The Day After

Equity futures are trading modestly lower this morning, and based on the market’s inability to hold on to any early gains anyway, maybe it’s a good thing that we’re starting out a little weaker. In case you missed it yesterday, the S&P 500’s negative reversal from an intraday gain of 1.5% to a decline of over 1.5% on the day was pretty monumental. The last time it happened was in February 2009! In economic news, Jobless Claims and the Philly Fed Manufacturing index both missed expectations with the Philly index hitting its lowest level since August 2016. 

Here’s a doozy for you and something not many would have expected back in January. Over the last 12 months, long-term Treasuries are now outperforming equities! The chart below shows the relative strength of the S&P 500 versus long-term treasuries over the last year.  When the line is rising, it indicates equities are outperforming and vice versa for a falling line. After outperforming Treasuries by a wide margin as recently as September, all of that outperformance has now been erased and equities are now underperforming.


Looking more at the short-term picture, in the table below we show all Fed days since 1994 where the S&P 500 declined 1%+. On the day after 1%+ down Fed Days for the S&P, the index saw an average next-day gain of 0.10% (median +0.50%), and an average next-week gain of 1.14% (median 0.73%). Following all other Fed Days, the S&P has averaged declines over the next day and week, so usually, we see a modest bounce after big down Fed Days.

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