Typically, the Technology and Communication Services sectors tend to have high levels of correlation. However, beginning in mid-October, that relationship started to change course. While there have been other performance divergences between the two sectors this year, the current disparity is particularly noteworthy. Since mid-October, the Technology Select Sector SPDR Fund (XLK) and the Communications Services Select Sector SPDR (XLC) have been moving in opposite directions causing the YTD performance spread between the two sectors to widen out to the most extreme level of the year with Technology outperforming by 15.9 percentage points.

Since the start of 2019, just after Standard and Poors switched major stocks like Facebook (FB) and Alphabet (GOOGL) out of the Technology sector and into Communication Services the two ETFs tracking these sectors have had a median 50-day rolling correlation coefficient of +0.89, which implies a strong relationship between the two. For the years 2019 and 2020, the minimum correlation coefficient was +0.68, which still signifies a strong relationship.  In 2021, though, the relationship has reversed and actually inverted this month, meaning that over the last 50 days, the two sectors are moving in opposite directions.Click here to view Bespoke’s premium membership options.

Since Friday’s close, US natural gas future prices have declined 16.4% as of 11:00 AM on Tuesday, but there have been price discrepancies across the globe. We discussed these differences between natural gas prices in the US versus Europe in today’s Morning Lineup. In the US, natural gas prices have not seen a two-day decline in excess of 15% since 12/31/18 and going back to 2000, two-day pullbacks of this magnitude have only occurred 12 other times, four of which occurred within a month and a half time period (12/13/2000 – 1/30/2001). Heading into the current decline, the speculator net position was in a normal range, so dramatically offsides positioning from futures traders is likely not the driving factor behind this move. For more information on that positioning data, check out Monday’s Closer.

Looking ahead, forward returns of natural gas after a two-day pullback of more than 15% (without another occurrence in the prior three months) tend to be negative (which can be seen as a positive for consumers as it translates to lower energy costs).  The day after the six prior periods shown, the average next-day performance for natural gas was a decline of 0.7% (median: -2.9%).  Over the next week, the average decline was just 0.4% but the median decline was much greater at 6.1%.  Looking out over the next one and three months, performance continued to weaken with average declines of 8.8% (median: 9.2%) and 4.9% (median: -8.7%), respectively.  Downside momentum in natural gas was also pretty consistent across as natural gas was only positive across all the time windows shown one-third of the time. Click here to view Bespoke’s premium membership options.

November regional Fed manufacturing surveys have been pretty mixed but generally have shown activity decelerating.  The fifth and final report out of the Dallas Fed released this morning reiterated that slowdown in manufacturing activity. The Dallas Fed’s headline reading was expected to show a modest increase from 14.6 to 15.0. Instead, as with other regional Fed surveys, activity decelerated with Business Activity falling to 11.8.  While current conditions did not improve as rapidly as expected, expectations were relatively optimistic and have risen sharply over the past two months recovering most of the decline since June’s high.

While General Business Activity was lower, under the hood the report was pretty good with more categories moving higher than lower. Additionally, the bulk of these categories remain at historically strong levels.  In fact, Company Outlook is the only one in the lower half of its historical range. General Business Activity and Captial Expenditures are the only others that are not in the upper quartile of readings.

Demand has continued to rebound with New Orders rising from 14.9 in October to 19.6 this month.  Given the higher Order Growth Rate, Unfilled Orders also continue to rise at a historically elevated rate, though, that reading did fall in November as Shipments have picked up.

That increase in Shipments also likely had to do with alleviation for supply chains as the index for Delivery Times fell by 4.2 points.  Other regional Fed surveys echoed those results this month with declines in Delivery Times of their own. That being said, the index remains historically elevated, and the commentary of the report points to a slew of supply chain-related issues holding back business. Given Delivery Times were not as long and production has risen, Inventories rose back into positive territory.

While there is evidence of improving supply chains, prices for raw materials are still rising.  The index for Prices Paid has resumed its move higher and set the first record high since June.  Conversely, Prices Received experienced a sharp reversal lower from a record high set last month.

The price of labor is also continuing to rise. The index for Wages and Benefits came in only a half-point below the June record high. Even though current conditions narrowly missed a new high, expectations did set a new record.  Not only did firms report that they expect to pay more for labor, but the same goes for Capital Expenditures. That category’s expectations index hit the highest level since March 2019 in November even while the current conditions index came in at the lowest level since the end of 2020. Pivoting back to labor, the index for Employment and Hours Worked were both moderately higher in November. Expectations for these two categories also rebounded after steep drops in October. Click here to view Bespoke’s premium membership options.

Crude oil prices are back on the rise this week after a sharp decline last Friday.  As for how severe of a drop it was, front-month WTI futures fell 13.06% which was the worst single-day decline since April of last year; the same month that saw crude prices dive into negative territory. Looking back to 1983, including last Friday, there have only been 32 days in which crude has fallen double-digit percentage points in a single session.  Outside of the series of volatile moves in March and April 2020, November 28, 2014 was the last time that there was as sharp of a decline of at least 10 percentage points.

