The Closer — EIA, Mexico Post-Election Rally, EM Turning Around? — 7/3/18
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Looking for deeper insight on markets? In tonight’s Closer sent to Bespoke Institutional clients, we take a look at EM. Mexican assets have surged in the wake of last weekend’s election, with the MSCI Mexico ETF (EWW) up 7.5% in the past two days. Other EM assets are starting to join that party. We also discuss a weaker than forecast EIA data on petroleum markets that sent crude lower but products higher.
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B.I.G. Tips – June Employment Report Preview
Heading into Friday’s Non-Farm Payrolls (NFP) report for June, economists are expecting an increase in payrolls of 195K, which would be a modest decline from May’s solid reading of 223K. In the private sector, economists are expecting an increase of 195K. With these increases, the unemployment rate is expected to remain low at 3.8%. An added area of focus, however, will come from average hourly earnings as inflation worries weigh on investor sentiment. Any stronger than expected reading in wage measures will likely be viewed as a negative for the market
Ahead of the report, we just published our eleven-page preview of the June jobs report. This report contains a ton of analysis related to how the equity market has historically reacted to the monthly jobs report, as well as how secondary employment-related indicators we track looked in June. We also include a breakdown of how the initial reading for June typically comes in relative to expectations and how that ranks versus other months.
One topic we cover in each month’s report is the S&P 500 stocks that do best and worst from the open to close on the day of the employment report based on whether or not the report comes in stronger or weaker than expected. In other words, which stocks should you buy, and which should you avoid? The table below highlights the best-performing stocks in the S&P 500 from the open to close on days when the Non-Farm Payrolls report has been better than expected over the last two years.
Of the 25 top performing stocks on days when the NFP beats expectations, eight sectors are represented, and Consumer Discretionary leads the way with nine. Vornado (VNO) has been the best performing stock with an average open to close gain of 2.72%. VNO is followed by nine other stocks that have been up over 1%. In terms of consistency, Urban Outfitters (URBN), Michael Kors (KORS), Fortive (FTV), Bristol Myers (BMY), and CH Robinson (CHRW) have all been positive 90% of the time.
For anyone with more than a passing interest in how equities are impacted by economic data, this report is a must-read. To see the report, sign up for a monthly Bespoke Premium membership now!
Bespoke Consumer Pulse Report — June 2018
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 year two of Trump’s economy. Start a 30-day free trial for a full breakdown of all of our proprietary Pulse economic indicators.
A Pretty Weak “Stronger Than Expected” ISM Services Report
Today’s release of the ISM Services report for the month of June came in stronger than expected at the headline level, but the internals of the report were somewhat weak. While economists were expecting the headline number to come in at 58.3, the actual reading was 59.1, which was the highest monthly reading since February. On a combined basis and accounting for each sector’s overall weight in the economy, our June composite ISM came in at 59.2.
While the headline reading for the June ISM Services report increased on a month over month basis, seven of the report’s ten subcomponents declined relative to May. The last time that happened was in July 2010. The only categories that increased were Business Activity, New Orders, and Export Orders.
The pickup in Business Activity was a particular standout as that component surged to 63.9, which is its highest reading since August 2005.
With the June Non Farm Payrolls report on deck for tomorrow, it is worth noting that the Employment component of this month’s ISM Services report fell from 54.1 down to 53.6. While that’s a pretty modest decline, that component has been steadily declining for a number of months now.
Chart of the Day: Lenders Loafing
Jobless Claims Slightly Higher Than Expected
Jobless claims for the latest week came in at 231K, which was slightly higher than the consensus expectation of 225K. Even at that level, though, claims remain at ridiculously low levels relative to history. This week’s reading not only represents a record 174 straight weeks where claims have been below 300K, but also the 39th straight week where claims have been at 250K or below.
With two weeks in a row of higher claims readings, the four-week moving average is also drifting more and more from its multi-decade low of 213.5K from back in early May. At the current level of 224.5K, we wouldn’t expect to see this reading anywhere near a new low in the next several weeks.
On a non-seasonally adjusted (NSA) basis, jobless claims ticked up to 231.1K from last week’s reading of 222.8K. Even with that increase, though, claims are more than 113K below the average of where they have been for this particular week of the year since 2000. In fact, the last time claims were lower in the current week of the year was back in 1973.
Little Change in Investor Sentiment
Given the July 4th holiday on Wednesday and the half day on Tuesday, there was very little change in investor sentiment over the last week. Based on the AAII survey, individual investors are still a lot more bearish than bullish. Bullish sentiment saw a slight decline on the week, falling from 28.5% down to 27.9%, which is the lowest level since early April.
Bearish sentiment, meanwhile, also saw a slight decline, falling from 40.8% down to 39.3%, but keep in mind that follows a massive 15 percentage point increase in the prior week.
Chart of the Day: Q2 the Weakest Earnings Season?
Bespoke Stock Scores — 7/3/18
Best Performing US Stocks YTD — HEAR Already a 2018 “10-Bagger”
Below is a list of the 35 best performing stocks in the Russell 3,000 so far in 2018 (through the close on 7/2). Amazingly, one stock has achieved Peter Lynch’s “10-bagger” status in the first six months of the year! As shown, Turtle Beach (HEAR) — a gaming sound card and headset manufacturer — ranks at the top of the list with a 2018 gain of 1,046.8%.
Two other stocks haven’t hit 10-bagger status yet, but they’re up significantly nonetheless. Tandem Diabetes (TNDM) ranks second with a YTD gain of 806.57%, while NII Holdings (NIHD) ranks 3rd at +786%.
There are four additional stocks up more than 300% YTD — I, INNT, ARWR, and BXC — while five other stocks are up 200%+ (ARQL, FOSL, ECYT, MDGL, and EGAN).
Other notables on the list of 2018’s first-half winners include Travelzoo (TZOO), World Wrestling Entertainment (WWE), Twilio (TWLO), Noodles (NDLS), and Weight Watchers (WTW).
As we’ve highlighted throughout the year, small caps have generally outperformed large caps in 2018. The chart below provides a good snapshot of this trend.
In the chart, we show the YTD performance of large-cap sector ETFs, and we also show the average YTD performance of Russell 3,000 stocks by sector. Remember, the Russell 3,000 is made up of roughly 98% of publicly listed companies in the US, from large-cap blue chips down to the smallest companies.
As shown, the average Russell 3,000 stock is up 10.10% YTD, while the S&P 500 SPY ETF (marked “All” in the chart) is up just 1.87%. The average Telecom, Health Care, and Technology stock in the Russell 3,000 is up double-digit percentages YTD, while the large-cap ETFs for these sectors are either up single-digits or actually down.
Sectors like Financials and Industrials are down at the large-cap sector level, but the average Financial and Industrial sector stock in the Russell 3,000 is up 3%+. Even Consumer Staples stocks are up an average of 3.1% in the Russell 3,000, while the large-cap Consumer Staples ETF is down 9.95% YTD.
