The Closer: Thursday Thoughts — Vol, Trucking, Manufacturing, Leading Indicators — 10/18/18

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Looking for deeper insight on markets?  In tonight’s Closer sent to Bespoke Institutional clients, we take a look at market trends including the fact that all S&P 500 sectors are in drawdowns over 3%, the yield curve is still steepening despite equity market declines, and the relative performance of stocks and commodities. We also take a close look at the volatility market and correlations across stocks before moving on to economic data. While the economic signal from Conference Board leading indicator data was positive today, manufacturing activity indices look toppy and high transportation costs are starting to tamp down freight volumes.

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Bespoke’s Sector Snapshot — 11/18/18

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.

Below is one of the many charts included in this week’s Sector Snapshot, which shows the percentage of stocks above their 50-day moving averages by sector.  As shown, just 6% of Tech and Financial stocks are above their 50-day moving averages, an extremely oversold reading for two of the three largest sectors of the market.

To find out what this means and to see our full Sector Snapshot with additional commentary plus six pages of charts that include analysis of valuations, breadth, technicals, and relative strength, start a two-week free trial to our Bespoke Premium package now.  Here’s a breakdown of the products you’ll receive.

Housing Less Affordable, But Not Dramatically So

Housing data has come in weaker than expected across a number of indicators over the past several months, and as we discussed last night in The Closer, the Home Construction ETF (ITB) is near its worst levels versus the broad market in 6 1/2 years. With home prices relatively high, mortgage rates rising, a lack of cheap land to build on in many markets, tight labor availability, and input cost pressures, it’s not a huge surprise that homebuilders are in trouble.

All of that said, it’s remarkable how concerned markets and pundits are about housing. Each month, the National Association of Realtors puts out an index that combines home prices with income levels and mortgage rates to deliver a bottom-line affordability number. The level of the index is arbitrary; what matters is the change or relative level. Higher readings mean housing is more affordable, lower readings mean housing is less affordable. Post-crisis, the combination of lower rates and home prices dropping much more than incomes ever did mean housing became rapidly more affordable. For those that were able to take out a mortgage (credit was obviously very tight, many households couldn’t qualify, and households were deleveraging anyways), buying a house was cheap. Since home prices bottomed in 2012, though, things have gone the other way. Relative to the immediate post-crisis period, housing is now pretty expensive. But it’s important to keep in mind that relative to rates and incomes, it’s much, much less expensive now than it was at any point from 1989 through 2009. It’s important to keep this fact in mind when reading commentary about how hard mortgage rate increases will hit the housing market.

Bulls Stand Their Ground

There may not be a whole lot of them, but among the bulls that remain, they held firm in the latest week as equity markets attempted to regain their footing.  According to the weekly sentiment survey from AAII, bullish sentiment increased this week from 30.6% up to 33.9%.  While slightly more than a third of investors are bullish, this reading remains below the historical average of 36.7% that has been in place throughout the bull market.

While bulls may have been resilient in the last week, so too were the bears.  They held firm at 35.0% versus 35.5% last week.

Investors considering themselves neutral saw the biggest decline this week, but even this reading saw little in the way of movement, falling from 33.9% down to 31.1%.


the Bespoke 50 — 10/18/18

Every Thursday, Bespoke publishes its “Bespoke 50” list of top growth stocks in the Russell 3,000.  Our “Bespoke 50” portfolio is made up of the 50 stocks that fit a proprietary growth screen that we created a number of years ago.  Since inception in early 2012, the “Bespoke 50” has beaten the S&P 500 by 91.7 percentage points.  Through today, the “Bespoke 50” is up 195.3% since inception versus the S&P 500’s gain of 103.6%.  Always remember, though, that past performance is no guarantee of future returns.

To view our “Bespoke 50” list of top growth stocks, click the button below and start a trial to either Bespoke Premium or Bespoke Institutional.

