Bespoke’s Morning Lineup – 10/6/23 – Jobs Strong, Wages Less So
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“I don’t have anything else to prove” – Michael Jordan
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Futures are modestly higher this morning as markets are just digesting the September non-farm payrolls report. Michael Jordan claimed he had nothing left to prove when he announced his retirement on this day in 1993, but he ultimately realized he did and was back on the court in March 1995. The stock market may have felt it had nothing left to prove when it was at its highs last July, but just over two months later it now has plenty to prove, and bulls are starting to get impatient.
The September payrolls report just hit the tape, and the headline reading came in much better than expected as total payrolls increased 336K versus forecasts for an increase of 170K. While the headline number was much better than expected, the Unemployment Rate was unchanged at 3.8%, which was higher than the 3.7% forecast. Likewise, average hourly earnings were also slightly weaker than expected. The initial reaction in futures has been a sharp sell-off in stocks and bonds as the headline number topped forecasts, but underneath the surface, the report wasn’t as hot as it looked. Job creation is rising, but the cost of incremental workers hasn’t been accelerating.
In terms of market reactions to recent Non-Farm Payrolls reports the fact that the market is swinging widely shouldn’t come as a surprise. On the last 12 report days, the S&P 500’s average daily move on Non-Farm Payroll report days has been 1.1% (up or down. That’s up sharply from a year ago and near the high end of its post-financial crisis range.
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Bitcoin Grows Up
When you think about volatility in various asset classes, crypto is typically considered the most volatile, and based on how it has traded over the last seven years, the reputation is well deserved. Since the start of 2017, when bitcoin’s price first crossed above $1,000 through now, bitcoin’s average daily percentage move has been 2.7% (chart below). This year, though, the average daily percentage move has been significantly less at a subdued 1.57%, and just recently, its average daily move over the prior two months dropped below 1%. That’s less volatile than the treasury market! There’s still three months left in the year, but barring some major volatility, bitcoin is on pace for its least volatile year in terms of day-to-day volatility on record. As the years have progressed, bitcoin has clearly become a more seasoned asset class.
Another illustration of bitcoin’s growing ‘maturity’ is how closely it has traded to its 200-day moving average recently. While the largest cryptocurrency experienced a sharp decline in mid-August, it has closely hugged its 200-day moving average (DMA) ever since.
In fact, for 59 days now, bitcoin has traded within 10% (above or below) of its 200-DMA. That’s a record. After years of bouncing off the walls like a ten-year-old on a sugar high, bitcoin looks like it may have finally grown up!
More Healthy Claims Data
Following up on a disappointing ADP employment number yesterday, today’s release of weekly jobless claims also indicated a modest deterioration in labor market data. Seasonally adjusted initial claims have risen in back-to-back weeks up to 207K. On the bright side, that was below expectations and is only a minor increase as claims remain below their range from throughout the spring and summer this year. Additionally, in the low 200K range, claims are still at a historically healthy level.
Before seasonal adjustment, claims were actually lower at 172.78K. In one sense, that lower reading is not exactly surprising as week-over-week declines have been observed roughly 70% of the time historically in the current week of the year. However, what is now more unusual is that it sets a new low on the year. As we have frequently noted in recent weeks, this time of year typically sees claims put in an annual low, but the new low this week is a bit later than normal. In fact, outside of the pandemic years (2020 and 2021) when claims were historically volatile, the last time an annual low occurred this late in the year was 2014. Prior to that, 1967, 1980, 2000, and 2011 were the only other years with an annual low in the 39th week or later. In other words, claims have remained strong, and seasonal headwinds haven’t yet seemed to come into play in any impactful way.
Like initial claims, seasonally adjusted continuing claims came in stronger than expected at 1.664 million. That is a tiny drop from 1.665 million the previous week but is still off of the low of 1.658 million from two weeks prior. In all, that leaves claims at historically strong levels with a modest multi-month downtrend still in place.
S&P 500 Slide Further Hits Sentiment
The S&P 500 has continued to hit new lows in the past week, and some sentiment readings have reflected that negative tone. The AAII sentiment survey was not necessarily one of those as this week saw a mixed result. For starters, bullish sentiment actually ticked up to 30.1% from 27.8%. That ends a streak of three straight weeks of declines as bullish sentiment was above 40% as recently as the first week of September.
While bullish sentiment went the other way of price action, bears did increase slightly from 40.9% to 41.6%. That brings the total increase in bears over the past three weeks to 12.4%, the largest three-week increase since late August.
