There has been no shortage of strong readings on the manufacturing sector of late and this morning’s release of the Kansas City Manufacturing index was yet another point of this. The index was already at a record high in March but it gained another 5 points this month.  Expectations pulled back slightly but remain right around some of the highest levels in the history of the survey.

With overall growth accelerating at a record pace, half of the individual categories of the report also set new records. Even for those that did not set a new record, almost all of the April readings were at least in the top few percentiles of all readings. As shown below, every index is now showing expansionary readings after the index for Finished Good Inventories rose to 8 from -10 last month.  Additionally, there were only two indices that were lower month over month: New Orders and Supplier Delivery Times.  In spite of those declines, both of those indices are coming off of record or close to record highs. In other words, even after declining they remain historically elevated.

New Orders continue to grow at a historically strong rate albeit decelerated from March as that index fell 9 points to 29.  Given the further growth in orders, backlogs are continuing to rise at an increasingly rapid pace. That index gained another 3 points to reach a new high of 35. This month marks the third in a row that the index for unfilled orders came in at a record high.  To meet this demand, firms appear to have massively ramped up production as the index topped 40 after gaining 17 points month over month.  Although production is rapidly accelerating, shipments are lagging a bit. That index is also at a strong level of 32 but it only rose 5 points.

One likely reason for a more throttled reading on shipments is supply chain issues. As shown below, Delivery Times still remain extremely elevated. Even after pulling back in April, the index is well above anything observed prior to the past several months. Highlighted comments also make mention of these issues. For example, one comment states that “It is very difficult to handle the increased business with supply chain issues across all materials and finding anyone who wants to work” while another mentioned the company is, “facing significant supply chain problems due to COVID-19 issues, tariff issues, and the weather problems in Texas earlier this year”. On the bright side, expectations for Delivery Times plummeted in April as the index collapsed by 14 points.  That is in the bottom percentile of all monthly moves.

Commentary also frequently mentioned increases in prices and the data backs up that anecdotal evidence.  Both indices for Prices Paid and Prices Received rose to record highs this month.  The same can be said for expectations of prices paid.  The commentary gave a bit more color to this with mentions of inputs like steel contributing to those increases. Labor shortages were another area blamed for rising prices.

On the topic of labor, the indices for Number of Employees and Average Workweek are both at new highs. Expectations also remain extremely optimistic with the former at the highest level to date and the latter just off the prior high of  32 from June 2018.  Again circling back to the commentary section, one firm noted that “Entry-level pay will need to be increased. This will create pressure on all other positions” and another stated that they “cannot get people to apply. We pay upwards of $20 or more per hour with full benefits”. In other words, even with employment metrics rising at a record rate, there is still plenty of demand on the part of employers. Click here to view Bespoke’s premium membership options for our best research available.

While many areas of the market have seen sizable pullbacks this year, the broader market has been stingier.  Just this morning, a client was lamenting the fact that they had a decent amount of cash, but the market just wasn’t providing opportunities to get in.  So far this year, the S&P 500’s largest decline from a peak (on a closing basis) has been 4.23%, and given that we’re not even four full months into the year, we initially thought that 4% seemed normal enough especially when the earlier months of the year tend to be positive.

In order to see how this year stacks up to prior years, the chart below shows the duration into each year (on a percentage basis) that the S&P 500 first closed down 5% or more from its YTD peak. Years in green indicate that there wasn’t a single point in the entire year that the S&P 500 experienced a 5% decline.  The last occurrence was in 2017, and there have been a total of seven years since 1928.  As we near the end of April, we’re nearly a third of the way into 2021, and compared to the ‘average’ year, we’ve already gone longer without a 5% pullback.  Since 1928, the S&P 500 usually experiences its first 5%+ pullback 28% of the way into the year, which coincidentally enough works out to April 15th – the day before Federal taxes are typically due!  In fact, at this point in prior years, the S&P 500 has already experienced its first 5%+ pullback more than 65% of the time.  Believe it or not, in 30% of all years since 1928 the first 5% drop occurred in the month of January.

Based on prior years, the market to this point has in fact been stingy in terms of providing opportunities for investors to add exposure, although based on today’s reports of new capital gains tax increases from the Biden Administration, that window may soon open.  Click here to view Bespoke’s premium membership options for our best research available.

Sentiment continues to run in favor of the bulls though there has been some moderation in the past couple of weeks. Bullish sentiment as measured by the AAII weekly sentiment survey peaked at 56.9% in the second week of April but has since fallen in back-to-back weeks falling 4.2 percentage points to 52.7%. While lower recently, this is the first time since the last two weeks of 2017 and the first week of 2018 that bullish sentiment has remained above 50% for three weeks in a row. Before that, you would have to go back to early 2011 to find another period with bullish sentiment being above 50% for several weeks in a row. Outside of the early 2000s, such readings have been relatively uncommon.

Even though bullish sentiment has pulled back, fewer respondents are reporting bearish sentiment.  Only 20.5% of respondents reported as pessimistic this week compared to 24.6% last week.  That is 0.1 percentage points above the low of 20.4% from April 8th which was also the lowest level of bearish sentiment since April 2019.

