Claims Characteristics Check Up
This morning’s release of initial jobless claims disappointed relative to expectations as they climbed up to 218K versus expectations for an increase to only 210K from last week’s reading of 206K. At current levels, jobless claims are rounding out 2023 in the middle of the past couple of years’ range: not as strong as the late 2022 low of 182K, but not as high as the peak earlier this year.
Before the seasonal adjustment, claims are trending higher as could be expected given the time of year. Claims jumped this week to 272.6K which is the highest level for the comparable week of the year since 2019. Based on seasonal patterns, claims tend to peak right around New Year or the first couple of weeks in January meaning that the headwinds are likely to fade soon.
Continuing claims have risen significantly since late Q3, but more recently that increase has begun to plateau right around levels from the spring peak. Currently, continuing claims stand at 1.875K, a 14K increase week over week.
In addition to weekly claims, below we show the latest data on unemployment claimant characteristics through November. As shown below, some industries that received a lot of attention for layoffs earlier this year and observed actual increases in claims, like tech, real estate, and finance, have more recently seen pivots lower in claims. Although that marks some improvements (potentially as a result of expirations of benefits), overall those industries do not account for the largest shares of claims. Instead, industries like construction or manufacturing account for greater burdens on claims.
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Bespoke’s Morning Lineup – 12/28/03 – Looking to Make a Record Run
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“There are no traffic jams along the extra mile.” – Roger Staubach
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
It’s another slow morning in the markets as the pace of data has been slow. The only reports of note on the calendar this morning were Wholesale Inventories, which fell 0.2% on a m/m (right in line with forecasts), and jobless claims. Initial claims were slightly higher than expected (218K versus 210K) while continuing claims increased modestly to 1.875 million which was in line with consensus forecasts. Equity futures are modestly higher for the S&P 500 while the Nasdaq is indicated to open up 0.26%. There’s a small positive bias to yields, but nothing indicating conviction. One other item worth noting is that while the S&P 500 is within spitting distance of a record high, individual investor bullish sentiment declined this week falling to 46.3% from 52.9% and the lowest level since 11/23.
With just two trading days left in the year, the market is on the verge of history. After being written off for dead in the last year, the traditional 60/40 portfolio of 60% stocks and 40% bonds is within a whisker of its best two-month rally since at least 1990. The chart below shows the rolling two-month performance of a 60/40 portfolio using the S&P 500 total return as the stock portion and the Bloomberg Aggregate Bond Index total return as the bond portion. With a gain of 12.16% over the last two months, the current period just surpassed the two-month rally coming out of Covid (May 2020), and the only other period that was better for the strategy was the two months ending in April 2009. Back then, the strategy rallied 12.25%, so if the next two trading days even see marginal gains, the current rally will set the record.
What makes the current period so much different than the other two cited above is where the gains have come from. Let’s start with the stock portion of the strategy. In the current period, the S&P 500 is up 14.35% over the last two months, which is certainly strong relative to history but not anywhere close to a record. In May 2020, the two-month gain was 18.19% and in April 2009 it was 19.17%.
What has stood out in the last two months is how strong the bond portion of the strategy has been. Back in 2009, the bond leg was up just 1.87% while in May 2020 it was up 2.25%. During this current period, bonds have rallied an unprecedented 8.87% which far exceeds any other two-month period since at least 1990. Since they are meant to act as the ‘insurance’ leg in times of market weakness (although it wasn’t the case in 2022), bonds tend to always underperform stocks during periods when the equity market rallies. While they still underperformed stocks in the last two months, they have never acted as a smaller drag on the strategy during a period of strength.
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JP Morgan [Performance] Chase
Just about every price chart lately looks like a one-way move higher, but in scanning through various charts earlier, we were struck by how steep and one-directional the move in JP Morgan Chase (JPM) has been over the last two months. Besides a handful of days with red bars, the stock has seemingly done nothing but go higher each day.
Just how impressive has the move over the last two months been? In the last 40 trading days, JPM has finished the day higher 30 times. While we don’t have price data going back to the days of J.P. Morgan himself, going back to 1980, the current frequency of positive days over a 40 trading day period has never been seen.
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Chart of the Day: Financial Tightening Easy Come, Easy Go
Bespoke’s Morning Lineup – 12/27/23 – Overbought Everywhere
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“Chance favours the prepared mind.” – Louis Pasteur
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
While the US was open for trading yesterday, most international markets are only reopening from the Christmas holiday today, and the overall tone has been positive as several major Asian markets were up 1% or more overnight. The tone in Europe is also positive, although it has been more subdued. Here in the US equity futures are about as close to unchanged as possible. Treasury yields are lower across the curve and around the world while crude oil is lower and gold and copper are trading higher.
