Chart of the Day – How Much Of The Market Is AI?
Jobless Claims Swing Higher
Economic data, including jobless claims, came in weaker than expected this morning,. For seasonally adjusted initial claims, there was a jump to 242K in the first week of June, the highest reading since last August.
Before seasonal adjustment, claims totaled 234.7K. As shown in the first chart below, that is still lower than the comparable week of last year and is also within the range of readings of other recent years save for the much more elevated levels observed in 2020 and 2021. For this point of the year, claims face seasonal headwinds. Historically, the current week of the year has seen claims rise close to three-quarters of the time with a median increase of 37K. That was right in line with the 38.5K uptick that was observed.
As we will detail further in tonight’s Closer, given the NSA number rose by as much as could be expected, it is peculiar that the seasonally adjusted number rose as significantly as it did.
Finally, we would note that continuing claims have also pressed higher, reaching 1.82 million. As shown below, that is the first reading above 1.8 million since the final week of March and the most elevated reading of any week since January 20th.
Bespoke’s Morning Lineup – 6/13/24 – More Weaker Than Expected Inflation Data
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“You have the right to remain silent. Anything you say can, and will, be used against you in a court of law.” – Every Episode of every Law & Order series
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Whether through firsthand knowledge or watching any TV show or movie involving an arrest, every American is familiar with Miranda rights. While it seems like a basic principle of US law enforcement, it wasn’t until this day in 1966 that the Supreme Court ruled that every person arrested in the United States must be informed of their basic right to remain silent and have an attorney before any police interrogation can take place. Now if only a lot of other people would exercise their right to remain silent.
Futures aren’t silent this morning, and they just got a pop higher as both jobless claims and PPI came in weaker than expected. Initial jobless claims surged to the highest level since last August. PPI came in weaker than expected at both the headline and core levels. On a y/y basis, they are up 2.2% and 2.3% respectively relative to expectations for a level of 2.5%. Based on this morning’s PPI and yesterday’s CPI, the Fed’s statement is less than 24 hours old, but it’s turning stale quickly.
With Apple’s (AAPL) move back near the top of the market cap leaderboard, we wanted to highlight the continued divide between the top three stocks in the S&P 500 and the rest. The snapshot below of our Trend Analyzer shows where each of the top three stocks in the S&P 500 – Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA) – as well as the S&P 500 Equalweight ETF (RSP) closed yesterday relative to their short-term trading ranges. While all three of the top three closed at ‘extreme’ overbought levels (2+ standard deviations above their 50-DMAs), RSP remains in neutral territory and is down slightly over the last five trading days. Besides that disparity, the YTD performance and 50-day moving average spreads of the top three stocks look nothing like the YTD performance and 50-DMA spread for RSP.
The charts of the top three also look much different than RSP (and it’s not just because we shaded RSP in gray). As shown below, all three of the largest stocks hit all-time highs yesterday while RSP has been stuck in a range since the peak in March.
To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.
The Closer – CPI, FOMC, EIA – 6/12/24
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a dive into the latest CPI data (page 1) followed by a recap of the FOMC decision (page 2) as well as the market’s response to the decision (page 3). We then finish with a review of the historic trade numbers in the latest EIA data (page 4).
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Chart of the Day: CPI Causes Cut Optimism
Bespoke’s Morning Lineup – 6/12/24 – “Make Room For Me”
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“Mr. Gorbachev, open this gate. Mr. Gorbachev, tear down this wall.” – Ronald Reagan, 6/12/1987
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Today is the biggest day of the week for data, and the “first act” just hit the stage as CPI came in weaker than expected. At the headline level, CPI was unchanged while Core CPI increased 0.2% versus forecasts for a gain of 0.3%. Year/year Core CPI came in at 3.4%, the lowest level since April 2021. Futures have surged in reaction. It’s hard to believe that a week ago this morning, the market was all worried about stagflation with weaker economic data (Chicago PMI and ISM Manufacturing) and stubborn inflation. After last Wednesday’s ISM Services report, a strong headline employment report, and today’s CPI report, stagflation has been pushed off the stage as Goldilocks cries, “Make room for me!”
It’s not a Presidential election, but for the first time in four years, the Federal Reserve will announce an interest rate decision on the same day as a monthly CPI report. Since 1998, there have only been 17 other days where both events happened on the same day, and in the chart below, we show the S&P 500’s performance each time. Overall, returns have been positive with a median gain of 0.56% and gains just over three-quarters of the time. The best day for the S&P 500 on these days was in December 2008 when the S&P 500 rallied 5.14% while the worst performance was the most recent occurrence on 6/10/20 when the S&P 500 declined 0.53%. Ironically, the best day came in the middle of one of the deepest bear markets in a generation while the worst day was in the early stages of the post-Covid surge.
