The only piece of economic data on the docket today was the Dallas Fed’s read on the region’s manufacturing sector for the month of December.  Overall activity continued to grow albeit at a decelerated pace.  The index last peaked this past April at one of the strongest levels on record.  The grind lower since then that includes a 3.7 point drop in the most recent month leaves the index at 8.1.

That current reading is in the middle of the historical range, but many other categories of the report remain at far healthier levels from a historical standpoint.  In spite of generally elevated readings and given the decline in the headline number, more components fell this month than moved higher. The declines in indices for expectations were both broader and more pronounced with several month over month declines ranking in the bottom decile of all monthly moves.

One general area of weakness in December was demand.  New orders decelerated modestly while there was a more substantial decline in unfilled orders.  That being said, unfilled orders remains one of the most elevated indices of the report.  Shipments were also lower, but the drop in expectations is probably more notable, setting a new post-pandemic low.

The employment situation generally improved with the index for number of employees rising to the second-highest level on record behind the April 2021 reading. Although more people were hired, wage and benefit growth slowed, even as it continues to run at unprecedentedly high levels. Hours worked were little changed. Bigger and inverse moves were seen in expectations and current conditions of Capital Expenditures.  The former saw the largest one-month drop since March 2020 while current conditions saw the largest one-month uptick since this past March. In other words, businesses continue to take on new workers, invest in capital, and pay higher prices for labor, but they do not expect this trend to be as strong in the months ahead.

The other notable area of this month’s report concerned prices.  Prices Paid experienced the biggest single-month decline since March 2020. That decline ranks in the bottom 5% of all monthly moves and it also is off of a record high.  Prices received, meanwhile, moved slightly higher gaining 0.1 point. As for some further insights into supply chains, while firms were paying less they were waiting longer as Delivery Times continue to rebound after declines in the spring and summer. Click here to view Bespoke’s premium membership options.

In our 2022 Outlook, we cover numerous topics to both sum up the year and give insights into 2022.  This report is available at all three subscription levels.  If you are not yet a member, sign up below to get access to the entirety of the repot by clicking any of the links below:

Bespoke Newsletter — $395 annually or $49 monthly (includes 14-day trial)

Bespoke Premium — $995 annually or $99 monthly (includes 14-day trial)

Bespoke Institutional — $1995 annually or $195/month (includes 14-day trial)

If you’re already a member, click here for the whole report.

Below is a complimentary look at a handful of pages from our 2022 Outlook.  You can view the table of contents below as well.  Join our community today and give it a read!

The S&P 500 is currently at record highs, but recent sentiment readings are still relatively bearish. However, this isn’t necessarily negative for markets, as it gives the opportunity for bears to shift their position, which would likely be accompanied by an increase in equity purchases. AAII‘s reading on bullish sentiment moved from 25.2% last week to 29.6% this week. This week’s reading is still 6.7 percentage points below the average since 2009.

In turn, bearish sentiment dropped from 39.3% down to 33.9%, which is only 1.8 percentage points higher than the historical average level. This week’s reading was also the second-largest week-over-week decline in bearish sentiment since September 9th.

Neutral sentiment ticked higher by 1.2 percentage points, resulting in 36.6% of respondents reporting a neutral view of the market. This is the lowest absolute change in a month and is 5.0 percentage points higher than the average level.

The NAAIM Exposure Index moved higher this week alongside bullish sentiment. The index ranges from +200 (levered long) to -200 (levered short) and this week the index moved from 52.2 to 67.0, essentially erasing last week’s significant drop. That indicates reporting investment managers’ exposure to US equities is roughly 67%. Click here to view Bespoke’s premium membership options.

Three weeks ago, seasonally adjusted initial jobless claims hit a multi-decade low, breaking below 200K. Last week, claims moved slightly higher to 205K, and the reading was identical this week. Although we are not at our lows, the reading of 205K is historically strong.

While claims are at a healthy level, the seasonal adjustment has had a flattering effect recently. Historically, the number of non-seasonally adjusted claims has moved higher this week 68.5% of the time but moved lower this week. This comes as NSA claims have broken historical trends over the last 15 weeks, moving lower when the average of all years moves higher. Non-seasonally adjusted claims decreased from 266K to 254K.

Continuing claims, which are delayed by a week, came in slightly lower than the previous week at 1.86M, setting a new pandemic low. This is the lowest level since March 13, 2020.

Including all other programs creates an additional week of lag making the most recent data through the first week of December. In that week, total continuing claims ticked lower, moving from 2.46M to 2.12M. The decrease in claims was consistent across all programs. Click here to view Bespoke’s premium membership options.