It has been a very strong couple of weeks for housing-related indicators as recent reports on Building Permits, Housing Starts, Existing Home Sales, and New Home Sales have all exceeded forecasts.  Using data from our Economic Indicators Database, we found that it isn’t often that all four indicators come in better than expected in the same month.  Going back to the start of 2006, there have only been 12 months in a total of 165 where all four indicators exceeded forecasts. While similar scenarios have been relatively uncommon in the past, more recently, we have seen an uptick in the number of occurrences.  Of the 12 occurrences, six of them have occurred since the middle of 2016, and before that, there was a five year stretch without a single occurrence.

In addition to these four housing-related indicators all beating expectations this month, they have also done so by a wide margin.  Of the four indicators we looked at, the reported readings exceeded consensus expectations by a total of 397K.  The chart below shows the total spread between the actual readings in the four housing indicators noted and total expectations and have colored the months in red where the total spread was equal to or above this month’s total.  Again, of the 165 prior months for which we have data on all four indicators, only five saw a higher spread between the actual reported readings and expectations.  Between the positive breadth and the wide margins between the actual and estimated readings, strength of the type we saw in August housing data doesn’t come around too often. Start a two-week free trial to Bespoke Institutional to access our popular Earnings Explorer tool and our full Research Dashboard.

Homebuilder KB Home (KBH) is set to report earnings after the close today, and it looks to have a very high bar in terms of expectations given how much it has rallied over the last few weeks.  With housing data coming in much better than expected over the last couple of months as mortgage rates have fallen, KBH is up 70% YTD and 15% this month alone.  When a stock is trading at extreme overbought levels heading into an earnings report, it has a lot to live up to.

KBH has been an earnings beast over the last few years.  Remarkably, the stock has opened higher on the first trading day following its last ten quarterly reports!  You have to go back to KBH’s January 2017 report to find the last time the stock opened lower in reaction to earnings.  This type of positive consistency in reaction to earnings cuts both ways.  On the one hand, why fight the tape and bet against such a big earnings winner?  On the other hand, KBH is certainly due for a clunker one of these quarters.

Our take would be to avoid being long this name into earnings tonight because of how extended it has gotten this month.  As mentioned earlier, the stock has rallied 15% since the start of September, so we have to assume that most of the positives from tonight’s earnings release have already been priced into the stock.  On the flip side, a failure to handily beat expectations would likely send KBH shares falling sharply back down to their normal trading range.Start a two-week free trial to Bespoke Institutional to access our popular Earnings Explorer tool and our full Research Dashboard.

The British Pound (GBP) has had no shortage of catalysts in the past week given the recent developments in Brexit news—which we have been consistently covering in our Morning Lineup. Following yesterday’s decision from the UK’s Supreme Court, GBPUSD rose almost half a percent (stronger GBP), continuing the rally that has taken place over the past several weeks. That rally is off of a support level around the lows of the past decade near 1.2 that the pair first tested early last month and once again this month.  Turning to today, yesterday’s move has been reversed and then some as the pound has weakened by more than 1%. Although the pair is still healthily above this support as of now, if declines continue—erasing the past few weeks’ moves higher—then GBPUSD could once again find itself within reach of ten-year lows.

Another one of the currency pairs of the 23 countries covered in our Global Macro Dashboard is showing a similar pattern to GBPUSD. As with the pound, the Australian dollar versus the US dollar has also weakened to support that was established several years ago. While GBP has managed to hold up at this support, AUDUSD has fallen through to its lowest levels of the past decade.  In the past couple of weeks, the pair has come back to restest this support as resistance, but it failed to make a move higher indicating potential for more downside.

Meanwhile, the dollar has been strengthening against the Brazilian real. In fact, the dollar is nearing its strongest levels versus BRL of the past decade.  Coming up near resistance around 4.2, USDBRL is forming a cup and handle pattern and is looking to break out higher.

