Dec 26, 2024
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we lead off with a note on continuing claims relationship to the unemployment rate (page 1) followed by a dive into CMBS and office CRE (page 2). We then finish with a recap of Tuesday’s 5-year note auction and today’s 7-year note auction (page 3).
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Dec 26, 2024
With the holidays, today’s economic data slate was light with only jobless claims on the calendar. For initial claims, this week’s reading came in at 219K. That was down 1K from an unrevised reading of 220K the previous week and was a surprise decline versus the forecasted print of 223K. Seasonally adjusted weekly claims have been on the decline in the past few months, but that only returns to levels right in the middle of the past couple of years’ range.
Before seasonal adjustment, initial claims totaled 274.7K. That’s not much different from what has been observed in recent years for this time as it basically unchanged year over year, slightly above 2021 and 2022 levels, and slightly below pre-pandemic levels from 2018 and 2019. As shown in the second chart below, the end of the year has typically seen claims rise before peaking shortly into the new year. Given claims have largely followed standard seasonal patterns, there’s still a couple of weeks to go in which claims will likely continue to rise until what can be expected to be the seasonal and annual high.
With initial claims simply following seasonal patterns and not rising or falling in any notable or concerning way, continuing claims are a bit different. After seasonal adjustment, continuing claims jumped to 1.91 million. In the grand scheme of things, that is still relatively low and ranks in the bottom quintile of the historical range. That being said, the most recent reading narrowly surpassed the highs from November marking the first reading above 1.9 million since November 2021.
In the charts below, we again show the chart of seasonally adjusted continuing claims in addition to its six-month rate of change, but with a red dot for each time when the level of claims came in at a 3+ year high. As shown, claims are at an interesting crossroads. On the one hand, similar instances of a multi-year high in continuing claims have only been observed in or immediately surrounding recessions. On the other hand, the current level of claims is much lower than other recessionary periods and other three-year highs in recent decades. Additionally, the uptick in claims over the past six months is the smallest of any of these prior instances of a three-year high in claims.
Dec 24, 2024
Call it a Santa Claus rally, but breadth and price action have improved in the past few days following an extremely weak stint in breadth to start the month. At multiple points last week, we discussed the horrible breadth that kicked off this month which was evident through a record streak of declines in the equal weight S&P 500 (RSP). Of course, when looking at the market cap version of the index (SPY), declines were actually not too severe. As discussed in today’s Morning Lineup, whereas equal weight indices have broken uptrends, market cap versions of the S&P 500 and Nasdaq, bolstered by stronger performance in mega caps, still have intact uptrends.
Taking a look at sectors, as shown in the table below, whereas the market cap S&P 500 (SPY) has gained over 85% in the past five years, the equal weight version (RSP) has underperformed by more than 30 percentage points with a smaller gain of 52.7%. There are six of eleven sectors that have similarly seen their market cap weighted versions outperform the equal weight with the largest gap being the Tech sector. The best performer for both market cap and equal weight ETFs is Tech, with the market cap weighted Tech sector (XLK) up 160% in the past five years compared to a still great but much smaller 93% gain in the equal weight sector ETF (RSPT). Conversely, Energy, Industrials, Materials, Real Estate, and Utilities have all seen equal weight outperformance. Of those groups, Industrials have the largest performance gap between the two methodologies with the market cap ETF (XLI) underperforming the equal weight ETF (RSPN) by almost 24 percentage points.
In the charts below we show the long-term performance of the S&P 500 and its sector ETFs on market cap weighted and equal weight methodologies. While there are various sized gaps in performance between market cap and equal weight sectors, we would highlight that there are some sectors with notable divergences when looking at the chart. Since early 2023, Communication Services has seen the market cap version (XLC) take off whereas the equal weight (RSPC) has yet to even surpass mid-2021 highs. Consumer Discretionary is a similar story with a big ramp higher in the market cap (XLY) version especially in the past few months. Consumer Staples is the other sector with one of the most significant divergences as the equal weight ETF (RSPS) has actually been seeing lower lows and lower highs whereas the market cap weighted ETF (XLP) is in an uptrend (albeit roll ling over again in the past few months).
