Daily Sector Snapshot — 4/18/22
Western Wobbling in Homebuilder Sentiment
As the national average for a 30-year fixed rate mortgage has risen to and remained above 5%, homebuilder sentiment has been reversing its pandemic gains. The NAHB’s monthly homebuilder sentiment index dropped 2 points in April to 77. That was the fourth decline in a row bringing the headline number to the weakest reading since September of last year. That is also now only one point above the December 2019 pre-pandemic high.
The decline this month was mostly driven by a decrease in traffic. That index dropped 6 points to 66 which is the weakest level and the biggest one-month decline since last August. Meanwhile, present sales dropped 2 points for the second month in a row. On the bright side, future sales actually ticked up 3 points to snap a three-month losing streak. That being said, the current level of this index is much less elevated within its historical range compared to the others.
Geographically, there are some large divergences in homebuilder sentiment. For starters, the Northeast showed the most impressive improvement with the index rising 9 points month over month. Whereas last month it was the lowest within its respective historical range, today it is the most elevated. The South also saw an improvement as this region has perhaps been the most stable across the pandemic years. The West and Midwest were other stories entirely in April. The Midwest experienced its second-largest decline on record behind the 42 point drop in April 2020 and is now at the lowest level since June 2020. Meanwhile, the West fell 7 points. That also was the biggest drop in two years though the index saw an even lower reading as recently as last September.
As homebuilder sentiment drops, so too have homebuilder stocks. The iShares US Home Construction ETF (ITB) — which tracks the space — has been falling sharply since peaking around the turn of the year. Click here to view Bespoke’s premium membership options.
Chart of the Day: Nasdaq Down YoY
A Good Friday From the Empire Fed
Even though markets were shuttered on Friday for the Good Friday holiday, the New York Federal Reserve branch released the latest update on their monthly manufacturing report with astounding results. Heading into the release, the March reading had shown a significant decline back into negative territory indicating the region’s manufacturers reported contractionary overall activity. In April, activity rebounded substantially with the headline number rising 36.4 points all the way up to 24.6. That set the second-largest month-over-month increase on record behind the 48.3-point jump back in June 2020. In terms of the level of the index, it brought it from a lower decile reading to levels just shy of the upper decile of its historical range going back to the start of the survey in the early 2000s.
Although current conditions were impressive, we would caution that expectations soured in an equally dramatic fashion. The six-month expectation index dropped 21.4 points to 15.2. That was only 0.3 points shy of the second-largest decline on record (21.7 point decline in March 2020) but was far better than the 61 point drop after 9/11 in the early days of the survey.
The move higher in General Business Conditions was thanks to big turnarounds in New Orders and Shipments but breadth elsewhere in the report was not as positive. Of the seven other categories, four declined month over month with three of those declines ranking in the bottom decile of each one’s respective histories. Again, expectations were much more worrisome with large declines across categories and readings in the bottom few percentiles for things like New Orders, Shipments, and Unfilled Orders. Overall, the report showed solid improvements in conditions but how sustainable those improvements will be in the coming months could come into question.
The biggest contributors to the increase in the headline reading were improvements in New Orders and Shipments. Each one crossed back into the top decile of their historical ranges on some of the biggest month-over-month increases on record outside of the spring of 2020. Unfilled Orders were also higher, though, unlike New Orders or Shipments, the index is coming off of already elevated levels. Given the strength in demand and shipments, inventories grew at a slower rate. Expectations were much less optimistic as across all four of these categories there were near-record declines. Unfilled Orders and Inventories even fell into contraction. That means that although New York area firms witnessed solid improvement in business conditions in April, the positive changes are not expected to keep pace or continue in the months ahead.
One likely reason for the big improvements this month was the easing of supply chain stress. The index of Delivery Times fell back down to the low end of its elevated pandemic range in April (higher readings indicate products are taking longer to reach their destination).
Those improvements in current conditions did not filter through to employment. While the region’s firms are on net still increasing hiring, the index for Number of Employees fell to the lowest level since October 2020 after two months of the largest MoM declines since the onset of the pandemic. As hiring decelerates, the average workweek did tick up solidly. That index rose 6.5 points to 10. Click here to view Bespoke’s premium membership options.
Bespoke’s Morning Lineup – Tax Day – 4/18/22
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 trial to Bespoke Premium. CLICK HERE to learn more and start your trial.
Bespoke’s Quote of the Day: “The difference between death and taxes is death doesn’t get worse every time Congress meets.” – Will Rogers
Below is a snippet of content from today’s Morning Lineup for Bespoke Premium members. Start a two-week trial to Bespoke Premium now to access the full report.
Below is a table we highlight each year showing the S&P 500’s performance in the weeks leading up to and the weeks immediately following Tax Day. As shown, over the last 20+ years, the weeks before Tax Day have been much weaker for the market than the weeks after. This year has been no different thus far with the S&P falling more than 3% in the two weeks leading up to Tax Day. Now we just need the trend of gains in the two weeks following Tax Day to hold as well!
