Homebuilder Sentiment: The Next Big Miss Tue, Aug 17, 2021 Prior to the pandemic, the NAHB's record monthly reading on homebuilder sentiment was back in December 1998 when the index hit 78. Last November, the sentiment bar was set even higher when the index reached 90. Since then, though, two-thirds of the releases have declined month over month. The most recent release saw the index drop five more points to 75, marking the first time in a year that homebuilder sentiment came in below the pre-pandemic record high. Additionally, August's 5-point drop is the largest one-month decline since last April when the index collapsed by a record 42 points at the onset of the pandemic. It is also tied with a dozen other months for the seventh-largest month-over-month decline in the history of the index going back to 1985. While the release indicates worsening, but still historically strong, sentiment among homebuilders, it can be added to the growing list of economic indicators that have been coming in well below expectations. As we noted in last week's Bespoke Report, Citi Surprise indices measuring how economic data comes in relative to estimates tipped into negative territory last week. That was as the University of Michigan's Consumer Sentiment survey saw the biggest miss relative to expectations on record. Today's reading on homebuilders was not far off those results. The five-point miss relative to expectations was the largest since last April and is tied with 4 other months (April and May 2006, November 2008, and October 2014) for the six largest miss going back to at least 2003. Driving the decline in the headline reading were five-point drops in present sales and traffic. Even though there has been deterioration in those readings on current conditions, future sales have held up better going unchanged at 81. Looking across regions, the ones that have seen COVID cases rising the most of late, namely in the South and Midwest, generally saw sharp drops in homebuilder sentiment in August although those are in the context of longer-term declines. The Northeast and the West, on the other hand, are off of their peaks but each region did show an uptick in sentiment for August.
September Almanac: DJIA, S&P 500 & NASDAQ Worst Month of Year Start of the business year, end of summer vacations, and back to school once made September a leading barometer month in first 60 years of 20th century, now portfolio managers back after Labor Day tend to clean house Since 1950, September is the worst performing month of the year for DJIA, S&P 500, NASDAQ (since 1971), Russell 1000 and Russell 2000 (since 1979). After four solid years from 1995-1998 during the dot.com bubble buildup, S&P 500 was down five Septembers straight from 1999-2003. In the 17 years since, S&P 500 has advanced 11 times in September and declined six times. In post-election years, September’s overall rank improves modestly in post-election years going back to 1953 (third or fourth worst month depending on index). Average losses are little changed. Although September 2001 does influence the average declines, the fact remains DJIA and S&P 500 have declined in 9 of the last 17 post-election year Septembers. Russell 2000 has the best post-election year record, up seven times in 10 years.
Richmond Adds to Regional Manufacturing Pain Tue, Aug 24, 2021 Last week's releases of the Philly and New York Fed manufacturing surveys showed broad slowdowns in activity, and today's release of the Richmond Fed's reading only reaffirmed those findings. The headline number went from a near-record high of 27 in July down 18 points to 9 in August. That is the lowest reading since last July. While that still indicates the region's manufacturing economy is continuing to grow at a historically healthy clip, the massive decline month over month points to a historic slowdown. In fact, the 18 point decline was the third largest one-month drop on record behind 22 and 49 point declines in February and April of last year, respectively. Given the headline number dropped by such a large degree, many of the sub-indices of the report similarly saw declines that rank in the bottom few percentiles of each one's respective history of month over month changes. Just like the composite reading, if there is a silver lining to be had, most indices are again coming off of near-record levels meaning those large declines only leave them in the middle of their historical ranges at worst as is the case for New Orders and Shipments. Additionally, current readings mostly remain positive indicating that there is still growth across components, but at a more modest pace. The only negative indices are Local Business Conditions, the two indices covering inventories, and Availability of Skills. While some good can be reasoned with negative readings in inventories and availability of skills—for instance, those negative readings can mean firms will need to increase production with strong demand and there is a tight labor market—the drop in local business conditions is more concerning and likely a result of rising COVID cases. As previously noted, the indices for New Orders and Shipments remain at solid levels consistent with growth in spite of the massive declines month over month. As such, Order Backlogs remain fairly elevated in the 88th percentile. While the growth of backlogs slowed dramatically alongside new orders, supply chains continue to look abnormal. Even though the index for Vendor Lead Times has fallen four points from the record high set back in May, the current reading remains well above any historical precedent. Given lead times are long and backlogs are still elevated, inventories are also historically low. That is the case for both raw and finished goods. Each of these indices remains negative in the bottom 1% of all readings, but they did see sizable bounces in August. In other words, the region's firms continue to report that they are drawing upon inventories at a historic rate while vendor lead times are likely not allowing those inventories to be replenished at a more desirable rate. Prices paid finally got some relief, albeit it was not much. Prices paid rose at a 11.05% annualized pace versus a record high of 11.16% in July. Conversely, Prices Received continue to make parabolic moves rising 9.25% annualized. Not only are prices paid and received near/at record highs, but wages also set the record bar even high. While wages are rising, actual hiring saw a substantial pullback from a record high as more firms reported a lack of workers with necessary skills.
