Initial jobless claims have been on the rise over the past couple of months with last week’s original reading of 965K marking the highest level in claims since August.  While claims remain well above where they have been over the past several months, there was a significant improvement this week.  Not only was last week’s number revised down to 926K, but claims for the current week also dropped down to 900K instead of the forecasted reading of 935K.

That improvement was echoed in the non-seasonally adjusted number which fell to 960.7K after rising back above 1 million last week. Again, although that is an improvement, the level of claims still remains at an elevated level relative to the past several months.

Additionally, looking at seasonality it should come as absolutely no surprise that unadjusted claims were lower week over week. As shown in the chart below, since the data begins in 1967 there has not been a single year in which the current week of the year (3rd) did not see claims move lower.

Factoring in other programs, namely Pandemic Unemployment Assistance (PUA), the improvement was much less impressive.  Total claims did fall but only from 1.397 million down to 1.384 million. That means a large uptick in PUA claims made up the difference for the drop in regular state claims. PUA claims rose from 284.9K last week to 423.73K this week. That was the highest reading in PUA claims since the week of December 11th. As we have noted in recent weeks, there have been some irregularities in the reporting of PUA claims on a state-by-state basis likely as a result of the timing of the signing of the recent spending bill. That larger uptick this week could be some catchup from lapses in the past few weeks.

Lagged one week to initial jobless claims, continuing claims likewise made a move lower that exceeded expectations in the most recent week.  The previous week’s number was revised down to 5.181 million from 5.271 million.  This week, claims were expected to tick higher up to 5.3 million. Instead, claims dropped down to 5.054 million; a new low for the pandemic.

The most recent week’s data available for continuing claims across all programs is for the first week of 2021.  To start off 2021, total claims across all programs dropped sharply from 18.442 million down to 16.028 million.  Taking a closer look at that week, regular state claims had risen 384.7K which was offset by big declines in PUA and PEUC programs, each of which fell by well over 1 million. While at first glance that may seem like a major improvement, we would note that there likely is a bit more nuance in the decline.  More likely, that decline had to do with a mix of issues with reporting around the holidays and the timing of the spending bill which had extended these programs originally slated to expire at the end of 2020.  Click here to view Bespoke’s premium membership options for our best research available.

The NAHB’s reading on homebuilder confidence was expected to go unchanged at a very strong reading of 86 in January.  Instead, the NAHB’s headline index fell down to a reading of 83. Although that is lower, it remains well above any pre-pandemic reading. In other words, homebuilders are less confident than they have been in the past couple of months but sentiment remains overwhelmingly positive.

Even after falling two months in a row, the overall market index and most of its sub-indices remain near record highs.  As for the regional indices, there is a bit more variation.  The index for the Northeast has seen the sharpest decline falling 10 points in January. That is tied with August of 2018 for the seventh-largest month over month decline on record.  While still in the top decile of historical readings, it is far lower than the other regions. On the other hand, albeit lower, the Midwest and the West are the two regions that remain at the highest ends of their historical ranges.

With earnings season underway, the next month will see the vast majority of the S&P 1500 homebuilder stocks report earnings.  The snapshot below is from our Custom Portolfios tool. This should give more color to the overall picture for homebuilders. As for the companies reporting, only one, MDC Holdings (MDC) has averaged a full day decline in response to earnings.  Additionally, historic beat rates are generally pretty strong across the board. Click here to view Bespoke’s premium membership options for our best research available.

One of the few economic data points released today was weekly mortgage applications from the Mortgage Bankers Association (MBA), and the data was positive.  Seasonally adjusted purchases rose 2.7% week over week to the highest level since the last week of November of 2008.  That eclipses the previous high of the cycle from late November of last year.

On an unadjusted basis, the average level of mortgage purchase applications is off to its strongest start to a year (through the first three weeks) since 2008.  As shown in the second chart below, the seasonal bottom for purchase applications typically occurs at end of each year. With that now in the rearview, purchases have been following the seasonal trend higher. This increase typically lasts throughout the rest of winter and peaks in the spring (usually in late April/early May as indicated by the blue dots). So far in 2021, purchase applications are not only following that seasonal pattern but are also running at a stronger pace than other years of the past decade.

While purchase applications were stronger, refinance activity took a step back in the most recent week.  The Refinance index dropped 4.72% week over week. Although that is lower, outside of last week it is still at some of the highest levels since last March’s spike higher.  That is also around levels not seen since the spring of 2013.

