Chart of the Day – GDP Prices Show Disinflation
Where the Jobs Were
In last night’s Closer, we discussed the latest job postings data from job listings website Indeed. Compared to the official reading on labor market demand — the Job Openings and Labor Turnover Survey (JOLTS) — which is released monthly at a two-month lag, this Indeed data is a daily look with much lower latency. The latest release as of Tuesday covers postings through July 21st. As shown below, postings remain in a downtrend in spite of a modest rebound in the latest month. Having tracked well with the official data, modeling JOLTS on the Indeed data would predict JOLTS to continue to fall to around 9.57 million for the June data scheduled to be released next week.
The Indeed data also provides a good deal of demographic granularity based upon geographic areas. As shown below, the first two years of the pandemic had been a boon for smaller metro areas as they generally saw healthier readings on postings than the largest cities. While that dynamic moderated through the back half of 2021 through early 2022, the past year has seen the trend return. As shown in the charts below, postings have fallen regardless of MSA size, but larger metros have experienced a much more substantial drop. The smallest metros, on the other hand, have seen a much more modest decline, especially over the past several months. Check out the big drop in the second chart below showing the spread between the largest and smallest metros:
The data also provides a breakdown based on job industry. In the table below, we show the change in each industries’ postings since the pre-pandemic baseline of early February 2020. Currently, there are six groups with a lower reading on postings versus pre-pandemic: IT Operations & Helpdesk, Media & Communications, Marketing, Information Documentation and Design, Software Development, and Mathematics. Meanwhile, several health care and engineering related roles continue to sit atop the list with the greatest post-pandemic growth in job postings. Finally, we would also note that some industries like Human Resources and logistics-related industries that saw postings boom on account of strong hiring and stressed supply chains have moderated. Today, those same indices now have postings that are middle of the pack at best.
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Bespoke’s Morning Lineup – 7/27/23 – Data Dump
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“Don’t take life too seriously. You’ll never get out alive!” – Elbert Hubbard
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After one of the most subdued reactions to a Fed decision in memory, today is not only one of, if not, the busiest days of earnings season, but there’s also a ton of economic data hitting the tape as we send this out. Given the volume of reports, you would think that there would be something to worry about in the data, but jobless claims were lower than expected, GDP was better than expected, Durable Goods were better than expected, and the inflation data (GDP Price Index and Core PCE) were all weaker than expected. Not a bad showing!
One thing they have already started to worry a little more about this week is the fact that most of them are bullish. After individual investor sentiment, as measured by AAII topped 50% for the first time in over two years last week, it headed south again this week falling down to 44.9%. That’s despite the Dow rising every single day since the last survey was taken!
We’ve talked a decent amount in the last few weeks about the extraordinarily narrow trading range that Bitcoin has traded in recently. This week, it has started to drift out of that range to the downside, and while it hasn’t been a dramatic move, the 50-day moving average is back into play. After testing that level in each of the last three trading days, Bitcoin has successfully tested that level, and today it has managed to stay above that level for now. There’s still a decent amount of time left in the day, so we’ll see if it holds, but for now, Bitcoin’s uptrend remains intact. If the 50-DMA fails to hold, though, the pace of selling could accelerate.
Bitcoin’s ‘little brother’, Ethereum, has been extremely quiet lately. Outside of a brief downdraft and recovery in June, its price has essentially done nothing. Extreme volatility is a way of life for speculators in crypto, but lately, the sector has had as much excitement as a movie on the Hallmark channel.
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Chart of the Day – Not All Up Days Are Created Equal
Emerging Markets (EEM) Attempts a Break Out
Today we published our most recent Global Macro Dashboard which provides a high level summary of 22 major economies. Taking a look at those same countries’ stock markets via US traded ETFs, 2023 has seen broad rebounds in equity prices across the globe. At the moment, the average country ETF is 4.55% away from a 52-week high after posting a double-digit YTD gain. Based on developed and emerging countries, there has been some divergence. Both last year and again this year, emerging market equities have seen modest outperformance relative to developed markets. That has also been the case in July with an average gain of 5.24% for EM countries versus a 2.85% rise for their developed market peers. South Africa (EZA) is up the most month-to-date with a 10.2% gain, while France (EWQ) is up the least with a gain of just 13 bps so far in July.
From a technical perspective, the gains in emerging markets—proxied by the iShares MSCI Emerging Markets ETF (EEM)—have resulted in a move above resistance at some of the past year’s highs. As shown below, earlier in the spring and again only a couple of weeks ago, EEM attempted to retest the levels from last summer unsuccessfully. Today, EEM is back above those levels with the next resistance to watch being the January high at $42.50.
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Bespoke’s Morning Lineup – 7/26/23 – Not Always As It Seems
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“There are no gains, without pains.” – Benjamin Franklin
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With the Dow up 12 days in a row and every other major US index trading at some sort of short-term extreme overbought level, the recent gains seem like they have pain free, but when you get rallies like these and the major averages are still well below their highs from late 2021 and early 2022, pain was involved at some point!
