The Sandbox Daily (8.12.2022)
The Sandbox Daily (8.12.2022)
2022 $SPX bear market in context, Univ. of Michigan Consumer Sentiment, Disney, and a weekly market recap
Welcome, Sandbox friends.
Today’s Daily discusses the 2022 S&P 500 bear market vs. the analogs from the Dot Com Bubble and Global Financial Crisis, the latest report from the University of Michigan Consumer Sentiment Index, a look at Disney’s business model, and a performance recap to snapshot the week in markets.
Let’s dig in.
EQUITIES: Russell 2000 +2.09% | Nasdaq 100 +2.06% | S&P 500 +1.73% | Dow +1.27%
FIXED INCOME: Barclays Agg Bond +0.46% | High Yield +0.89% | 2yr UST 3.250% | 10yr UST 2.842%
COMMODITIES: Brent Crude -0.14% to $98.01/barrel. Gold +0.65% to $1,818.9/oz.
BITCOIN: +1.86% to $24,385
VIX: -3.32% to 19.53
CBOE EQUITY PUT/CALL RATIO: 0.51
US DOLLAR INDEX: +0.56% to 105.674
Comparing the 2022 S&P 500 bear market to recent analogs
Mark Twain was once quoted as saying, “History doesn’t repeat itself but it often rhymes.” The history book has yet to be written on the 2022 bear market, but it’s insightful to review historical analogs to gain perspective and set expectations for these difficult market environments.
At present, the S&P 500 is down -10.20% YTD. The peak-to-trough drawdown was -23.7%, a fairly orderly and average bear market – outside of recessions, to be clear. Yet we’ve also experienced several countertrend bear market rallies along the way: 6.1%, 11.1%, 7.2%, and 16.1% (current).
When looking back at the Dot Com Bubble and the Global Financial Crisis, we see protracted bear markets with a greater number of countertrend rallies and certain instances that provided temporary and devastating false hope. For example, we witnessed two (almost three) separate +20% rallies during the Dot Com Bubble and yet the peak-to-trough drawdown during that three-year period was -49.3%. And when we review the S&P 500 during the Global Financial Crisis, we endured a ~19% and 24% drawdown AFTER the market had already tumbled -22.5% from October 2007 to September 2008 en route to a peak-to-trough -57.0% loss. What’s more, this analysis only looks purely at market performance in hindsight – this ignores the debilitating ride along the way from a behavioral finance perspective, the staggering job losses, freezing of credit, bankruptcies, etc.
Source: Charlie Bilello, Compound Advisors
Consumer sentiment up to a three-month high in August, on lower gasoline prices and a firmer economic outlook
With gasoline prices falling in recent weeks and inflation anxiety subsiding a bit, consumer attitudes were slightly more upbeat this month. The Reuters/University of Michigan Consumer Sentiment Index picked up 3.6 points in the preliminary August survey to 55.1, a three-month high, and above the consensus of 53.0. All of the advance came from a 7.6-point gain in consumer expectations, up for the first time in four months, to 54.9. The report noted a substantial improvement in the year-ahead economic outlook, particularly among low- and middle-income consumers. The assessment of current conditions, however, backtracked 2.6 points to 55.5, led by a deterioration in current personal finances and buying conditions for durable goods among high-income consumers.
Even though sentiment is off its record low two months ago, it is still at depressed levels and remains a downside risk to the outlook for consumer spending growth and the broader economy in the near-term. Inflation was the main culprit holding down sentiment, with nearly half of consumers blaming it for reducing their standards of living.
Source: Ned Davis Research
How Disney makes money
Disney is officially beating Netflix at their own game, as the media giant revealed on Wednesday that they’ve pushed past 221 million subscribers across their three streaming services — Disney+, Hulu, and ESPN — just nudging past Netflix's total. Even with some of those subscribers paying less or being on bundled packages, that's an impressive stat that's grabbed headlines and contributed to Disney's share price jumping 10% in the last week.
Disney's streaming prowess will really irk Netflix and other competitors because streaming remains only a tiny fraction of The Mouse's empire. Disney's "Direct-to-Consumer" business, which is where it counts its streaming revenues, brought in a little over $5bn in the latest quarter. Disney Parks — even just the US parks — brought in much more than that, and that's a sector still recovering from the pandemic.
Even good old fashioned TV is big business. Disney's "Linear Networks", which include ABC, ESPN, National Geographic, and the flagship Disney Channel, brought in more than $7bn in the last quarter.
Now that Disney's caught up in streaming, it's becoming increasingly apparent that their sprawling model is maybe the most desirable, even in 2022. Famous Disney characters are sold as toys and action figures, they're licensed into video games, put on t-shirts, stickers, and books — and of course you can go and meet some of them in a Disney theme park. All of that means Disney is cashing in on its beloved Intellectual Property in many different ways — a machine that's very hard to replicate.
Source: Chartr
The week in review
Stocks: This week’s consumer and producer inflation reports provided some support for the bull’s peak inflation narrative as the S&P 500 Index reached a four-week winning streak, as well as reclaiming 50% retracement of this year’s losses. The small cap Russell 2000 Index had the best showing as valuations for many of its components have been trading at over 20 year lows and as some market participants believe that earnings could recover faster than anticipated for small caps. Amid concerns over Europe and the continent’s economic status, the MSCI EAFE finished the week solidly higher as well.
Bonds: The Bloomberg Aggregate Bond Index finished the week little changed as bond investors continue to re-assess prospects for economic growth after this week’s better-than-expected inflation reports. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, gained ground amid another solid week for equities.
Commodities: Oil and natural gas prices rebounded this week amid energy supply challenges in Europe given the Eastern European conflict. Copper prices also had a strong week and reached a 5-week high amid a challenging year for industrial metals.
Source: LPL Research
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.