There has been a massive slate of economic data today including one of the most widely watched indicators of late: initial jobless claims. Claims fell again this week down to 2.123 million compared to a downward revised 2.446 million last week.  Although lower, this week’s number was slightly above estimates of a 2.1 million print.

As we noted last week, although it doesn’t take from the fact that over 40 million jobless claims have been filed since the week of March 20th and claims continue to come in at higher levels than anything observed prior to COVID-19, they have been improving over the past couple of months. This week marked an eighth consecutive week with initial jobless claims declining sequentially. As shown in the chart below, that streak is now the longest ever, surpassing two seven week long streaks from October of 1980 and November of 2013.

As for the non seasonally adjusted data, it has only fallen for seven consecutive weeks now with the decline to 1.915 million this week. This week also marked the first sub-2 million NSA claims print since they first exploded higher at the end of March.

Albeit the labor market picture is still weak, initial jobless claims grinding lower in recent weeks is a positive. With states beginning to reopen, continuing claims are also beginning to fall.  Seasonally adjusted continuing jobless claims fell to 21.052 million this week (NSA=19.052 million from 22.794 million last week). That is a massive 3.86 million or 15.49% drop from last week. That is the largest one week decline ever recorded (as was the NSA WoW decline of 16.42%) but that comes with a bit of a caveat.

While continuing claims dropped, the improvement is potentially less dramatic than the headline numbers imply.  For instance, the bulk of this week’s decline in the US total is thanks to extremely large and yet to be explained 40.46% sequential decline in California and an even larger 76.35% decline in Florida.  Washington continuing claims also experienced a smaller but nonetheless significant decline of 39.69% WoW.  For Washington and Florida those were the largest one week drops on record. As for California, it was the largest one week decline since a 40.72% decline two weeks ago. While those massive declines could absolutely be legitimate, the sheer degree of the move should be handled with some skepticism especially given issues with state reporting like in Connecticut and Massachusetts in recent weeks and hiccups in Florida regarding work search questions.  Excluding the enormous moves of these three states, continuing claims would fortunately still be lower, but at a more modest 1.51%.   Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

While everyone was busy writing the Nasdaq’s obituary this morning, the index responded, “Not so fast.”  After falling more than 2% intraday, the Nasdaq erased all of the early declines and not only finished higher, but it actually saw a healthy gain of over 0.5%.  To put today’s move in perspective, even with the volatility of the last several months, the last time we saw a similar positive reversal (down 2%+ intraday, finished up 0.5%+) was back in February 2018 (2/6 and 2/9).

Before the two occurrences in February 2008, you have to go all the way back to the Financial Crisis to find another occurrence when there were nine in the period spanning January 2008 through February 2009.  The real sweet spot for these types of reversals, though, was in the late 1990s and early 200s.  In the runup to the March 2000 peak, there were ten similar reversals and then another 22 from the dot-com peak through the 2002 low. As for the Nasdaq’s return going forward, unfortunately, these types of reversals aren’t indicative of much besides the fact that there was an upside reversal that day.  Start a two-week free trial to Bespoke Institutional to access all of our research and interactive tools.

There’s been a number of different stories flowing around this morning regarding the fact that more than 90% of stocks in the S&P 500 are above their 50-day moving averages (DMA) and how that has historically been a bullish indicator for the subsequent performance of the market.  Rather than focus on all of those winners, though, we wanted to look at some of the losers, namely, the S&P 500 stocks that are currently below their 50-DMA.

The table below lists the 34 S&P 500 stocks that were trading below their 50-DMAs as of this morning.  Not only are there a relatively small number of stocks on the list, but seven of them are within 1% of their 50-DMAs and only four are more than 5% below.  In other words, if the equity rally continues to have legs, this list could quickly shrink even more.

In looking through the names on the list, two notable trends stood out.  First, although Energy, Financials, and Industrials are the worst performing sectors so far this year, Cincinnati Financial (CINF) is the only stock on the list from one of those sectors (Financials).  Meanwhile, Technology, the top-performing sector in the S&P 500 so far this year, accounts for two of the names on the list (Motorola Solutions – MSI and Citrix Systems – CTXS).  The sectors that account for the most names on the list are Consumer Staples (8), Utilities (8), and Health Care (7).

A second notable aspect of the names listed pertains to recent performance.  In going through the charts of the names listed, you would expect to mostly see charts of bombed-out stocks that were so weak that they couldn’t even manage to rally in this environment.  While that was the case for many of them, there were also a number of stocks that actually outperformed in the initial stages of the bear market, but have started to fall apart either later in the decline, or in many cases, after the market bottomed.  The nine stocks shaded in the table below (charts below) all traded at 52-week highs at least two weeks after the S&P 500 peaked in late February.  These are all generally names that investors thought would benefit from the pandemic and a prolonged decline.  Now that markets have stabilized, though, and the economy appears to be on the mend, there’s been a rotation out of them. One example is Citirix Systems (CTXS).  After hitting a 52-week high as recently as May 11th, it now finds itself on the loser list.  Start a two-week free trial to Bespoke Institutional to access all of our research and interactive tools.

This morning, the Dallas Fed updated its monthly manufacturing survey. Like other regional Federal Reserve indices of late, May saw a substantial improvement from April though the index, as well as its components, remain at extremely low levels.  The 24.8 point increase from April’s -74 to May’s -49.2 was the largest one month increase on record but only leaves it in the 4th percentile of all readings.  Today’s reading was also well ahead of consensus expectations for a reading of -61.0. The headline number for the six-month outlook also rose by 24 points which is in the 98th percentile of all MoM changes.