In terms of related stocks’ reaction to this data, initially this morning, that stronger reading in mortgage purchases led mortgage REITS as proxied by the iShares Mortgage Real Estate ETF (REM) to nearly break out from the past couple of month’s range. but the rally was stopped in its tracks by the release of the weaker than expected homebuilder sentiment reading from the NAHB. Meanwhile, perhaps a bit ironically, the S&P Homebuilders (XHB) have continued to rally, rising 2.37% to a new 52-week high.Click here to view Bespoke’s premium membership options for our best research available.

It’s Inauguration Day, and so far equities are welcoming in the new administration with a gain of more than 1% for the S&P 500 (SPY).  As to how that compares to the first day of past presidencies, in the chart below, we show intraday performance on Inauguration Day since the start of Reagan’s second term in the mid-1980s when our intraday data begins.  Excluded are the inaugurations for George W. Bush’s first term and Obama’s second term considering these fell on days that the market was closed; a Saturday in the case of the former and MLK day for the latter.

The second inauguration for Ronald Reagan was met with the strongest performance for the S&P 500 as the index steadily drifted higher throughout the day to rise 2.28% by the close. With the S&P 500 up over 1% today, it is on pace for the best Inauguration Day performance since then.  On average across all of these days, the S&P 500 has typically traded lower throughout the session with a leg lower in the early morning and another towards the end of the day (second chart).  Breaking performance down by political party, inaugurations for Republican administrations have averaged a move higher with a bit of a dip midday while performance during inaugurations of Democrats has been weaker. Much of this weakness, however, is due to Obama’s first inauguration which came during the throes of the financial crisis.

As for the ushering in of a new administration or four more years of the same, performance has also tended to be quite different.  As shown below, a president’s first inauguration over the past few decades has resulted in the S&P 500 dropping an average of 1.36% by the end of the day as the index steadily trades lower throughout the session.  Again, much of this weakness can be attributed to the sharp decline on the day of Obama’s first inauguration. Conversely, the second inauguration of a president has seen the S&P 500 steadily trade higher. Click here to view Bespoke’s premium membership options for our best research available.

Earnings season is now in full swing, and we’ve already seen reports from seven of the largest and most significant banks and brokerage firms.  While the results have been good, investors have been reacting with a sell the news attitude.  As shown in the table below, all seven of the major banks and brokerage firms reporting so far have topped EPS forecasts.  Revenues, on the other hand, haven’t been as positive relative to expectations with four beats and three misses.  Where the real weakness has been, however, is in stock price reactions.  Of the seven names reporting, five have either had or are on pace to have a negative one-day reaction to their earnings report, while just two – Bank of America (BAC) and Charles Schwab (SCHW) – are just marginally higher today in reaction to their reports.  While these two stocks are higher, we would note that BAC was down 3% in sympathy with the other banks on Friday, so the only one of the seven listed that is at the same levels or higher now than it was at last Thursday’s close is SCHW.

With the seven stocks listed below all beating EPS expectations but averaging a decline of close to 3% in reaction to their earnings reports, we wondered how common it is for EPS relative to expectations to come in so strong in an earnings season but the stocks reacting so poorly.  Using our Earnings Database and running some filters, we found just five other quarters in the last ten years where all seven stocks reported better than expected EPS.  Interestingly enough, of those five periods, the average one-day reaction of the seven stocks in that earnings season was negative four times.  The only earnings season where the seven stocks averaged a gain on their earnings reaction day was the Q4 2018 reporting period in January 2019.  The worst reaction of these seven stocks in an earnings season when they all topped EPS forecasts was last earnings season in October when they averaged a decline of 2.95% with five of the seven names declining.  It was only three months ago, but already last October seems like so long ago.  Not a client? Click here to view Bespoke’s premium membership options including Bespoke Institutional, which provides full access to our Earnings Explorer tool.

One of our Interactive Tools that subscribers have access to provides historical seasonality trends for the S&P 500.  Our Seasonality Tool allows users to track historical trends of the broader market, ETFs, and individual stocks over pre-defined and custom time periods over the last ten years.  Subscribers who have created custom portfolios can also track the names in these various baskets in order to see which ones have historically performed the best and worst over different time periods.

