The Bespoke Report – 7/7/23 – Pause
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Bespoke’s Morning Lineup – 7/7/23 – The Streak is Over
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“A state of war is not a blank check for the president when it comes to the rights of the nation’s citizens.” – Sandra Day O’Connor
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There was little conviction in equity futures heading into the June jobs report this morning. Overnight, Asian stocks were lower as they caught up to the declines from the US yesterday while European stocks attempt to bounce from yesterday’s sell-off. Industrial Production in Germany was weaker than expected falling 0.2% m/m versus expectations for no change, but commentary from ECB officials including de Guindos and Lagarde both implied that more rate hikes are in the cards.
Today’s Non-Farm Payrolls (NFP) report missed expectations by 21K while the Unemployment Rate declined to 3.6% which was right in line with expectations. Average hourly earnings and average weekly hours both came in better than expected, though. As far as revisions go, prior readings were revised lower by over 100K with May’s originally reported level of 339K revised down to 306K. Futures have seen a modest bounce while treasury yields are lower.
The streak is over! With today’s weaker-than-expected report, the record run of better-than-expected NFP reports ended at 14 and came just one month shy of tripling the prior record of five straight better-than-expected reports. It only figures that the streak ended on the same month that the ADP Private Payrolls report crushed estimates and caused just about every investor out there to price in a better-than-expected report as a sure thing. If you’re keeping track, the last three times now that ADP surpassed forecasts by 300K or more, the corresponding NFP report for the same month missed forecasts. On 6/3/21, ADP topped forecasts by 328K, and on the next day, NFP missed forecasts by 116K. On 1/5/22, ADP topped forecasts by 397K, and two days later NFP missed by 251K. Now, this week ADP tops forecasts by 372K, and NFP missed by 21K. Relying on the ADP report as an indicator for the NFP report? What is it they say about insanity and doing the same thing over and over again?
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Chart of the Day – 39, 40, 41, 42…
Bespoke’s Morning Lineup – 7/6/23 – Out Like a Bull, In Like a Bear
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“An absolutely new idea is one of the rarest things known to man.” – Thomas More
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The first three days of Q3 have been an example of stocks not picking up right where they left off in the second quarter. while things started off quiet enough during the shortened session on Monday, yesterday’s session and this morning’s pre-market have traded heavily. This morning the tone has been especially weak as European stocks trade down over 1% on breadth that is skewed 10-1 to the downside. There hasn’t been much data to steer the market, but rising interest rates have been acting as a significant weight.
This morning, there’s much more economic data to contend with. ADP Private Payrolls were just released and came in much higher than expected at 497K versus forecasts for a reading of 220K. Jobless claims were more mixed. Initial Claims came in slightly higher than expected at 248K versus forecasts for 245K and up from a downwardly revised reading of 236K. Continuing Claims managed to come in weaker than expected (1.72 mln vs 1.737 mln). Overall, these reports suggest that any doubts over the health of the labor market can be put to rest, at least for now. Besides these two reports, we’ll get the monthly JOLTS report at 10 AM followed by Non-Farm Payrolls tomorrow. While there’s a lot of employment-related data to contend with don’t forget about the 10 AM release of ISM Services.
With the S&P 500 rallying into bull market territory and new 52-week highs, investors have become bullish. According to the weekly survey of individual investor sentiment from AAII, bullish sentiment jumped up to 46.4% from 41.9%. While bulls are still not in the majority and haven’t been in over two years, this week’s reading was the highest level of bullish sentiment since November 2021. Looking at the chart below, sentiment and the stock market have carved out identical patterns over the last two years indicating that investors’ views of the stock market have been based on how stocks have performed in the moment.
You may think that investor sentiment has always been positively correlated to the stock market’s performance, but that hasn’t necessarily been the case. The chart below shows the rolling two-year correlation between AAII bullish sentiment and the S&P 500 since 2000. While the correlation between the two has usually been positive, the levels have varied widely. In fact, levels like the current reading of +0.50 or more have been uncommon occurring less than 12% of the time since 2000.
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The Closer – Market Cap Growth and Value, JOLTS Forecast, Durable Goods – 7/5/23
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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 the dynamics between growth and value (page 1) followed by a forecast of JOLTS job openings based on the latest data from Indeed (page 2). We then turn to the latest manufacturing data (pages 3 and 4) before closing out with a rundown of the most recent positioning data (pages 5 – 7).
