Homebuilder sentiment saw a stronger than expected increase in May as the NAHB sentiment survey rose more than expected to 66 from 63 and expectations of 64.  Even after this month’s increase, sentiment remains well off its cycle high of 74 from December 2017, but it does erase much of the swift leg lower we saw in Q4 of 2018.

Looking at a breakdown of this month’s report by sales, traffic, and regional trends, gains were broad-based.  The only category that didn’t see a boost was sentiment in the Midwest.  Present Sales saw the biggest increase in terms of sales and traffic trends, and like the headline index, these categories remain well off their cycle highs but have mostly erased their Q4 declines.

In terms of regional sentiment, the Northeast saw the largest jump, increasing by ten full points to 65.  With that gain, sentiment in the Northeast region is now at its highest level since 2005.  It’s also only the fourth month since 2013 where the Northeast didn’t have the lowest sentiment of any region.  Now, imagine what would happen to sentiment in the region if the sun ever came out!  If you haven’t ever done so before, now is the perfect time to start a two-week free trial to Bespoke Institutional to access all of our thought-provoking investment research and interactive investor tools.

While the past couple weeks of declines have eaten into YTD gains, a majority of the S&P 500 sector ETFs are still seeing double-digit or at least high single-digit returns.  That is not the case for Health Care (XLV). Health Care has been and continues to be a drastic underperformer this year, now only up 1.35% since the start of the year.  Using our Chart Scanner tool, below we highlight some individual charts from within the sector.

Align Tech (ALGN) has been in a solid uptrend all year, avoiding the more substantial declines that the rest of the sector has seen. Currently, it boasts the greatest YTD performance of the Health Care stocks in the S&P 500 with a 52.84% gain.  Along with the broader market, in the past couple of weeks ALGN has pulled back providing a good chance to buy the dip.  Similarly, Danaher (DHR) and Johnson & Johnson (JNJ) are also seeing pullbacks in their uptrends along with constructive trading in regards to their moving averages.  In late April DHR pulled back to the 50-DMA before breaking out to new highs, and it has just bounced off of the moving average again. JNJ similarly has pulled back recently in this year’s uptrend but is finding support at the 200-day.  In today’s trading, the stock has fallen to and rallied off of the 200-DMA.  This happened two other times earlier this year, once about a month ago and again in mid-February, in which JNJ saw a solid rally afterward.

A few other names are seeing interesting trading in regards to moving averages.  Hologic (HOLX), Incyte (INCY), and Merck (MRK) all collapsed right through the 50-DMA in early April when the sector fell sharply.  All three found support at the 200-DMA before rallying back up to the 50-DMA.  But this time around, the 50-DMA has been a bit more meaningful as it has been tough resistance.  After running up to it, all three stocks have fallen and are now in the middle of the range between the two moving averages.  Each will be interesting to watch as they re-approach either average to the up or downside.

Some other Health Care names are at interesting points of resistance and support.  For starters, AbbVie (ABBV) just reported a triple play at the end of April. In spite of this more optimistic fundamental point, the stock is still forming a descending triangle pattern, reaching the floor of support around $75 for the third time this year in the past few days. Going forward either a break higher through its downtrend line or a break down below support would be two things to watch for, and right now it appears it could do either. Conversely, IDEXX Labs (IDXX) has been skyrocketing since its earnings report.  It is now re-approaching last year’s highs.  Over the past few weeks, it stopped short of these levels pulling back slightly and now it has begun to move back up to these prior highs.  IDXX now has the potential to break out higher in a cup and handle pattern.

Some of the less promising looking setups include Mylan (MYL) and Amgen (AMGN).  Both of these stocks have seen the rug get pulled out from under them recently in the time leading up to and in response to their earnings reports.  Regardless of the fundamental pictures seen in these reports, investors have not been acting kindly.  For the fifth time in the past year, AMGN ran into support around the upper $170’s. This time around it was not able to hold onto these levels.  MYL meanwhile has been in a solid long term downtrend for multiple years now.  This most recent drop has brought it to its lowest levels since 2011 and to the bottom of its downtrend channel.  Start a two-week free trial to Bespoke Institutional to access our interactive Chart Scanner tool and much more.

