The S&P 500 drifted lower last week amid the heaviest volume of new equity issuance in nearly one and a half years. Our demand indicators were little changed. They remained somewhat bullish for the short term (one to two weeks) and bullish for the intermediate term (one to two months).
ETF flows are sending somewhat bullish short-term contrarian signals. U.S. equity ETFs redeemed $1.0 billion (0.06 percent of assets) in the past week, the second consecutive weekly outflow. The trailing one-month inflow of $9.2 billion (0.5 percent of assets) is less than half of the one-year average.
International equities are wildly popular as fund investors chase performance overseas. Global equity ETFs have already issued $10.8 billion ($1.2 billion daily) in May after inflows hit a two-year high of $14.3 billion ($600 million daily) in March and $14.4 billion ($750 million daily) in April. Europe and emerging markets have drawn particularly heavy buying.
The TrimTabs U.S. Equity ETF Index (TTEI), which uses ETF flows for short-term market timing, climbed to a four-week high of 65.5 on May 11, up from 46.8 the week before. Since the TTEI is between 50 and 75, the TTEI Model Portfolio is 75 percent long the S&P 500.
Day traders were only mildly upbeat in the past week, and their trades in recent weeks are not sending a strong signal. Less encouraging for the short term is that sentiment has become quite upbeat. Major sentiment surveys show bullishness is elevated, the VIX is not far above the 23-year low hit last Monday, and the equity put/call ratio was below 0.7 every day last week.
Our intermediate-term demand indicators remain favorable. The TrimTabs Demand Index (TTDI), which uses regression analysis of fund flow and sentiment variables for market timing, closed at 54.7 on May 11, down from 66.8 a week earlier. The TTDI has been between 50 and 75 for seven consecutive weeks, and the TTDI Model Portfolio remains 100 percent long the S&P 500.
Supply (Corporate Actions)
Stock buyback announcements have been more impressive in volume than number in earnings season. Fewer companies are shelling out large sums to repurchase shares. The volume averaged $3.8 billion daily in the past five weeks, exceeding the average of $2.5 billion daily in the previous four earnings seasons. But buybacks for just two companies — Apple ($35.0 billion) and Goldman Sachs ($11.3 billion) — have accounted for a combined 54 percent of the volume. The number of announcements has averaged just 2.8 daily, set to be the slowest pace since October/November 2013.
While fewer companies are committing lots of money to shrink the float, more companies are taking advantage of lofty stock valuations and very low volatility to sell more new shares. New offerings spiked to $12.5 billion in the past week, the highest level since December 2015, and we expect share selling to remain high in the two weeks left before Memorial Day. The IPO market in particular has become active as the Nasdaq and Russell 2000 have hit record highs. Sixteen IPOs raised a total of $4.4 billion in the past three weeks, the busiest stretch all year.
Our key macroeconomic indicators continue to send positive signals. Wage and salary growth appears to be cooling off in May after torrid gains in March and April, but it is still elevated. Withholdings increased 2.8 percent year-over-year in real terms in the past three weeks, down from 4.3 percent year-over-year in March and 5.6 percent year-over-year in April (we refer to a three-week period rather than a four-week period to work around the roving Easter holiday). We would not read much into the deceleration in the latest period.
Looking ahead, the TrimTabs Macroeconomic Index remains in a longer-term uptrend. The index, a correlation weighted composite index of leading macroeconomic variables, increased 0.6 percent in the past eight weeks and is just 0.3 percent below the record high reached five weeks ago. It is up 2.1 percent this year after rising 2.8 percent in all of last year.