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Bespoke’s Consumer Pulse Report — July 2023
Bespoke’s Consumer Pulse Report is an analysis of a huge consumer survey that we run each month. Our goal with this survey is to track trends across the economic and financial landscape in the US. Using the results from our proprietary monthly survey, we dissect and analyze all of the data and publish the Consumer Pulse Report, which we sell access to on a subscription basis. Sign up for a 30-day free trial to our Bespoke Consumer Pulse subscription service. With a trial, you’ll get coverage of consumer electronics, social media, streaming media, retail, autos, and much more. The report also has numerous proprietary US economic data points that are extremely timely and useful for investors.
We’ve just released our most recent monthly report to Pulse subscribers, and it’s definitely worth the read if you’re curious about the health of the consumer in the current market environment. Start a 30-day free trial for a full breakdown of all of our proprietary Pulse economic indicators.
Factory Orders Go Negative
The last 24 hours have been rough for economic data both in the US and around the world as most indicators released have been weaker than expected. It started with weaker-than-expected PMI readings for the services sector in China but has since spread to weaker PMI readings for most major economies in the Eurozone as well. Here in the US, PMI data on the services sector will not be forthcoming until tomorrow morning, but Factory Orders released this morning were a big miss. At the headline level, orders for the month of May increased 0.3% which was a half percentage point below consensus expectations. Not only that but April’s reading was also revised down from growth of 0.4% down to 0.3%. After stripping out Transportation, Factory Orders declined 0.5% while April’s reading was revised from a decline of 0.2% down to a drop of 0.6%.
On a year/year basis, Factory Orders also dipped into negative territory for the first time since October 2020. The chart below shows the historical y/y change in Factory Orders since 1960. While readings were negative during every recession, there were plenty of other periods where they also declined on a y/y basis and the economy was nowhere near a recession. Not only that but there were also many other periods during economic expansions where Factory Orders dropped by a much larger amount on a y/y basis.
While the magnitude of the decline in Factory Orders hasn’t been extreme, what is unique about the current period is how long the rate of change in Factory Orders has been declining. The chart below shows streaks where the y/y change in Factory Orders increased (blue line) or declined (red line). With May’s report, the rate of change in Factory Orders on a year/year basis has declined for a record eight straight months, breaking the prior record of seven months that was seen during recessions in the mid-1970s, early 1980s, and during the Financial Crisis. The fact that prior streaks of similar duration all occurred during recessions isn’t exactly reassuring. What makes it less worrisome, though, is that the decline is coming after Durable Goods experienced record growth and consistency of growth coming out of the COVID crash.
There’s plenty of evidence out there to cite as reasons why the US economy is teetering on the edge of a recession or merely in a slowdown, and parts of today’s Factory Orders report could honestly be used to help justify either viewpoint.
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Chart of the Day – Returns Relative to History: Which Extreme?
Bespoke Market Calendar — July 2023
Please click the image below to view our July 2023 market calendar. This calendar includes the S&P 500’s historical average percentage change and average intraday chart pattern for each trading day during the upcoming month. It also includes market holidays and options expiration dates plus the dates of key economic indicator releases. Click here to view Bespoke’s premium membership options.
Bespoke’s Morning Lineup – 7/5/23 – Back on the Field
See what’s driving market performance around the world in today’s Morning Lineup. Bespoke’s Morning Lineup is the best way to start your trading day. Read it now by starting a two-week trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
“No one ever made a difference by being like everyone else.” – P.T. Barnum
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
The starters are coming back on the field this morning after a short session on Monday, and the gains from the quarter’s first trading day are on pace to be more than erased at the opening bell. Weak PMI data for many major economies released overnight and this morning has generally been weaker than expected raising concerns about the health of the global economy. The US economic calendar is quiet today with Factory Orders at 10 AM and FOMC minutes at 2 PM.
After a strong start where the STOXX 600 rallied 6.5% in the first ten trading days of the year, investors around the world hopped on the bandwagon for European stocks. Since those first ten trading days, though, stocks across the Atlantic have essentially flat-lined. In the 121 trading days since those first ten trading days of 2023, the STOXX has only managed to rally 1%, and the technical backdrop for stocks in the region has started to look shaky.
The STOXX 600 traded at new highs for the year in May, but since then has formed a short-term downtrend of lower highs and lows, and in the process, has broken the uptrend that has been in place since last fall’s low. In late June, it made a rally attempt, but that bounce stalled out right at resistance coinciding with that former uptrend as well as the 50-day moving average. To paraphrase PT Barnum, no one ever makes much money by investing like everyone else.
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