S&P 500 yearly seasonality

Below is an interesting chart showing the seasonality of the S&P 500 from 1985 till 2019. The total return of the S&P 500 is 10% per year on average. As can be seen on the chart on average the S&P 500 goes up till July when it stalls to start rising again in October. This effect is well known, there’s even a famous saying about it: “Sell in May and go away. But remember to come back in September”.

S&P 500 seasonality 1985 - 2019
S&P 500 seasonality 1985 – 2019

Does the start of flu season say anything about the economic impact of coronavirus?

Here’s two interesting charts I found which show that flu season seems to typically start in November and ends in April. This is interesting at this moment because of the ongoing coronavirus pandemic and what it means for people working from home and eventual lockdowns to stop the rise of the virus.

People with flu like systems are supposed quarantine themselves and work from home. So people will generally need to quarantine until they show no symptoms and have a negative corona test which currently can take a few days. Lockdowns are needed to suppress the virus if the virus spreads faster than anticipated and starts clogging up the healthcare system because hospitals get overloaded with ICU patients.

This has all kinds of implications for the economy as we’ve already seen in March of 2020. Working from home stocks like Zoom will profit while airline stocks suffer because people will fly less. At the same time these charts might offer us a view in to when humans are most vulnerable for coronavirus and when the virus spreads more easily around humans. In both charts you can clearly see that flu seasons generally seems to start around week 46.

Here’s a chart showing the last few flu seasons in the United States.

Share of influenza tests returned positive per week in the United States 2015 - 2020
Share of influenza tests returned positive per week in the United States 2015 – 2020

And here is another chart showing the number of people in the Netherlands visiting the doctor who test positive for flu symptoms per 100.000 patients.

Number of people in the Netherlands visiting the doctor who test positive for flu symptoms per 100.000 patients 2015 - 2020
Number of people in the Netherlands visiting the doctor who test positive for flu symptoms per 100.000 patients 2015 – 2020

European equities are at a 100 year low relative to US stocks

This chart by Morgan Stanly has been going around on Twitter showing how badly European stocks have underperformed US stocks.

This underperformance has been going on for 100 years now although there have been short times in between when European stocks outperformed US stocks. For example in the eighties or late nineties. But since 2000 it has been one slow grind lower. This is particularly interesting because US stocks are viewed as richly valued because they have a much higher price/earnings ratio than their European counterparts.

European equities are at a 100 year low relative to US stocks
European equities are at a 100 year low relative to US stocks

According to MSCI the total return for the MSCI EMU Index (an index of equities from the 10 countries that have implemented the Euro) is just 3.73% per year. The MSCI Europe Index has done better with an average total return of 7.85% since 1987. While the MSCI USA Index has returned 10.84% per year since 1987.

MSCI EMU Index 2005 - 2020
MSCI EMU Index 2005 – 2020

Amsterdam hotel occupancy dropped to 38% at the end of August 2020

The Amsterdam tourist board maintains a website with statistics about tourism in Amsterdam. Among other things they document the hotels that are open and the occupancy at these hotels.

It is no surprise that the corona crisis has had a big impact on the tourism sector. Hotel occupancy in Amsterdam was down to 38% at the end of August 2020. At the same time only 233 hotels were open. At the start of the year around 300 hotels were open. That’s a significant drop. The closed hotels are not being factored in the 38% occupancy rate. That rate is only calculated based on hotels that are open.

The below chart shows the occupancy rate (red) and the amount of hotels that are open (green) and compares those numbers from 2020 to 2019. It’s quite easy to point to when the lockdown started.

Amsterdam hotel occupancy chart 2020 compared to 2019
Amsterdam hotel occupancy 2020 compared to 2019

What this means for the Amsterdam economy and maybe the housing market in Amsterdam remains to be seen.

Historical Percentage Of S&P 500 Market Cap Held By Five Biggest Stocks

The below chart has been making the rounds on Twitter. It shows the percentage of the S&P 500 market cap which is held by the top 5 biggest stocks in the S&P 500. Currently the concentration in these five stocks is at 19%. This is not a record percentage as this percentage has been much higher in the past.

Historical percentage of S&P 500 market cap held by the five largest stocks 1990 - 2020
Historical percentage of S&P 500 market cap held by the five largest stocks 1990 – 2020

Currently these five stocks are: Microsoft, Apple, Amazon, Google & Facebook.

Top 10 S&P 500 stocks by market cap (Blackrock)
Top 10 S&P 500 stocks by market cap

If you zoom in on just the two biggest stocks by market cap (Microsoft and Apple) the percentage of these two in the S&P 500 is almost 10%.

Percentage of S&P 500 market cap held by top two stocks
Percentage of S&P 500 market cap held by top two stocks

However, this chart shows that this concentration in just five stocks has been much higher in the past. In the 1960’s concentration was above 25%.

