Homebuilder Sentiment Unexpectedly Jumps

Lately, it seems that there hasn’t been a whole lot of positive data coming out of the residential housing sector, but this morning we actually received some good news for a change.  According to the National Association of Homebuilders (NAHB), homebuilder sentiment for the month of October unexpectedly increased from 67 up to 68 versus estimates for a decline to 66.  In spite of this month’s increase, the index is still off of its high of 74 that was hit right at the end of 2017 when the GOP tax plan was passed.

Breaking out this month’s report by sales, traffic, and regions shows gains across the board.  As shown in the table below, Traffic saw a big surge rising from 49 back into positive territory at 53.  From a regional perspective, sentiment improved in all four regions of the country, but for the second straight month, homebuilders in the Northeast saw the biggest boost to sentiment and it is the only region of the country where sentiment is at a high for the cycle.  Finally, some good news out of the housing sector!


Morning Lineup – Another Rally Attempt

US equity futures are attempting to rally again this morning after yesterday’s last hour decline of nearly 1% erased all the positive goodwill from the rebound earlier in the day.  The pace of earnings reports is finally starting to pick up, and based on this morning’s results, at least, the news has been good.  Of the 12 companies that have reported, 11 have exceeded EPS forecasts and just three missed revenue estimates.  The big question now is, can stocks finally rally on what at the surface look like good results?

Looking ahead at market seasonal trends, the gauges below are from our Stock Seasonality tool and show the S&P 500’s median historical return over the upcoming week, month, and quarter during the last ten years.  In that span, the upcoming week and month have seen median gains of 0.48% and 1.18%, respectively.  Relative to all other one week and one month periods over the last ten years, these returns are pretty much in line with the norm.  Looking out over the next three months, though, it doesn’t get much better than the S&P 500’s median gain of 6.11% which ranks right up there with the best three month periods of the calendar over the last decade.

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 – 10/16/18 – Holding Pattern

Today there is more of the same that we have seen this past week in our Trend Analyzer Tool.  Every major US Index ETF with the exception of the Dow (DIA) remains extremely oversold after most markets again finished Monday slightly lower.  The recent volatility has now erased YTD gains for three of the members of this group.  The Russell Mid-Cap (IWR) ETF is currently down the most YTD at 1.06%.  Core S&P Mid-Cap (IJH) is down 0.53% YTD, while the S&P MidCap 400 (MDY) which is down a quarter of a percent.  Also important to note is that the Micro-Cap ETF (IWC) and the Russell 2000 (IWM) are both now trending sideways after breaking their uptrends on this downturn.

The Closer: Relative Trends, Deficit Spend, Canada Quarterly Improvement — 10/15/18

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Looking for deeper insight on markets?  In tonight’s Closer sent to Bespoke Institutional clients, we take a look at relative performance for two sectors versus the broad market as well as the ongoing break above resistance for our EMFX index. We also review the monthly budget numbers from the US Census, where the deficit was much smaller than typical thanks to a huge decline in outlays. Finally, we break down quarterly numbers from the BoC on the business outlook and availability of credit in Canada.

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

A Calmer Than Normal October

October has historically been the most volatile month of the year for equity markets, so the fact that volatility has picked up so far this month is to be expected.  What may come as a surprise to many, though, is that so far at least, this October has been less volatile than average. The chart below shows the S&P 500’s average daily move by month going back to 1928, where October’s average daily move of +/-0.90% is clearly the largest of any month.  With this October nearly half over, though, the average daily move so far has actually been just +/-0.77%.  If the market is even going to see ‘average’ volatility this month, things are going to have to get a lot more active!


Empire Manufacturing Tops Expectations

The Empire Manufacturing report put out by the New York Fed came in slightly stronger than expected in October, rising to a level of 21.1 from 19.0 and expectations for an increase to 20.0.  The headline index for this report has now been positive for 24 straight months, which is the longest streak of positive readings since the 32-month streak that ended in January 2008.  While the index of current General Business conditions rebounded this month, expectations pulled back for the second straight month.

