This morning, the Mortgage Bankers Association (MBA) released their weekly reading on mortgage purchase and refinance applications.  Although the composite index was up 1.2%, purchases of homes have been a bit lackluster likely on account of the short supply of existing homes and rising costs to build new homes which we discussed yesterday.  This week, the seasonally adjusted purchases index fell 4.2% and currently sits just above the recent low from the week of February 19th.

We would also note that seasonal tailwinds of mortgage purchases have now likely come and passed.  As shown through the blue dots in the chart below, the annual peak in non-seasonally adjusted mortgage purchases typically comes at some point in March through May.  The only exceptions of the past decade were last year and 2015.

While purchases have continued to decline, refinances have picked up a bit recently.  That index rose over 4% this week as it is now back to the highest levels since the first half of March.

That uptick in refinances comes as the national average of a 30-year fixed rate mortgage has been on the decline after the surge in February and March.  As of yesterday, the national average sat at 3.09% which is around similar levels to last fall.  Again, while refinances have benefited from that decline in mortgage rates, it hasn’t appeared to have impacted purchases as supply is likely the bigger issue at play.  Click here to view Bespoke’s premium membership options for our best research available.

After surging to 52-week highs at the very end of 2020 and into the new year, the Xtrackers CSI 300 ETF (ASHR) tracking China A-Shares collapsed back below its 50-DMA. The decline not only left the ETF in between its 50 and 200-DMA but also brought it back within the range between roughly $37 and $40 that traces back to the ETF’s range from November and December of last year. On Friday, that ended.  ASHR popped almost 3% to not only move out of that range but also to finally move back above its 50-DMA for the first time since late April when there was a false breakout only lasting for a day.  This time around, that breakout appears to be much less of a pump fake with a decent follow-through. Friday’s rally has continued into this week with ASHR up another 0.38% today following a 1.1% rally yesterday.  The ETF now trades 3.86% above its 50-DMA which is now trending sideways rather than downward as it has for the past few months.  Click here to view Bespoke’s premium membership options for our best research available.

Although there are still a decent number of reports scheduled to come out over the next few weeks especially from major retailers, the pace of earnings slows significantly as Walmart’s (WMT) results out this morning marked the unofficial end of earnings season.  With earnings season now more or less in the rearview, taking a look back at this past season, triple plays continued to come in at historically strong levels.  A triple play is when a company reports EPS and sales above analyst forecasts while also raising guidance, which indicates a strong fundamental background for a company.  In the chart below, we show the 3-month rolling percentage of stocks that are reporting triple plays.  The past year has seen this reading skyrocket whether it be on account of dour forecasts and/or business quickly bouncing back from the pandemic.  Even though the rate of triple plays did peak earlier in the year, currently, it sits around 14% which is still well above any reading prior to the past year.

In aggregate, elevated beat rates this earnings season have been met with a yawn in terms of stock price reactions, and that has especially been true of the gold standard of beats: triple plays.  As shown below, the average full-day performance on the earnings reaction day of those stocks that reported triple plays this season was only a 1.97% gain.  While positive and much better than the 48 bps average decline for all stocks reporting this season, it does set a record for the worst collective reaction to triple plays of any earnings season going back to 2001 when our Earnings Explorer data begins. The past two quarters have similarly been met with historically weak reactions, but this past quarter has blown those out of the water. On the bright side, the percentage of triple plays that rose on their earnings reaction day did rise to 62.94% from 61.25%.  That is the highest reading of the past few quarters, but again, is a historically muted reaction.

In the earlier days of this past earnings season, we had highlighted one other interesting trend regarding recent triple plays: it hasn’t been just one sector or group with strong beat rates, rather a high percentage of stocks are reporting triple plays regardless of their sector.  Even with the aggregate percentage of stocks reporting a triple play having peaked, that strong breadth was still evident through the end of the current earnings season. The percentage of stocks reporting triple plays within the Communication Services, Consumer Discretionary, Consumer Staples, Industrials, Materials, and Tech sectors were all at a record high or had pulled back but were still above any reading prior to the past year.  Some of the more remarkable readings came from Consumer Discretionary, Industrials, and Materials which have been well above any historical precedent. Even for sectors that did not necessarily see a large share of their stocks report triple plays compared to times in the past, like Energy or Financials, this quarter’s readings were still some of the strongest of the past several years. Click here to view Bespoke’s premium membership options for our best research available.

Last week, we highlighted how the recent market declines had struck fear in the hearts of investors as the American Association of Individual Investors (AAII) weekly survey of bullish sentiment dropped to 36.5% – its lowest level since October.  Along with individual investors, another sentiment survey of ‘active managers’ also showed a notable reigning in of bullish sentiment.

The National Association of Active Investment Managers (NAAIM) conducts a weekly survey of its members to see how exposed they currently are to the market, ranging from leveraged long (+200) to leveraged short (-200).  In last week’s survey, overall exposure dropped from 87.8 (nearly fully invested) down to 46.9 – the lowest level since last April!