Philly Fed Slightly Better Than Expected

Like its New York counterpart, the October read on manufacturing in the Philadelphia Fed region came in slightly better than expected.  While economists were forecasting the headline General Conditions index to come in at a level of 20.0 versus last month’s reading of 22.9, the actual reading of 22.2 showed only a slight decline.  As it stands now, the Philly Fed has been positive for 29 straight months, which is the longest streak of growth readings since the 30-month streak ending in August 2015 and before that the 29-month streak ending in August 1998.

Breadth in this month’s report was skewed towards the positive side as five components increased m/m and just four declined.  The biggest increase was in the Average Workweek followed by Shipments, while Unfilled Orders and Delivery Times saw the largest declines.  Prices Paid also warrants a mention, as even though it didn’t see a large m/m decline, it remains well off of its multi-year high of 62.9 back in July (chart below).


Jobless Claims Fall Slightly More Than Expected

After reaching what was tied for the highest weekly reading (215K) since July last week, jobless claims fell slightly more than forecast, dropping from 215K down to 210K compared to expectations for a level of 211K.  Perhaps the most noteworthy aspect of the previous sentence was the fact that a weekly reading of 215K represented a three-month high in claims.  That’s just how low claims have been!  As for the streaks, the weekly print has now been at or below 300K for a record 189 straight weeks, been at or below 250K for 54 straight weeks, and at or below 225K for 15 straight weeks.

Even though claims declined this week, the four-week moving average increased slightly, rising from 209.75K up to 211.75K.  That’s still less than 6K from the multi-decade high of 206K back from mid-September, but based on the recent prints, it doesn’t look like we will be getting anywhere near that record in the near future.

On a non-seasonally adjusted (NSA) basis, jobless claims fell from 199.9K down to 190K.  For the current week of the year, that’s more than 130K below the average since 2000 and the lowest weekly print since the same week in 1969.


Morning Lineup – Still No Love For Earnings

Equities are looking to start the day a little lower, but futures are off their lows of the overnight session.  Economic data so far this morning has been positive as the Philly Fed and both Initial and Continuing Jobless Claims all came in slightly better than estimates.  The pace of earnings reports is starting to pick up, but we still haven’t seen much of an improvement to the sell the news reaction that has been in place for over a month now.

With regards to the earnings sell the news trend, we would note that of the 30 US companies that reported earnings from the close on Tuesday through the open on Wednesday, only 12 finished higher yesterday.  Overall, the median return of the 30 stocks was a decline of 0.92% compared to the S&P 500, which was flat on the day.  The way the market has been punishing stocks that report earnings of late, there hasn’t been any incentive to buy a company ahead of its earnings report.

Start a two-week free trial to Bespoke Premium to see today’s full Morning Lineup report. You’ll receive it in your inbox each morning an hour before the open to get your trading day started.

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Trend Analyzer – 10/18/18 – Slight Improvements

This time last week was the worst of the recent widespread equity sell-off.  In the week since then, markets have crawled higher.  While they are nothing to write home about, every ETF in the major US Index ETF group has now edged out gains from one week ago.  The Nasdaq has had a remarkably better week compared to its peers, up 3.12% from 5 days ago.  Despite this, other than the Dow (DIA), all the ETFs remain oversold sitting well below their 50-DMAs.  On the bright side, there are no longer any ETFs that are extremely oversold as they have climbed upwards towards their 50-DMA since this time last week.  At least things are back to trending in the right direction.

The Closer: Housing Getting Silly, Carry & Roll — 10/17/18

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Looking for deeper insight on markets?  In tonight’s Closer sent to Bespoke Institutional clients, we take a look at some market developments in the US including breadth, real yields, and the term structure of volatility markets. We also dive into housing data updated today by the US Census, the extreme valuation levels for homebuilders, and some observations from fixed income.

See today’s post-market Closer and everything else Bespoke publishes by starting a 14-day free trial to Bespoke Institutional today!

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