Historic Readings From the Dallas Fed
It’s a quiet start to the week for economic data with the only US release being the Dallas Fed’s Manufacturing Survey for the month of July. Other regional surveys already released this month have been mixed with the reports out of New York and Philadelphia coming out better than expected whereas Richmond was much weaker than expected. The Dallas Fed was more in line with that Richmond report. The headline number was expected to improve rising from last month’s contractionary reading of -15.1 up to -14.2. Instead, it fell deeper into contraction at -17.5.
Although that reading doesn’t make for any sort of new low, it did mark a 27th consecutive month with a contractionary reading. As shown below, there has only been one other streak lasting as long: an identically long streak ending in November 2009.
Additionally, while the current conditions index continues to sit in contraction, expectations have surged. General Business Activity Future Expectations rose to 21.6 which is the highest level since November 2021. Taking the spread of current conditions versus expectations, the July reading registered the second lowest reading in the survey’s history behind a slightly lower -42.8 in March 2009.
In the table below, we show the readings in July and June and how those rank relative to the whole survey history for each category of the report. The headline reading is only in the 17th percentile of all months since the start of the survey in 2004. Weakness is seen throughout most other indices with significant month-over-month declines as well. The only current conditions index that is currently above its historical median is wages and benefits. Similarly, even though the General Business Activity expectations are elevated relative to current conditions, only a handful of expectation indices are in the 50th percentile or better. Granted, breadth this month was strong with all but two expectation categories rising month over month.
The single weakest category for current conditions was unfilled orders. That index is contracting rapidly, falling 21.9 points month over month (the third largest MoM decline to date) to -26.6 and in the bottom 2% of readings. It even surpasses the COVID lows for the worst reading since the first quarter of 2009. Shipments are not as depressed, but after a 19.1 point MoM decline, it has turned from expansion to one of the largest contractions of the past couple years.
Pivoting over to the employment indices, there were some mixed findings. For starters, the employment index measuring whether businesses are on net hiring or firing rose to the most expansionary reading since September. However, hours worked has cratered. At -13.8, that index is now down to the lowest levels since the spring of 2020 and before that, it was only lower during the depths of the 2008-2009 recession (although the troughs of both those periods was much deeper).
In tonight’s Closer, we will plug this data into our Five Fed Manufacturing Composite as well as dive into the findings of the special questions segment of the survey.
Chart of the Day: Sector Switch
Bespoke’s Morning Lineup – 7/29/24 – A Bonze Medal Performance
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“Scientists have proven that it’s impossible to long-jump 30 feet, but I don’t listen to that kind of talk.” – Carl Lewis
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After a nice close to the week, futures are looking to build on those gains as we head into the final days of July and into the dog days of August. As is usually the case with Mondays, the economic and earnings calendars are light to start the week, but it will be busy, nonetheless.
In terms of economic data, we’ll get Consumer Confidence and JOLTS on Tuesday, ADP, ECI, Pending Home Sales, and a Fed decision on Wednesday, and then Thursday will kick off the month with jobless claims and manufacturing PMIs. Finally, Friday will close out the week with the July employment report.
Among the most high-profile companies reporting earnings, we’ll hear from Microsoft (MSFT), Meta Platforms (META), Amazon.com (AMZN), and Apple (AAPL), plus hundreds of others. It’s been an interesting start to the week for Treasuries where the 10-year yield is down well below 4.20% and even flirting with 4.15%
The S&P 500 finished last week just like it ended it by rallying just over 1%. It’s nice to finish the week off on a positive note, but since the S&P 500’s recent peak in mid-July, the trend has been a series of lower highs. Since breaking through support to the downside right around 5,500 last week, the S&P 500 made two attempts late in the week to get back above that psychological level but failed both times. This recent bounce won’t be worthy of gold until the S&P 500 can break back above and hold those levels, On a more positive note, the S&P 500 also briefly traded below 5400 twice, but each time, buyers were quick to step in.
For the Nasdaq, the intraday downtrend established in mid-July has been steeper in slope. While Friday’s intraday high was well below Thursday’s, a trend of intraday higher lows has been established since early last Thursday.
The Russell 2000 has been the standout performer since the middle of the month, but even it remains below its July high. Closing just above 2,260 on Friday, though, the Russell 2000 is less than 1% from its recent 52-week high of 2,278 on July 17th.