Not only did the NAAIM Exposure Index drop to its lowest level since last April, but the magnitude of the drop was even more significant.  With a w/w decline of nearly 41 points, the NAAIM Exposure Index experienced its largest decline since last September, and before that, 2008!  Up until last week, there was a credible argument that sentiment had become a bit too frothy, but there’s nothing like a market sell-off to get investors back on their toes.  Click here to view Bespoke’s premium membership options for our best research available.

The national average on a 30 year fixed rate mortgage currently sits around 3.06%, little changed over the past month.  Homebuilder sentiment as measured by the NAHB Housing Market Index similarly went unchanged in May staying at 83. Although it has been six months since the record high of 90 without much of a push back up to those record levels, homebuilder sentiment continues to come in well above anything observed prior to the pandemic. Commentary from the NAHB noted that the strong reading on homebuilder confidence is thanks to the low housing inventories, low rates, and strong demand, despite the headwinds of rising costs. While that could have played into the small decline in traffic, future sales did tick higher.

Whereas the headline number was flat on the month, readings based on each region saw much more variety.  By far the largest move was for the Northeast.  Since running back up to the record high back in February, homebuilder sentiment in the Northeast has fallen for three straight months and is now at the lowest level since January.  The decline in sentiment in the Northeast is relatively recent. Whereas the region tied its record high earlier this year, the other regions all peaked out in the fall. For the Midwest, the declines have kept coming with 3 point declines in each of the past three months alone.  The West and South, on the other hand, have found some respite.  The South has ticked higher by 2 points in back-to-back months as it reached the highest level since December.  Meanwhile, the West was unchanged at 91 in May.

As for homebuilder stocks, the iShares US Home Construction ETF (ITB) had been trading in overbought territory throughout most of the spring but in the past couple of weeks, it has come back down to Earth. Last Wednesday, ITB successfully tested its 50-DMA with a small bounce at the tail end of the week.  So far today, it has turned lower alongside the broader market with a 1.35% decline. While that means Friday’s close marks a lower high, for the time being, the uptrend is still intact. Click here to view Bespoke’s premium membership options for our best research available.

The first manufacturing data for May came out this morning with the release of the New York Fed’s Empire State Manufacturing Survey.  General business conditions remain at historically strong levels although there was some slowing in May as was expected.  After hitting the highest level since October 2017 last month, it was expected to fall to 23.9 in May.  The index did in fact decline, but only to 24.3.  While lower, that is still around some of the strongest levels (excluding last month) in three years as more businesses continue to report improvements in business conditions than weakness.

Breadth in this month’s report was pretty mixed; namely with regards to current conditions versus expectations. Every index is still showing an expansionary reading with particular strength out of the indices for the present situation.  In fact, most of those indices still sit in the top decile of their historical range with a few like those for unfilled orders, delivery times, and prices even at or just off of record highs.  But there were a handful that moved lower: delivery times, inventories, and number of employees.

Regarding expectations, it was much harder to find an increase. Delivery times and technology spending were the only two of these indices to rise month over month.  While many indices for expectations still sit at historically strong levels, there are more that are middling within their respective historical ranges. Overall, the report showed that New York area firms have seen a peak in optimism even as they continue to report strong conditions.

Demand certainly appears to be one area without much in the way of weakness.  New orders rose 2 points month over month to 28.9.  That is the highest level in just over 15 years and the only other readings as high occurred throughout late 2003 to mid-2004.  Those orders are making their way out the door at an increased rate too as shipments climbed to 29.7.  That index has been making a vertical climb since the winter as it reached its highest level since August 2007.

Despite this, NY area firms are not fulfilling orders fast enough.  Last month saw the Unfilled Orders index rise by one of the largest amounts in a single month on record, and it continued to climb albeit by a much smaller 0.2 points in May.  The only month on record with a higher reading in unfilled orders was September 2001. Inventories were one of the few current condition indices to fall in May, although the reading still indicated growth. In other words, those unfilled orders are not necessarily drawing down on inventory levels.

Supply chains are one of the main areas that are likely holding things back. Higher readings in the delivery times index mean that businesses are reporting that it takes longer for products to reach their destination.  Even after falling 4.5 points in May off of the April record, the current level sits well above the prior record high of 16.2 from March 2018.

In addition to taking longer for products to get to where they are going, the price point is on the rise.  Both indices for prices paid and received rose to record highs in May. In fact, over the past two months, there has not been a single respondent to have reported a decrease in prices paid.  That is the first time that has occurred since February and March 2012.

Last week saw a blockbuster job openings report and the Empire Fed survey is showing a similar willingness to take on more workers.  The current conditions index for the number of employees continues to show that businesses are on net increasing their workforce, though at a slowed pace from April. Additionally, the index is at a much less elevated part of its range (the 81st percentile) relative to other indices within the report, but the much more elevated reading in expectations (98th percentile) would indicate the businesses would like to take on far more workers. That is, there appears to be a bit of a disconnect between the actual number of new hires and businesses’ expectations to take on more workers.  Potentially as a result of an inability to hire enough workers, the average workweek has continued to climb.  At 18.7, the index is at its highest level in a decade. Click here to view Bespoke’s premium membership options for our best research available.