Claims Fine In Spite of Superlatives
Today’s data slate was light with the only release of note being initial jobless claims. The release is perhaps more in focus than normal given it comes on the back of weaker-than-expected labor data last week in the form of the nonfarm payrolls and JOLTS reports. Just like last week’s data, the weekly jobless claims number was a disappointment with seasonally adjusted initial claims totaling 231K. That was handily above the estimate of 212K and last week’s reading of 209K. As frequently quoted today, that results in the highest reading since last summer. Additionally, the 22K week-over-week jump marks one of the larger sequential increases of the past few years.
Despite those superlatives, one week does not make a trend. The chart below shows the four-week moving average of claims, which helps smooth out week-to-week fluctuations. By this reading, not much has happened. The moving average remains relatively flat with current levels consistent with those from the few years before the pandemic as well as those levels since the start of 2022 when pandemic era programs expired.
On a non-seasonally adjusted basis, claims totaled 290K. As shown below, for the comparable week of the year that is somewhat higher than the past several years (outside of the elevated 2020 and 2021 readings), but that is far from any alarmingly high level. The current week of the year did see claims rise week-over-week which is a bit unusual, though not without precedent having happened 39% of the time historically and is likely the reason for the big jump in the adjusted number.
As for seasonally adjusted continuing claims, it is a similar story. Claims matched expectations rising to 1.785 million versus 1.768 million the previous week. Once again, those levels are well within the range of readings of the past year and are little cause for concern.
Bespoke’s Morning Lineup – 5/9/24 – Higher Jobless Claims
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“You don’t get rich writing science fiction. If you want to get rich, you start a religion.” – L. Ron Hubbard
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
After a quiet week of economic data, there’s finally a meaningful report this morning with jobless claims at 8:30. Initial claims came in higher than expected (231K vs 212K) and ticked up to the highest level since last August. Continuing claims at 1.785 million were more in line with forecasts and the recent trend. Earnings have still been coming in fast, but the companies reporting aren’t as large from a market cap perspective. That doesn’t mean they’re any less important if you own them, and we continue to see large one-day moves from several companies reporting. Unfortunately, it feels as if most of those big moves have been to the downside.
Moves in the Japanese yen have made headlines recently as the cross broke above resistance taking the yen to multidecade lows versus the dollar. In terms of lead market stories, the yen has started to move off the front pages as investors look for the next shiny object, but recent moves have still been significant. As shown in the chart below, after April’s massive break, the BoJ intervention caused a brief rally which pulled the cross back to levels that had served as major resistance. In a textbook move, the former resistance for USDJPY served as support, and the last few days have seen a return to the upward trend.
The daily moves in the yen have become more subdued this week, but that follows what had been a period of extreme volatility. In the five days ending 5/2, USDJPY’s average intraday range was 2.5% which was tied with a period in November 2022 for the most volatile five stretch since the Covid crash. Since 1989, there have only been a handful of other periods where the cross had a more volatile five-day stretch.
All this volatility in the yen hasn’t been helpful for Japanese stocks. From its high in early March (right before the USDJPY cross broke above resistance at 152) to late April, the Nikkei 225 corrected by more than 10%, and while it bounced with global markets in the last two weeks, the rally has stalled out right at levels that had been acting as support.
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The Closer – Student Loans, Utilities’ New High, 10Y Auction – 5/8/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a checkup on student loan balances (page 1) followed by a rundown of tonight’s earnings reports (page 2). We then pivot into a look at the snapped streak without Utilities hitting a 52-week high (page 3). Next, we recap today’s weak 10 year note auction (page 4) before closing out with a review of the latest petroleum inventory data (page 5).
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Bespoke’s Consumer Pulse Report — May 2024
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 – 5/8/24 – Leadership Shift?
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“Leaders get out in front and stay there by raising the standards by which they judge themselves—and by which they are willing to be judged.” – Fred Smith
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Futures have been drifting lower all morning. First, it was weaker-than-expected earnings reports in the tech/growth area (Shopify, Uber, etc). Then, Intel lowered Q2 sales guidance for the second time in less than two weeks. Now, Tesla (TSLA) is trading lower on reports of a criminal probe into claims it may have made concerning its full self-driving mode. All of these ingredients create a perfect recipe for an excuse for investors to take a step back after the recent bounce and reassess things. Outside of earnings, there’s little in the way of economic news today with Wholesale Inventories (10 AM) being the only report on the calendar.
We’ve become so used to US stocks leading the rest of the world in recent years, but this morning, there’s been a slight shift in the balance of power. Europe’s benchmark STOXX 600 is up 0.25% this morning for its fourth straight day of gains. In the process, the index has taken out its prior record high from late March, erasing all of the declines from April.