That means that on net, AAII sentiment actually shifted slightly more bullish this week. The bull-bear spread continues to be negative (meaning more investors are reporting bearish than bullish sentiment), but that reading was higher at -11.5 this week.
Other sentiment surveys were not as hopeful. Both the NAAIM Exposure index and Investors Intelligence survey saw readings shift more bearish in the latest week’s data. In fact, both of those surveys’ readings have been more bearish week over week in each of the past three weeks. All plugged into our sentiment composite, that has outweighed the modestly more bullish reading in the AAII survey. As a result, the composite indicates sentiment levels are 0.69 standard deviations more bearish than what has historically been the norm. While not exactly an extreme, especially in the wake of the past couple of years, that is the most bearish read on sentiment in just over six months.
Bespoke’s Consumer Pulse Report — October 2023
Bespoke’s Consumer Pulse Report is an analysis of a huge consumer survey that we run each month. Our goal with this survey is to track trends across the economic and financial landscape in the US. Using the results from our proprietary monthly survey, we dissect and analyze all of the data and publish the Consumer Pulse Report, which we sell access to on a subscription basis. Sign up for a 30-day free trial to our Bespoke Consumer Pulse subscription service. With a trial, you’ll get coverage of consumer electronics, social media, streaming media, retail, autos, and much more. The report also has numerous proprietary US economic data points that are extremely timely and useful for investors.
We’ve just released our most recent monthly report to Pulse subscribers, and it’s definitely worth the read if you’re curious about the health of the consumer in the current market environment. Start a 30-day free trial for a full breakdown of all of our proprietary Pulse economic indicators.
Bespoke’s Morning Lineup – 10/5/23 – Energy Burns
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“The daily blips of the market are, in fact, noise — noise that is very difficult for most investors to tune out.” – Seth Klarman
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After a ‘rare’ rally yesterday, equity futures are lower again this morning even as crude oil and treasury yields are lower on the day. Treasury yields were lower, but jobless claims were just released and came in lower than expected on both an initial and continuing basis. The strength in initial jobless claims has been especially impressive as the four-week moving average has dropped to its lowest levels since February. With bonds looking for any excuse to sell off, the better-than-expected jobless claims report has sent yields higher.
The title of yesterday’s Morning Lineup post was “And Then There Were None”, and we discussed the fact that after the Energy sector’s decline to kick off the week, the ETF that tracks it (XLE) joined the ten other S&P 500 sector ETFs in trading below its 50-day moving average. That was the first time since October 3rd of last year that every sector was below their respective 50-DMAs, and while the Energy sector was only marginally below its 50-DMA, it quickly made up for lost time yesterday by falling more than 3% and into oversold territory. As shown in the chart below, after hovering just below its 50-DMA yesterday morning, by the close it was treading water just above its 200-DMA, and the uptrend line that had been in place since late June has been shattered. Moving forward, both the 50-DMA and the former uptrend line have the potential to act as resistance.
Along with the weakness in the Energy sector, crude oil has been on its heels as well. A week ago, WTI briefly traded above $95 per barrel after rallying more than 42% from its June lows. Anyone who knew anything was saying that crude was back on its way to a triple-digit price. In just a week, though, prices have slumped over 10%, and in yesterday’s swoon, prices broke below the uptrend line from June, the 50-day moving average, and the high from August – that’s a lot of broken support all at once! If crude continues to follow the recent path of the Energy sector, it could be a painful few days.
Regarding the recent moves in crude oil, it’s funny to think that less than two weeks ago the run-up in prices was attributed to a stronger economy. Now that prices have started to fall, the narrative has quickly shifted to an economy that’s slowing. Does the direction of the global economy really turn that fast? If you’re using day-to-day moves in a volatile commodity like crude oil as your gauge for the health of the global economy, you’re going to go deaf.
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Lower Daily Lows Becoming the Norm
While maybe not as relentless as the move higher in rates over the last two months, selling in equities has been pretty consistent. In the year-to-date chart of the S&P 500 tracking ETF (SPY) below, we show the last 50 trading days in gray to point out that there have been an extremely large number of days during this span where the day’s intraday low was lower than the prior day’s low. We highlighted this trend in a Chart of the Day last week, but it has remained pronounced since then. In total, 33 of the last 50 trading days have seen SPY make a lower low relative to the prior day’s intraday low, and if SPY falls below $420.18 today, it would be a record 34 days in a trailing 50-trading day period where the ETF made a lower low relative to the prior day’s low.