Historical percentage of S&P 500 market cap held by the five largest stocks 1964 - 2018
Historical percentage of S&P 500 market cap held by the five largest stocks 1964 – 2018

House Prices Are Declining In Amsterdam For The First Time Since 2013

The Dutch Realtor association NVM came out with their quarterly report on the housing market in The Netherlands this week. For the first time since the third quarter of 2013 the price of the average sold house in Amsterdam declined year over year.

Amsterdam housing average sales price Q3 2019
Amsterdam housing average sales price Q3 2019

Furthermore the average price per square meter (m2) is declining from last quarter. No year over year decline here yet. It will be interesting to watch to see if the trend continues.

Amsterdam housing average sales price per m2 Q3 2019
Amsterdam housing average sales price per m2 Q3 2019

The average time a house sits on the market has also been going up to an average of 31 days.

Amsterdam housing average days a house is for sale
Amsterdam housing average days a house is for sale

An Inverted Yield Curve Did Not Always Precede Recessions

I made a post before how an inversion of the yield curve has preceded the last 8 recessions in the US. Recently, I came across this interesting chart on Twitter which shows the yield curve spread for US treasuries with a maturity of 3 month and 10 year from the last 100 years.

This chart shows that yield curve inversions didn’t happen between the 1930’s and 1960’s before a recession happend.

Long Term Yield Curve Inversion Chart
Long Term Yield Curve Inversion Chart

Currently the US 3 month – 10 year yield curve is inverted.

Yield Curve Inversion 3 month - 10 year spread
Yield Curve Inversion 3 month – 10 year spread

Global PMI’s Are Rising Again After A Long Negative Streak

Purchasing Managers’ Indexes (PMI) are economic indicators derived from monthly surveys of private sector companies. Today the latest PMI Manufacturing Index for the US (The ISM Manufacturing Index) came out which was the most negative reading in the last decade.

Global manufacturing PMI’s are rising again though after a record streak of 15 negative months of declines. The last time this index went positive after a long streak of negative PMI’s it was 2009 and that turned out to to be the bottom and a great moment to buy stocks.

Global Manufacturing PMI
Number of months in a row of rising or falling Global Manufacturing PMI’s

The above index has coincided quite nicely with the Bloomberg World Stock Market Cap index which hit a high in January 2018. The index still hasn’t recovered since then.

Bloomberg World Stock Market Cap Index
Bloomberg World Stock Market Cap Index

Does The Inversion Of The Yield Curve Signal a Recession?

An inverted yield curve is one of the few indicators that before have always correctly signalled an upcoming recession. An inverted yield curve happens when the yield on 10 year treasuries is below the yield on 2 year treasuries (sometimes called the “2s10s”). The 2-10 year yield curve is the most common people view. Currently the 2-10 year yield curve is positive after it turned negative for the first time since 2007 at the end of August.

Yield Curve Inversion
Yield Curve Inversion

In the past a negative yield curve has always signalled that a recession could happen in the next 1 to 2 years. Note from the chart below that the curve can be at or below zero for a long period before a recession happens. Furthermore from the chart it looks like a rapidly steeping yield curve signals a recession is close.

Yield curve inversion long term chart
Long term chart of the yield curve

The question arises will an inverted yield curve signal a recession this time? A big difference in my opinion with other times is that this time the yield curve is watched by a lot of participants in the market and so a lot of stories are published about it.

Stories mentioning "yield curve"
Stories mentioning “yield curve”

From the mainstream media such as Drudge Report.

Drudge report yield curve inversion recession
Screenshot of the frontpage of Drudge Report on August 14, 2019

To the president of The United States who even talks about a “crazy” inverted yield curve.

Donald Trump President of The United States Tweets on the Yield Curve Inversion
Tweets from the president of the United States Donald Trump mentioning the yield curve inversion

And even members of the Federal Reserve such as Atlanta Federal Reserve President Bostic (picture below) and Neel Kashkari (in a post on Medium here) the President of the Minneapolis Federal Reserve are openly talking about the inversion of the yield curve and what it means for the economy.

Federal Reserve Bostic Yield Curve Inversion
Headlines from Fed’s Bostic on May 16, 2018

It remains to be seen whether the signal works this time.

Forward P/E And 10 Year Returns

Since 1988 stocks have always produced a negative 10 year return when the Forward Price to Earnings ratio was 22 or higher. This chart says nothing about 1 year returns. Then returns are all over the place whether the Forward P/E is 12 or 22. Although you can see from the chart that positive returns are lower 1 year out compared to when the Forward P/E is lower.

This data is for the US and I have no idea what these charts would look like if you would take an index like the Nikkei 225 or a European index such as the Euro Stoxx 50 or the AEX Index.

Forward PE and 10 year returns
Forward PE and 10 year returns

If you invest on a long term basis the lower the Forward P/E for the market the better your return could be.

Forward PE and 1 year returns
Forward PE and 1 year returns

As of the end of June 2019, the Forward P/E for the S&P 500 is 16.9. This was above the average of the last 30 years. This average is skewed to the upside though because of the extreme valuations during the 2000’s Dot-com bubble in stocks.

S&P 500 Forward PE ratio
S&P 500 Forward PE ratio