Meanwhile, the S&P 500 also closed out yesterday with its fourth straight day of gains but remains 1.5% below its record high from the end of March.
So, what explains the disparity in performance? The chart below shows the performance of STOXX 600 groups since the end of March when it last made a record high. Leading the way, Basic Resources, Banks, Energy, Utilities, and Drug Stores have all rallied over 3%. Most of these groups have larger weightings in the STOXX 600 than in the S&P 500 and therefore, they have provided a bigger ‘kick’ to the index’s performance. Meanwhile, Technology which isn’t nearly as heavily weighted in Europe as it is in the US is down 1.26%.
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Bespoke’s Morning Lineup – 5/7/24 – It at First You Don’t Succeed, Try Again
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“Extremes to the right and to the left of any political dispute are always wrong.” – Dwight Eisenhower
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
S&P 500 futures were just unchanged on the day in what has been a relatively quiet morning. Crude oil is modestly lower and treasury yields are slightly lower. In terms of earnings, Disney is sharply lower after reporting weaker-than-expected sales and dragging the Nasdaq lower, shares of Palantir (PLTR) are down over 8% despite reporting better-than-expected EPS and sales. Dragging the stock lower? A disappointing forecast relative to lofty expectations.
Heading into yesterday’s session to start the week, the setup looked much like the prior Monday. Then, we started the week following a Friday when the S&P 500 rallied but came up just shy of its 50-DMA. While we rallied to start last week, the market couldn’t maintain enough momentum to get back above its 50-DMA. We then followed that failed attempt with a disheartening three straight days of lower intraday highs and lower intraday lows. Last Friday, we rallied again and broke that streak of lower highs and lows and rallied but finished the week just shy of the 50-DMA.
One positive about weakness in the middle of last week around the Fed meeting was that from the lows in mid-April, the S&P 500 maintained a run of higher lows. Fortunately for bulls, Monday wasn’t a Groundhog Day type event, and the S&P 500 not only opened the week above its 50-DMA, but it stayed there the entire session in a run of three straight days of gains of at least 0.91%.
The picture for the Nasdaq looks a lot like the S&P 500. Unlike the S&P 500, though, the Nasdaq finished off last week above its 50-DMA and stayed there to kick off this week. Like the S&P 500, however, it took the Nasdaq two tries to get back above that short-term moving average. As the old saying goes, “If at first you don’t succeed, try again.”
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The Closer – Back Across The 50-Day, SLOOS, CoT, Auction Previews – 5/6/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we start with a look at the outlook for the S&P 500 following its 1% surge back above its 50-DMA today. We then discuss Federal Reserve headlines from today before breaking down earnings. The Senior Loan Officer Outlook Survey (SLOOS) was released today with lots of implications for the economy (pages 2 & 3). We then look ahead to new issue 3y, 10y, and 30y Treasury coupons this week in a busy auction slate (page 4). Finally, we review positioning by futures speculators across asset classes (pages 5 – 8).
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Bespoke’s Morning Lineup – 5/6/24 – Walk the Line
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“Success is having to worry about every damn thing in the world, except money.” – Johnny Cash
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Equities are picking up right where they left off on Friday as futures have been gaining ground all morning. Even the Nasdaq is trading higher despite the disclosure over the weekend that Berkshire Hathaway has cut its stake in Apple (AAPL) by 13%. The stock was down over 1% earlier but has erased most of its pre-market losses. There’s very little in the way of economic data to look forward to this week, but there are still plenty of earnings reports to deal with even though, we’ve passed the peak of the Q1 reporting period.
The S&P 500 eked out its second positive week in a row, and the Nasdaq and Russell 2000 each squeezed out their second week in a row of 1%+ gains. Despite the gains, the S&P 500 still closed the week modestly below its 50-day moving average. If you look at the snapshot of US indices from our Trend Analyzer below, all the major US index ETFs closed out the week clustered right around their 50-day moving averages (DMA). No ETF is more than 0.70% above or below its 50-DMA.
While the indices are all “walking the line” of their 50-DMAs, there’s a little more dispersion at the sector level. Four of eleven sectors are trading at least 1% above or below their 50-DMA. Utilities and Real Estate are the two highest-yielding sectors in the S&P 500, but they have moved in opposite directions this year. As of Friday, Utilities was the most extended relative to its 50-DMA while Real Estate was the furthest below. Besides those two sectors, Health Care and Consumer Staples are the two other sectors trading further than 1% from their 50-DMAs.