It’s been a great rally for US stocks over the last two months, and more recently over the last week, stocks around the world have been performing just as good if not better than here. While the S&P 500 tracking ETF is up 0.76% over the last week, all but two of the eighteen regional ETFs we track in our Trend Analyzer have performed even better, and more than half of them are further extended relative to the 50-day moving average (DMA) than SPY which is 6.83% above that level. As shown in the image below, all of the 18 ETFs are also uniformly situated relative to their trading range at ‘Overbought’ levels (1+ standard deviation above their 50-DMAs). It’s hard to get more uniform than that!
Regarding each ETF, most of the regional ETFs are also trading right at 52-week highs (charts with green borders) while just four are shy of their one-year highs. It’s been somewhat of a can’t lose environment for equity investors over the last couple of months, and while it won’t last forever, enjoy it while it lasts.
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Chart of the Day – Eight is Great
Bespoke’s Morning Lineup – 12/26/23 – One Extreme to the Other
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“This century hasn’t got the lock on insanity.” – William Peter Blatty, The Exorcist
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
We hope you all had a great holiday weekend, and for those who are back to work, it’s going to be a quiet day in the markets as much of Asia, all of Europe, and Canada are closed in observance of Boxing Day. Futures have a modestly positive bias, and crude oil is trading up close to 2% in the session.
Investors in just about every asset class outside of Energy have had a great end to the year, and the rally in US Treasuries has been among the most impressive. At the long end of the Treasury curve, the iShares 20-Year Treasury ETF (TLT) has rallied over 15% from its lows since late October. In the twenty-year history of the ETF, there have been only five other periods where the ETF rallied as much or more in 50 trading days. The three most notable were during the Financial Crisis, in 2011 right around the time of the US debt downgrade by S&P, and then again in March 2020 at the time of COVID. Admittedly, each of those rallies was significantly larger, but what makes the current period notable is that it followed what had been a historically large 15% decline in a 50-trading day span that ended in early October. Never in the ETF’s history has it shifted so fast from one extreme to the other.
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Bespoke’s Brunch Reads – 12/24/23
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.
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On This Day in History:
A Christmas Truce: On Christmas Eve, 1914, amid World War I, Christmas carols echoed across battlefields as soldiers along the Western Front initiated a spontaneous act of humanity and unofficial ceasefire, crossing trenches to meet their adversaries in no man’s land. This extraordinary occurrence saw troops engaged in seasonal greetings, sharing rations, and participating in soccer matches together. This truce, though brief, demonstrated a unique human capacity for empathy and camaraderie amid war.
In 2005, a film called Joyeux Noël, which translates to “Merry Christmas,” vividly brought to life this story of the Christmas Truce. It delves into the experiences of French, German, and Scottish soldiers who, amidst the horrors of war, found a common ground in the spirit of Christmas.
Electric Vehicles
As Tesla’s fight with Sweden escalates, the EV firm is hiring a ‘hands-on’ Nordic expert with a knack for problem-solving (MSN)
Sympathy strikes across Nordic countries in reaction to Swedish Tesla employees’ demands for collective bargaining have forced the automaker to hire an expert in the region to help tame the escalating labor disputes. Tesla’s refusal to engage in standard collective bargaining practices in Sweden has led to operational disruptions, including halted services and deliveries. Tesla hopes its new hire can get the issues settled, especially with Elon Musk so outspoken about his opposition to unions. [Link]
E-scooter company Bird files for bankruptcy (Electrek)
Global e-scooter company Bird has filed for bankruptcy in the US but will continue its operations in Canada and Europe. Bird’s US operations have faced challenges, including a significant drop in its stock value and delisting from the NYSE. Bird has also faced tough competition and regulatory challenges in the e-scooter market. The industry overall is experiencing mixed fortunes, with some companies facing layoffs and others, like Lime, reporting growth. [Link]
U.S. Battery Production Is Going … Great, Actually? (Heatmap News)
The EPA’s new emissions stardards, set for 2032, imply that 67% of new vehicles will need to be electric by 2032, posing a challenge due to the Inflation Reduction Act’s restrictions on EV components from certain countries. Despite this, a report from the Environmental Defense Fund shows promising growth in US battery production, exceeding expected demand by 2028. This increase in domestic production could help automakers meet the standards and allow consumers to benefit from EV tax credits. [Link]
Economic Trends
AI gives birth to AI: Scientists say machine intelligence now capable of replicating without humans (Fox News)
Large AI models, like those behind ChatGPT, can now autonomously create smaller, specialized AI systems. To create self-evolving AI, large models are building smaller ones, without the help of humans. What researchers believe is that this process will help all models collaborate and build out an intelligence ecosystem, basically all autonomously. Right now, these AI-built models are good for practical tasks that humans can use in everyday life. Even your dishwasher and coffee maker could use AI! [Link]
Microsoft Agrees to Remain Neutral in Union Campaigns (NYT)