With both bullish and bearish sentiment lower, that means neutral sentiment picked up the difference rising 5.2 percentage points to 26.8%.  That was the largest one-week increase in neutral sentiment since a 10 point rise from November 12th to November 19th of last year.  Back then, neutral sentiment rose to a slightly higher level of 29.29%.

While individual investors have become less bullish over the past couple of weeks, the opposite is true of newsletter writers.  The Investors Intelligence survey of this group has seen bullish sentiment rise for three weeks in a row reaching 63.7% this week.  That is the highest level since at identical reading in the second week of the year. Although it has not been particularly long since the last comparable reading, we would note that it is elevated relative to history.  In the chart below we show bullish sentiment over the past 50 years. Outside of now and late last year, the last time bullish sentiment was as high was in late 2017/early 2018. You would have to go all the way back to February of 1987 or earlier to find another time before that when sentiment was as high as it is now. Additionally, less than 20% of respondents are also looking for a correction. Readings around these levels were not necessarily uncommon in the early 2000s and prior, but relative to the past 15 years or so such a low reading has been rarer. Click here to view Bespoke’s premium membership options for our best research available.

Last week saw an impressive reading for jobless claims falling to 576K. While that was revised slightly higher to 586K this week—which would still be well below the previous low for the pandemic—today’s release saw further improvements with initial claims dropping another 39K from that revised level to 547K.  That brings the total decline over the past two weeks to just under 200K; the largest since the first week of August when claims first fell back below one million.

On a non-seasonally adjusted basis claims likewise continue to fall which is normal given the time of year.  The current week of the year (week number 16) has only seen unadjusted claims rise week over week 13% of the time going back to 1967 when the data begins.  In other words, the improvement in claims comes alongside seasonal tailwinds as non-seasonally adjusted initial jobless claims fell to 566.5K this week from 623K last week. The picture for Pandemic Unemployment Assitance was not as positive as the program experienced a small uptick from 131.7K to 133.3K.  Nonetheless, that is the second week in a row with a very low count in claims for this program.

Continuing jobless claims had been on an impressive streak of 12 straight weeks of declines, but that appeared to end last week after rising to 3.731 million. Fast forward to today’s release and that reading was revised down significantly by 23K to 3.708K.  Given that was below the prior week’s 3.717 million reading and the most recent reading fell further to 3.674 million, the streak of consecutive week-over-week declines has been brought back to life, extending to 14 weeks long. As shown in the second chart below, that makes for the longest streak of consecutive declines on record.  Overall, the continuing claims picture continues to consistently improve as continuing claims are well below the pre-pandemic record from the last recession. Granted, current levels are still historically elevated around levels of past highs like those in the early 1990s and 2000s.

When factoring in all programs, the most recent data is for the first week of April.  Based on the latest results, we saw an uptick in total continuing claims across all programs rising just under 500K to 17.4 million.  While regular state claims and the Extended Benefits program both saw declines of more than 100K, they were offset by 265.2K and 447.7K respective increases in PUA claims and Pandemic Emergency Unemployment Compensation (PEUC) claims. Those increases bring these programs’ claim counts back up to similar levels as a month ago. Meanwhile, Extended Benefits claims are at their lowest level since early October, and regular state claims are at the lowest of the pandemic.

As for the composition of claims, those moves meant a significant share (35%) of total claims still come from extension programs like PEUC and Extended Benefits. While that is below the highs from last month on a combined basis, breaking this down further, the PEUC program’s share of total claims reached 32.2% in the most recent week’s data; a new high for the pandemic. Meanwhile, the Extended Benefits program’s share fell to the lowest level since October.  There is a similar dynamic for PUA and regular state claims with the former accounting for a growing share of total claims and the latter accounting for the smallest share of the pandemic. Click here to view Bespoke’s premium membership options for our best research available.

Ever since ‘crypto’ entered the mainstream, bitcoin has been the superstar.  Sure, doge has gotten its 15 minutes, but at least nine out of ten times, if you ask someone about crypto, the first asset they are going to mention is bitcoin. The next most popular crypto asset has pretty much always been ethereum, but it has always taken a backseat to bitcoin.  Even today, while bitcoin has a total market value of just over one trillion dollars, the total value of ether out there is just under $300 billion.

While ethereum is less than a third the size of bitcoin, in recent days it has been holding up very well given the pullback in bitcoin.  The chart below shows the performance of both crypto-currencies over the last six months.  While they’ve followed relatively similar paths, you’ll notice that despite bitcoin’s 15%+ pullback, ether has traded to record highs.

Another way to put the recent performance of ether versus bitcoin into perspective is to compare the ratio of the two over time.  In the chart below, we show the ratio of bitcoin versus ether going back to early 2018.  A high ratio indicates that bitcoin is outperforming ether and vice versa.  Back in late 2018, the ratio between the two peaked out at more than 60 ether per bitcoin, but it has been trending lower ever since.  In fact, as of today, one bitcoin is worth just over 21 ether which is the lowest ratio since August 2018.  Ether may have been nothing more than a single-A player relative to bitcoin a year and a half ago, but it has quickly worked its way up to the system and earned itself a spot in the dugout next to bitcoin.  Click here to view Bespoke’s premium membership options for our best research available.