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Brunch Reads – 5/5/24
Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market-related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
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On This Day in History:
Economic Trends
Eastern Europe Is Richer Than Ever — And More Divided (Bloomberg)
Zakovce, a small village in Eastern Slovakia, exemplifies the dual nature of Eastern Europe’s 20-year membership in the EU. Despite significant infrastructure improvements and economic benefits like a halved unemployment rate due to about €515 billion in EU funding since 2004, there’s growing political unrest. Marian Kuffa, a local priest with conservative views, highlights how income disparities have fueled discontent, gaining influence with his stance on traditional values. This discontent has been amplified by various crises, leading to increased support for nationalist and populist groups. [Link]
California Fast-Food Chains Are Now Serving Sticker Shock (WSJ)
In California, fast-food chains have increased their menu prices following the state’s minimum wage hike for fast-food workers to $20 per hour. Prices in these establishments have risen by 10% since the wage law was negotiated, outpacing increases in other states. The industry argues that these increases are necessary to cover the higher labor costs, though this has prompted some consumers to reconsider their dining habits, opting for more budget-friendly or independent alternatives. [Link]
As it loses customers to rivals, McDonald’s shifts its focus to value (Restaurant Business)
McDonald’s is refining its strategy nationally as it faces customer losses to competitors like Burger King and Domino’s, due to more appealing value options amid inflation pressures. Ian Borden, McDonald’s CFO, emphasized the need for aggressive competitiveness in the market, dubbing it a “street fight” for customer loyalty. Despite this, MCD reported that franchisee profitability has returned to pre-pandemic levels, providing a foundation to bolster value propositions without sacrificing franchisee margins. [Link]
Tesla to lay off everyone working on Superchargers, new vehicles (Ars Technica)
Last week at Tesla was marked by turmoil as CEO Elon Musk recently dismissed key executives responsible for the Supercharger network and new vehicle development. The company’s strategic challenges are underscored by an aging vehicle lineup and a stalled product pipeline, despite its strong Supercharger infrastructure. Amidst ongoing layoffs, Musk’s stringent cost-cutting measures hint at broader operational challenges as Tesla navigates slower sales and regulatory scrutiny of its automated driving systems. [Link]
2024 Retirement, FA Confidence Survey in Charts (Financial Advisor IQ)
The Employee Benefit Research Institute’s survey indicates a cautiously optimistic outlook among workers and retirees about retirement savings, with a slight boost in confidence despite ongoing concerns about market volatility and inflation. Interest in guaranteed income options and emergency savings has increased, particularly among younger workers under 45. The survey also highlights a growing reliance on professional financial advice and a budding interest in AI-based investment tools. [Link]
Investments
Stocks Trade for 390 Minutes a Day. Increasingly, Only 10 Matter (Bloomberg)
A substantial portion of S&P 500 trades are now executed in the final 10 minutes of trading. About a third of all trades occur in this brief window, up from 27% in 2021. This concentration of trades at the close is tied to passive funds aligning with daily benchmark prices, but it raises concerns about potential price distortions and the broader impact on market dynamics. [Link]
Buffett Rules Out ‘Eye-Popping’ Returns. But Investors Aren’t Listening. (WSJ)
Warren Buffett has tempered expectations for Berkshire Hathaway’s future performance, noting that the conglomerate is unlikely to achieve “eye-popping” growth due to its size. Despite this, Berkshire’s shares have outperformed the market, with Class B shares increasing by 12% this year. This success comes as Buffett navigates the company without his long-time partner Charlie Munger, and ahead of the annual shareholders’ meeting in Omaha, dubbed “Woodstock for Capitalists.” [Link]
Give This Rich Dude $1 or The Onion Disappears Forever (WIRED)
Jeff Lawson, the co-founder of Twilio, recently acquired the satire website The Onion through his new company, Global Tetrahedron. Despite leaving Twilio after being pressured by activist investors, Lawson’s move into media will focus on The Onion’s independence from traffic-driven revenue models. He introduced a unique funding approach by asking readers for voluntary donations. With plans to explore various business models without a hard paywall, Lawson will try to preserve the essence of satire. [Link]
Environmental
Tumble in storage battery costs to boost shift to renewables, says IEA (Reuters)
The International Energy Agency (IEA) predicts a steep reduction in battery costs for energy storage, which will further accelerate the transition from fossil fuels to renewable energy. According to the IEA’s report, total capital costs for battery storage are expected to decrease by up to 40% by 2030. This cost reduction will make renewable energy sources like solar and wind, which require storage to ensure reliability, increasingly competitive against coal and gas-fired power plants. The IEA highlights that integrating solar photovoltaic systems with battery storage is already cost-effective compared to new coal plants in India, and it will soon be cheaper than new coal and gas-fired plants in China and the US, respectively. Additionally, the global energy storage market is projecting a six-fold increase in capacity by 2030, largely driven by advancements in battery technology. [Link]
