Short interest figures for the middle of June were released after the close on Friday, and yesterday we sent out our regular update of trends and statistics regarding short interest levels for different sectors and groups, including how they have performed relative to their short interest levels.  One interesting chart that stood out is the interplay between short interest and price in the Energy sector.  As shown in the chart below, there has been strong inverse correlation between the two where falling prices have been accompanied by rising average levels of short interest as a percent of float and vice versa.  Earlier this year, when the Energy sector was at multi-year lows, short interest as a percentage of float for the sector was at levels similar to the Financial sector during the crisis.  Now, as prices have rebounded, shorts are scrambling to cover, although at a level of around 11% the sector still has the highest levels of short interest.

The table below lists 21 stocks in the S&P 1500 that have more than 30% of their free-floating shares sold short.  For each name, we also include the stock’s performance so far in June.  Overall, the performance of these stocks hasn’t been too far off from the overall market.  On an average basis, these 21 names are down more than the S&P 1500 (-4.27% vs -3.83%), but on a median basis they are faring better.  What is interesting to note, though, is that the six stocks that have the highest short interest levels are all down in June.

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Today’s report on Consumer Confidence for the month of June came in significantly better than expectations. While economists were expecting the headline reading to show just a modest increase to 93.5 from last month’s reading of 92.4, the actual reading came in at 98. That is the highest reading since October, and the best report relative to expectations since September. One caveat to keep in mind here, though, is that this data is pre-Brexit.  The chart below shows the headline Consumer Confidence index dating back to 2009.  At the current level of 98, the headline index is back above its long-term historical average, but still six points below the cycle high of 103.8 from January 2015.

As we do each month, we wanted to update the divide between Consumer Confidence among consumers based on income.  As shown in the top chart below, both consumers with incomes above $50K and below $50K saw an increase in confidence, although the bounce for lower income consumers ($35K-$50K) was significantly larger (that group also saw a much steeper decline in confidence two months ago.  Despite the improvement, the six-month average gap between the two income groups remains large (lower chart).  One thing you can count on, though, is that if the weakness in equities of the last couple of days persists throughout the month you can expect to see the spread in confidence between these two groups narrow as higher income consumers with more exposure to the stock market see a hit in their overall net worth,

Today the BEA released its third and final estimate of Q1 2016 GDP growth. After an initial release of 0.53% QoQ SAAR, growth was ultimately revised up to +1.08% QoQ SAAR.  Today’s release showed upward revisions to health care services consumption, intellectual property investment, and goods exports, with downward revisions to other services spending (driving down total consumption growth), inventories, and imports. The net results were positive, but despite a positive revision cycle Q1 US GDP growth wasn’t very impressive. It’s important to remember that declines in oil patch investment still had a massive impact. Reduced oil field investment shaved 55 bps off Q1 GDP alone (after -45 bps, -68 bps, -29 bps, and -20 bps in each quarter of 2015 respectively). And that’s only accounting for wells specifically; the pass-through of lower investment in machinery, extraction equipment, and similar spending isn’t included in that figure.

The good news is that the slowdown in growth in Q1 looks unlikely to continue. While Q2 isn’t setting up for massive jumps in output, both the Atlanta Fed’s GDPNow tracker and the New York Fed’s Nowcast model suggest a rebound. As shown below, the widely-cited Atlanta Fed model for GDP forecasting is quite accurate at predicting the initial GDP print, but it’s not able to take into account new information over time that leads to upward revisions of Final GDP like those we saw this quarter.  The same would be true for downward revisions.  So while growth should have a decent 2-handle in Q2, the cows are certainly not in the barn yet!

After closing at overbought levels on Thursday afternoon, the bottom has fallen out of US equities. What makes the moves even more extraordinary is that the move in US equities has been tame compared to what we have seen in other global markets. Through Monday’s close, the S&P 500 is now more than three standard deviations below its 50-DMA and at its most oversold level since January. The graphic to the right shows the current levels of the S&P 500 and each of its ten sectors relative to their 50-DMA. Along with the S&P 500, four sectors (Consumer Discretionary, Financials, Industrials, and Materials) are also trading more than three standard deviations below their 50-DMAs. At the same time, Telecom Service and Utilities are trading at overbought levels!

As you might guess, with the market so oversold, plenty of stocks are trading at oversold levels as well.  In fact, 295 stocks in the S&P 500 closed in oversold territory on Monday, which is the highest reading since 2/11 and up from just 36 on Thursday’s close.  To put that increase in perspective, going back to 2007, there hasn’t been a single time where the number of oversold stocks increased by that much in the span of two trading days!  Finally, among those 295 oversold stocks in the S&P 500, 15 closed four or more standard deviations below their 50-DMAs on Monday (see table below).  To put that in perspective, it’s pretty uncommon to see one stock trading at that oversold of a level let alone 15!