The Closer – New Small Cap Lows, Real Yield Impact, Factory USD, Flow of Funds – 6/6/19
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Looking for deeper insight on markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look the underperformance of small caps as the relative performance of the Russell 2000 versus the S&P 500 has hit a 52-week low. We also look into the decline in real yields and how this can impact markets and industrial production in the future. Next, we dig into today’s Federal Reserve’s Z.1 report to get a read on debt levels in the US economy.
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Bespoke’s Sector Snapshot — 6/6/19
We’ve just released our weekly Sector Snapshot report (see a sample here) for Bespoke Premium and Bespoke Institutional members. Please log-in here to view the report if you’re already a member. If you’re not yet a subscriber and would like to see the report, please start a two-week free trial to Bespoke Premium now.
In this week’s Sector Snapshot, we note improvement for equities over the past week even as defensives still lead.
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Bespoke Consumer Pulse Report — June 2019
Bespoke’s Consumer Pulse Report is an analysis of a huge consumer survey that we run each month. Our goal with this survey is to track trends across the economic and financial landscape in the US. Using the results from our proprietary monthly survey, we dissect and analyze all of the data and publish the Consumer Pulse Report, which we sell access to on a subscription basis. Sign up for a 30-day free trial to our Bespoke Consumer Pulse subscription service. With a trial, you’ll get coverage of consumer electronics, social media, streaming media, retail, autos, and much more. The report also has numerous proprietary US economic data points that are extremely timely and useful for investors.
We’ve just released our most recent monthly report to Pulse subscribers, and it’s definitely worth the read if you’re curious about the health of the consumer in the current market environment. Start a 30-day free trial for a full breakdown of all of our proprietary Pulse economic indicators.
B.I.G. Tips – May Employment Report Preview
Heading into tomorrow’s report, economists are expecting an increase in payrolls of 180K, which would be a sizable decline from April’s much stronger than expected reading of 263K. In the private sector, economists are expecting an increase of 172K, which represents a 64K decline from last month’s reading of 236K. The unemployment rate is expected to remain unchanged at 3.6%. Average hourly earnings are expected to grow at a rate of 0.3% versus last month’s 0.2% reading last month. Finally, average weekly hours are expected to show a slight increase to 34.5 from 34.4.
Ahead of the report, we just published our eleven-page preview of the April jobs report. This report contains a ton of analysis related to how the equity market has historically reacted to the monthly jobs report, as well as how secondary employment-related indicators we track looked in April. We also include a breakdown of how the initial reading for April typically comes in relative to expectations and how that ranks versus other months.
One topic we cover in each month’s report is the S&P 500 stocks that do best and worst from the open to close on the day of the employment report based on whether or not the report comes in stronger or weaker than expected. In other words, which stocks should you buy, and which should you avoid? The table below highlights the best-performing stocks in the S&P 500 from the open to close on days when the Non-Farm Payrolls report has been better than expected over the last two years.
Of the top performing stocks on days when NFP beats expectations, seven sectors are represented, but Consumer Discretionary leads the way with six stocks. Mattel (MAT), soon to be booted from the S&P 500, has been the best performing stock with an average gain of over 2%. In terms of consistency, Alexion Pharma (ALXN) and Netflix (NFLX) have seen gains over 80% of the time.
For anyone with more than a passing interest in how equities are impacted by economic data, this April employment report preview is a must-read. To see the report, sign up for a monthly Bespoke Premium membership now!
Claims Still Steady
Last week, we noted that Initial Jobless Claims have not been changing by much recently. That trend of steady claims has continued this week as seasonally adjusted numbers came in unchanged from last week’s upward revised 218K. That is slightly above estimates of 215K but still healthily below recent highs of 230K. Looking back on the May data, claims came in at 212K in the first two weeks and finished with 218K in the final two weeks. So again, labor data has been steady as far as this indicator goes. The streak of weeks below 250K now sits at 73 and claims have also sat below 300K for a record 222 consecutive weeks. That all may come as a surprise after yesterday’s huge miss in the ADP employment number, but to make sense of this, it seems that while labor data could see some slowing in job creation, people are also not exactly losing jobs at a worrying rate either. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.
