Bespoke’s Morning Lineup – 11/17/23 – Easy as Pie?
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“There’s no such thing as simple. Simple is hard.” – Martin Scorsese
Below is some introductory commentary of today’s Morning Lineup. Start a two-week trial to Bespoke Premium to get full access.
After tons of economic data, at least twenty different Federal Reserve speeches, and the finale of earnings seasons, stocks finished the week with healthy gains. Easy a pie, right? Well, if you asked anyone at the beginning of the week how the week was going to go, we’d put good money that no one would have expected the Russell 2000 to rally over 5%…in a single day! Everything is easy in retrospect.
This morning, futures are modestly higher on the day, and the only economic data on the calendar is Building Permits and Housing Starts at 8:30. There are several Fed speakers scheduled to speak between now and noon, and the earnings calendar is very light.
Stocks in Asia were mixed overnight. Hong Kong stocks declined over 2% after Alibaba (BABA) fell over 10% on news that the company was canceling the IPO of its cloud business. Foreign Direct Investment in China also declined 9.4% on a YTD versus a decline of 8.4% in September. Over in Europe, though, it’s a much more positive tone as major benchmark indices are up across the board. CPI in the Eurozone decelerated for the seventh straight month falling from 0.3% down to 0.1% which was in line with expectations while UK Retail Sales unexpectedly fell 0.3% versus forecasts for an increase of 0.3%. That weaker report has bonds rallying on hopes that the UK’s rate hiking cycle is over.
There are still almost two weeks left in the month, but along with the equity rally, Treasuries have also surged. Based on where the iShares 20+ Year Treasury ETF (TLT) is trading this morning, its month-to-date gain currently stands at 7.8% which, if it holds through the end of the month, would be the largest monthly gain since August 2019.
The chart below shows the monthly prices of TLT since the start of 2003, and gains of 5%+ have been nothing out of the ordinary with 23 occurrences, or about one every ten months. Since TLT’s monthly peak in July 2020, this month’s gain would be just the third occurrence (if it holds). The last two occurrences came in a three-month span in which TLT rallied over 11% before rolling over again.
The chart below shows the monthly change of TLT going back to 2003, and what stands out about the current period is the fact that this month’s gain follows a loss of similar magnitude in October. That would make it just the second time in TLT’s history that it fell 5%+ in one month and then rallied 5%+ the next. Ironically, the only other occurrence was in October and November of last year. With more and more indicators lately, it seems as though the last time we saw similar extremes was exactly a year ago.
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The Closer – Striking Industrial Production Correction and Recovery’s Best and Worst – 11/16/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we start out with a look at today’s weak economic data and the reaction in Treasury yields (page 1). We then show the impact of UAW strikes on industrial production (page 2) followed by an update of our Five Fed Manufacturing Composite (page 3). Next, we show the stocks that have been the best and worst performers during the recent correction and since the market bottomed (page 4). We finish with a review of the latest housing data from Zillow (page 5).
See today’s full post-market Closer and everything else Bespoke publishes by starting a 14-day trial to Bespoke Institutional today!
Chart of the Day – Country ETF Rankings
No Bad Sentiment in the Northeast
The past couple of weeks have seen some relief in mortgage rates and a rebound in weekly mortgage applications as a result, but that positive housing market development didn’t show per the latest reading on homebuilder sentiment. The NAHB’s Housing Market Index dropped to 34 in November and is only three points above the low from last December.
In the table below, we show the readings of each sub-index of the report as well as the month-over-month change and how those readings stack up versus history. As shown, the month-over-month declines across the report were historically large with the six-point drop in the headline index ranking in the bottom 2nd percentile of all monthly moves with each sub-index also experiencing bottom 5% moves.
Regional homebuilder sentiment was more peculiar. Again, there were historic declines in the Midwest, West, and South. The Northeast went in the complete opposite direction as sentiment rose by 7 points. Although that does not leave sentiment at a new high, the month-over-month gain ranks in the 87th percentile of all months on record.
Continuing Claims Relentlessly Rise
Among a large slate of economic data released this morning, jobless claims disappointed with both initial and continuing claims coming in higher than expected. For initial claims, the seasonally adjusted number rose meaningfully from an upwardly revised 218K last week to 231K. That compares with expectations of a more modest increase to 222K. That brings claims back to the highest level since the week of August 19th, and the 13K week over week rise was the largest since the first week of August.
On a non-seasonally adjusted basis, claims have continued their steady rise as is normal for this time of year. At 215.9K, this week’s print was slightly higher than the comparable week last year, but also below those from the several years prior to the pandemic. In other words, claims are deteriorating, but from what are still strong levels.
Continuing claims, on the other hand, keep looking worse every week. Continuing claims have now risen for eight straight weeks, bringing it up to 1.865 million. That surpassed a high from this past April to make for the most elevated reading since November 27, 2021.
As we have noted in recent weeks, the size of the move in continuing claims over the past couple of months has been comparable to the size of increases around prior recessions. The same can be said for the consistency of upward moves in continuing claims. As shown below, the eight straight weeks of higher readings is the largest since the spring of 2020. Prior to that, most streaks of that size or longer occurred in the midst of a recession with the exception of the other two most recent instances in November 2018 and December 2019.
