The Bear Thread

Country ETFs since "Liberation Day"
Mon, Apr 7, 2025

Since President Trump's second term began with the Inauguration on January 20th, the S&P 500 ETF (SPY) is down 16.5% compared to a 6.2% drop for the all world ex US ETF (CWI). A ten percentage point gap in performance in less than three months is significant. It's early, but the rest of the world is solidly beating US markets so far under Trump 2.0.



Below is a table showing the performance of 45 country ETFs available to US investors since the close last Wednesday just before the President's Rose Garden announcement of reciprocal tariffs that were orders of magnitude higher than the market expected.

The average country ETF is down exactly 10% in the two and a half trading days since Trump's "Liberation Day," and the only two down less than 5% are India (INDA) and Turkey (TUR).

Of the G7 countries, the US (SPY) has been the third worst with a drop of 11.2%. The UK (EWU) and Italy (EWI) are down more at -13.3%, while Germany (EWG), Japan (EWJ), Canada (EWC), and France (EWQ) have fallen a little bit less than the US.

Norway (ENOR), Greece (GREK), Poland (EPOL) and China (MCHI) are the four country ETFs down more than 14% since last Wednesday's close, while Vietnam (VNAM) -- a country punished with a 45% tariff even though they only tariff the US roughly 5% -- is down a tad less than SPY with a drop of -11%.

 

Sentiment Stays Bearish
Thu, Apr 10, 2025

Even before the extreme volatility of the past week, the technical correction in stock prices had meant that investor sentiment tanked. Granted, even when the S&P 500 was last at an all-time high in mid-February sentiment leaned bearish with the percentage of respondents to the weekly AAII survey reporting as bulls only sitting at 29.2% as of February 20. Over the next three weeks, it dropped to local lows in the 19% range and as of today's release, it was back up to 28.5%. In other words, even through all the crazy moves in the market, investors amazingly appear to be only slightly less bullish than they were at the time of the February 19 high.



Of course, that is still a muted level of bullish sentiment. Meanwhile, the percentage of respondents reporting as bears is much more elevated than it was two months ago. Whereas the February 20 reading in bears was only 40.5%, today it is at 58.9% which was down versus 61.9% last week.



That means that investors continue to overwhelmingly report bearish sentiment with increased polarization to boot. The share of respondents reporting neutral sentiment reaffirms this. That share dropped to a meager 12.5% in the latest week's data. That ranks in the first percentile of readings in the full history of the data dating back to 1987 and is the lowest reading since it came in at 11% on May 28, 2009.



Of course, other sentiment surveys offer additional looks at investor sentiment. One such report is the Investors Intelligence survey which has a survey base of newsletter writers. One perk of this survey is a much longer history beginning back in 1963. This week's release indicated the lowest level of bullish sentiment, 23.6%, since December 2008. Before that, the last time sentiment was this weak was in July 1994. So it's been rare for investors to be this outright negative of equities.

We would also note that this survey collects data through Tuesday afternoons with a release early Wednesday mornings. That means this latest data would not have reflected any reaction to yesterday's update on tariffs nor the massive surge in stock prices in response.



That weak sentiment is unsurprising given the trade war's implications for the global economy and the collapse and general volatility in stock prices we have seen in the past week. To help further quantify this, in the chart below we show the percentage spread between the S&P 500's closing highs and lows for all one-week periods ending Tuesday, which coincides with the Investors Intelligence survey's collection period, going back to the start of the survey data in 1963. In the latest week, we saw a 12% range between the S&P 500's high and low on a closing basis, one of the more volatile weeks of this period.



In the chart below, we show those weeks when the S&P 500 had a 10%+ range between high and low closing prices during the Investors Intelligence survey collection period while also trading lower during the span. As shown, the past week was the 18th example. For starters, the S&P 500's range this go around was middling (47th percentile) for these occurrences although the decline was one of the larger ones, slightly outpacing the median decline of 9.5%.

As for the changes in sentiment, bullish sentiment according to the Investors Intelligence survey is the second lowest of these instances behind late October 2008. The week-over-week decline was also larger than normal, nearly doubling the average move. While that survey's bearish sentiment reading wasn't even in line with the average, the week-over-week uptick was again more than double what has historically been the norm during weeks with this much volatility. In other words, currently, we are seeing extreme volatility and extremely bearish investor sentiment, especially among investment professionals (i.e. newsletter writers).

 

NY Fed Shows Weak Demand and Flying Prices
Tue, Apr 15, 2025

On Tuesday morning, we got the first update on regional manufacturing activity for April with the release of the New York Fed's Empire State Manufacturing Survey. The headline reading came in better than expected, rising from a 15-month low of -20 last month to -8.1 in April. While that marks a second straight month of observed contractionary activity, expectations appear even worse. That index fell an enormous 20.1 points month over month for the second-lowest reading in the survey's history. That month that was worse: September 2001. Regarding the month-over-month move, September 2001 and March 2020 are the only other months with bigger drops.



In the table below, we include a look at the April and March readings across all categories of the report. We include the sequential change and how those all rank in percentiles. As shown, breadth and levels were not too bad for current conditions whereas six-month expectations look disastrous including a handful of record lows and bottom quintile monthly declines.