The internals of this month’s report were generally weak.  In terms of current conditions, both New Orders and Shipments saw increases, but every other component declined including both Prices Paid and Prices Received as well as Number of Employees and Average Workweek.  The outlook for Manufacturers was also skewed to the downside.  While New Orders saw a slight increase, Shipments actually declined.

Another not so positive aspect of the October Empire Manufacturing report was the section about plans for Cap Ex and Technology Spending.  Both of these indices declined in October.  In the case of Cap Ex, that index dropped to its lowest level since August 2017, while the index for expected Technology Spending dropped to its lowest level since March 2017.


This Week’s Economic Indicators – 10/15/18

Not that there was much of it, but economic data took a backseat last week as investors were understandably more concerned with their portfolios.  Regardless, there were some important reports, most of which did not meet expectations.

Inflation data—PPI on Tuesday, CPI on Wednesday, and Import/Export Prices on Friday—was the main focus point of the week.  Of these reports three were weaker than expected, two were inline, and only one beat expectations.  Small business optimism came in weaker and lower than expectations, but should not be a cause for concern as it still sits at above average levels.  Jobless claims was a similar story.  Even though it came in with a rare weaker reading, it is still at healthy levels.

This week things get a little bit busier with 17 US releases scheduled.  Retail Sales for September kicked off the week earlier today slightly worse than forecasted.  Sales grew, but just barely so.  Fortunately, the core measure did beat estimates and the previous reading.  Business Inventories also released this morning inline with estimates.

Looking towards the rest of this week, the main focus will center around housing.  The National Association of Home Builders Housing Market Index releases tomorrow followed by Housing Starts and Building Permits on Wednesday.  Existing Home Sales will close out the week on Friday morning.  Also on the docket is the JOLTS report tomorrow and the Philly Fed Manufacturing Index and Leading Index on Thursday.

As always, you can find the day’s economic releases in our Economic Monitor.

The US Not Alone In Being Oversold

It is no secret that the US has become extremely oversold in the past week, but this weakness extends well outside of our own borders.  With the worst of the selloff occurring last Thursday, declines were widespread and extreme.  The table below shows the Overbought and Oversold readings of global equity benchmarks for the 23 countries from our Global Macro Dashboard.  Of the group shown in the table, the average Overbought/Oversold reading as of the close Thursday was 2.38 standard deviations below their 50-DMA.  A majority were even more than this average as seven of these countries had readings below negative three standard deviations.

Relative to their daily price action over the past two years, Thursday’s collapse was even more remarkable. The 23 countries shown were all down with an average move of 2.73 standard deviations for the day.  Taiwan led this average down an astounding 7.58 standard deviations.  There is no way to sugar coat how bad Thursday was for global equities.

With a longer time horizon, Thursday’s move was not the worst in the past 20 years. There have been sessions in which global equities collectively closed at more oversold levels. Thursday was the worst since January 2016 when global markets were trying to cope with the FOMC’s first rate hike following zero interest rate policy.  Also worth noting is that many of these equity benchmarks are coming from a different place than the US.  US equity markets are coming off of very recent bull market highs, conversely, the rest of the world has been trending lower.

Morning Lineup – Coming Back

We’ve seen a valiant effort by the bulls to bring US equity futures back into the black after some moderate declines earlier this morning, but the just-released September Retail Sales report isn’t helping matters as the headline reading came in weaker than expected (+0.1% act vs +0.6% exp).  Ex Autos, the September reading was even weaker showing a decline of 0.1%, which was the weakest monthly reading since May 2017.

As we enter a new trading week, we just wanted to provide a brief synopsis of where stocks in various sectors and market cap ranges stand relative to their 52-week highs.  The table below shows the percentage of stocks in each sector (grouped by market cap) that are down 10% and 20% from their 52-week highs.  For the S&P 500 as a whole, 69% of stocks are down an at least 10% from their highs, while 30% are down over 20%.  The numbers for small caps are even worse with 86.6% down more than 10% and over half down 20%+.