Crude prices are rebounding today and are currently back above $70, although they’ve been pulling back all morning.  In the table below, we show the other dozen times prior to Friday in which crude oil fell at least 10% in one day without having done so in the prior 3 months.  As shown, today’s rebound is actually pretty abnormal with WTI typically declining the day after a 10% drop.

As for longer-term forward performance, crude has continued to average declines out over the next three months with positive returns only half the time.  On the other hand, six months to one year out has tended to see stronger than normal returns for the commodity.  Click here to view Bespoke’s premium membership options.

It may have been a shortened session in the US, but equities took a big hit around the globe today. In the matrix below, we show the ETFs of the 23 countries in our Global Macro Dashboard.  As shown, there was only one ETF that was down less than one percent today: Switzerland (EWL). After that decline, it is now one of only two other countries that are currently above their 50-DMAs: the S&P 500 (SPY) in the US and Taiwan (EWT).  With that said, both of those countries have pulled back dramatically.  Alongside Brazil (EWZ), those two countries are also the only ETFs of this screen that are still in the green for the month of November.  As could be expected, the title of the worst performer with a 6% decline today belongs to ground zero of this new strain of COVID: South Africa (EZA). As a result, it is now at ‘off the chart’ oversold levels trading 3.62 standard deviations below its 50-DMA.  Although they are not as oversold as South Africa, Spain (EWP) and India (INDA) are also more than 3 standard deviations below their 50-DMAs. Meanwhile, Mexico (EWW) is the most oversold country ETF trading almost 4 standard deviations below its 50-DMA.

The drop in South Africa equities has been dramatic, but that is also in the context of what has already been a downtrend over the past few months. Tacking on today’s declines, EZA is now almost flat over the past year.

Steep declines have also resulted in technical breakdowns of multiple other countries like Germany (EGW) and Japan (EWJ).  Other European countries like France (EWQ), Italy (EWI), and the UK (EWU) may not have broken below support, but they are at the low end of their recent ranges. As for Canada (EWC) and the United States (SPY), the pullbacks are notable but not as much of a negative following strong gains this fall. Click here to view Bespoke’s premium membership options.

Like just about all other risk assets this week, it’s been a rough one for bitcoin.  As of Friday morning, the world’s largest cryptocurrency was trading down over 7% to the low $54K range.  After taking out its spring highs in late October and then making a higher high in November, bitcoin has seen a sharp and swift pullback in the last few weeks falling nearly 20%.  Even after the current pullback, the uptrend from the summer lows for bitcoin remains intact as a break of that trendline wouldn’t come into play until around the $50K level.

As anyone even paying some attention already knows, volatility is no stranger to bitcoin.  While the current pullback is nearing the 20% threshold, in the last year alone, bitcoin has seen a number of pullbacks from record highs of similar or even greater magnitude.  As shown in the chart below, if the current pullback reaches the 20% threshold, it would be the fourth pullback of that magnitude or more from a record high in the last twelve months. Of those three prior pullbacks, the first two bottomed out at declines of less than 25%, but the most recent was much deeper as bitcoin was more than cut in half from its April closing high to its July closing low.  Click here to view Bespoke’s premium membership options.

Out of the massive slug of economic data this morning, one major bright spot was jobless claims.  It has now been 88 weeks since the March 13, 2020 release; the last one before claims began to print in the millions.  In that time, claims have fallen to not only take out pre-pandemic levels and the low prior to that of 203K set in April 2019 but today saw the first sub-200K reading since November 20, 1969. That compares to estimates of a reading of 260K and last week’s 2K upward revised number of 270K. On a side note, in 2019 there were three weeks where the initial release of initial claims came in below 200K (1/24, 4/11, and 4/18), but they have been since revised higher.

While that is a significant low in claims, the drop appears to a large degree to be thanks to seasonal adjustment.  On a non-seasonally adjusted basis, claims rose to 258.6K which was the highest level in six weeks.  It is seasonally normal for claims to head higher during the current week of the year with it having happened over 80% of the time historically.  Additionally, that is a bit of catch-up considering claims have been bucking seasonal trends in recent weeks.

Continuing claims were also lower this week falling from 2.109 million to 2.049 million.  As with initial jobless claims, that sets a new low for the pandemic that is 265K above the level from March 13, 2020.

Factoring in all other programs creates an additional week of lag to the data meaning the most recent print is through the first week of November.  The final week of October’s unusual uptick on account of peculiar growth in claims for expired programs has unwound in the most recent week’s data.  PUA claims were more than cut in half as PEUC claims also fell by 121K. Combined that resulted in a new low of 2.44 million claims. Click here to view Bespoke’s premium membership options.