Bulls Head In Separate Directions Thu, Aug 26, 2021 As the major indices have set more record highs in the past week, bullish sentiment has rebounded. The American Association of Individual Investors' (AAII) weekly reading on bullish sentiment rose 6.4 percentage points to 39.4% this week. That is the highest reading of optimism since the week of July 8th when bullish sentiment was a hair above 40%. While recovered, that reading is still muted versus the past year's range and is only 1.5 percentage points above their historical average. In other words, bullish sentiment has rebounded but is far from elevated. While the AAII survey showed an increase in bullish sentiment, another survey of newsletter writers from Investors Intelligence saw the opposite result. This survey's reading on bullish sentiment dropped to just 50% this week which is the lowest level since May of last year. Although this reading has now fallen out of the past year's range, it is still slightly elevated versus the historical average of 45%. Given the uptick in bullish sentiment, the AAII survey saw only a third of respondents report as bearish versus 35.1% last week. Like bullish sentiment, this reading remains outside of the range it has occupied for most of the past year although that current reading is also not far away from the historical average of 30.5%. As we noted in last Thursday's Chart of the Day, the bull-bear spread dipped into negative territory last week for the first time since late January and it was at the lowest level since October 2020. With the inverse moves in bullish and bearish sentiment this week, the spread has moved back into positive territory to its highest level since the last week of July. Not all of the gains to bullish sentiment came from the bearish camp. Neutral sentiment saw an even larger decline of 4.2 percentage points. That brings the reading down to 27.5% which is the lowest reading since April 15th when it stood at just 21.6%.
Dallas Fed Flops Mon, Aug 30, 2021 Leading into today, the four already released results from regional Fed banks' monthly manufacturing reports broadly showed a material slowdown in activity in August which we showcased in the most recent update of our Five Fed Manufacturing Composite in last week's Bespoke Report. The fifth and final report out of the Eleventh District added more confirmation to that slowdown with its release this morning. The Dallas Fed's headline index peaked back in April at 37.3 and has declined each consecutive month since then including in August. In fact, this month's decline was by far the most severe as the indicator dropped 18.3 points versus only 3.8 point declines the prior two months and a 2.4 point decline in May. The 18.3 point decline month over month also ranks as the eighth largest MoM decline on record and the largest since last March when it fell by a record 70.4 points. Another decline had been penciled in this month with the index forecasted to fall from 27.3 to 23, but the drop to 9 made for the eleventh biggest miss versus expectations since at least 2009. Looking across the various categories of the report, declines were broad across categories with only unfilled orders, inventories, hours worked, and prices paid higher relative to July. Those declines are largely coming off of historically strong readings, though, with many in the top decile of their historical range last month. Even after falling, every category is still above their historical median readings with many still in the upper deciles. In other words, manufacturing activity slowed but remains at solid levels. Order growth and shipments are the areas to have seen the greatest moderation over the past few months. In August, these indices all saw some of the largest declines in point terms and are now much less elevated than other readings. For example, new orders are only in the 72nd percentile and Shipments are only in the 65th. Those declines leave the indices at similar levels to the start of this year. Again, the declines in these indices do not mean activity is contracting, but rather is decelerating meaning orders are still growing at a healthy level. One example of this is unfilled orders. With order growth at a solid clip, unfilled orders actually ticked higher, remaining at unprecedentedly high levels. We would also note, while businesses reported order backlogs are continuing to grow at historic rates, they do not foresee that to remain the case. Expectations for the category dropped into negative territory this month (the only reading across current conditions and expectations to do so). Prices and supply chains also appeared to have gotten some relief in August and could be playing a role as to why businesses appear optimistic to work off order backlogs. While still right around record highs, prices received and delivery times were both lower. Unfortunately, while customers saw some price relief, prices paid were slightly higher. Meanwhile, Inventories are starting to grow again as the index rose 12.9 points to go back into positive territory for the first time since March 2019. Employment-focused categories were a somewhat dour point of the survey. Readings on Employment and Wages & Benefits were both lower in August which was met with a decline in capital expenditures. On the bright side, current readings are still at healthy levels and the expectations index for wages and benefits actually hit a record. One other point to watch is uncertainty. The Dallas Fed's reading on uncertainty does not have much in the way of an extensive history, only dating back to the start of 2018, but the index did rise to 21.1 as COVID cases rose through the summer. Those levels are well below the highs reached earlier in the pandemic, but are once again at the upper end of the past few years' range.
