Seasonality Keeps Claims Below 200K?
Initial jobless claims remained healthy this week with another sub-200K print. Claims fell modestly to 191K from last week’s unrevised reading of 192K. That small decline exceeded expectations of claims rising up to 197K. Given claims continue to impress, the seasonally adjusted number has come in below 200K for 9 of the last 10 weeks. By that measure, it has been the strongest stretch for claims since last April when there were 10 weeks in a row of sub-200K prints. Prior to that, from 2018 through 2020 the late March and early April period similarly saw consistent readings under 200K meaning that some of the strength in the adjusted number could be on account of residual seasonality.
In fact, this point of the year has some of the weeks in which claims have the most consistently historically fallen week over week. Taking a historical median of claims throughout the year, claims tend to round out a short-term bottom in the spring before an early summer bump. In other words, seasonal strength will begin to wane in the coming months.
While initial claims improved, continuing claims worsened rising to 1.694 million from 1.68 million the previous week. Albeit higher, that remains below the 2023 high of 1.715 million set at the end of February.
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A Fed Day Like Most Others
Yesterday’s Fed decision and comments from Fed Chair Powell gave markets plenty to chew on. As we discussed in last night’s Closer and today’s Morning Lineup, there have been a number of conflicting statements from officials and confusing reactions in various assets over the past 24 hours. In spite of all that uncertainty, the S&P 500’s path yesterday pretty much followed the usual script. In the charts below we show the S&P’s average intraday pattern across all Fed days since Powell has been chair (first chart) and the intraday chart of the S&P yesterday (second chart). As shown, the market’s pattern yesterday, especially after the 2 PM ET rate decision and the 2:30 PM press conference, closely resembled the average path that the market has followed across all Powell Fed Days since 2018.
The S&P saw a modest bounce after the 2 PM Fed decision and then a further rally right after Powell’s presser began at 2:30 PM. That initial post-presser spike proved to be a pump-fake, as markets ultimately sold off hard with a near 2% decline from 2:30 PM to the 4 PM close.
So what typically happens in the week after Fed days? Since 1994 when the Fed began announcing policy decisions on the same day as its meeting, the S&P has averaged a decline of 10 basis points over the next week. During the current tightening cycle that began about a year ago, market performance in the week after Fed days has been even worse with the S&P averaging a decline of 0.99%. However, when the S&P has been down over 1% on Fed days (like yesterday), performance over the next week has been positive with an average gain of 0.64%. As always, past performance is no guarantee of future results.
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Chart of the Day: Big 2y Yield Drops On Fed Days
Bespoke’s Morning Lineup – 3/23/23 – Always Keep ‘Em Guessing
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“These contradictions are not accidental, nor do they result from ordinary hypocrisy: they are deliberate exercises in doublethink” – George Orwell
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In foreign relations, a policy of strategic ambiguity can often be effective. Conflicting messages regarding responses to a potential action leave all actions on the table and keep the parties involved guessing regarding any reaction you might have. The US has been employing this strategy with respect to China and Taiwan. Over the years, various officials have repeatedly given conflicting messages regarding how we would respond to a Chinese invasion or if Taiwan sought to declare independence. By doing this, it keeps China from invading under the threat of a US military intervention, but by also supporting the one-China principle, Taiwan has refrained from declaring independence from China. It may not be a long-term answer, but in the short term, it maintains the status quo.
One area where a policy of strategic ambiguity may not be as effective is in the handling of a banking crisis. Within the span of under 30 minutes yesterday, we saw the heads of the Federal Reserve and US Treasury give somewhat conflicting signals regarding the US banking sector. At 3 PM Eastern, Treasury Secretary Janet Yellen told a Senate Committee that she is not considering a broad increase in deposit insurance at US banks. Besides the fact that she made somewhat contradictory remarks just a day earlier, her statement seemed to be the complete opposite of FOMC Chair Powell who said just a few minutes later in his post-meeting press conference that the Fed has the tools to protect depositors and is prepared to use them in order to safeguard deposits. Given the conflicting signals, most rational investors would not stay put thinking that there is a good chance their deposits are safe, they would step on the gas and get out of dodge!
The conflicting signals given by Powell and Yellen yesterday certainly didn’t instill a whole lot of confidence on the part of investors, and that helped spark a sharp late-day sell-off in equities towards the close. From the end of Powell’s press conference through the closing bell, the S&P 500 sold off more than a full percent to finish right near the lows of the day.
Powell made another subtle shift in his messaging yesterday. While he has tended to kick off prior speeches lately with an adamant anti-inflation message (remember Jackson Hole), that wasn’t in yesterday’s speech. Instead, he used the opportunity to highlight the ‘decisive’ actions taken by the Federal Reserve and Treasury to address and contain the crisis and keep the banking system ‘sound and resilient’. If you thought the omission of the anti-inflation message was a sign of a more dovish Powell, though, he tried to dispel any notions of that when he closed out his press conference with the statement “I mentioned with rate cuts, rate cuts are not in our base case. And you know, so that’s all I have to say, so.” Always keep them guessing!
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FANG+ Flying
As we noted in today’s Morning Lineup, sector performance has heavily favored areas like Tech, Consumer Discretionary, and Communication Services in recent weeks. Playing into that sector level performance has been the strength of the mega-caps. The NYSE FANG+ index tracks ten of the largest and most highly traded Tech and Tech-adjacent names. In the past several days, that cohort of stocks is breaking out to the highest level since last April whereas the S&P 500 still needs to rally 4% to reach its February high.