Given the improvement of the headline number, just about every component saw improvement with the exception of the index for finished good inventories which fell by 0.1 points.  But that does not mean every component is showing expansionary readings.  As with other regional Fed indices, conditions are still worsening just not at the same pace as in April.  While it may not necessarily be a positive, only raw material prices is showing an expansionary reading (above 0). But as for six-month outlooks, the picture is a bit more optimistic.

Take a few of the components for production and demand.  While current production and capacity utilization are still showing readings deep in contractionary territory, the indices for six months ahead surged to actually show expansionary readings this month. For production, that is the widest divergence between the six-month and current outlooks on record.  While not at a record, the spread between the six-month and current outlook for capacity utilization is also in the 99th percentile. The same can be said for new orders and new order growth rate as both spreads are in the 95th percentile of all readings.

For production and capacity utilization, the readings this month for six-month outlook rose to pretty much within range of the past several years. In other words, Texas area manufacturers expect production to nearly return to normal in six months. The six-month outlook for new orders, though, is not as optimistic with May’s reading still much further below its range, meaning demand is not expected to ramp back up to quite the same degree as production.

As for employment, these indices seem to echo weekly jobless claims of late.  Even though Texas manufacturers are still taking on fewer employees, the pace has improved from April. But there also does not appear to be much in the way of plans to expand workforces in the future. The six-month outlook for employment is still showing contraction, although hours worked are expected to rise.  Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

“Many Americans used part of their coronavirus stimulus check to trade stocks.” – CNBC

“Day Trading Has Replaced Sports Betting as America’s Pastime.” – Barron’s

“Frustrated sports punters turn to US stock market.” – FT

“Many Americans used coronavirus stimulus check money to trade stocks.” – The Sun

We could go on and on with headlines like the ones above.  As equities made new short-term highs last week, the pace of articles suggesting that the rally was being driven by unemployed Americans on their couches with nothing better to do but trade stocks increased at a fever pitch.  This is not the type of foundation you want to build a rally on.  Either out of work Americans are eventually going to find new jobs as the economy opens up and no longer have time to trade, or they are going to run out of money and have no money to trade.

Given all of these headlines last week, we were eager to see today’s report on Consumer Confidence for May, and more specifically, the section of the report that asks consumers whether they expect stock prices to increase or decline.  This is an important indicator of sentiment because rather than gauging the sentiment of investors who likely follow the market on a regular basis, the people surveyed in the Consumer Confidence report provides a more representative sample of the ‘average Joe’.  Extreme readings in sentiment on the part of the general public typically represent strong contrarian signals.

One would think that if a large number of consumers were sitting at home trading stocks, then we would see an uptick in general sentiment towards stock prices.  That’s exactly what we saw back in late 2017 and early 2018 when stocks were breaking out and bitcoin was going bananas.  Shortly thereafter, though, the S&P 500 experienced its first 10% correction in well over a year and then essentially traded sideways for the next year and a half.

In this month’s report, though, the percentage of consumers expecting higher stock prices actually saw a slight decline, falling from 40.8% down to 39.3% while the percentage of consumers expecting stock prices to decline actually rose slightly from 37.6% up to 37.7%.  While the percentage of consumers expecting higher stock prices is still slightly higher than the percentage expecting lower prices, the spread remains minimal at 1.6 percentage points.  What to make of this report?  While on the couch traders have likely played a role in the rally off the March lows, we would say that their actual role in driving the rally is a lot less than the headlines would suggest. Start a two-week free trial to Bespoke Premium to access our most actionable market research and interactive investor tools.

Consumer Confidence showed a slight improvement in May, rising from 85.7 up to 86.6 but below consensus expectations for a reading of 87.0.  While this month’s print was weaker than expected, the fact that confidence didn’t decline further is a moral victory and provides additional signs that activity bottomed out in April.

All of the improvement in this month’s report came from expectations which ticked higher for the second straight month while the Present Situation component actually made another low, falling to its lowest level since August 2013.  It’s good to see that consumers are relatively upbeat about the future, but if the Present Situation index keeps making new lows, that will eventually bleed into sentiment towards the future as well.  The key here will be Summer.  Things will likely spiral in one way or the other.  Either people come out and case counts start to spiral higher, or case counts remain stable and social activity spirals higher.

One reason we haven’t seen a bounce in consumer sentiment towards the Present Situation is that consumers feel increasingly uneasy about the job market.  In this month’s survey, only 17.4% of consumers believe jobs are plentiful – a level not seen since 2014. This low of a reading is only natural when the majority of retail businesses are closed, but as things start to open back up, the hope, at least, is that job opportunities increase.  Start a two-week free trial to Bespoke Premium to access our most actionable research and interactive tools.

The S&P 500 has managed to trade in overbought territory for most of the past week. Looking across the eleven major S&P 500 sectors, six are overbought (over 1 standard deviation above its 50-DMA) at the moment while five are neutral (within 1 standard deviation of its 50-DMA).  Industrials, a recent laggard, was the best performing sector last week, gaining 7.2%. That rally led the sector to not only take out its 50-DMA but also move into overbought territory.  Financials, Real Estate, and Utilities which have also fallen behind performance-wise recently also managed to finish above their moving averages though they have not reached overbought territory just yet.  Regardless, conditions across sectors are broadly overbought at the moment if not approaching overbought.