Bespoke’s Morning Lineup – 6/15/21 – Retail Sales on Tap
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 free trial to Bespoke Premium. CLICK HERE to learn more and start your free trial.
“It’s tough to make predictions, especially about the future.” – Yogi Berra
As the Fed kicks off a two-day meeting to discuss interest rate policy, the major area of debate will no doubt surround inflation and whether the current surge we have experienced over the last few months ends up being temporary or persistent. Unfortunately, the answer is not so clear-cut as both sides have good arguments to support their view. That’s what makes a market, though, and tomorrow we’ll get a better idea of how wedded to the idea of temporary the FOMC really is.
It’s another quiet morning in financial markets today as US futures are little changed, yields are slightly lower, and even bitcoin is basically unchanged. That’s likely to change as the day goes on. At 8:30, we’ll get May reports on Retail Sales, PPI, and Empire Manufacturing. Then, at 9:15, Industrial Production and Capacity Utilization will be updated followed by Homebuilder Sentiment for June at 10 AM.
Read today’s Morning Lineup for a recap of all the major market news and events, the latest economic news from around the world overnight, and the latest US and international COVID trends including our vaccination trackers, and much more.
It wasn’t looking that way an hour before the close yesterday but a last-hour rally helped to push the S&P 500 into positive territory for the day resulting in the 29th record closing high for the S&P 500 this year. At the current rate, the S&P 500 is on pace for 64 record closing highs this year, which would eclipse the total of 62 in 2017 and put 2021 into third place overall for the most record closing highs in a given year. The record was 77 back in 1995, while 1964 ranks second with 65. While 64 is the current pace, where the year ends up could vary widely. All it takes is a sell-off to knock the pace off track, while a string of higher closes could really add to the pace. Wherever this number ends up on 12/31, we’ve already been in a very positive environment for equities.
Daily Sector Snapshot — 6/14/21
A Blistering Pace of Record Highs
It doesn’t look now like the S&P 500 will do it today, but so far this year, the S&P 500 has been making it a habit of closing at record highs. Since the year started, last Friday was the 28th day of the year that the S&P 500 closed at a record high. That works out to slightly more than 25% of all trading days or more than once a week. With more than six months left in the year, the S&P 500 isn’t far from overtaking the total number of record closes in the last two years, and if the current pace of new highs continues (a big if given that a sell-off can really cause the pace of new highs to dry up quickly), this year would see 62 record closing highs. That would tie the total for 2017 and trail only 1995 (77) and 1964 (65) for the most record closing highs in a given year. Click here to view Bespoke’s premium membership options.
Citi Surprise Indices Surging But Not Everywhere
It is a boring start to the week with nothing on the docket for earnings, Fed speakers, or economic data. With regards to the latter, the slate will pick up tomorrow with several US releases including retail sales, PPI, industrial production, and more. Expectations for tomorrow’s releases are a bit mixed relative to the prior readings in each indicator, but overall, recent US data has been beating expectations at a healthy rate. The charts below show the Citi Economic Surprise indices for a variety of global regions and the US. Positive readings in these indices indicate economic data is coming in above forecasts, and vice versa for negative readings. Additionally, higher positive or negative readings would mean that economic data is exceeding or coming up short of those forecasts by a wider margin.
Currently, the US index is well off record levels from the past year, but it has bounced since the start of June. The index has risen 42.7 points in the ten days from the end of May to last Friday. That move stands in the top 2% of all 10-day changes since the index began in 2003. That also comes not even a full month after the index saw its first negative reading in a year. While the negative reading was far from anything extreme, the sharp rebound has been impressive, leaving the index at a historically healthy level in the 83rd percentile.
The US is not alone in having seen a rebound. Although it is similarly off the peak from last summer and generally trending lower since then, the global index has consistently sat at the high end of its historical range over the past year. The current reading is still in the top 1% of all periods, and the move higher over the past ten days is again dramatic ranking in the top 5% of ten-day changes in the index’s history. While the jump in the US index has likely played at least some part in this, other regions around the world are also pulling weight having seen just as, if not more, significant moves. Sticking with a look at the move over the past ten days, the gains for the indices covering APAC and Central/Eastern Europe, the Middle East, and Africa all rank in the 98th percentile while the move in the index tracking Latin American countries ranks in the top decile. Each of these indices now sits in the top 1% or 2% of their historical ranges. One outlier region not contributing to the pickup in the global index has been Europe. While the Eurozone index is far from weak, it has not seen much of a move higher recently as other regions have.
