Bespoke’s Morning Lineup – 10/6/23 – Jobs Strong, Wages Less So
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“I don’t have anything else to prove” – Michael Jordan
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Futures are modestly higher this morning as markets are just digesting the September non-farm payrolls report. Michael Jordan claimed he had nothing left to prove when he announced his retirement on this day in 1993, but he ultimately realized he did and was back on the court in March 1995. The stock market may have felt it had nothing left to prove when it was at its highs last July, but just over two months later it now has plenty to prove, and bulls are starting to get impatient.
The September payrolls report just hit the tape, and the headline reading came in much better than expected as total payrolls increased 336K versus forecasts for an increase of 170K. While the headline number was much better than expected, the Unemployment Rate was unchanged at 3.8%, which was higher than the 3.7% forecast. Likewise, average hourly earnings were also slightly weaker than expected. The initial reaction in futures has been a sharp sell-off in stocks and bonds as the headline number topped forecasts, but underneath the surface, the report wasn’t as hot as it looked. Job creation is rising, but the cost of incremental workers hasn’t been accelerating.
In terms of market reactions to recent Non-Farm Payrolls reports the fact that the market is swinging widely shouldn’t come as a surprise. On the last 12 report days, the S&P 500’s average daily move on Non-Farm Payroll report days has been 1.1% (up or down. That’s up sharply from a year ago and near the high end of its post-financial crisis range.
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The Closer – Money Market Flows, Staples Rundown, Housing Inventories – 10/5/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at money market flows (page 1) followed by a rundown of the Consumer Staples sector (page 2). We then dive into the latest trade balance data (page 3) before closing out with a look at the latest housing inventories data (pages 4 and 5).
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Bitcoin Grows Up
When you think about volatility in various asset classes, crypto is typically considered the most volatile, and based on how it has traded over the last seven years, the reputation is well deserved. Since the start of 2017, when bitcoin’s price first crossed above $1,000 through now, bitcoin’s average daily percentage move has been 2.7% (chart below). This year, though, the average daily percentage move has been significantly less at a subdued 1.57%, and just recently, its average daily move over the prior two months dropped below 1%. That’s less volatile than the treasury market! There’s still three months left in the year, but barring some major volatility, bitcoin is on pace for its least volatile year in terms of day-to-day volatility on record. As the years have progressed, bitcoin has clearly become a more seasoned asset class.
Another illustration of bitcoin’s growing ‘maturity’ is how closely it has traded to its 200-day moving average recently. While the largest cryptocurrency experienced a sharp decline in mid-August, it has closely hugged its 200-day moving average (DMA) ever since.
In fact, for 59 days now, bitcoin has traded within 10% (above or below) of its 200-DMA. That’s a record. After years of bouncing off the walls like a ten-year-old on a sugar high, bitcoin looks like it may have finally grown up!
Bespoke’s Weekly Sector Snapshot — 10/5/23
More Healthy Claims Data
Following up on a disappointing ADP employment number yesterday, today’s release of weekly jobless claims also indicated a modest deterioration in labor market data. Seasonally adjusted initial claims have risen in back-to-back weeks up to 207K. On the bright side, that was below expectations and is only a minor increase as claims remain below their range from throughout the spring and summer this year. Additionally, in the low 200K range, claims are still at a historically healthy level.
Before seasonal adjustment, claims were actually lower at 172.78K. In one sense, that lower reading is not exactly surprising as week-over-week declines have been observed roughly 70% of the time historically in the current week of the year. However, what is now more unusual is that it sets a new low on the year. As we have frequently noted in recent weeks, this time of year typically sees claims put in an annual low, but the new low this week is a bit later than normal. In fact, outside of the pandemic years (2020 and 2021) when claims were historically volatile, the last time an annual low occurred this late in the year was 2014. Prior to that, 1967, 1980, 2000, and 2011 were the only other years with an annual low in the 39th week or later. In other words, claims have remained strong, and seasonal headwinds haven’t yet seemed to come into play in any impactful way.
Like initial claims, seasonally adjusted continuing claims came in stronger than expected at 1.664 million. That is a tiny drop from 1.665 million the previous week but is still off of the low of 1.658 million from two weeks prior. In all, that leaves claims at historically strong levels with a modest multi-month downtrend still in place.
S&P 500 Slide Further Hits Sentiment
The S&P 500 has continued to hit new lows in the past week, and some sentiment readings have reflected that negative tone. The AAII sentiment survey was not necessarily one of those as this week saw a mixed result. For starters, bullish sentiment actually ticked up to 30.1% from 27.8%. That ends a streak of three straight weeks of declines as bullish sentiment was above 40% as recently as the first week of September.
