Think b.i.g. bespoke investment group – part 3

First things first, though. Until the S&P 500 closes at a new high, January 26th, 2018 represents the end point of the current bull market because that’s the date of the S&P’s highest closing point of the bull market. Thus, the length of the current bull market has been stopped at 3,245 days since January 26th (3/9/09-1/26/18). A bull market is most commonly defined as a 20%+ rally that was preceded by a 20%+ decline. If the S&P never closes above its January 26th closing level, and instead it goes on to fall 20% from that level, a new bear market will have begun with a start date of January 26th, 2018. Since we don’t know whether the S&P will go into a new bear market before it closes above its 1/26 high, or vice versa, we can’t extend the length of the current bull market past the 1/26 high point.

Based on the most commonly used definition of bull and bear markets (20% rallies and declines using closing prices), below is a chart showing the length (in calendar days) of bull and bear markets for the S&P 500 since 1927. We’ve shaded bull markets in green and made them positive, while we’ve shaded bear markets in red and made them negative.

If the S&P 500 went on to make a new closing high today, the current bull market would be at 3,447 days, which would still be more than 1,000 days less than the longest bull market on record. For the current bull to become the longest on record, the S&P 500 would need to move above its 1/26 closing high and then not experience a 20% decline from an all-time high through June 29th, 2021.

Below is a table showing the 13 post-WW2 market cycles for the S&P 500. The average bull market since WW2 has lasted 1,651 days and seen a gain of 152.4%. The average bear market has lasted 362 days and seen a decline of 31.8%. The current bull market’s gain of 324.6% over 3,245 days is more than double the length and strength of the average bull market.

There is always a lot of debate about the 20% rally/decline definition of a bull market. That’s because there have been multiple 19%+ declines from a closing high that just didn’t quite make it to the 20% threshold for a new bear market. Shouldn’t the 19.92% decline back in 1990 be considered a bear market since the index was just 0.08% away from the 20% threshold? Or shouldn’t the 19.39% decline seen in 2011 be considered a bear as well?

We try to be as consistent as possible with the data, so we’re always going to use some type of percentage threshold to measure bull and bear markets over time instead of trying to be subjective about them. And we would never try to say that one 19%+ decline should be considered a bear market while another 19%+ decline shouldn’t be. So for those that would rather use a 19% threshold for market cycles instead of the standard 20% threshold, below we offer a side-by-side comparison of the two.

Manufacturing activity in the New York region heated up right with the temperature in August as the Empire Manufacturing survey unexpectedly rose to 25.6 versus estimates for a reading of 20. As shown below, the tracker for General Business conditions hit its highest level since last October. Expectations, however, remain a bit more subdued. While the index for Business Conditions six months from now increased on a m/m basis, it remains well off of its recent highs.

The table below breaks out this month’s report by each of its subcomponents for both current conditions and expectations. Here again, we can see that manufacturers are a lot more optimistic about the present than the future. Of the nine components in the Current Conditions category, just three declined, and none of the drops were exceptionally large. On the upside, Shipments and Unfilled Orders both saw large increases, while Prices Paid saw just a modest increase (Prices Received actually declined).

Obviously, inflation readings have become increasingly scrutinized by the market lately, so it’s encouraging to those fearful of inflation accelerating that the recent moves in both Prices Paid and Prices Received haven’t been as one-directional to the upside. In the case of both Prices Paid and Prices Received, the indices for both Current Conditions and Expectations have stalled out in the last few months. While it could be nothing more than a breather, recent declines in commodity prices should help to keep some level of gravity on prices.

When it comes to the July Retail Sales report, it has historically been one of the better ones relative to expectations. This year was no exception as we saw a strong beat relative to expectations not only on the top line but also when you strip out the impact of Autos and Gas. While July’s data was strong, though, it comes off a lower base as June’s originally reported strong numbers were all revised lower. After taking both the downside revision and July’s strength into account, it ends up being slightly more positive than a wash.

Online sales are a category that has been eating the lunch of traditional brick and mortar retail for some time, but in this month’s report, there were some signs starting to emerge that traditional retail isn’t going down without a fight. Even as the above table illustrates, other sectors of the economy showed much more growth than Non-Store retailers this month. In our latest B.I.G. Tips report, we covered all of the major trends surrounding this month’s retail sales report as well as some longer-term trends that may be starting to shift a bit towards the favor of traditional retailers.

The US automakers aren’t the only ones struggling. Automakers globally have been trading terribly in 2018. Below is a table of the major automakers around the world (from the S&P 1200 Global Autos group). We’ve included Tesla (TSLA) in the table as well even though it’s not in the group. Of the 22 stocks listed, 17 are in the red year-to-date. Along with Tesla, the only ones in the green this year are Suzuki (SZKMY), Peugeot (PUGOY), Ferrari (RACE), and Yamaha (YAMCY).

If you haven’t used our Chart Scanner tool, we’ve created a portfolio of the global automakers shown in the table above so you can easily see how horrible most of their chart patterns look. Our Chart Scanner lets users quickly and easily browse through dozens and dozens of charts in mere seconds to identify broad trends (like weakness across autos) or find charts that look bullish or bearish. (We provide a snapshot below.) If you’re a Bespoke Premium subscriber or higher, you can click on the charts to mark them as bullish or bearish, and we’ll save them all for you so you can come back to them whenever you want. Go ahead and check out the autos in our Chart Scanner now. If you’d like to unlock the full version, you can start a free trial to Bespoke Premium.

One of our favorite obscure US economic data releases is the New York Fed’s quarterly cut-up of US household debt numbers. In addition to a variety of interesting data points on the level, growth rate, and composition of household debt, the report also discusses credit performance in very close detail. Among the metrics included are estimates of the number of Americans facing foreclosure, bankruptcy, or collections proceedings. We show these in the chart below.

You’ll notice a huge spike in bankruptcies in the early-2000s, way before the recession. That was driven by changes in bankruptcy law that made the option less attractive for consumers, hence the huge spike and sudden halt in bankruptcy filings. While bankruptcies did rise a bit in Q2 versus Q1 (part of a normal seasonal pattern), both the number of foreclosures and the number of bankruptcies remain extremely low. Even more impressive is the recent collapse in the share of consumers who are facing collection proceedings. As shown, those have swung from nearly 15% in 2012 to a paltry 9% today. That’s a good sign for both the current state of consumer credit performance and the outlook for consumers’ ability to access credit.