US stocks are set to kick off the day on a subdued note with mixed earnings overnight weighing on the markets. Futures on the Dow, which has traded higher for 12 days in a row, were firmly lower earlier, but have gotten a modest boost after Boeing (BA) reported a narrower-than-expected loss on stronger revenues and better-than-expected free cash flow. At this point, whether the streak ties the post-WWII record of 13 trading days rests in the hands of Jerome Powell and what kind of tone he takes in today’s post-meeting press conference. A 25-bps hike is a done deal, but how Powell guides markets going forward will dictate which way stocks finish the day.
Mega caps have driven most of the gains in the market this year, and it’s been discussed endlessly over the last seven months. What people seem to forget, though, is how much these stocks underperformed the market in 2022. The chart below shows the relative strength of the S&P 500 versus the equal-weighted index since the start of 2022. For all of 2022, the market cap-weighted index steadily underperformed the equal-weighted index with little reprieve. Early this year, though, with the shift of the calendar, relative strength shifted too.
Just as talk of mega-cap outperformance crowded out nearly every financial-related topic in recent weeks, the trend started to shift again. Since the start of June, the equal-weighted S&P 500 has been outperforming again, and since the start of 2022, the performance of the two indices is essentially the same. For all the noise, ink, and pixels used talking about how the market-cap-weighted S&P 500 has been outperforming lately, did you know that less than a percentage point separates the performance of the two indices since the start of 2022? Things often seem one way at first glance, but if you stop and look a little longer, the picture changes.
Just this quarter, which started a month after the relative strength between the two indices shifted, equal-weighted outperformance relative to the market cap-weighted index has been broad. The chart below compares the performance of the market cap versus equal-weighted S&P 500 sector ETFs since the start of Q3. For every sector besides Consumer Staples and Technology, the equal-weighted indices have been outperforming, and the sectors where the performance disparity has been the widest have been in Energy, Health Care, and Real Estate.
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Most Confident Consumers in Two Years
In case you didn’t see it already, today’s report on Consumer Confidence from the Conference Board showed that consumers are more confident than they have been at any point in the last two years. While there are still no shortage of negative macro headlines, with employment remaining strong, inflation easing, and the stock market in a bull, you can’t fault consumers for being more confident than they have been in recent history.
For some perspective on the current levels of consumer sentiment, the chart below shows historical readings of Consumer Confidence with red dots showing each time that the monthly reading made a new two-year high. As you can see, these types of readings aren’t rare, especially during prolonged economic expansions, and as a corollary to the saying that it’s often darkest before the dawn, sentiment tends to be brightest right up until sunset.
In each of the prior periods where sentiment hit a two-year high just before the economy started to roll over, it was preceded by multiple occurrences of sentiment hitting new two-year highs. If we further filter out occurrences for periods when sentiment hit a two-year high for the first time in at least a year, the picture looks a lot different. In this case, there was never an occurrence just as the economy was on the verge of a recession, and most of them tended to occur early in the cycle rather than late. Interestingly enough, with all the debate over whether or not the economy is in a recession or not, the pattern of Consumer Confidence in the current period looks very similar to the pattern during the double-dip recession of the early 1980s. Like the current period, back then there was a sharp drop and subsequent sharp rebound in confidence followed by another decline that failed to make a lower low. The only difference this time around is that following the initial COVID recession of 2020, there wasn’t another recession in the next two years – at least not an officially declared recession.
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Chart of the Day: Fed Day Performance Rotating
Bespoke’s Morning Lineup – 7/25/23 – The Spinal Tap Streak
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“It’s such a fine line between stupid, and uh… clever.” – David St. Hubbins, This is Spinal Tap
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In case you missed the segment last night on CNBC’s Last Call, here is a link (the only link available at the moment is on Twitter)
Based on where futures are trading now, the current Spinal Tap streak of eleven straight daily gains for the Dow is making a run for The Dirty Dozen. The gains are just marginal at this point, though, so it wouldn’t take much for things to turn south. Like futures here in the US, European equities are higher this morning but just barely so, and that comes following news that the latest survey of banking from the ECB showed that corporate loan demand has plunged to record lows. Not only that, but Germany’s Ifo index which tracks sentiment towards the economy dropped for its third straight month after six straight gains to start the year. Part of the reason European equities have managed to rally off intraday lows despite the weak economic data is China. Following reports of increased government stimulus in that country, Chinese stocks rallied more than 2%.
Here in the US this morning, the only reports of note are the Case Shiller housing numbers at 9 AM followed by the Richmond Fed and Consumer Confidence reports at 10 AM. Consumer Confidence is expected to jump from 109.7 up to 112.0 while the Richmond Fed report is expected to weaken from an already negative reading of -7 to -10.
As just about everyone knows by now, the Dow’s eleven-day winning streak is the longest since 2017 and just the sixth streak of as long or longer of duration since WWII. Just as eleven straight red spins on the roulette wheel would inevitably lead you to start betting on black thinking it was overdue, it’s natural to expect a pullback to even things out. One thing worth pointing out, though, is that following each of the five prior eleven-day winning streaks, the Dow was higher three and six months later all five times.
While the Dow may have posted positive returns for eleven straight days now, not even one of its components has been higher for as many days. The longest winning streak of the index’s 30 components has been in UnitedHealth (UNH) at seven days, followed by IBM and Goldman Sachs (GS) each with six. Behind those three stocks, another three components have been up for five straight days. On the downside, just three components have traded lower for two or more days, and the longest of those streaks has been American Express (AXP) at four days.
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