The last of the recent highs in the seasonally adjusted data has now come off of the less volatile four week moving average. Even with last week’s revision higher and this week’s 218K print, the moving average has fallen for its fourth week in a row down to 215K from 216.75K last week. While those declines are a good sign, the moving average also still has yet to make a new low since doing so back in mid-April when it fell to 201.5K.
In line with seasonal patterns observed over the past several years, non-seasonally adjusted jobless claims fell this week to 188.7K. That is the lowest reading of the current cycle and going back to at least 2005. In addition, this week’s non-seasonally adjusted number is well over 100K below the average for the current week of the year since 2000 of 292.04K.
Stitch Fix (SFIX) Smashed Earnings, Gaps Up 24%
For the second quarter in a row, popular online clothing retailer Stitch Fix (SFIX) has reported an earnings triple play. Reporting after yesterday’s close, SFIX handily beat EPS estimates of -$0.03 with an actual EPS of $0.07. Revenues also came in at $409 million, $13.94 million above estimates. While the company has never struggled to beat estimates (has only missed revenues once and never missed EPS), SFIX is very volatile on earnings. On average, it has seen an absolute change of 20.19% on its earnings reaction day. In response to last night’s report, SFIX is sticking to that script with a gain of over 16%. Start a two-week free trial to Bespoke Institutional to access our interactive Earnings Expolorer and much more.
At today’s open, SFIX surged to gap up just over 24% to $29.23! Briefly afterward, it ran a little bit higher to just under $30. But like last quarter, so far in today’s session, these levels are not holding as the stock has been falling since the open, down to $27.73 as of this writing, but still a respectable 18% higher than last night’s close. Whereas the initial gap up brought SFIX through both the 50 and 200-DMA, today’s intraday selling has sent the price back down towards the 200-DMA and early May’s lower high, so it will be important for those levels to hold into the close. The next support level to watch after that will be the 50-DMA. Looking back at the stock’s reaction to its earnings report last quarter, it wasn’t very inspiring. After rising 25.2% in response to its last triple play, SFIX was never able to make a move higher with a series of lower highs and lower lows being made throughout the quarter. While it did not happen the same day as earnings, the 200-DMA and 50-DMA did not provide much support but instead acted more as resistance.
Chart of the Day: Under Armour (UAA) Busting Out
It’s hard to come up with a better example of momentum gone wrong than Under Armour (UAA). From January 2009 through the highs in September 2015, the sports apparel company returned over 3,000% or 70.3% per year. Then it all fell apart and the stock collapsed 78% on a number of negative catalysts: slowing margins, slowing growth, and extreme valuation were all reflected in the huge decline in the stock’s price. Since the end of 2017, though, the stock has performed much better, though it carved out a double top over the course of 2018. With the gap above that resistance this week, the stock is into the gap formed by earnings reported at the start of 2017, and there’s another gap for the stock to fill even higher. Combined with rising 50 and 200 DMAs, this is an attractive long-term chart from a technical perspective.
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Bearish Sentiment Still on the Rise
Sentiment on the part of individual investors in the weekly survey from AAII has been reflecting equity weakness throughout May and this week was once again no exception. Despite the rally over the past two sessions, declines Monday and at the end of last week have dragged bullish sentiment from 24.8% last week down to 22.53%. At this level, bullish sentiment remains at an extreme low by historical standards and is now at its lowest since December 13th of last year when it was at 20.9%. Similar parallels can be drawn with another sentiment survey conducted by Investors Intelligence. The Investors Intelligence survey saw a massive drop in bullish sentiment from 49% last week to 42.7% this week. That brings bullish sentiment in this survey to its lowest level since January 16th. Respondents who reported that they expect a correction also rose sharply by 5.1% to 38.8%. The last time respondents turned this negative was in the final weeks of December when it rose by the same amount to 39.3%. Start a two-week free trial to Bespoke Institutional to access our interactive economic indicators monitor and much more.