Likely thanks to the weakness in Eurozone countries, a similar dichotomy can be seen comparing the indices for major developed economies (the G10 members) and emerging market countries. While the index tracking major economies has simply held up at healthy levels, the emerging markets index has leaped to new record highs, breaking well above the previous records set earlier in the pandemic. BRIC countries in particular are some to thank for that sharp move higher as the index has seen one of its largest short-term moves on record. Click here to view Bespoke’s premium membership options.
Chart of the Day – S&P 500 High, Yields Low, and VIX Lower
Bespoke’s Morning Lineup – 6/14/21 – Bitcoin Back in Business
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 free trial to Bespoke Premium. CLICK HERE to learn more and start your free trial.
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” – Friedrich August von Hayek
In terms of the economy, there’s a lot on the calendar this week, but it starts out slow as there are no reports to kick off the week today. A number of indices in Asia were closed overnight, but Japan was open and managed to rally 0.7% as Industrial Production surprised to the upside. European indices are trading higher to kick off the week as Industrial Production in the region also doubled expectations (0.8% vs 0.4%). In US markets, futures are mixed with the Dow lower, the S&P 500 flat, and the Nasdaq higher.
With not much going on in financial markets, the real action has been in bitcoin which is trading at its highest levels since late May following comments on Sunday from Elon Musk that Tesla may start accepting bitcoin as payment again in the future provided there’s confirmation of ‘reasonable (~50%) clean energy usage by miners with a positive future trend’. These days, that’s enough to move a $700 billion asset by over 5%.
Read today’s Morning Lineup for a recap of all the major market news and events, the latest economic news from around the world overnight, including Industrial Production in Europe, and the latest US and international COVID trends including our vaccination trackers, and much more.
It was a pretty positive week for US equities last week. In the “US Index” screen of our Trend Analyzer, every index ETF we track with the exception of the Dow (DIA) finished the week higher. DIA’s weakness primarily stemmed from a nearly 10% drop in shares of Caterpillar (CAT). With the rally last week, all of the ETFs listed head into the new week at overbought levels with a neutral timing score. You can’t get much more uniform than that.
While the ‘wide-angle’ view of US indices shows a good deal of uniformity, at the sector level there has been a lot more dispersion. Six sectors finished last week higher, and five traded lower. The biggest winners of the week were Health Care, Real Estate, and Technology, while cyclical sectors like Financials, Materials, and Industrials all fell more than 1%. In many respects, last week was a bit of a reversion to the mean trade where the biggest winners traded lower while the biggest underperformers had their day in the sun. To illustrate, the six sectors that were up on the week are now up an average of 12.95% while the five sectors that were down are still up an average of 23.6% YTD.
Bespoke Brunch Reads: 6/13/21
Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
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Labor Markets
Employed in a SNAP? The Impact of Work Requirements on Program Participation and Labor Supply by Colin Gray, Adam Leive, Elena Prager, Kelsey B. Pukelis & Mary Zaki (NBER Working Papers)
Work requirements do little to increase employment among recipients, while pushing out beneficiaries who are entitled to benefits; the authors estimate that simply eliminating work requirements would be a more effective step than new programs to target low-income adults. [Link; soft paywall]
How Does the Dramatic Rise of CPS Non-Response Impact Labor Market Indicators? by Robert Bernhardt, David Munro, and Erin Wolcott (FRB Chicago/Middlebury College Working Paper)
Declining response rates for the Census Current Population Survey explain a significant share of the decline in labor force participation rates reported over the last couple of decades. [Link; 26 page PDF]
Teens
Summer Job Market for Teens Is Sweet by Patrick Thomas (WSJ)
With labor markets tight, employers are reaching down the age ladder to fill low prerequisite positions and have driven teen labor force participation to the highest levels since 2008. [Link; paywall]
Sixteen Years Old, $1.7 Million in Revenue: Max Hits It Big as a Pandemic Reseller by Sarah E. Needleman (WSJ)
Huge disruptions in supply chains and massive consumer demand have sent goods markets into a wild frenzy benefitting re-sellers and middlemen that can move quickly to arbitrage prices. [Link; paywall]
Big Shifts
