Investor Movement Index Summary: May 2020

TD Ameritrade clients increased exposure to equity markets for the first time in four months during the May period. The IMX score moved higher, increasing by 0.45, or 11.54%, to 4.35 during the period.

TD Ameritrade clients were once again net buyers overall during the period, and net buyers of equities. Fixed income buying was light, with the smallest purchase in over two years. Clients instead preferred equities, with large buying in the Health Care, Industrial, and Energy sectors, helping push the IMX score higher. Volatility was generally lighter during the period. The Cboe Volatility Index, or VIX, which measures volatility of the S&P 500 Index, closed below 30 for the first time since February.

Equity markets moved higher during the May period, with the S&P 500 recapturing the 3,000 mark for the first time since March 5. The S&P 500 increased 7.3%, while the Dow Jones Industrial Average increased 6.8%. Technology stocks were in favor, and the Nasdaq Composite increased 9.9%. Markets rallied during the period as many states began the process of reopening their economies, even as the COVID-19 total death toll in the United States topped 100,000. News of a possible increase in economic activity was a boon to investors as April economic data reports were dismal. U.S. consumer spending fell by a record 13.6% during April due to coronavirus lockdowns, while retail sales were down a record 14.6% due to a dramatic decrease in shopping and eating out. There was positive news regarding a potential vaccine for COVID-19, with over 120 vaccines in the works worldwide, and roughly 10 undergoing human trails. U.S. companies Moderna Inc. and Pfizer Inc. announced positive testing results for a vaccine, while Chinese company Sinovac Biotech announced it reached stage 2 of its clinical trial. One piece of good news from financial markets was the reopening of the New York Stock Exchange trading floor, which had been closed for two months while trading was completely electronic following COVID-19 social distancing measures.

Trading

TD Ameritrade clients were net buyers of equities during the period. Airline companies were once again in favor, with net buying among Delta Air Lines Inc. DAL, American Airlines Group Inc. AAL, Southwest Airlines Co. LUV, and United Airlines Holdings Inc. UAL. All four stocks were at or near 52-week lows during the period as the companies continued to struggle with coronavirus issues, and clients used the weakness to add to positions in the hope life returns to some semblance of normal after months of quarantine and economic shutdown. Plane manufacturer Boeing Co. BA was also net bought. The company announced it has resumed production of its 737 MAX jetliner "at a low rate" as it focuses on workplace safety and product quality.

Cruise line operators Carnival Corporation & Plc CCL and Norwegian Cruise Line Holdings Ltd. NCLH were also net bought for the second month in a row. The stocks closed May up over 100% from lows seen in March/April amid optimism in the potential development of a coronavirus vaccine and economies reopening after a months-long pause in operations, and CCL announcing plans to resume eight cruises on August 1.

General Electric Company GE was net bought as the stock reached the lowest point in over a decade but rebounded near month-end as it announced it is selling its lighting business as part of its restructuring plans. The Walt Disney Company DIS announced it will begin reopening at reduced capacity in mid-July, and the company's plans to protect against coronavirus include limited attendance, plexiglass barriers, and a "social-distancing squad", and was net bought. Wells Fargo & Co. WFC was a net buy as the stock traded at the lowest point since 2009, as big banks set aside billions of dollars to cover bad loans due to the pandemic.

Additional popular names bought include Exxon Mobile Corp. XOM, AT&T Inc. T, Ford Motor Co. F, and Microsoft Corp. MSFT.

Although they were net buyers overall, TD Ameritrade clients found same names to sell during the period.

Tesla Inc. TSLA was net sold as the stock topped $800 per share for the first time since early March. The company brought back to life its previously discontinued Model 3 Long Range RWD as a made-in-China vehicle, and it officially started deliveries in the country leading shares higher. Snapchat Inc. SNAP traded near a 52-week high, continuing an uptrend after the social-media service announced a strong jump in first quarter revenue last month. The stock ended the period roughly 30% higher than it was before the COVID-19 crisis and was net sold. Otis Worldwide Corp. OTIS, a pure play on elevators, was net sold for the second month in a row as clients sold on strength during the period. Wayfair Inc. W announced a beat on earnings, pushing the stock to a 52-week high, and was also net sold.