While bullish sentiment went the other way of price action, bears did increase slightly from 40.9% to 41.6%. That brings the total increase in bears over the past three weeks to 12.4%, the largest three-week increase since late August.
That means that on net, AAII sentiment actually shifted slightly more bullish this week. The bull-bear spread continues to be negative (meaning more investors are reporting bearish than bullish sentiment), but that reading was higher at -11.5 this week.
Other sentiment surveys were not as hopeful. Both the NAAIM Exposure index and Investors Intelligence survey saw readings shift more bearish in the latest week’s data. In fact, both of those surveys’ readings have been more bearish week over week in each of the past three weeks. All plugged into our sentiment composite, that has outweighed the modestly more bullish reading in the AAII survey. As a result, the composite indicates sentiment levels are 0.69 standard deviations more bearish than what has historically been the norm. While not exactly an extreme, especially in the wake of the past couple of years, that is the most bearish read on sentiment in just over six months.
Chart of the Day – Tighter Financial Conditions: Bullish or Bearish?
Bespoke’s Consumer Pulse Report — October 2023
Bespoke’s Consumer Pulse Report is an analysis of a huge consumer survey that we run each month. Our goal with this survey is to track trends across the economic and financial landscape in the US. Using the results from our proprietary monthly survey, we dissect and analyze all of the data and publish the Consumer Pulse Report, which we sell access to on a subscription basis. Sign up for a 30-day free trial to our Bespoke Consumer Pulse subscription service. With a trial, you’ll get coverage of consumer electronics, social media, streaming media, retail, autos, and much more. The report also has numerous proprietary US economic data points that are extremely timely and useful for investors.
We’ve just released our most recent monthly report to Pulse subscribers, and it’s definitely worth the read if you’re curious about the health of the consumer in the current market environment. Start a 30-day free trial for a full breakdown of all of our proprietary Pulse economic indicators.
Bespoke’s Morning Lineup – 10/5/23 – Energy Burns
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“The daily blips of the market are, in fact, noise — noise that is very difficult for most investors to tune out.” – Seth Klarman
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After a ‘rare’ rally yesterday, equity futures are lower again this morning even as crude oil and treasury yields are lower on the day. Treasury yields were lower, but jobless claims were just released and came in lower than expected on both an initial and continuing basis. The strength in initial jobless claims has been especially impressive as the four-week moving average has dropped to its lowest levels since February. With bonds looking for any excuse to sell off, the better-than-expected jobless claims report has sent yields higher.
The title of yesterday’s Morning Lineup post was “And Then There Were None”, and we discussed the fact that after the Energy sector’s decline to kick off the week, the ETF that tracks it (XLE) joined the ten other S&P 500 sector ETFs in trading below its 50-day moving average. That was the first time since October 3rd of last year that every sector was below their respective 50-DMAs, and while the Energy sector was only marginally below its 50-DMA, it quickly made up for lost time yesterday by falling more than 3% and into oversold territory. As shown in the chart below, after hovering just below its 50-DMA yesterday morning, by the close it was treading water just above its 200-DMA, and the uptrend line that had been in place since late June has been shattered. Moving forward, both the 50-DMA and the former uptrend line have the potential to act as resistance.
Along with the weakness in the Energy sector, crude oil has been on its heels as well. A week ago, WTI briefly traded above $95 per barrel after rallying more than 42% from its June lows. Anyone who knew anything was saying that crude was back on its way to a triple-digit price. In just a week, though, prices have slumped over 10%, and in yesterday’s swoon, prices broke below the uptrend line from June, the 50-day moving average, and the high from August – that’s a lot of broken support all at once! If crude continues to follow the recent path of the Energy sector, it could be a painful few days.
Regarding the recent moves in crude oil, it’s funny to think that less than two weeks ago the run-up in prices was attributed to a stronger economy. Now that prices have started to fall, the narrative has quickly shifted to an economy that’s slowing. Does the direction of the global economy really turn that fast? If you’re using day-to-day moves in a volatile commodity like crude oil as your gauge for the health of the global economy, you’re going to go deaf.
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The Closer – Technicals Too, Service PMIs, EIA – 10/4/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we start out with an update on the GOP leadership race, UAW strikes, and an update of S&P 500 technicals (page 1). We then dive into the latest service PMI data (page 2). We finish with a rundown of the latest happenings in crude oil markets as front month WTI dropped over 5% today (page 3).
See today’s full post-market Closer and everything else Bespoke publishes by starting a 14-day trial to Bespoke Institutional today!