To quantify the drops across those expectation categories, below we have taken a standard deviation for each category and then averaged across them. As shown, that reading dropped into negative territory this month. In the post-pandemic period, there have been a couple of other months to also see negative readings (in July and November 2022), although this current reading is considerably lower. As such, April's reading of -0.12 is the worst since April 2020, and before that, only the Great Recession and 2001 saw weaker expectations. Likewise, the more than one standard deviation drop over the past three months marks one of the most rapid declines in expectations on record.



As noted earlier, the drop in expectations indices has led to record lows in some. That applies to new orders and shipment expectations with current condition indices for both categories also remaining in contraction. That would indicate the region's firms have been observing softening demand, and things are only expected to get worse.



It's not exactly a silver lining, but not every category has fallen sharply. Two categories in the upper quintile of readings with sharp moves higher in the past month were inflation-related. Prices paid and prices received are both rocketing higher in terms of current conditions and expectations. For current conditions of both categories, this was the most elevated level since August 2022. As for expectations, it was the highest level for prices paid since June 2022, and April 2022 for prices received.

 

Records in Richmond
Tue, Apr 22, 2025

US economic data was again light this morning with the only releases of note being regional Fed activity indices: a services index out of the Philly Fed and the manufacturing and services indices out of Richmond. As we noted through our Five Fed Composite last week, regional Fed releases have shown a significant deceleration in activity, and today's release out of Richmond reaffirmed that. For the headline manufacturing number, there was a decline from -4 in March down to -13 this month. That indicates moderate contraction in activity, albeit similar and lower readings were observed from July to November last year.



Although the composite has seen lower readings relatively recently, April's reading is still a bottom decile print for the history of the data going back to the 1990s. Breadth this month was also horrible with only six categories rising (not all of which are positives like inventories and prices) versus 10 categories falling month over month. In addition to weakness in current condition categories, expectation indices were especially weak. Across expectation indices, there were multiple record lows or near record lows. Those same sorts of records could also be observed for month over month changes. For example, expectations for number of employees had never fallen by more in a single month.



Perhaps one of the more concerning readings is in regards to demand adjacent categories. New Orders fell 11 points month over month down to -15 (an 11th percentile reading) while shipments also fell double digits to a 5th percentile reading. The expectations counterparts of those categories were even worse as both registered record lows. In other words, at no point of COVID, the Financial Crisis, or the 2001 recession were the region's firms this pessimistic regarding future demand.



Paired with the weakness in demand expectations was a concerning pickup in inflation which has also been seen across a range of other indicators. Current conditions of prices paid have already picked up materially, rising to a 5.37% annualized rate. While that series did see readings that were roughly three times higher at the post-pandemic peaks in inflation a few years ago, expectations at 8.38% are sitting at a new record. Prices received have also been on the rise but are currently much lower. Current conditions are only at a 2.65% rate whereas expectations are surging to 5.6%, the most elevated reading since March and April 2022.



In addition to the record lows in demand expectations, expenditures have also taken a big hit. The Richmond report includes expenditure readings for three separate categories: Equipment & software, capex, and business services. Each of those three have been in decline since interest rates began ticking higher in early 2022, and since tariff news came to the forefront this year, they have taken a sharp leg lower (reversing post-election gains) and now have only been lower during the depths of COVID.

 

Consumers Sour on Stocks
Tue, Apr 29, 2025

High-frequency sentiment surveys have consistently shown an overwhelming amount of bearish sentiment in recent weeks. For example, the AAII survey has registered more than 50% of responses as bearish for a record nine straight weeks per the latest release last Thursday. That negative stock market outlook is also showing up in consumer, rather than investor-focused data. Today's release of the Conference Board's reading on Consumer Sentiment saw broadly weaker than expected readings across categories (this will be discussed more in tonight's Closer). In November, readings showed peak positive sentiment when the percentage of respondents expecting higher stock prices in one year hit a record high of 57.2% versus only 21.7% expecting lower prices. Fast forward to today, 48.5% of responses expect lower prices in the next year, versus 36.1% expecting higher prices. While the index for higher prices is middling relative to its historical range, the level for those expecting lower stock prices is in the 98th percentile at the highest level since October 2011.

Taking a net reading, consumers expect stock prices to fall in the next year. However, the current level was even more depressed as recently as the 2022 bear market. What is more unprecedented is how rapid the shift has been towards those negative feelings. As shown in the second chart below, the four-month change in that net reading is the most pronounced decline on record. The only two four-month declines that even come close were those ending in October 1990 and July 2002.

 

Last Day of April Bearish – NASDAQ & Russell 2000 Down 9 of Last 10

Over the last 21 years, the last trading day of April has come under increasing selling pressure. DJIA, NASDAQ, and Russell 2000 have all declined 15 times in 21 years. S&P 500 has one less loss. Average performance ranges from –0.39% by DJIA to –0.95% from Russell 2000. Since 2015, April’s last day has been hit even harder with NASDAQ and Russell 2000 down 9 of 10 while DJIA and S&P 500 have been down 8 of the last 10.