Consumer Confidence showed a slight improvement in May, rising from 85.7 up to 86.6 but below consensus expectations for a reading of 87.0.  While this month’s print was weaker than expected, the fact that confidence didn’t decline further is a moral victory and provides additional signs that activity bottomed out in April.

All of the improvement in this month’s report came from expectations which ticked higher for the second straight month while the Present Situation component actually made another low, falling to its lowest level since August 2013.  It’s good to see that consumers are relatively upbeat about the future, but if the Present Situation index keeps making new lows, that will eventually bleed into sentiment towards the future as well.  The key here will be Summer.  Things will likely spiral in one way or the other.  Either people come out and case counts start to spiral higher, or case counts remain stable and social activity spirals higher.

One reason we haven’t seen a bounce in consumer sentiment towards the Present Situation is that consumers feel increasingly uneasy about the job market.  In this month’s survey, only 17.4% of consumers believe jobs are plentiful – a level not seen since 2014. This low of a reading is only natural when the majority of retail businesses are closed, but as things start to open back up, the hope, at least, is that job opportunities increase.  Start a two-week free trial to Bespoke Premium to access our most actionable research and interactive tools.

The S&P 500 has managed to trade in overbought territory for most of the past week. Looking across the eleven major S&P 500 sectors, six are overbought (over 1 standard deviation above its 50-DMA) at the moment while five are neutral (within 1 standard deviation of its 50-DMA).  Industrials, a recent laggard, was the best performing sector last week, gaining 7.2%. That rally led the sector to not only take out its 50-DMA but also move into overbought territory.  Financials, Real Estate, and Utilities which have also fallen behind performance-wise recently also managed to finish above their moving averages though they have not reached overbought territory just yet.  Regardless, conditions across sectors are broadly overbought at the moment if not approaching overbought.

In our Trend Analyzer and Chart Scanner tools, we run daily screens of things like 52-week highs and lows and Golden Crosses and Death Crosses to name a few.  Looking across these screens today, there seems to be more good than bad to start off the summer.  As of Friday’s close there were a total of 65 new 52 week highs all of which are shown below.  Some of these are retailers like BJ’s Wholesale (BJ) and Big Lots (BIG) in addition to several Health Care names.  Large-cap Tech also makes the list with names like NVIDIA (NVDA) and Shopify (SHOP).  Meanwhile, there have been fewer and fewer stocks making new 52 week lows.  In fact, there were only six new 52 week lows on Friday.

Not only are more stocks reaching new highs than lows but there have also been more golden crosses (when a rising 50-DMA moves above a rising 200-DMA) than death crosses (a falling 50-DMA moves below a declining 200-DMA).  As of Friday’s close the only death cross across all stocks and ETFs tracked in our tools was for the inverse ETF the UltraPro Short Dow 30 (SDOW).  On the other hand, there were 24 golden crosses including equities like Spotify (SPOT) and the S&P Biotech ETF (XBI).  In other words, more stocks are not only reaching new highs than lows, but more stocks and ETFs are also seeing their moving averages rising than falling.  Start a two-week free trial to Bespoke Institutional to access our interactive Trend Analyzer and screens.

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.

While you’re here, join Bespoke Premium for 3 months for just $95 with our 2020 Annual Outlook special offer.

Second Order Effects

Fewer Traffic Collisions During Shutdown Means Longer Waits For Organ Donations by April Dembosky (Kaiser Health News)

With far fewer cars on the road, there have been fewer fatal accidents, and as a result there haven’t been as many organs available for transplant. [Link]

U.S. Adults Report Less Worry, More Happiness by Megan Brenan (Gallup)

While many parents report brutal experiences trying to balance careers and children at home from school, since late March/early April there’s been a substantial improvement in levels of happiness, with less worry and boredom as well. [Link]

Markets

The Day Coronavirus Nearly Broke the Financial Markets by Justin Baer (WSJ)

March 16^th saw stocks fall at a record pace, huge scrambles for liquidity, and totally broken markets across asset classes that are typically regarded as very safe. [Link; paywall]

Frustrated sports punters turn to US stock market by Richard Henderson (FT)