Microsoft declared its neutrality towards unionization efforts in the US, a group that includes about 100,000 workers. This decision follows a neutrality agreement with the Communications Workers of America, under which Microsoft’s video game workers unionized without a formal election. Now union leaders and Microsoft will discuss issues stemming from AI. AI experts from Microsoft will inform union leaders about AI developments at the company and attempt to mitigate concerns like job displacement as a result of the quickly evolving technology. [Link]
Rite Aid faces 5-year facial recognition ban after FTC accuses it of “reckless” use of AI tech (Axios)
With retail crime on the rise and of much discussion in the media lately, facial recognition has become popular to identify those they believe to be shoplifting and causing other issues in stores. An FTC complaint suggests that Rite Aid failed to use the technology responsibly, claiming that it “disproportionally impacted people of color.” Many of the alerted results of the facial recognition came back as false positives. Rite Aid says that it disagrees with the claims and only uses the technology in a limited capacity. [Link]
The City That’s Trying to Replace Politicians With Computers (It’s Working) (WSJ)
In Porto Alegre, Brazil, Councilman Ramiro Rosário pioneered the use of ChatGPT to draft a law, marking a significant shift in legislative processes. This law, aimed at preventing the local water company from charging for stolen water meters, was passed unanimously and was the country’s first to be entirely written by AI. This could be the start of a new direction in governance, suggesting increased efficiency and cost-effectiveness in public administration, but it also raises questions about ethical practices and the future role of human legislators in policymaking. There was certainly some pushback against Rosário when others found out he didn’t write any of it. [Link]
Christmas
Just How Rich Were the McCallisters in ‘Home Alone’? (NYT)
Home Alone, is a Christmas classic. The question that has been stirring on social media as the holiday season rolls around is, what exactly did Mr. McCallister and Mr. McCallister do to afford all that they had? The film takes place in a real house in Winnetka, Illinois, one of the most expensive neighborhoods in the country. The movie suggests Kevin’s mom is a fashion designer and his dad a businessman. The family’s wealth is further implied by their ability to accommodate a large number of people and the luxurious lifestyle they lead, despite not paying for their trip to Paris, which was funded by Uncle Rob. [Link]
The Ancient Origins of the Christmas Wreath (WSJ)
Wreaths are a Christmas Staple. The tradition dates back to ancient cultures, including the Egyptians, Greeks, and Romans, and served various symbolic purposes. The Vikings introduced the Yuletide wreath as part of their winter solstice celebrations, which later evolved into the Christian Advent wreath. The practice of decorating doors with wreaths gained popularity in America in the 20th century, largely influenced by Louise B. Fisher’s creative designs at Colonial Williamsburg, leading to the widespread custom of decorating front doors with festive wreaths during the holiday season. [Link]
Billionaire Endeavors
Jeff Bezos, Elon Musk say human population not nearly big enough: ‘If we had a trillion humans, we would have at any given time a thousand Mozarts’ (Yahoo Finance)
Jeff Bezos and Elon Musk, two prominent billionaires, share a vision for expanding human presence in space. Bezos, with Blue Origin, envisions a future with a trillion humans living across the solar system, facilitated by robust space infrastructure. Musk, leading SpaceX, emphasizes the need for humanity to become a multi-planet species, focusing on Mars colonization. Both stress the importance of population growth and space exploration for the future of civilization. [Link]
Immigration
A run-down motel became an accidental sanctuary for hundreds of migrants. In them, its owner found renewed purpose and meaning. (Denverite)
Yong Cha Prince planned to close her motel in Denver but found a new purpose when she sheltered Venezuelan migrants in need. The Western Motor Inn became a home for about 300 people seeking better lives in the US. It has made Prince happy to be able to care for those living at the motel, but the future of the community is uncertain due to the motel’s deteriorating condition and financial challenges. [Link]
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Have a great weekend!
The Bespoke Report – 2024 Annual Outlook
Our Bespoke Report – 2024 Outlook is now available for Bespoke subscribers. This report covers everything you need to know about the set-up for financial markets and the economy heading into 2024. If there’s ever a “must-read” Bespoke report, this is it!
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Overbought Breadth Not Going Away
A small number of (mega-cap) names have done the bulk of the heavy lifting for market-cap-weighted S&P 500 performance this year, but that does not steal from the fact that breadth has been solid. As shown below, the S&P 500’s 10-day advance decline line—which essentially measures the ten-day average of the daily net percentage of stocks in the index trading higher/lower—has shown positive readings 57.9% of the time in 2023 and is right in line with the annual average dating back to 1990.
Within this year’s respectable breadth readings has been a particularly strong run over the past couple of months which we first highlighted in yesterday’s Sector Snapshot. As shown below, the 10-day advance-decline (A/D) line has pretty consistently sat at least one standard deviation above its historical average throughout November and December. In other words, the past couple of months have consistently seen historically large swathes of the market trading higher.
Looking at the past 50 trading days, two-thirds of the time have seen the 10-day A/D line sit in overbought territory. Of all rolling 50-day periods, there have only been two other times when breadth by this measure has been overbought on such a consistent basis. The most recent of these was in early 2019 when it was overbought 70% of the time. Before that, you’d need to go back to 2010 to find a reading as high.