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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Bespoke Brunch Reads: 10/14/18

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.

Social Studies

The Little College Where Tuition Is Free and Every Student Is Given a Job by Adam Harris (The Atlantic)

A Kentucky college founded by an abolitionist Presbyterian minister in 1855 (and also the first co-educational, racially integrated) has no tuition. Every student works, on tasks from janitorial services to academic instruction. 45% of its students have no debt, despite 90% being Pell Grant-eligible. [Link]

Anti-social Punishment by Martin Sustrik (Less Wrong)

This article summarizes a study that shows how people across different cultures respond to collective action failures. Most interestingly, they identify cultures where defectors (using the language of game theory) who are punished for “anti-social” behavior punish back, effectively negating the social benefits of punishment. [Link]

The History of Philosophy: Summarized & Visualized (Deniz Cem Önduygu)

A fantastic chronological summary of the major ideas developed by Western philosophers, including ties which show who disagreed or agreed with whom over time. [Link]

Politics

Trump Says Blame ‘Loco’ Fed, Not China Trade War, for Sell-Off by Justin Sink and Shannon Pettypiece (Bloomberg)

In a relatively uncommon – but hardly unprecedented – discussion of Fed policy by a sitting President, Trump attacked the interest rate normalization policy of the Federal Reserve. [Link; soft paywall]

As feds focused on detaining kids, border drug prosecutions plummeted by Brad Heath (USAToday)

Resources are fungible, so a pivot by DoJ to focus on the lowest-level immigration offenses has led to a collapse in the number of prosecutions brought against drug traffickers. [Link]

Beto O’Rourke May Benefit From an Unlikely Support Group: White Evangelical Women by Elizabeth Dias (NYT)

While polling for the Texas Senate race is only sort of close, Democrat Beto O’Rourke may be finding success in breaking off a small slice of the solidly Republican Evangelical voting block. [Link; soft paywall]

Tech

These Magical Sunglasses Block All The Screens Around You by Arielle Pardes (Wired)

Perfect for folks who want to escape the never-ending rush of digital imposition, these new glasses block the light thrown off by screens. [Link; soft paywall]

Global Supply Chains

You buy a purse at Walmart. There’s a note inside from a “Chinese prisoner.” Now what? by Rossalyn A. Warren (Vox)

An investigation of a note found in a purse bought from Wal-Mart that reveals some of the hard truths of global consumer goods manufacturing: labor used to make clothes, electronics, and other goods is not always willingly provided. [Link]

Capital Flows

Reflections On A Decade of Private Cross-Border Acquisitions of U.S. Debt by stwill1 (Concentrated Ambiguity)

A massive set of posts devoted to understanding the current state of US fixed income buying by investors abroad. [Link]

Astronomy

Moons can have moons and they are called moonmoons by Leah Crane (New Scientist)

While we haven’t actually observed a moon with a moon of its own, astronomers have already decided the name for such a body is the adorable if somewhat uncreative “moonmoon”. [Link; soft paywall]

History

Today (maybe) in European history: the Battle of Tours (probably 732) by Derek Davidson (And That’s The Way It Was)

An excellent review of the historical evidence – surprisingly scanty – related to the battle which some historians believe prevented further Muslim expansion in Western Europe beyond the Ummayyad Caliphate in El Andalus. [Link]

Implicit Bias

Amazon scraps secret AI recruiting tool that showed bias against women by Jeffrey Dastin (Reuters)

The biggest problem with algorithms isn’t their biases but the biases of people that design them and the data they are used to train on. In an excellent example of this phenomenon, Amazon recently scrapped a machine-learning tool used for recruiting that introduced biases against women. [Link]

Investing

Morgan Stanley: Belief in ‘American exceptionalism’ among global investors has never been higher by Michelle Fox (CNBC)

Investors are betting heavily on US outperformance, and to a degree that’s historically bullish on the prospects for US capital markets relative to the rest of the world’s. [Link]

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Have a great Sunday!

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