With no soccer, no baseball, no basketball, and cancelled Olympics, the sports gambling behemoth slowly laid eyes on stocks as an outlet for those regularly risking cash on uncertain outcomes. [Link; paywall]

Options Market Signals a Dire Picture for Stocks by Ash Alankar and Myron Scholes (Bloomberg)

Despite a huge bounce since the March lows, equity options are pricing a relatively dire downside scenario that is more akin to what was priced at the lows than during a typical equity rally. [Link; soft paywall]

Pandemic Flight

First They Fled the City. Now They’re Building $75,000 In-Ground Pools by Gina Bellafante (NYT)

While debates rage over the safety of beaches – let alone public pool facilities – the wealthy are busily bolstering their environments with private swimming facilities. [Link; soft paywall]

Returning New Zealanders push population to record 5m by Jamie Smyth (FT)

Monthly net migration figures show a record 42,800 net additions to the small island nation, driven by citizens flocking back to the oasis of low case counts and remote living in the furthest southern reaches of the Pacific. [Link; paywall]

Economics

An Unemployment Crisis after the Onset of COVID-19 by Nicolas Petrosky-Nadeau and Robert G. Valletta (FRBSF)

Labor markets have taken a massive hit from the COVID crisis, but how fast will they bounce back? This analysis presents a disheartening range of outcomes that tilt firmly against rapid returns to very low unemployment that persisted pre-recession. [Link]

The Irish Shock to U.S. Manufacturing? by Brad Setser (Council on Foreign Relations)

US tax policy is incentivizing a huge shift away from domestic production and towards imports in an industry that doesn’t typically get discussed as a source of the US trade deficit. [Link]

Sports

How MLB’s Old Schedule Makers Would Set Up the 2020 Season by Emma Baccellieri (SI)

A profile of the couple that hand-wrote every MLB schedule from 1982 to 2004, balancing all of the intricate tradeoffs around fairness, weather, TV scheduling, and the myriad other concerns that afflict the 2,430 matchups in a 162 game calendar. [Link]

Minor League Baseball Is in Crisis by Robert Sanchez (SI)

Baseball teams are facing the same challenges as every other business and doing so without the stores of cash that Major League owners can call on. [Link]

Michael Jordan: A history of flight by Wright Thompson (ESPN)

Tracing MJ’s roots in Wilmington, filled with tobacco fields, and the man who The Last Dance only partially captures. [Link; soft paywall, auto-playing video]

Opportunities

Is a Pandemic the Right Time to Start a Business? It Just Might Be by Amy Haimerl (NYT)

While new business formation has slowed substantially, there are many new entrants finding a niche amidst the collapse in activity across the country; as society changes in response to the virus, new forms of opportunity are opening up. [Link]

A pizzeria owner made money buying his own $24 pizzas from DoorDash for $16 by Bijan Stephen (The Verge)

In an effort to win business, DoorDash is pricing some menu items below cost and effectively creating a massive arbitrage opportunity that is possible to bilk for real money. [Link]

Five robots that hope to save the US food supply chain by Patrick McGee (FT)

Cleaning floors, delivering packages, weeding fields, and more: these machines are helping to keep food flowing around the economy amidst the COVID-19 crisis. [Link; paywall]

Retail Reality

Shopping Malls Are Reopening, but Visits Are Still Way Down. Here Are the Numbers. by Evie Liu (Barron’s)

While many malls around the country are starting to reopen thanks to eased stay at home or business closure orders, recent location tracking data suggests that consumers are not exactly beating down the doors to buy. [Link; paywall]

It’s a dogfight at America’s pet stores as COVID-19 upends the $96 billion industry by Phil Wahba (Fortune)

While shelters have been cleared out as Americans respond to COVID loneliness with adoption, pet supply stores are facing monumental challenges after decades of secular growth. [Link]

It Took a Pandemic, but 7-Eleven in Japan Is Letting Stores Take a Break by Hisako Ueno and Ben Dooley (NYT)

Historically 7-11 operators in Japan had to adhere to a brutally strict set of dictates about open hours, but the COVID pandemic is changing much about the country’s approach to retail. [Link; soft paywall]