Although the US economy remains strong, a recent article published by CNBC suggests that millennials continue to struggle to make ends meet. Citing a report from Charles Schwab, the article highlighted that “Almost two thirds of millennials say they’re living paycheck to paycheck and only 38% feel financially stable.” In comparison to baby boomers, millennials are spending nearly $120 more monthly on “non-essential” purchases, which include dining out, entertainment, luxury items and vacations. The article continues by explaining why millennials are having a pessimistic attitude towards the economy and one of the main conclusions was due to a lack of financial literacy.

One factor behind the high level of millennials feeling strapped? Two words. Student loans. Within the article, there was an additional survey conducted by LightStream (the online lending division of SunTrust Bank) that concluded around 40% of millennials from ages 20 to 35 have higher credit card debts as well as higher debt in general. One of the main contributing factors to rising debt stems from increasing student loan burdens that millennials face. “The median amount of loan debt millennials carried was $19,000, significantly higher than Gen Xers’ balance of $12,800 at the same age.” According to Pew Research Center, the number of households with student loan debt has nearly doubled from 1998 to 2016.

While the financial picture for millennials appears increasingly tight, that picture doesn’t necessarily seem to be an accurate depiction of the broader US consumer base. To illustrate this, we would highlight a recent chart from our monthly Consumer Pulse survey.

Each month in this report, we survey of 1,500 to 2,000 Americans to get their views and attitudes on the economy by focusing on six main sections: Sentiment, Labor Markets, Personal Finances, Housing, Activity and Investors. This report gives us a great insight into the current trends playing out in the US economy and allows us to spot inflection points in specific areas with respect to employment, spending, budget, investing and other trends.  To stay up to date on the latest trends and issues facing US consumers, sign up to gain access to our Consumer Pulse Report.

One question we ask in each month’s survey is whether consumers feel they are living paycheck to paycheck. In this month’s survey, 36.9% of consumers responded affirmatively to that question.  While that may sound high, as shown in the chart below, that’s the lowest level we have seen since we started running the survey back in July 2014. So while millennials, which are admittedly a large share of the US consumer pie, continue to feel financially ‘strapped’, the picture for all US consumers is not as bad and the trend is moving in the right direction.

Trade wars. What trade wars?  While markets are freaking out about the latest tweets from the President related to trade tensions with China, small business owners are grinding away and becoming increasingly confident after sentiment took a hit late last year and earlier this year due in part to the government shutdown and tighter Fed.  In this month’s report from the NFIB, overall sentiment came in at a level of 103.5 compared to expectations for a reading of 102.0 and last month’s reading of 101.8.  We’re still quite a ways from the cycle high of 108.8 reached last August, but also still comfortably above the historical average reading of 97.1.  In the words of the NFIB, “Overall, the Index remains at a historically very strong level, consistent with solid growth, keeping the economy at full employment.  There is no recession in sight this year.”

In each month’s report, one area we like to focus on is the section of the report where small business owners are asked what the single most important problem they face is.  In this month’s survey, Labor Quality continued to top the list with nearly a quarter of respondents saying they are having difficulty finding qualified workers.  That’s up from 21% last month and isn’t far off the record high of 25% we saw in August and November of 2018.  As shown in the chart below, there have only been three other months in the history of this report where either as large or a larger percentage of small business owners cited Labor Quality as the biggest problem.  The first was in May 2000, while the other two were in the second half of 2018.

Strangely enough, while Labor Quality is a big issue, the cost of labor has been much less problematic as just 8% of small business owners cited it as their most important problem.  That’s unchanged from March and is right in the range of where it has been for the last two years.  That’s a positive from an inflation perspective as wages play such a large role in prices and with just 1% of small business owners citing inflation as their biggest problem, they don’t seem particularly worried about the prospect of rising prices.  Start a two-week free trial to Bespoke Institutional to access all of our research and interactive investor tools.