Additional names sold include Wabtec Corporation WAB and Iqiyi Inc. IQ.

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

Historical Overview

TD Ameritrade's Investor Movement Index (IMX) has generally correlated with the S&P 500 as clients react to equity price movements, but the index has gone through uncorrelated periods. Beginning in January 2010, when TD Ameritrade started tracking the IMX, the index rose with equity markets until April 2010, when it peaked at 5.40. In May 2010 investors experienced the "Flash Crash" and the IMX began a sharp downward trend.

The IMX didn’t reach 5.00 again until the S&P 500 was well above April 2010 levels. The index eventually peaked at 5.56 in June 2011. This peak was immediately followed by a plunge in equity markets, and in the IMX, as the media was dominated by the U.S. debt ceiling debate, S&P downgrade of U.S. debt, and European debt concerns.

The S&P 500 began to recover in the fall of 2011, but the IMX continued to decline until it reached a new low at the time in January 2012. As the S&P 500 began to sustain an upward trend in early 2012, the IMX started to rise. In 2013, as economic conditions improved and the S&P 500 climbed to record levels, the IMX rose to the high end of its historical range, finishing 2013 at 5.62, and continued to rise in 2014 amid geopolitical tensions related to Ukraine and the Middle East, until seeing slight declines in October and November.

By the middle of 2015 the IMX had seen increases, as equity market volatility had reduced to near historical levels while the market continued its upward trend. As 2015 ended its third quarter, volatility had returned to markets, as global economic concerns and speculation around the timing and trajectory of Federal Reserve rate increases seemed to rattle overall equity markets. This uncertainty continued to play a role in the equity markets through the fourth quarter of 2015 and into early 2016. The volatility accompanying this uncertainty abated in the second quarter of 2016 and remained low until late in the third quarter. Just as it had in 2015, the IMX saw increases mid-year during the period of lower volatility.

The IMX continued to climb into the fourth quarter reaching 5.83 in October 2016, its highest point in two years. A brief spike in volatility during November, timed around the U.S. presidential election, coincided with a slight pull back in the IMX, which then ended 2016 at the high end of its historical range. The IMX started 2017 with an upward trend and reaching an all-time high in March, before pausing in April as lower volatility lead to a decrease in the IMX. The momentum resumed in May, with the IMX breaching 7.0 for the first time ever in July of 2017. The IMX took another brief pause in September, before following markets higher and breaching 8.0 for the first time ever in November and ending 2017 at an all-time high.

Volatility returned to the markets in early 2018, and the IMX decreased for four consecutive months to start the year. The IMX then rebounded in the spring of 2018 and continued higher during the summer on the back of better-than-expected earnings and increasing equity markets. The IMX headed higher during the fall of 2018 as economic growth increased before heading lower in late 2018 as the Nasdaq Composite entered a bear market to end the year. Geopolitical issues were in the headlines during early 2019 as the U.S. and China traded tariffs. The IMX rebounded along with equity markets in the spring of 2019 on optimism of a trade deal with China and the unemployment rate nearing a 49-year low. The IMX remained range-bound during the summer of 2019 as trade-related policy concerns led to investors favoring less-risky assets, including fixed-income products. Heading into the fall of 2019, the IMX began to rebound and ended the year at the highest levels in over a year as trade war fears diminished and economic data began to improve globally.

In early 2020, the bull market ended as markets pulled back due to the COVID-19 pandemic, with markets experiencing volatility not seen since the financial crisis of 2008.

Historical data should not be used alone when making investment decisions. Please consult other sources of information and consider your individual financial position and goals before making an independent investment decision.

All investments involve risk including the possible loss of principal. Please consider all risks and objectives before investing.

Past performance of a security, strategy or index is no guarantee of future results or investment success.

The IMX is not a tradable index.

The IMX should not be used as an indicator or predictor of future client trading volume or financial performance for TD Ameritrade.