Home Depot, Lowe’s Primed for Historic Growth During Coronavirus by Matthew Townsend (Bloomberg)

Americans stuck at home under stay at home orders spent a huge amount of time and money upgrading their living space if Q1 results from the home improvement retailers are any indication. [Link; soft paywall]

Fail

Students are failing AP tests because the College Board can’t handle iPhone photos by Monica Chin (The Verge)

AP exam takers were foiled by image formats on their iPhones, because the website portal was not set up to handle the image format used by Apple and more recently Samsung phones. [Link]

Head Of NASA’s Human Spaceflight Program Resigns A Week Before Crucial Launch by Nell Greenfieldboyce (NPR)

The NASA administrator charged with overseeing human space travel has resigned ahead of a May 27^th launch of American astronauts that will be the first since 2011. [Link]

Win

America’s most illegal record has been obliterated by Cameron Kirby (Which Car)

The legendary speed run from New York City to Los Angeles has seen no less than seven new records in just over a month as empty roads tempt illicit drivers to take the journey at lunatic speeds. [Link]

Epidemiology

Why do some COVID-19 patients infect many others, whereas most don’t spread the virus at all? by Kay Kupferschmidt (Science)

While average transmission rates are useful for understanding the scale of outbreaks, in reality most COVID patients don’t infect many other people; instead, a few “superspreaders” drive big outbreaks, and understanding when and why that happens is a key to making the world safe until a vaccine can be found. [Link]

Terrorism

FBI finds al Qaeda link after breaking encryption on Pensacola attacker’s iPhone by David Shortell and Evan Perez (CNN)

For the first time since 9/11, a terrorist attack with fatalities directed by foreigners has taken place on American soil, as the FBI discovered links between a Saudi military trainee and al Qaeda in the Arabian Peninsula. [Link]

History

Do civilisations collapse? by Guy D Middleton (Aeon)

A critical treatment of the narrative that many civilizations fall apart due to their own hubris, or a catastrophic reliance on a shifting environment. In reality, easy narrativization is a mistake that obscures more complicated reality. [Link]

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Have a great weekend!

With states around the country gradually reopening from the COVID lockdowns that we saw in March and April, it’s no surprise that activity is bouncing. But how big is the bounce? To keep track of how the economy is performing on a high frequency basis, we have constructed an index based on five variables that are updated weekly: mortgage purchase applications, demand for gasoline, container traffic on railroads, initial jobless claims, and weekly consumer comfort readings. These indices broadly capture activity in housing, vehicle traffic, industrial activity, the labor market, and consumers’ outlook. Using a statistical technique, we identify a shared factor across all three, and compare it to GDP growth. As shown in the chart below, over the long term this index does a decent job tracking GDP growth, though of course it is much more volatile. Some of that volatility is due to calendar effects (see the second chart below, as an example).

Our results show a clear bounce in output over the last month, with the index bottoming at worse than -20% YoY (equivalent to -4% YoY GDP, historically) and rising to -15.5% in the most recent data. That retraces about half of the decline in the index during March and early April. A good start, to be sure, but still indicative of -2% GDP YoY, which would be a grim level of economic activity relative to where the economy sat before COVID hit.

There have been other efforts to track weekly growth that show slightly different results. The New York Fed updates a weekly gauge that takes a similar approach to ours, although with different inputs and a related but different statistical approach. It suggests a much, much more severe decline in GDP: more like 11% current, which is a new low reading for the series and doesn’t show the same kind of bounce our data does. Since the Weekly Economic Indicator is presented scaled to GDP, we can use it to back out an estimate of QoQ SAAR GDP growth (which is how GDP is typically reported). Average YoY weekly growth in Q2 implies a 35% QoQ SAAR drop in Q2 GDP, and no real improvement in that number during recent weeks. Believe it or not, that -35% number is actually pretty optimistic compared to other growth trackers. For instance, the Atlanta Fed’s approach suggests QoQ SAAR in Q2 around -42%!  In our view, the WEI data is probably an over-estimate of the negativity for Q2 output changes versus Q1, but our own tracker is probably a bit optimistic with its -3% YoY GDP equivalent. Activity is very likely bouncing, but it’s got an absolutely massive hole to climb out of.  Start a two-week free trial to Bespoke Institutional to access our full research platform and our unique investor tools.