Bespoke’s Morning Lineup – 11/16/23 – Earnings Season Ends With a Thud
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“Asking economists for investment advice is like asking a physicist to fix a broken toilet. Not their field, though sort of related.” – Milton Friedman
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As if the calendar of economic data hasn’t been significant enough already, it’s another busy day for data today with Import and Export Prices (both weaker than expected), Jobless Claims (higher than expected), and the Philly Fed (less negative than expected) at 8:30. Then at 9:15, we’ll get releases of Industrial Production and Capacity Utilization, followed by Homebuilder Sentiment at 10 and the KC Fed Manufacturing report at 11.
In addition to the economic slate, earnings season comes to an unofficial end today as Walmart (WMT) reported earlier this morning. While the company reported better-than-expected earnings and sales, the stock is trading down over 6% after lowering full-year guidance and some cautious commentary from management on the state of the consumer (see page four of today’s report).
Since last Thursday’s close when the last update to the weekly sentiment survey from the American Association of Individual Investors (AAII) was released, the S&P 500 has rallied over 3%. Given the surge in stocks, you would expect to see a sharp spike in bullish sentiment, but as this week’s latest update shows that hasn’t necessarily been the case.
In the last week, AAII’s survey of bullish sentiment showed an increase from 42.6% up to 43.8%. Granted, the prior week saw an increase of over 18 percentage points, but with the market continuing its run, we would have expected a bullish reading of closer to 50% this week.
Not only was the increase in bullish sentiment modest, but bearish sentiment increased slightly rising from 27.2% to 28.1%. Again, the prior week showed a sharp decline in bearish sentiment, but with the S&P 500 up so much during the week, any increase in bearish sentiment is a bit surprising.
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Bespoke Baskets Update — November 2023
Bad Expectations Out of New York
The New York Fed gave us the first regional reading on manufacturing conditions this morning with the release of the Empire State Manufacturing Survey. The headline number rose back into expansion at 9.1, well above expectations of an improvement to only -3. Although the current conditions index improved, expectations dropped a massive 24 points month over month. That ranks as the fourth largest one month decline in this reading on record behind September 2001 and January 2009.
Below we show a breakdown of each category of the report for both current conditions and 6-month expectations indices. Although General Business Conditions improved dramatically, breadth was otherwise negative. Of the other categories, only three rose month over month. Expectations likewise had more categories falling than rising leaving multiple categories at or near the bottom of their respective historical ranges dating back to the start of the survey in 2001.
The report indicated weak demand as new orders currently remain in contraction. Meanwhile, Unfilled Orders are far more depressed at -23.2 making the November reading the lowest since December 2014. Shipments have been increasingly choppy during the post-pandemic period, but the November reading did improve up to 10, slightly below the historical median. Meanwhile, Inventories were much more elevated. Rising 11.2 points month over month, inventories are now in the top decile of their historical range with the first expansionary reading in six months.
Employment metrics were also weak with both the number of employees and average workweek indices sitting in contraction. However, these were also two of the strongest categories relative to historical ranges of anywhere in the report. In fact, Average Workweek expectations hit the highest level since March of last year. While those labor expectations remain healthy, the same cannot be said for capital spending. Expected tech spending hit a new post-pandemic low while capital expenditure plans likewise returned to the low end of its range.
Chart of the Day: S&P 500 Nearing New Total Return All-Time Highs
Bespoke’s Morning Lineup – 11/15/23 – Fire Hose of Economic Data
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“Anyone with any degree of mental toughness ought to be able to exist without the things they like most for a few months at least.” – Georgia O’Keefe
Below is some introductory commentary of today’s Morning Lineup. Start a two-week trial to Bespoke Premium to get full access.
After yesterday’s monster rally, futures are still in a celebratory mood as futures are higher across the board. Even bitcoin, which sat out Tuesday’s rally is trading up over 1.5%. A slug of economic data was just released, including PPI, Retail Sales, and Empire Manufacturing. In a nutshell, the inflation data was weaker than expected while Retail Sales and Empire Manufacturing were better than expected. Equity futures are little changed in response to the data while treasury yields are modestly higher which is likely due to the stronger Retail Sales report. That being said, as discussed yesterday, with the door closed on further rate hikes, good economic news is actually good market news!
Bulls went a ‘few months’ where equities did nothing but seemingly go down, and by the end of October, you couldn’t have faulted anyone for becoming frustrated with the way things were going in the market. For those who had the toughness to stick it out, they’ve been rewarded in the last two to three weeks as the S&P 500 has rallied over 9% from its lows.
Investors in small-cap stocks have had an even tougher time of it lately, but they had their day yesterday as the Russell 2000 surged 5.44% which was 3.53 percentage points more than the S&P 500’s gain of 1.91%. Since the Russell 2000’s inception in 1979, yesterday was only the 24th day that the index outperformed the S&P 500 by 2.5 percentage points or more in a single day, and in the chart below we have highlighted each of those days with a blue dot.
As shown, there were several of these occurrences coming out of the COVID lows as investors were flush with cash from all the stimulus sloshing around in the US economy, and before that most, but not all of the other occurrences were clustered around the period coming out of the Financial Crisis, around the peak of the dot-com boom, and after the 1987 crash.
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