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Bespoke Brunch Reads: 4/17/22
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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Real Estate
What Happened to the Gilded Age Mansions of New York City? by Candace Taylor (WSJ)
The history of the midtown mansions which used to be a defining feature of life in Manhattan; they’ve long since disappeared under soaring buildings which now dominate the city. [Link; paywall]
Redfin Reports Demand Slips, Pushing More Sellers to Drop Asking Prices (Redfin/Business Wire)
A summary of leading indicators for home buying demand that have started to slow. Fewer searches, fewer tours, fewer mortgage applications, and higher rates are all illustrating a looming cooldown in the housing market. [Link]
How Remote Work is Shifting Population Growth Across the U.S. by Adam Ozimek (Economic Innovation Group)
An analysis of Census data that suggests remote work is driving population outflows from high-cost dense metros and towards suburbs, exurbs, and rural areas around the country. [Link]
Work
Sure, Work Makes Us Want to Swear. But Should You? by Rachel Feintzeig (WSJ)
It’s one thing to let fly with profanity at home, but returns to the office have meant habits developed during the pandemic may require a bit of adjustment now that there are coworkers in ear shot again. [Link; paywall]
Everything Costs More, and That’s Disrupting Retirement for Many by Harriet Torry (WSJ)
Inflation appears to be playing a role solving a problem that was much fretted over last year: workers are returning to the labor force to augment retirement income amidst high rising prices. [Link; paywall]
Starbucks is weighing better benefits for employees but says they could exclude union workers by Amelia Lucas (CNBC)
Already facing one complaint from the NLRB for union-busting, Starbucks is trying to fight further unionization by denying benefits to union shops and may run further afoul of labor regulations in the process. [Link]
Innovation
A McDonald’s distribution partner in Canada is testing an electric Volvo truck — take a closer look at the big rig EV by Brittany Chang and Mary Meisenzahl (Business Insider)
EV trucks are starting to hit the road in Canada as part of a test for Volvo’s new offerings. McDonalds is testing the trucks as part of its distribution network. [Link]
World’s Biggest Particle Collider to Restart in Bid to Extend Frontiers of Physics by Aylin Woodward and Janet Babin (WSJ)
The massive particle accelerator along the Swiss-French border has been shut down for three years, but new collisions will resume soon after a series of upgrades. [Link; paywall]
Emerging Markets
Unsafe at any price by Jay Newman (FTAV)
Concerns are mounting over the shift away from protective covenants are especially grave among the highly-indebted sovereign borrowers from emerging markets, where legal enforcement against sovereign actors is always more complicated than in the private sector. [Link; registration required]
U.S. and Chinese Bond Yields Converge, Reversing a Decadelong Pattern by Rebecca Feng (WSJ)
The once-large yield advantage for Chinese government bonds relative to those in the US has been erased, with a slowing Chinese economy and tightening Fed policy leading to a convergence between the two large markets. [Link; paywall]
Supply Chains
Building Resilient Supply Chains (Council of Economic Advisors)
A detailed report on the general nature of supply chains and steps that could be taken to make them more resilient, part of the CEA’s annual Economic Report of the President. [Link; 42 page PDF]
France
First round of 2022 French election in charts by Eir Nolsoe, Ella Hollowood, and Oli Elliot (FT)
A series of charts explaining the geographic, material, and educational differences between voters that supported Marine Le Pen and Emmanuelle Macron in France’s first round elections. [Link; soft paywall]
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Have a great weekend!
Bespoke’s Crypto Report — 4/15/22
Bespoke’s Crypto Report contains numerous technical, momentum, and sentiment charts for bitcoin, ethereum, and other key cryptos. Page 1 of the report includes our weekly commentary on the space and attempts to identify any new trends that are emerging. The remaining pages include important overbought/oversold levels to watch, charts on historical drawdowns and rallies, seasonality trends, futures positioning data, Google search trend shifts, and more. Our weekly Crypto Report is produced so that followers of the space can more easily stay on top of price action, technicals, seasonality, and sentiment.
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The Bespoke Report – 4/14/22 – Churn! Churn! Churn!
This week’s Bespoke Report newsletter is now available for members.
We can’t get the Byrds song “Turn! Turn! Turn!” out of our minds lately, but in our heads, we’re singing Churn! Churn! Churn!. Stocks can’t seem to find any direction these days, and that’s being somewhat generous. If anything, the trend has been lower, but with the weekend approaching, let’s be generous in order to keep up the mood. The 200-day moving average is typically considered a major trendline for the S&P 500 with breaks above considered bullish, while moves below suggest a bearish outlook. If that’s the case, what are we to make of the fact that the S&P 500 has crossed above its 200-DMA more than five times this year and crossed below it six times? As we’ve all said to our kids all too often, “Make up your mind already!”
While we had a holiday-shortened week, it was still plenty busy with the kick-off of earnings season and a bunch of economic data. We cover it all in this week’s Bespoke Report along with the big drop in bullish sentiment, some whipsaw moves in the treasury market, a look at seasonality around tax day, and lastly a checkup on the semiconductors.
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Bespoke’s Weekly Sector Snapshot — 4/14/22
Claims Bounce Off Multi-Decade Lows
After coming in at one of the lowest levels on record last week, seasonally adjusted initial jobless claims bounced up to 185K this week. While higher, jobless claims are still historically strong having spent a record eight straight weeks with sub-200K readings.
As we noted last week, seasonal adjustments overstated the strength of claims as unadjusted claims experienced a seasonally unusual decline. This week was more normal from a seasonal perspective with initial claims rising from 194.4K to 222.5K and the first reading above 200K since the week of March 11. As shown in the second chart below, the current week of the year has consistently seen claims move higher week over week marking a temporary high before resuming the seasonal downtrend through the next couple of months. That means the slight uptick this month is likely mostly seasonal and far from any sort of a change in trend.
Lagged one week to initial claims, continuing jobless claims fell to a new low of 1.475 million. That is the lowest level of claims since March 1970. Click here to view Bespoke’s premium membership options.