The first quarter earnings reporting period unofficially came to an end earlier this week, and it should be considered quite a success given how well the equity market performed during this time period.  Since earnings season began on April 13th, the S&P 500 (SPY) has gained more than 5%.  Of course, the market’s performance over the last month or so has much more to do with expectations on re-opening than how companies reported in Q1, but all things considered, the sky didn’t fall when it came to earnings results.

In terms of how actual earnings reports came in versus analyst expectations this past earnings season, the trend wasn’t all that rosy.  We’ve been tracking “beat rates” for more than a decade, which measure the percentage of companies reporting stronger than expected EPS and sales numbers (relative to consensus analyst estimates).  Our main “beat rate” trackers show beat rates on a rolling 3-month basis — meaning it looks at all companies that have reported earnings over the last three months and tells you what percentage of them beat analyst estimates.

Below is a snapshot of both bottom-line EPS and top-line sales beat rates over the last five years as displayed on our website at our “Earnings Explorer” page.  Notably, bottom-line EPS beat rates have been weakening quite dramatically over the last couple of months since the COVID crisis began.  Just this week, the 3-month rolling EPS beat rate dipped below its long-term average of 59.37% dating back to the year 2000.

On the other hand, top-line sales beat rates haven’t taken quite the hit yet.  The current sales beat rate stands at 60.67%.  While sales on an absolute basis fell dramatically at the end of Q1, the fact that sales beat rates haven’t fallen dramatically means companies have at least managed to keep up with analyst expectations.  A very weak sales beat rate would have meant companies were reporting numbers even weaker than already dour analyst expectations.

We also have a forward guidance tracker that measures the percentage of companies raising guidance versus the percentage of companies lowering guidance.  When this reading turns negative, it means more companies have lowered guidance than raised guidance over the last three months.  As shown below, right now our guidance spread stands at -16.08 percentage points, which is the weakest reading we’ve seen since early 2016.

One thing we’ve seen since the COVID crisis began is that more and more companies have withdrawn guidance altogether.  It’s hard to blame them.  The ones that have issued guidance have mostly lowered expectations.  While this paints a bleak picture for the future, if you look at this from a “glass half full” perspective, it actually leaves much more room for positive surprises down the road.  To access our beat rate and guidance spread trackers with even more historical data, start a two-week free trial to Bespoke Institutional today.  A free trial with give you full access to our Earnings Explorer tool and all of our other popular investor tools, plus a wide variety of unique equity market and economic research from Bespoke.

In May 5th’s Closer earlier this month, we noted how monthly Black Knight mortgage data for March with some caveats was holding up despite the economic impacts of the pandemic.  Yesterday, Black Knight released their first look at April’s data. The release had some positives but overall gave a fairly bleak outlook. Starting with the good news, both new foreclosures (7,400) and the foreclosure rate (0.4%) fell to record lows in April. But the good news essentially stops there as that was largely a result of moratoriums on foreclosure activity rather than an actual improvement in borrower payments.

Delinquencies, on the other hand, were sharply on the rise with 6.45% of all loans now delinquent.  That nearly doubled March’s rate of 3.39% for the largest month over month increase on record which was also nearly 3x the size of the prior record from 2008 as reported by Black Knight (note: that 2008 occurrence is not shown in chart below as our data only dates to 2012). While not the case yet, those delinquencies may filter through to a rise in foreclosures down the road depending on how fast households can recover from the COVID shock to incomes.

Despite the lower foreclosures at the moment, the uptick in delinquencies leaves the sum of non-current loans at 3.612 million which is the highest since January of 2015.  This sort of data is why headline indicators of housing market health like existing home sales should be treated cautiously; they’re in effect missing the lagged effects on incomes that delinquency stats capture.  Start a two-week free trial to Bespoke Premium to access our interactive economic indicators monitor and much more.