The chart below shows the number of days over a rolling 50-day period where SPY made lower lows, and at a level of 33, the current period is tied with three others (March 2022, October 2008, and March 2008) for the most since SPY’s inception in 1993. You don’t need us to tell you that none of these periods were positive for the market. What makes the current period unique is that the magnitude of the decline during this period has been relatively mild at less than 10%. During each of the three other periods, SPY was down at least 10% from a 52-week high and as much as 45% (October 2008).
Bespoke’s Morning Lineup – 10/4/23 – And Then There Were None
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“Being an intellectual creates a lot of questions and no answers.” – Janis Joplin
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Unlike most other days recently, futures have been rallying as we approach the opening bell. While the bounce started before the ADP employment report, it picked up steam after that release came in weaker than expected. Now, we just need to get through Factory Orders, Durable Goods, and most importantly, ISM Services at 10 AM.
After two months of steadily lower trending markets, the number of sector ETFs trading above their 50-day moving average (DMA) is finally down to zero as the Energy sector ETF (XLE) surrendered that level this week. While XLE is less than 0.1% below its 50-DMA, every other sector ETF is trading at least 2% below its 50-DMA (Communication Services), and Utilities and Real Estate are both more than 9% below their respective 50-DMAs.
So, when was the last time this happened? The chart below shows the running total number of sector ETFs above their 50-DMAs, and while it got close to zero in the spring, the last time it was zero was exactly a year ago yesterday (10/3/22), and before that, in the summer of 2022. In the entire post-COVID era, this current period is just the sixth time that a sell-off has resulted in every sector trading below its 50-DMA.
Looking at the longer-term 200-DMA, the only sectors currently trading above that level are Energy (4.2%), Consumer Discretionary (2.1%), Communication Services (8.6%), and Technology (5.7%). Like the 50-DMA, the last time every sector ETF was below their respective 200-DMA was briefly last fall and before that in the summer. In the post-COVID period, though, the only other period where every sector was below its 200-DMA was during the initial market crash when the virus first shut down the US economy. With two sectors still trading more than 5% above their 200-DMAs, it would take a considerable amount of more selling to get that reading back to zero. Something no one’s portfolio wants to see.
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Labor Demand Holds Up
This morning we received two of the latest updates on labor market demand with the release of the August JOLTS report in addition to postings data from Indeed through the end of September. The JOLTS report came in well above expectations (9.61 million versus 8.83 expected) indicating a solid rebound in labor market demand headed out of the summer. In spite of that positive reading, the overall trend of lower openings remains in place and is echoed by Indeed’s data. As shown below, the more timely and higher frequency postings data has also been trending lower since the end of 2021. That being said, the summer has seen those declines decelerating with postings only slightly lower over the past three months. Modeling the JOLTS number on the less lagged Indeed data would predict that postings would remain around these levels next month. In tonight’s Closer, we will provide a full rundown of the latest JOLTS report.
In addition to national reads on job postings, the Indeed data also provides geographic breakdowns by US metro, and in the table below, we highlight the 25 MSAs (metropolitan statistical area) that have seen the best and worst postings growth relative to pre-pandemic baselines as well as how far they have fallen from their respective peaks (we highlight when each of those peaks were as well). Many of those with the highest number of openings relative to pre-pandemic are also those with smaller populations. Conversely, many of the largest metros have seen job postings fall off the most. There have also been a growing number of cities where postings are now below pre-pandemic levels. San Francisco is the worst of these with postings down nearly 20% from baseline.
Bespoke’s Morning Lineup – 10/3/23 – Lights Out
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“Half of tradition is a lie.” ― Stephen Crane
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Yields are higher again this morning, which means stocks are trading lower. It’s gotten to the point where we picture Bill Murray smashing the alarm clock which is playing “I Got You Babe”. The 10-year yield is nearing 4.75% while the 30-year yield has broken above 4.85% as it joins the list of points on the yield curve that are at their highest levels since 2007. The only data on the economic calendar this morning is the August JOLTS report which is expected to show a modest increase in job openings from 8.83 million to 8.90 million.
As rates rise, Utility stocks have been decimated, and yesterday the S&P 500 Utility sector closed 3.2 standard deviations below its 50-day moving average which is the most oversold reading for the sector since February 2021, and it isn’t often that you see the sector get this oversold.
In the short-term, the sector’s 11% decline is the steepest five-day decline since last June, but the difference between these two periods is that back in June 2022, the S&P 500 was down over 10% during that same five-day span while it’s only down 1% in the current five-day span.
The chart below shows the five-day performance spread between the S&P 500 Utility sector and the S&P 500. After adjusting for the S&P 500’s performance, the Utility sector is underperforming the S&P 500 by the widest margin over a five-day period since October 2002!
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