Just like its counterpart that covers the Manufacturing sector, the ISM Services report for April declined this month and came in lower than expected.  While economists were expecting the headline index to come in at a level of 58.0, the actual reading was notably weaker at 56.8.  While both indices have declined, the magnitude of the drop in the Services sector hasn’t been quite as large.

On a combined basis and accounting for each sector’s share of the overall economy, our composite ISM for April came in at 56.9, which is pretty much in the range of levels we have seen over the last few months.  The general takeaway from these reports is the same as we have seen in much of the recent economic data — upside momentum has slowed, but from levels that were very positive to begin with.

The table below breaks down this month’s report by each of its individual components.  Breadth in this month’s report was pretty much neutral on both a m/m and y/y basis.  The increases relative to March readings were Inventories and Export Orders, while Backlog Orders and Supplier Deliveries saw the largest declines.  Given the fact that the March Non Farm Payrolls report will be released on Friday, we would also note that the Employment component saw a pretty large drop this month and is down sharply from its recent peak in January (chart below).

Finally, with all the concerns regarding inflation, we would note that like the commentary in the ISM Manufacturing report, the commentary in the ISM Services report also made many mentions of factors that are having upward pressure on prices.  Issues like shortages, strong demand, trade tensions, and rising costs are all ultimately inflationary even if the details of this month’s report like the Prices Paid component didn’t see large increases.

In last week’s update on weekly jobless claims, we described the trend in claims as “doing the limbo.”  Taking the analogy one step further, this week we ask, “How low can they go?”  First-time jobless claims came in at 211K this week versus estimates for a level of 225K.  Last week’s print of 209K was the lowest weekly reading since 1969, and this week is the second lowest!  With another week of sub-300K readings, the record streak has been extended to 165, while the streak of sub 250K readings is now up to 24, which is the longest since 1973.

With the second straight week of sub-225K readings, the four-week moving average also made a new low this week falling from 229.25K down to 221.5K.  The last time the four-week moving average was this low was back in 1973.  Barring a pretty big uptick in weekly claims next week, the four-week moving average should drop again, likely bringing it down to its lowest level since 1969.

On a non-seasonally adjusted basis, jobless claims also fell back below 200K to 186K.  For the current week of the year, that was the lowest print since 1969, and 135K below the average reading for the current week of the year dating back to 2000.

With the S&P 500 down in two of the last three days, investors are once again on the defensive causing bullish sentiment to retreat.  According to this week’s sentiment survey from AAII, bullish sentiment declined from 36.91% down to 28.4%.  While anything sub-30% is considered low, we actually saw a lower weekly print back in the first half of April when bullish sentiment dropped down to 26.09%. One trend that is emerging in bullish sentiment, though, is just like the trend of the overall market – lower highs.  Since peaking at close to 60% earlier this year, we have seen a steady downtrend emerge in sentiment where each week that has an increase is followed by another week(s) with bigger declines.

Not all the investors that left the bullish bandwagon this week went bearish.  While bullish sentiment declined over 8 percentage points, bearish sentiment increased by less than 5 points.  At the current level of 30.25%, it is nowhere near its recent high of over 40%.

Neutral sentiment, on the other hand, is getting back up near its highs and is back above 40%, indicating that a lot of investors simply don’t know what to make of this market.

As highlighted in our prior post, the percentage of companies that have beaten consensus analyst EPS estimates this season stands at 71.6%.  Any reading over 70% is very strong relative to past earnings seasons.

Below we take the beat rate analysis a step further and look at sector beat rates this season.  As shown, five sectors have beat rates that are stronger than the overall market, while six sectors have weaker beat rates.

The Industrials sector is the standout with a beat rate of 79.5% this season.  Technology ranks second at 75%, followed by Health Care and Consumer Staples at 73.1%.

On the weak side, Telecom and Energy both have earnings beat rates below 60%, while Utilities and Real Estate are below 65%.

We’ll be back to post an update on these readings at the end of earnings season in mid-May.

More than 1,000 companies have now reported Q1 2018 earnings, and at this point, earnings and revenue beat rates remain very strong for a second consecutive quarter.  (For further clarity, the “beat rate” is the percentage of companies over a given time period that report actual numbers that are stronger than consensus analyst estimates.)

So far this earnings season, 71.6% of companies have beaten consensus analyst EPS estimates, while 72.1% of companies have beaten top-line revenue estimates.  Below is a chart showing historical earnings and revenue beat rates for each quarterly earnings season since 1999.  If the 71.6% earnings beat rate holds through the end of this season in mid-May, it would be the strongest reading since Q3 2006.  For the top-line revenue beat rate, last season actually saw a stronger reading at 73.17%, but this would be the first time we’ve seen back-to-back readings above 70% since Q4 ’03 and Q1 ’04.

We’re just over halfway done with the Q1 2018 reporting period, and so far, companies have had no problem beating what were already hefty analyst expectations.

While it got lost in the shuffle of other things yesterday, we wanted to provide a quick update on the latest monthly sales figures of Ford F-Series trucks through the month of April.  Sales of trucks are important for two reasons.  First, as evidenced by the recent announcement by Ford that it would stop producing most car models in the North American markets and opt instead for SUVs and trucks, trucks are a higher margin ticket.  More importantly, though, trucks are often purchased by small businesses and contractors, so they provide a good read on the health of the small business sector.  Based on these sales totals, small businesses continue to do well.  In the month of April, Ford sold 73,104 F-Series trucks, which ranks as the best April since 2000 and the fourth best since 1996.

With this year’s strong showing in April, YTD sales of F-Series trucks have climbed to 287,295, and that ranks as the third-best YTD reading going back to 1996.  The only two years that were stronger were 2000 and 1999.  Given that this year’s total is within 2K of 1999’s total and 15K of 2000’s, if the current pace keeps up, 2018 could end up making a run for the record books!