Investor Movement Index Summary: February 2020

Exposure to equity markets decreased in TD Ameritrade client accounts during the February IMX period. The IMX score decreased by 9.15%, moving to 5.16, down 0.52 from the previous period.

TD Ameritrade clients were net sellers overall for the first time since June during the February period, reducing exposure to equity markets. Equities were net sold, while less risky products, including fixed- income products, were net bought. Market volatility increased, particularly during the final week of the period. The Cboe Volatility Index, or VIX, which measures the volatility of the S&P 500 Index, increased above 40 for the first time since February 2018.

The February IMX period saw heightened volatility for equity markets as concerns the COVID-19 outbreak would become a global pandemic peaked in the latter half of the month after hitting all-time highs on February 19th. The concerns drove markets to their worst weekly performance since the 2008 financial crisis as the final week of trading saw the S&P 500 down 11.49%, the Nasdaq down 10.54%, and the Dow Jones Industrial Average down 12.36%. The selloff in the final week of trading for February put the S&P 500 down 8.41% for the month, with the worst performance coming from the Dow Jones finishing down 10.07%, and the Nasdaq outperforming both but still finishing down 6.38%.

Wall Street’s ‘fear index’, the VIX, jumped to 40.11, securing its highest close since the turmoil that followed the devaluation of the Chinese yuan in August 2015. In the final trading sessions of February, central banks attempted to calm markets to no avail with the Federal Reserve’s failed attempt to reassure markets the central bank was prepared to cut interest rates to protect the U.S. economy. Over in China, the People’s Bank of China cut the loan prime rate by 10 basis points in an effort to combat the damage that was done by the forced restrictions on travel and production. Provincial governments waived value-added taxes, social contributions, and rent to ease financial pains, especially for smaller businesses.

Trading

TD Ameritrade clients were net sellers of equities during the February period. However, clients did use the pullback in popular names and disruptive companies as a buying opportunity. Microsoft Corporation MSFT and Apple Inc. AAPL were once again both net buys, as AAPL pulled back 22% and MSFT retreated 20% from all-time highs. Walt Disney Co DIS announced the departure of CEO Bob Iger and closure of its theme parks in Asia pushing the stock down 23% and was also a popular buy. Despite planning its first commercial flight Virgin Galactic Holdings Inc SPCE sold off after it reported a wider loss than expected in its earnings report and was net bought. Tesla Inc TSLA pulled back 25% in the last four trading days of the month and was also bought. Gilead Sciences, Inc. GILD was bought as it reported progress in developing a treatment for COVID-19 and was viewed by many as a front runner to be the first to successfully bring a treatment to market.

Additional popular names bought include Ford Motor Company F, Exxon Mobile Corporation XOM, Uber Technologies Inc UBER, 3M Co MMM, and InVitae Corp NVTA.

As COVID-19 fears continued to build markets continued to climb in the first weeks of February, TD Ameritrade clients used this as an opportunity to lighten up on some names that were at or near highs to start the month. Amazon.com, Inc. AMZN was once again net sold after continuing its post earnings move higher. Netflix Inc NFLX was also net sold as it gapped higher to start the month and made a run to 52-week highs.

Twitter Inc TWTR shot higher after earnings revealed stronger user numbers to end 2019 than analysts were expecting and was once again net sold. Payment company Square Inc SQ was sold after it hit price levels not seen since last July. The popular Chinese gaming company TENCENT HOLDING TCEHY gapped higher on speculation it would benefit from the need for in-home entertainment amid COVID-19 fears; shareholders used this opportunity to lighten up their exposure as virus fears hit the e-sports and gaming events space. Home Depot Inc HD was sold as it enjoyed relative outperformance after posting earnings that beat estimates and raising its dividend.

Historical Overview

Additional names sold include Westinghouse Air Brake Technologies Corp WAB, Twilio Inc TWLO, Activision Blizzard, Inc. ATVI, Corteva Inc CTVA, and Arconic Inc ARNC.

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

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.

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.