On the Crisis and Inflation, Barron’s Shows How the Past Can Be Prologue by Matthew C. Klein (Barron’s)
A look at a pre-COVID analogue to the pent-up demand and tight supply chains which have sent prices of some goods soaring in recent months, using both data and the words of contemporaries in media reporting. [Link; paywall]
Farewell, Millennial Lifestyle Subsidy by Kevin Roose (NYT)
The combination of high demand, tight labor markets, and wind-downs of investor subsidies are turning the various on-demand apps which fueled a labor-intensive luxury lifestyle for young adults over the past decade into pricey options. [Link; soft paywall]
Cash Management
Banks to Companies: No More Deposits, Please by Nina Trentmann and David Benoit (WJS)
QE purchases have left the banking system flush with cash, and the liability on the other side of that asset is an ocean of deposits which have jammed bank balance sheets. [Link; paywall]
Cryptocurrency Comes to Retirement Plans as Coinbase Teams Up With 401(k) Provider by Anne Tergesen (WSJ)
A small 401(k) provider is partnering with Coinbase to allow workers to allocate up to 5% of their retirement savings to crypto assets. [Link; paywall]
Don’t Forget To Flush
This man spent last year flushing hundreds of toilets. The new fear as the pandemic wanes: Legionnaires’ disease by Elizabeth Weise (USA Today)
A side effect of emptied out buildings during the pandemic: stagnant water. Maintenance staff has spent untold hours simply running faucets and flushing toilets to prevent standing water from becoming a breeding ground for pathogens even deadlier than COVID. [Link]
Renewables
Plug In or Gas Up? Why Driving on Electricity is Better than Gasoline by David Reichmuth (The Equation)
As the US grid shifts to renewables, the emissions advantages of electric vehicles are extending their lead over gasoline-powered cars even accounting for the CO2 intensity of electrical generation. [Link]
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Have a great weekend!
The Bespoke Report — Don’t Stop Believin’
This week’s Bespoke Report newsletter is now available for members.
Fourteen years ago this week, the series finale (Made in America) aired for what many critics believe is the greatest television show in history — The Sopranos. The show, which was as much a critique of American culture as it was a mob story, ended with the Soprano family gathering for dinner in a New Jersey diner while Journey’s Don’t Stop Believin’ played.
Seeing the 14-year anniversary of Made in America got us thinking back to those days in spring 2007, because that’s right around the time when we launched Bespoke. Once we opened our doors, only a few months would pass before the Financial Crisis hit, upending the financial industry for a good 18-24 months. Yet Bespoke made it through, and we are forever thankful for those early clients (many of which are still with us) that signed up to read our reports like this one, the Bespoke Report newsletter. We don’t have an exact count, but based on 14 years of weekly publications, we should be at well over 600 releases by now!
There was not a lot going on in financial markets this week as the economic calendar was light and we’re right in the middle of the earnings off-season. US markets have been very calm since Memorial Day which is typical for this time of year. This week we saw minimal moves for the S&P 500. Monday saw a decline of 8 basis points, Tuesday saw a gain of 2 basis points, Wednesday saw a drop of 18 basis points, and on Thursday the index gained just under half a percent. We closed out the week on Friday with another small gain of 20 basis points.
Even though it was a slow week, there’s always plenty for us to cover, and we do so in this week’s Bespoke Report. Enjoy this week’s report, and have a great weekend. We’re now 10 days away from the longest day of the year, so take advantage of the nice weather and extended daylight while we have it!
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Daily Sector Snapshot — 6/11/21
Record Household Equity Exposure As Stock Markets Surge
Yesterday, the Federal Reserve updated its quarterly look at the balance sheets of macroeconomic sectors of the United States. One of the metrics we can use the data for is the aggregate exposure to the equity market of the household sector. In the charts below, we show the percentage of total assets and financial assets that households have put in the equity market, either via direct holdings of stocks or exposure to stocks via mutual fund ownership.
In the first chart, we show these data for the combined household and nonprofit sector. Data specific to the household sector only doesn’t go back as far, but the two different flavors of household equity exposure tell the same tale: households are highly exposed to stocks, with a record share of their financial assets and total assets sitting in the equity market at current market values. Click here to view Bespoke’s premium membership options.