Alongside these exchange rates, you can track the changes in several other countries and their global macroeconomic data using our Global Macro Dashboard. Start a two-week free trial to Bespoke Institutional to access our Global Macro Dashboard much more.

Last night in The Closer, we discussed the huge divergence between regional Fed manufacturing activity indices and the ISM Manufacturing Index. In the chart below, we’ve created a proxy for the ISM Manufacturing Index by averaging sub-indices from various regional Fed manufacturing surveys. The result is generally well-correlated to ISM, but over the last few months the two have diverged wildly. While the Five Fed indices from the New York, Philadelphia, and Richmond Fed districts would indicate an ISM reading in the mid-50s, the actual readings have been deteriorating dramatically. Of course, these three Fed districts are a relatively small snapshot of the overall national economy, but collectively their sample size is similar to the ISM’s. It’s hard to say which is “right”, but the huge divergence is certainly noteworthy.  Start a two-week free trial to Bespoke Institutional to stay up-to-date on all the latest developments in global financial markets and economics.

After yesterday’s close, Cintas (CTAS) reported an earnings triple play (EPS and revenue beats along with raised guidance) posting record revenues and EPS.  Given the nature of its business, which provides a variety of business services including uniform, cleaning, and first aid product distribution, CTAS should provide a reasonable gauge on the US business environment and more specifically, employment.  With concerns rising over whether or not a recession is right around the corner, it would be a bit of a head-scratcher to see a company like CTAS post such strong results and trade close to record highs if the economy were in fact plunging into recession.

The chart below shows the performance of CTAS since its IPO with recessions overlaid with gray shading.  Given the massive move higher the stock has seen over the last decade, it’s hard to see anything in the way of trends related to the performance of CTAS and recessions, but in additional charts below, we have looked at each period in more detail.

Each chart below shows the performance of CTAS in the year before, during, and year after each of the three prior recessions for which CTAS was a public company.  Judging from the last three recessions, the stock’s performance has had a mixed track record of anticipating downturns.

In 1990, CTAS didn’t do a very good job anticipating the recession as it peaked right before the recession started.  Once the contraction began, though, CTAS bottomed and anticipated the turn in the economy well before it began. While CTAS wasn’t a very good leading indicator of the 1990 recession, keep in mind that that slowdown was brought on by an oil price shock (after Iraq invaded Kuwait) that would be impossible to anticipate.

In 2001, CTAS did a much better job anticipating the recession as it peaked a full four months before the economy turned.  It also did a decent job anticipating the turn in the economy as the stock started to rally over two months before the recession ended.

The performance of CTAS leading up to and after the last recession was probably the best example of it anticipating a recession and the subsequent turn as it was already weak well in advance of the recession’s start and bottomed (along with the rest of the market) in March 2009- over three months before the economy turned.

Judging by these three specific periods, CTAS has not been the best predictor of a looming recession in the past, but one thing it hasn’t done in the past is rally leading up to a recession and then continue to rally once the recession starts.  Therefore, as CTAS continues to build on today’s post-earnings gain, it will be hard to argue that the economy is in the early stages of a recession. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.

After reporting stronger than expected earnings last night after the close, Nike (NKE) is set to open at a new all-time high this morning.  As highlighted in a post yesterday and shown in the chart below, the stock has been bumping up against resistance at the $90/share mark for all of 2019, but that resistance will be broken when the opening bell rings this morning based on where shares are trading in the pre-market.

The stock is currently up 5% in pre-market trading, which would be the 14th time NKE has opened higher by 5%+ on earnings since 2001.  Below is a snapshot of the prior thirteen 5%+ gaps higher for NKE on earnings pulled from our popular Earnings Explorer tool.  Notably, when these gaps higher have occurred, the stock has typically continued higher from the open to the close of trading as well.  As shown in the “Open to Close” column, NKE has traded up from the open to the close after its initial 5%+ gap higher 9 out of 13 times for an average open to close gain of 1.25%.  Start a two-week free trial to Bespoke Institutional to access our interactive Earnings Explorer and much more.