The ISM Services index for June was released earlier today, and like its manufacturing peer, the report was stronger than expected.  While economists were expecting a headline reading of 56.5, the actual reading came in at 57.4 and just 0.2 points shy of the post-election high of 57.6.  On a combined basis and accounting for each sector’s share of the overall economy, the ISM for June also came in at 57.4 up from 56.7 in May.

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Looking at the internals of the report, most of the sub-indices in this month’s report also showed m/m increases.  The only decliners on the month were Backlog Orders, Inventory Sentiment, and Employment.  On the upside, the largest increases were in Inventories and Prices.

One of the most interesting aspects of this month’s report was the commentary.  As shown below, despite some recent softness in economic data, there seems to be little in the way of concern on the part of respondents in the services sector.  Besides uncertainty surrounding ObamaCare, activity appears to be strong and improving.

Finally, with regards to the commodities that were reported as being in short supply this month, can you see the trend?

There was unsurprisingly little change in investor sentiment this week given how slow it has been around the July 4th holiday.  According to AAII, bullish sentiment fell by just 0.13 percentage points to 29.58%.  That’s the fourth straight week that less than a third of individual investors have been bullish and a record 131 straight weeks where less than half of them have been optimistic towards equities.

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Bearish sentiment saw a larger move than bullish sentiment this week, but with a gain of just three points, the move was still small, and at a level of 29.86%, negative sentiment is nearly the exact same as bullish sentiment.  You really can’t get more balanced than that!

Jobless Claims came in higher than expected this week (248K vs 244K), continuing the recent trend of a slow drift higher.  The key word here is slow, as even though claims have risen for three straight weeks, they are only up by 10K during that span and remain below the longer term downtrend.  Weekly claims still remain very low by historical standards as they have been below 250K for five straight weeks and nine of the last ten. On a longer-term time frame, claims have now been below 300K for 122 straight weeks.

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The four-week moving average increased by less than 1K this week to 243K.  That’s still within 8K of the multi-decade low of 235.5K that was hit seven weeks ago in mid-May.

On a non-seasonally adjusted basis, first-time claims came in at 250.4K.  That’s up over 10K from last week but is typical for this time of year.  For the current week of the year, NSA claims are more than 100K below their average of 357K and haven’t been this low at this time of the year since 1973.

US equities have treated investors to healthy returns so far in 2017.  And if you measure performance from either the Election or the lows in February 2016, things look even better.  One of the issues with measuring market performance from an extreme high or low point is that very few people ever time the market perfectly to buy at the low.  And even though it may seem like you always tend to buy things right at the exact top of the market, that is rarely the case either.  In order to remove the appearance of cherry-picking returns, measuring performance based on the calendar removes these kind of biases.

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Along those lines, the chart below shows the S&P 500’s current and average annualized total returns over the last one, two, five, ten, and twenty years.  The last year has been fantastic for the bulls.  With a gain of just under 18% on a total return basis, the S&P 500 has exceeded its average 12-month return by more than 800 basis points (bps).  Those are extremely solid returns, but over other time frames, the returns aren’t nearly as good.  For example, in the last two years, the S&P 500 has delivered an annualized gain of 10.7%, or only slightly more than the historical average of 10.4%.  On a five-year time frame, returns are once again above average (14.6% vs 10.3%), but then when we go out over the last ten and twenty years, the 7.2% annualized return falls more than 300 bps short of the historical average.

To illustrate this another way, the chart below shows the current annualized returns of the S&P 500 and where they rank on a percentile basis versus all periods since the late 1920s.  Even with a gain of 17.9% in the last year, the S&P 500’s one-year return ranks in just the 62nd percentile relative to all other one-year periods in its history.  The best percentile rank of all the time periods is over the last five years where the 14.6% annualized gain ranks in the 67th percentile.  Over the last two, ten, and twenty years, though, returns have been sub-par relative to history.  The S&P 500’s two-year annualized gain of 10.7% ranks in just the 47th percentile, the ten-year 7.2% annualized gain ranks in just the 27th percentile, while the twenty-year return ranks in just the 8th percentile!  In the S&P’s history, there haven’t been many twenty-year periods where performance has been worse than in the last twenty years.

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