The gauges below are from the Seasonality Tool, and they show the S&P 500’s median performance over the last ten years for the upcoming week, month, and three months.  For each time period, we show the S&P 500’s median change during that span as well as how that performance ranks relative to all other periods throughout the year.  Using the one-week time period as an example, the S&P 500’s median performance over the upcoming trading week has been +1.15% over the last ten years.  Relative to all other one-week periods throughout the year, it ranks better than 89% of them.  For the one-month period, the S&P 500’s 3.11% median performance has been even better relative to other periods, ranking better than 94% of them.  Over the next three months, though, the S&P 500’s median gain of 3.17% is not quite as strong, ranking better than only 63% of other three-month periods.

One sector that has been strong during the upcoming one-month period is semiconductors.  In our Seasonality Tool, you can track that sector’s performance by looking at the ETF SMH, but below we wanted to summarize the performance of the Philadelphia Semiconductor Index (SOX) in the upcoming one-month period, not just over the last ten years but also going back to 1996.  As shown in the table, from the close on 1/18 (or the most recent close before that if 1/18 wasn’t a trading day) through the close on 2/18, the SOX has seen an average gain of 3.53% (median: 4.35%) with gains just over two-thirds of the time.  That’s more than twice as strong as the average gain of 1.3% for the SOX over all one-month periods since 1996.  Over just the last ten years, the performance of the SOX over the next month has been even stronger with a median gain of 4.85% and gains in every year except 2018.

With a rally of 7% already YTD, the semiconductor group has had a strong run to start the year and heads into this week at overbought levels.  It’s going to be hard to keep up at this pace, but at least one factor working in its favor is a seasonal tailwind.  Click here to view Bespoke’s premium membership options for our best research available.

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.

While you’re here, join Bespoke Premium with a 30-day free trial!

Retail Rippers

Penny-Stock Peddlers Piling Into Reddit Forum Prompt Rule Change by Sarah Ponczek (Bloomberg)

After an influx of schemes and promotions, moderators of a subreddit focused on low-price shares have moved to ban discussion of cryptocurrencies and any services, newsletters, or other social media accounts. [Link; soft paywall]

TikTok and Discord Are the New Wall Street Trading Desks by Caitlin McCabe, Gunjan Banerji and Mischa Frankl-Duval (WSJ)

There has been rabid interest in hot stocks promoted on social media, driving stampedes of small buyers in to obscure stocks which suddenly go parabolic thanks to the promotion on a range of social platforms. [Link; paywall]

Food & Drink

In Search of Ragu by Matt Goulding (Roads & Kingdoms)

The author goes searching for the plate that best captures the platonic ideal of pasta: rich, complex, and loaded with flavor buried in the depths of Bologna. [Link]

The Seven Essential Southern Dishes by Sheri Castle (Bitter Southerner)

While it’s impossible to completely distill a cuisine as varied and diverse as the South’s into a few dishes, the author gives it a shot. The results may surprise you, but don’t fret: each comes with a recipe to try. [Link]

This artificial ‘nose on a chip’ can sniff out wine, coffee, and noxious gas by Luke Dormehl (DigitalTrends)

A German company has developed a chip that can detect the chemicals that make scents smell to us the way they do. [Link]

Crypto

Lost Passwords Lock Millionaires Out of Their Bitcoin Fortunes by Nathaniel Popper (NYT)

Early adopters that stored bitcoin wallets on hard drives or other external media have millions of dollars at their finger tips but just out of reach. [Link; soft paywall]

Exclusive: Large bitcoin payments to right-wing activists a month before Capitol riot linked to foreign account by Jenna McLaughlin (Yahoo!)

A French programmer sent millions of dollars worth of bitcoin payments to far right activists in the month before the riot which sacked the US Capitol earlier in January. [Link; auto-playing video]

Real Estate

Manhattan Bargain-Hunters Drive a 94% Jump in Apartment Leases by Alex Wittenberg (Bloomberg)

With rents dropping sharply, the number of lease signings for Manhattan apartments has doubled versus a year ago, putting a bid under a bedraggled Manhattan market. [Link; soft paywall]

U.S. banks cast wary eye at mortgage borrowers as forbearance periods end by Imani Moise (Reuters)

With millions of borrowers receiving forbearance on their mortgages, banks are having a hard time trying to figure out whether non-payers are actually financially struggling or are just taking the opportunity to save some payments. [Link]

Tech

Why Joe Biden Can’t Bring His Peloton to the White House by Courtney Linder (Popular Mechanics)