Given bullish sentiment has dropped again, formerly bullish investors have joined the bearish camp as it has now expanded to 42.58%. That is a 2.5% increase from last week and up to its highest level since January 3rd when the bearish reading was only slightly higher at 42.77%. Once again this week, bearish sentiment sits over one standard deviation above its historical average. This was the second week in a row that bearish sentiment has done this while bullish sentiment is simultaneously more than one standard deviation below its historical average; that is only the 38th time this sort of back-to-back reading has happened in the history of the survey going back to 1987.
Neutral sentiment was little changed falling 0.23% to 34.89% and has basically stayed in the middle of its range from the past few years. It now sits well off of its multi-year high seen earlier this year. Given neutral sentiment has held steady, bearishness is still the predominant sentiment among investors by multiple measures. Fortunately, many of the current readings more closely resemble those around the bottom of the Q4 2018 sell-off, meaning from a contrarian perspective, a rally is possible.
Trend Analyzer – 6/6/19 – Back to Neutral
Despite a sour start to the week on Monday, strong gains have lifted the major index ETFs out of extreme oversold levels over the last two sessions. Nine of these ETFs have now worked off their oversold levels and sit at neutral. The five other index ETFs that are still oversold are primarily small caps including the Russell 2000 (IWM) and Micro-Cap (IWC), though, large caps like the S&P 100 (OEF) and Nasdaq (QQQ) also remain oversold. IWC is the only one of these ETFs to still be lower than this time last week. While IWC sits 0.29% lower, the rest have seen a variety of gains ranging from the Nasdaq’s (QQQ) meager 0.1% move all the way up to a 2.76% gain from the Russell Mid Cap (IWR). In addition to IWR, other mid-caps have also outperformed rising over 2%. These large gains over the past week now leave IWR the closest to its 50-DMA too. MM_Member_Decision ismember=’false’]Start a two-week free trial to Bespoke Institutional to access our interactive Trend Analyzer and much more.[/MM_Member_Decision]
Looking at the industry groups, those exposed to oil, which has fallen sharply recently, are currently the most oversold. Moving with oil, the Dynamic Energy E&P (PXE) and S&P Oil and Gas E&P (XOP) are both down the most of all industries over the last week with a 4.8% and 4.73% loss, respectively. Semiconductors (SMH), which fell hard on Monday (some like AMD or NVDA fell as much as 7%), have rebounded this week now having risen 2.51% but are still oversold. While oil has fallen, another commodity has surged: gold. The Junior Gold Miners ETF (GDXJ) and Gold Miners ETF (GDX) are now both up over 10% in the past week. Even with this rally, they are still not the most overbought. Real Estate (IYR) actually holds that accolade as it currently stands at an extreme level. The REIT ETF (VNQ) and Solar ETF (TAN) are not quite at an extreme yet but have also become very overbought. TAN is actually the best-performing industry group ETF this year with a gain of 44.58%.
Morning Lineup – Three in a Row?
After a shaky start to the trading month on Monday, equities have seen solid gains over the last two trading days and are on track for a third straight day of positive returns today. Treasuries are also continuing their strong rally as talks between the US and Mexico over tariffs failed to result in an agreement. In Europe, the ECB left rates unchanged (as expected) and noted that rates will remain at current levels through at least the first half of 2020.
Economic data just released showed Initial Jobless Claims and Productivity readings that were pretty much right inline with expectations, while Unit Labor Costs came in significantly weaker than expected (-1.6% vs -0.8%).
Please click the link below to read today’s Bespoke Morning Lineup for our take on the latest news driving markets overseas overnight and this morning.
After the worst May in years, June is off to a very strong start as the S&P 500 is up 2.69% after the first three trading days. As shown in the table below, that ranks as the eighth strongest start to the month in the index’s history and the best since 2000. The table below lists the eleven years where the first three trading days of June saw returns stronger than 2%. Of the seven years where June saw a stronger gain in the first three trading days, returns over the rest of the month were mixed ranging from a loss of 9.4% to a gain of 8.3% and an average decline of 0.1%. In the four months where returns were above 2% but weaker than this year, the rest of the month was consistently negative.
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