Although FANG+ stocks have been strong recently, that follows more than a full year of underperformance. As shown below, relative to the S&P 500, mega-cap Tech consistently underperformed from February 2021 through this past fall. In the past few days, the massive outperformance has resulted in a breakout of the downtrend for the ratio of FANG+ to the S&P 500.
More impressive is how rapid of a move it has been for that ratio to break out. Below, we show the 2-month percent change in the ratio above. As of the high at yesterday’s close, the ratio had risen 22.5% over the prior two months. That comes up just short of the record (22.6%) leading up to the pre-COVID high in February 2020. In other words, mega-cap Tech has experienced near-record outperformance relative to the broader market. However, we would note that this is in the wake of last year when the group had seen some of its worst two-month underperformance on record with the worst readings being in March, May, and November.
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Chart of the Day – Financials Underperformance: Canary or Nothing Scary?
Bespoke’s Morning Lineup – 3/22/23 – Now Batting
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“Those who have the task of making such policy don’t expect you to applaud.” – William McChesney Martin
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There’s no economic data on the calendar and there’s little in the way of earnings news to focus on this morning, so for the next six hours, we’ll only have the Fed to worry about. Markets are still overwhelmingly pricing in a 25 bps hike with the current odds at close to 90%. It’s hard to imagine a rate hike given the weakening macro backdrop and the crisis in the banking sector, but those are the numbers, and at this point, there have been little signs of the problems spreading.
The fact that UK CPI just printed its sixth straight month of double-digit y/y increases and ECB President Christine Lagarde was out saying she doesn’t see clear evidence that inflation is trending down doesn’t help the cause of those calling for a pause. Those are trends literally an ocean away, though, and over on this side of the Atlantic, just about every inflation indicator we track has been trending lower. Whatever decision the FOMC makes, it’s safe to assume that there will be no shortage of critics after the fact, and we don’t envy the position that Powell is in.
Heading into today’s rate decision, most sectors have traded down over the last week with Real Estate and Energy leading the way lower. Surprisingly, in the middle of a banking ‘crisis’ Financials isn’t even the worst performing sector as it is down less than 1% over the last five trading days and isn’t even the worst performing sector on a YTD basis. Sure, it’s down over 6.5%, but Utilities and Energy are also both down more than the Financials.
While Financials, Utilities, and Energy have been a drag on the market, Communication Services, Technology, and Consumer Discretionary have been the main drivers of gains this year. Not only are they the only sectors up more than 1% on the year, but they’re also all up over 10%, so these three sectors are basically in a league of their own versus the rest of the field.
Lately, Technology has been the clear leader. It’s only the second-best performing sector YTD, but its further above its 50-DMA than any other sector, and it’s on the verge of breaking out of the sideways range it has been in for the last two months.
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Chart of the Day: Fickle Fed Fund Futures
Bespoke’s Morning Lineup – 3/21/23 – All Quiet (For Now) on the Banking Front
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“Bank failures are caused by depositors who don’t deposit enough money to cover losses due to mismanagement.” – Dan Quayle
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There’s been no new news on the banking front this morning, and investors are taking the lack of news as an excuse to rally. US futures are up about 0.80% as treasury yields spike higher. Ahead of tomorrow’s fateful Fed decision, the only economic report on the calendar is Existing Home Sales at 10 AM today.
With an increase of ‘just’ 14 basis points (bps), yesterday broke a streak of seven straight days that the yield in the yield of the 2-year US Treasury had a daily move of more than 20 bps. Another record streak that continued, though, was the fact that the 2-year yield traded with an intraday range of at least 30 bps. Going back to 2000, which is as far back as we have intraday data for the 2-year yield, the current six-trading day streak of 30+ bps intraday moves is now longer than the five-trading day streak in September 2008 after the Lehman bankruptcy.
Not only is the current streak of wide daily ranges a record, but it also included what was a record single-day intraday range. Last Wednesday, the 2-year yield’s intraday range spanned a low of 3.71% to a high of 4.41%. That 70-bps range was a full 10 bps more than the prior record of 60 bps back on 9/19/08. Is that enough action for you?
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The Bespoke Triple Play Report — 3/21/23
An earnings triple play is a stock that reports earnings and manages to 1) beat analyst EPS estimates, 2) beat analyst sales estimates, and 3) raise forward guidance. You can read more about “triple plays” at Investopedia.com where they’ve given Bespoke credit for popularizing the term. We like triple plays as an indication that a company’s business is firing on all cylinders, with above-expectations results and an improving outlook. A triple play is indicative of positive “fundamental momentum” instead of pure fundamentals, and there are always plenty of names with both high and low valuations on our quarterly list.
Bespoke’s Triple Play Report highlights companies that have recently reported earnings triple plays, and it features commentary from management on triple-play conference calls, company descriptions and analysis, and price charts. Bespoke’s Triple Play Report is available at the Bespoke Institutional level only. You can sign up for Bespoke Institutional now and receive a 14-day trial to read this week’s Triple Play Report, which features 14 stocks. To sign up, choose either the monthly or annual checkout link below:
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