Not averse to an occasional spin class, the President-Elect will have to leave his Peloton bike in Delaware because its Android tablet, internet link, microphone, and camera pose security risks in the West Wing. [Link]

Every Deleted Parler Post, Many With Users’ Location Data, Has Been Archived by Dell Cameron (Gizmodo)

After right-wing social network Parler was kicked off a number of services that were part of its core architecture, hackers exploited a number of vulnerabilities and managed to capture almost the entirety of the social network. [Link]

Medical Breakthroughs

Bupropion and Naltrexone in Methamphetamine Use Disorder by Madhukar H. Trivedi, M.D., Robrina Walker, Ph.D., Walter Ling, M.D., Adriane dela Cruz, M.D., Ph.D., Gaurav Sharma, Ph.D., Thomas Carmody, Ph.D., Udi E. Ghitza, Ph.D., Aimee Wahle, M.S., Mora Kim, M.P.H., Kathy Shores-Wilson, Ph.D., Steven Sparenborg, Ph.D., Phillip Coffin, M.D., M.I.A., et al. (NEJM)

A new study compared the effects of two drugs designed to reduce addiction to methamphetamines and found that while imperfect, there was a significant effect versus placebo. [Link]

Cancer Death Rate in U.S. Falls by Largest Yearly Amount on Record by Brianna Abbott (WSJ)

Thanks mostly to novel treatments for long cancer, recent data shows another huge drop in the cancer death rate to the lowest on record for women and near the lowest on record for men. [Link; soft paywall]

Baseball

He Just Wanted to Play Catch. They Got Relief From Troubled Times. by Mike Wilson (NYT)

A quest for a partner to play catch with led to a full pickup game that allowed all participants to escape the stresses of 2020 and just play ball. [Link; soft paywall]

Mickey Mantle card crushes record after selling for $5.2 million by Dan Martin (NYP)

A 70-year-old baseball card topped the previous record price by more than 20%; it’s one of only about three left in good shape according to experts. [Link; auto-playing video]

Personnel Change

James Simons Steps Down as Chairman of Renaissance Technologies by Gregory Zuckerman (WSJ)

After a huge year for the internally-managed funds at Renaissance Capital but a very bad one for clients, one of the firm’s founders is stepping down. [Link; paywall]

Hippos

Invasion of the hippos: Colombia is running out of time to tackle Pablo Escobar’s wildest legacy by Sarah Kaplan (WaPo)

Hippos that escaped the mansion of Pablo Escobar after his fall have become an invasive species in Colombia, and one that is very close to making a permanent mark on the region’s biosphere. [Link; soft paywall]

PPP

‘It Was a Joke’: Some Small Businesses Got $1 Relief Loans by Stacy Cowley (NYT)

A small number of the five million companies that got loans through the Paycheck Protection Program got loans of less than $99, which comes across as something like a cruel joke. [Link; soft paywall]

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Have a great weekend!

The New York Fed’s reading on the manufacturing sector released this morning showed the region’s manufacturing sector still grew in January but at a slower pace.  Rather than the expected uptick to a reading of 6.0, the index fell to 3.5 from 4.9.  That is the lowest reading since the last contractionary reading (those below 0) in June.

While the headline number is still consistent with growth it stands at the low end of the historic range.   Similarly, demand related readings like New Orders and Shipments remain historically low, albeit still indicative of growth.  Of each component in the report, only the indices for Unfilled Orders and Inventories remain in contraction. Meanwhile, in addition to the headline index, the indices for Shipments, Unfilled Orders, and Number of Employees all showed deterioration in January.

Whereas indices like New Orders and Shipments sit at lower ends of their historical ranges, those concerning employment are stronger.  The index for Number of Employees showed slowing in hiring in January, though, firms were in fact continuing to take on more workers. Additionally, Average Workweek saw a bit of a bounce after declining in the final months of 2020.

The only indices to see dramatic moves higher in January concern prices.  Prices Paid rose from 37.1 up to 45.5 which is the highest level since September of 2018.  That 8.4 point increase was in the 87th percentile of all monthly moves for the index.  Higher prices are also being passed on to customers as Prices Received was higher rising to 15.2. For that index, the level and move higher were not as dramatic. though. as it is only at the highest level since February of last year. That acceleration in rising prices is consistent with what we saw in the ISM report on the manufacturing sector last week.  Click here to view Bespoke’s premium membership options for our best research available.