Energy, Utilities, Technology and Telecom.  As shown, all four of these sectors have seen their stocks average gains of less than 2%.  For Telecom and Utilities, the weak gains are to be expected since they both outperformed significantly as the market was going lower.  For Energy and Technology, however, the underperformance is especially painful, because both sectors underperformed and fell sharply during the downturn from 4/11 to 4/18.  Technology stocks averaged a decline of 4.63% during the pullback, and they have bounced just 1.93% over the last three trading days.  Energy fell the most of any sector during the pullback with an average stock decline of 6.42%, and it has bounced the least of any sector during the subsequent rally with an average stock gain of 1.20%.  April has been a rough month for the Energy sector.

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2013 Country Stock Market Performance

Below is a look at the year-to-date performance for the major stock market indices of 77 countries around the world.  Through today, the average country on the list is up 4.09% in 2013, and 49 of the 77 countries (63.6%) are in the green for the year.  

Japan now ranks first overall with a gain of 30.53%, but keep in mind that its currency has depreciated significantly this year.  In dollar terms, Japan's stock market is up 14.04% YTD.  This would still rank it 11th on the list, but it cuts the gains in half.  In the G7, the US ranks second behind Japan, followed by the UK.  After Japan, the US and the UK, the four other G7 countries are not doing very well.  France is up just 0.30% on the year, while Italy, Germany and Canada are all down.

All four of the big BRIC (Brazil, Russia, India, China) emerging markets are down on the year as well.  China is doing the best of the BRICs with a YTD decline of 1.19%.  India is down 1.32%, while Brazil and Russia are now down double digit percentages.  Brazil and Russia are both having very rough 2013s through mid-April.

Gas Prices At a Key Level

From late December through late February, the average price of gasoline in the US saw a sizable rally of 18%.  Not coincidentally, beginning in early March we began to see a notable deterioration in the momentum of economic indicators relative to expectations.  Since gas prices are such a large expense of the typical American's budget, higher prices at the pump inevitably crowd out spending elsewhere, which hurts economic activity.

Thankfully, in the seven weeks since gas prices peaked back at the end of February, they have now given up half of the gain they saw earlier in the year.  As a result, we wouldn't be surprised to see this pullback have a positive impact on economic data in the coming weeks.  That being said, current prices represent a key level going forward.  After hitting a multi-week low of $3.51 per gallon last week, gas prices have now risen for three straight days.  That $3.51 level represents an exact 50% retracement of the run up from $3.22 to $3.79.  For the sake of drivers across the country this Summer, let's hope that the recent pullback off the highs was more than simply a test of the rally before a new leg higher.

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Bearish Sentiment Ticks Higher

Bearish sentiment in our weekly market poll increased 3 percentage points this week from 52% up to 55%.  As shown below, 55% of market poll participants said the S&P 500 would be lower one month from now, while 45% said the index would be higher.  Our market poll has now had more bears than bulls for 3 weeks in a row and 10 of the 16 total weeks of 2013.  

If you're looking for more analysis on where we think this market is headed, sign up for a Bespoke Premium membership and check out the multitude of reports we published throughout the week.

One Key Trait Driving Performance

Clients and regular readers of this site know that we have had a longstanding preference for US stocks with domestic exposure over stocks that generate the bulk of their revenues outside of the United States.  A look at the chart below shows just how well that strategy has been working over the last year.  In the chart, we compare the one-year performance of all ten S&P 500 sectors (y-axis) to the percentage of domestic revenues for the average stock in the sector (x-axis).

As shown, Technology is the only S&P 500 sector that is down over the last year, and it also happens to be the only sector where the average stock generates less than half of its revenues in the United States.  On the opposite end of the spectrum, stocks in the Telecom Services sector generate the largest percentage of their revenues in the United States, and Telecom has seen the best performance over the last year.  Besides these two sectors, if you look at the rest of the sectors in the S&P 500, there is a clear trend between percentage of domestic revenues and performance over the last year; the more the better.

Looking to find out which stocks have the most international and domestic revenue exposure? Annual subscribers to our Bespoke Premium service receive complimentary access to our International Revenues Database, which shows the geographic revenue breakdown for stocks in the S&P 500 and Russell 1000.  To access this database, sign up for an annual subscription today!