Outside of equities, Bitcoin has been strong surrounding this weekend’s Bitcoin conference in Nashville. Headlines were made when former President Trump said in a speech that he would see to it that the US government never sells any of its Bitcoin and would ease regulations to make the US the Bitcoin superpower of the world. This morning, the world’s largest cryptocurrency has rallied to just under $70K from a low of less than $54K just after July 4th. 30% in less than a month is an impressive rally, but it still hasn’t been enough to break out of the downtrend channel it has been in since reaching a record high of just under $74K in the spring.
Brunch Reads – 7/28/24
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.
Robespierre’s Reign: Maximilien Robespierre, a key figure in the French Revolution and mastermind behind the Reign of Terror, met his end on July 28th, 1794, executed by guillotine in the Place de la Révolution, now known as Place de la Concorde. His advocacy for the rights of the common people and his uncompromising stance against the enemies of the revolution marked Robespierre’s rise to power. However, his strict policies and the ruthless political purges he enforced turned many against him. He was arrested by the National Convention who feared his strengthening grip, prompting the chaotic scenes in Paris leading up to his execution when Robespierre and his allies tried to resist but quickly were overpowered by troops loyal to the Convention. Following his execution, an ironic death for a man who saw the guillotine come down on around 16,000 during the Reign of Terror, the Thermidorian Reaction ensued, a period of backlash against his policies and a move towards a more moderate government.
Chinese companies offer to ‘resurrect’ deceased loved ones with AI avatars (NPR)
Chinese tech executive Sun Kai has turned to an AI-generated avatar of his late mother for emotional support, using a service by Silicon Intelligence that creates digital clones of deceased loved ones. This kind of thing is increasingly popular in China. While these avatars offer solace, ethical concerns are present, such as potential emotional harm and the risk of addiction to these digital simulations. Companies like Silicon Intelligence and Super Brain need extensive data to create lifelike avatars, which is often lacking. [Link]
X-ray technology could be newest scam in sports cards (cllct)
Recent videos show the use of X-ray technology to see inside sealed trading card packs, a method that worries many collectors. The technology allows peeking through layers of cards to identify valuable hits, potentially leading to fraud in the $227 billion sports memorabilia market. Although not illegal, this practice could enable sellers to cherry-pick valuable cards and undermine the hobby’s integrity. On the flip side, there’s also potential for X-rays to be used for good and authenticate sealed products. [Link]
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The Bespoke Report – 7/26/24 – All the Small Things
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Bespoke’s Morning Lineup – 7/26/24 – Let the Games Begin
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“I Didn’t Set Out to Beat the World; I Just Set Out to Do My Absolute Best.” – Al Oerter
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The opening ceremonies of the 2024 Summer Olympics will kick off in less than four hours, and markets are already in a celebratory mode. Futures are sharply higher across the board with the Russell 2000 leading the way with indicated gains of over 1.5%, the Nasdaq looks to open higher by just over 1%, and even the S&P 500 stands to open with a gain of 0.75%.
There’s no specific catalyst to point to for the gains, but strangely enough, futures did get a bounce when news came out that former President Barack Obama and his wife Michelle are supporting Kamala Harris’ run for President (people didn’t think they would throw their support behind Trump did they?). The positive tone heading into the last day of the trading week is welcome, but we still have some important economic data to get through, and barring a monster rally beyond current levels, it’s looking like US equities will close out the week lower for the second week in a row.
Outside of equities, crude oil is modestly lower as WTI trades below $78 per barrel and natural gas is only 1% from a ‘one-handle’. Gold and bitcoin are higher, though, and treasuries are looking at modest gains with the 10-year yield down 2 bps and the 2-year yield down one basis point.
This morning’s economic data was mostly in line with forecasts. Personal Income was weaker than expected at 0.2% versus 0.4% expected, but Personal Spending was right in line with estimates. PCE data was right in line with expectations on both a headline and core basis. Not surprisingly, there has been little reaction in equity futures.
The table below is from last Friday’s Bespoke Report and shows the historical performance of the S&P 500 during every summer Olympics in the post-WWII period. Below that we included a bar chart showing performance during each two weeks of competition. Overall, the S&P 500 has averaged a gain of 1.13% with positive returns just over half the time. That average, however, is skewed by the 9.4% gain in the Summer of 1984 when the US dominated. On a median basis, the S&P 500 has gained a more modest 0.47%. We’d also note that performance since those 1984 games has also been strong with gains eight out of ten times.