The table below shows the performance of the S&P 500 and all eleven sectors on each of the 17 prior days. We also show the Fed’s interest rate decision for each meeting. Of the 17 occurrences shown, the Fed cut rates twice, raised rates four times, and kept rates on hold eleven times. On the eleven days when the Fed left rates on hold, the S&P 500’s median gain was also 0.56% with gains just over 80% of the time. The two best-performing sectors on these days were Technology (1.10%) and Materials (1.01%) with gains of 91% and 82% of the time, respectively.
To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.
Small Business Bull Whips and Election Jitters
Earlier this morning, the National Federation of Independent Businesses, or NFIB, published its latest report on small business sentiment for May. The headline number continued its rebound off of the 11-year low of 88.5 set in March, rising to 90.5. While still historically muted, this month’s reading was the highest level of small business sentiment since last December.
Breadth in the report was decent with five inputs of the headline number moving higher, two going unchanged, and another three falling month over month. As with the main reading, most of these indices are historically low despite recent improvements. In fact, most of these categories currently sit in the bottom decile of their historical ranges with the few notable exceptions being a couple of labor-related indices. For example, plans to increase employment rose significantly to move back into the 63rd percentile while the percentage of respondents reporting job openings as hard to fill is still very high in the 93rd percentile. However, as we discussed in today’s Morning Lineup, the overall trends are not particularly favorable across all labor categories included in the report.
The report continues to show that there is an overwhelming share of businesses that hold a pessimistic view of the economy. Granted, that index picked up to -30 in May which matches last July for the joint highest readings since August 2021. Of course, that is still a very low reading ranking in the bottom 7% of readings historically, and as such, the percentage of businesses that view the current time as a good time to expand is low at 4%.
The NFIB breaks out reasons for businesses’ expansion outlook. As shown below, by far the most common reason for a negative expansion outlook is economic conditions albeit that has continued to trend lower over the past couple of years. The next biggest reason is the political climate (discussed further below) then financials and interest rates.
In addition to being the third most common reason for a negative expansion outlook, we would also note that the percentage of firms reporting financials and interest rates as their biggest issue has risen to a new high of 6%. While that is far from the most common problem (issues like labor costs and quality, government red tape, taxes, and inflation account for a massively larger portion of response), it is the highest amount since 2010.
The one index that stood out the most in this month’s report had to do with inventories. A net 6% of small businesses reported drawing down inventory levels over the past three months. While that does not set any new low for the series, it is another reading at the lower end of the historical range. As for the reason so many businesses are working down inventory levels, the net share of respondents reporting that current inventory levels are too low versus too high hit a record low. In other words, a record number of respondents reported that inventories are too high. Perhaps an example of the bullwhip effect, that comes 2.5 years after the index’s record high.
Finally, we would note that this month also saw a significant pickup in the NFIB’s Economic Policy Uncertainty Index. As we discussed in the Morning Lineup, one factor working against the usefulness of the NFIB survey is a sensitivity to politics. For example, looking at the aforementioned expansion outlook index, politics are a historically popular reason for negativity with readings that were much more elevated during Democratic administrations versus Republican administrations. As could be expected, the Economic Policy Uncertainty Index has not been immune to this trend.
As shown below, the uncertainty index tracking apprehension of small businesses towards economic policy typically rises in the 12 months before a presidential election and has seen particularly large jumps over the past few elections. This time around, though, the increase has been even larger than normal with a 20-point jump since November. Compared to the same months in prior election cycles, it has been a record increase, and assuming it follows the pattern of the past three election cycles, it would not be surprising to see it continue to rise through Election Day.
Chart of the Day – Record Speculator Positioning in Gold
Bespoke’s Morning Lineup – 6/11/24 – Politics Weighs on Sentiment
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“Government has no wealth, and when a politician promises to give you something for nothing, he must first confiscate that wealth from you” – John Wayne
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
After record highs for the S&P 500 and Nasdaq yesterday, there’s a negative bias this morning as European stocks are lower given the political uncertainties most notably in France where there were even rumors overnight that Macron would resign. The only economic report on the calendar today was small business sentiment from the NFIB which came in better than expected. However, given tomorrow’s CPI report and the Fed Decision in the afternoon, we wouldn’t expect too much conviction today.
Apple (AAPL) finally unveiled its AI strategy yesterday and judging by the stock’s reaction, investors weren’t impressed. While the stock was down marginally just before the conference started, it sold off even more once it started and more details started coming out. When the closing bell rang, the stock was near its lows and down just under 2% for the day.
The chart below shows the performance of AAPL on the first day of its WWDC conference each day since 2007 when the iPhone was first launched. Yesterday’s 1.9% decline ranks as tied for the third-worst performance on the first day of the WWDC conference during that span. The only two years where the first-day performance was worse was in 2007 (3.5%) and 2008 (-2.1%). While that ranking sounds ominous, we would also note that the stock has almost always traded lower on the first day of its WWDC conference (just four positive days in the last 18 years). Longer-term, from the close on the first day of the conference through year-end, the stock has been higher 70% of the time, and from the close on the first day of the conference to the start of the next year’s conference, AAPL stock has been higher more than 75% of the time. In other words, first impressions of the WWDC conference haven’t usually been correct.
To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.