Where seas are rising at alarming speed (Washington Post)
The American South is experiencing one of the fastest sea level rises on the planet, profoundly affecting coastal communities across eight states. From Texas to North Carolina, tide gauges show a significant increase in sea levels, with many areas observing a rise of over six inches since 2010. This rapid change is straining local infrastructure, elevating insurance costs, and altering daily life. Experts stress that while the focus has traditionally been on preparing for dramatic events like hurricanes, it’s the incremental impact of rising sea levels that poses a longer-term, pervasive threat to these communities. [Link]
Policy
US official urges China, Russia to declare only humans, not AI, control nuclear weapons (Reuters)
Paul Dean, a senior US arms control official, emphasized the importance of human control over nuclear weapons during an online briefing, urging China and Russia to declare a similar stance. The US, along with France and Britain, has committed to ensuring that decisions on the deployment of nuclear weapons remain strictly in human hands, promoting this as a norm of responsible behavior among the permanent members of the UN Security Council. As AI becomes a bigger force, we might have the sequel to Dr. Strangelove, but the bomb isn’t in the hands of humans this time. [Link]
Automatic emergency braking at speeds up to 90mph required under new rule (The Verge)
The US Department of Transportation has mandated that all light-duty vehicles, including passenger cars, SUVs, and pickup trucks, must be equipped with advanced automatic emergency braking (AEB) systems by 2029. This regulation aims to improve safety by enabling vehicles to brake at higher speeds and detect pedestrians at night autonomously. Although current AEB technology helps prevent low-speed collisions, it struggles with high-speed scenarios and detecting pedestrians in dark conditions. This new standard is set against a backdrop of declining traffic fatalities, with a notable reduction in deaths in 2023 compared to the previous year. [Link]
South Carolina No Longer Asking ‘Carolina Squat’ Drivers Nicely To Fix Their Dumb Trucks (Jalopnik)
South Carolina has enacted a ban on the “Carolina Squat,” a vehicle modification where the front end of a truck is lifted much higher than the rear. Initially, the state issued only warnings, but starting next month, actual fines will be imposed. Drivers will face penalties if the front fender of their truck is four inches higher than the rear. This law targets public road safety issues caused by such modifications, like impaired driver visibility and potential hazards to other road users. [Link]
A flurry of new rules from the Biden administration attempt to ban noncompetes, boost overtime pay, and increase refunds for delayed flights (Yahoo News)
The Biden administration has launched new rules designed to improve workers’ earnings and strengthen consumer protections. Key changes include raising the salary threshold for overtime pay, which will benefit workers making less than $43,888 from July 1, and automating refunds for travelers facing significant flight delays or cancellations. Furthermore, the FTC has issued a rule eliminating noncompete agreements, which could foster more business startups and raise employee earnings. Despite these potential benefits, the rule banning noncompetes has sparked lawsuits from various business groups, who argue it exceeds legal boundaries and could disadvantage US companies. [Link]
Housing & Real Estate
Built-for-Rent Construction Continues Booming (Apartment List)
Single-family homes make up two-thirds of the US housing stock, with 16.6% being rented. Built-for-rent (BFR) communities are gaining traction, where single-family homes are constructed specifically for rental purposes. In 2023, these BFR homes saw a notable increase, accounting for 9% of all single-family home starts. Such developments offer amenities typical of multifamily housing and represent a middle-ground option between renting and homeownership. As the demand for affordable homeownership increases due to soaring home prices and high-interest rates, BFRs and other single-family rentals are becoming an increasingly appealing option, particularly in the South and West where most new BFR construction is concentrated. [Link]
Education
Walmart US CEO talks inflation, self-checkout, and paying six-figures to non-college degree workers (ABC News)
Walmart discussed the company’s shift towards hiring more non-college degree workers for high-paying corporate roles. Currently, many of Walmart’s salaried managers, who can earn upwards of $400,000 annually with new stock grant rewards, started as hourly associates. Walmart is actively promoting skills certificates to foster career advancement into roles like software engineering and data science, emphasizing on-the-job training over traditional degrees. [Link]
Sports
Youth Sports: Ahead of the Curve (Sports Business Journal)
Tom Gordon, former MLB pitcher, has been deeply involved with Perfect Game (PG) since retiring from professional baseball. Initially just an events business, PG has transformed into a diverse enterprise, now projecting over $100 million in revenue this year. In the $30 billion youth sports market, baseball and softball are seeing notable increases in participation. PG events have evolved into festival-like experiences with attractions like drone shows and music, drawing massive crowds, such as 40,000 attendees at a recent Houston event. That’s pretty crazy for youth sports! [Link]
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Have a great weekend!
The Bespoke Report — 5/3/24 — May Flowers
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