Chart of the Day – Factory Construction Boom
Big Decline But No Bad Breadth?
On Wednesday, the S&P 500 shed 2.3%. As we noted on X, that snapped a 356-trading day stretch without seeing a one-day decline of at least 2%. The major key to this weakness, which we detailed in last night’s Closer, was how the Magnificent 7 had a historically bad session given poor reactions to earnings of Tesla (TSLA) and Alphabet (GOOGL). Those declines on earnings were a drag on the rest of the mega-cap space and in turn the broader index. Yesterday was another example of the topic that has consistently been discussed in recent years in which the concentration of the largest stocks in the S&P 500 had an outsized impact on the index’s moves regardless of what the rest of the market has done.
Delving deeper into yesterday, in the chart below we show all days where the S&P 500 fell at least 2% since 1990 and compare those price moves to each day’s daily net advance decline reading (this is the number of stocks that rose on the session minus the number that fell). While it may not come as any surprise, typically when the S&P has fallen 2% or more, the number of declining stocks drastically outnumbers advancers. In fact, on a median basis these days have typically seen a meager 33 stocks finish the day higher versus 465 decliners (median net daily advance decline reading of -432).
Looking back on this sample of down days, if overwhelmingly weak breadth is the rule, yesterday was an exception. In spite of the over 2% decline, nearly a third (165) of the S&P 500’s members finished Wednesday with a gain. That is a five times stronger daily breadth reading than what has been the norm historically! That also made for a daily net advance/decline reading of -171 which ranks as the fifth strongest of any day since 1990 when the S&P has fallen at least 2%. The most recent examples prior to yesterday in which the market fell on such strong (albeit negative) breadth were all the way back in November and October of 2000. There was another instance of even better breadth on a +2% decline in May of 2000, and in April of that same year, there were even a pair of days when the S&P 500 managed to fall by that much on positive breadth! We haven’t seen this kind of price versus breadth action for the S&P 500 since the Dot Com Bubble was bursting.
Bespoke’s Morning Lineup – 7/25/24 – Lower Yields Despite Better Data
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“Democracy is beautiful in theory; in practice it is a fallacy.” – Benito Mussolini
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
The mid-July seasonal headwinds have come in right on schedule this year. Earlier this month, we noted that the three-month period from mid-July through mid-October has historically been the weakest three-month period of the year, and since its closing high on 7/16, the S&P 500 is down over 4% in a little over a week! We usually stress the inadvisability of investing based solely on seasonal trends, but as the last week has illustrated, these trends are important to be aware of.
This morning, futures are lower again as international markets have been under pressure overnight and this morning. Japan was down over 3%, and major European benchmarks are down over 1%. Crude oil and gold are also firmly lower with declines of well over 1% while copper is on pace for its ninth down day in a row. The only asset trading higher is treasuries where yields are firmly lower.
It’s a big day for economic data this morning as we just got the first read of Q2 GDP, Personal Consumption, and PCE. In addition to those reports, weekly jobless claims, and Durable Goods were also released. GDP and jobless claims came in better than expected, and while headline Durable Goods Orders were much weaker than expected, taking out Transportation, the report was better than consensus forecasts. Additionally, the GDP Deflator rose less than expected, so overall, this was a good batch of data. The only other report on the calendar for today is the KC Fed Manufacturing report at 11 AM Eastern.
As equities have come under pressure in the last several days, yields have declined with the two-year yield trading down to its lowest level since February 1st and the 10-year yield in a well-defined short-term downtrend since its yield peaked at 4.70% in late April. This morning, the yield is down to 4.22%, or nearly 50 bps below that peak.
As shown in the chart above, 2-year yields have been falling at a faster pace than the 10-year yield as the market prices in rate cuts in the months ahead. As a result of that faster decline at the short end of the curve, the spread between the two has narrowed quickly. The 10-year vs 2-year yield curve is now inverted by less than 15 basis points (bps), the flattest it has been in more than two years.
At the very short-end of the curve, we’ve also seen some large moves in the last two weeks. The chart below shows the 3-month US Treasury yield plotted with the mid-point of the Fed Funds target rate. As of this morning, the 3-month yield is now further below the mid-point of the Fed target rate than it has been at any point since the Federal Reserve’s last rate hike of the cycle last July.