Mid-Caps Moderate Tue, Aug 31, 2021 To round out the month of August, the major indices are slightly lower on the day. Overall, in the final week of the month, small caps like the Micro-Cap ETF (IWC) and Russell 2000 (IWM) have generally outperformed although they are coming from below their 50-DMAs, and yesterday they saw a reversal lower. Large caps have posted smaller gains but are reaching new record highs. The price action of mid-caps, on the other hand, has been a mix of small and large caps. Mid-caps, like the S&P MidCap 400 ETF (MDY) and Core S&P MidCap ETF (IJH), are broadly overbought and have also posted solid gains in the past several days of around 2%. Additionally, whereas this week they are on the cusp of extreme overbought territory, last week those same ETFs were still within one standard deviation of their 50-DMAs. While mid-caps have made a solid move higher over the past five days, like small-caps, they have pivoted lower in the past couple of sessions. From a charting perspective, those moves lower also come right as IJH and MDY made a run at their highs from the final days of April. Having rejected that resistance, there is the potential for nearby support around the highs from earlier this month and early June and then the 50-DMA below that.
Here Comes the Worst Month of the Year Tuesday, August 31, 2021 The incredible bull market continues, with the S&P 500 Index up to a record 53 new all-time highs before August is over, topping the previous record from 1964. “Although this bull market has laughed at nearly all the worry signs in 2021, let’s not forget that September is historically the worst month of the year for stocks,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Even last year, in the face of a huge rally off the March 2020 lows, we saw a nearly 10% correction in the middle of September. The S&P 500 hasn’t had so much as a 5% correction since last October and with stocks up more than 100% since March 2020, investors should be open to some potential seasonal weakness. The good news is we remain in the camp that stocks will continue to go higher and investors should use any weakness as an opportunity to add to core equity holdings. Let’s be honest, stocks can’t go up forever. In fact, the S&P 500 is about to be up 7 months in a row, one of the longest monthly win streaks ever. It is what happens next that has our attention. As the LPL Chart of the Day shows, after 7-month win streaks, the S&P 500 has been higher six months later 13 out of 14 times, with a very impressive 7.8% average return. This reinforces our belief that in the event of a well-deserved pullback, it would be an opportunity to buy at cheaper prices. With a very highly anticipated Federal Reserve Bank meeting in September, along with continued Delta variant worries, coupled with the fact that stocks haven’t pulled back in a long time, investors should be on the lookout for some seasonal volatility in September. We remain in the camp that any weakness, should it occur, could be short-term and likely be contained in the 5-8% range. This bull market is alive and well and we would view any potential weakness as an opportunity.
And Then There Was One...Chicago Fri, Sep 3, 2021 The monthly S&P/Case-Shiller home price numbers for June were published earlier this week and showed a continued surge in home prices. As shown below, 12 of 20 cities tracked saw month-over-month gains of more than 2%, while Phoenix, Las Vegas, Tampa, and Dallas saw MoM gains of 3%+. New York was the only city that failed to see a MoM gain of more than 1%. On an annual basis, the composite indices were up ~19%, while Phoenix was up the most at +29.3%. San Diego ranked 2nd at +27.05% followed by Seattle in third at +25.03%. We've been waiting to see how long it would take for all of the cities tracked by S&P/Case-Shiller to eclipse the highs in home prices that were made during the housing bubble of the mid-2000s. While many cities like Denver and Dallas passed their prior all-time highs as long ago as 2013, some cities like New York, Miami, Las Vegas, and DC didn't make new all-time highs until recently after the pandemic hit. Below is a look at where home prices currently stand relative to their prior housing bubble highs. Every single city except one -- Chicago -- has now eclipsed its mid-2000s highs. Las Vegas was the most recent to make a new all-time high in June. Prices in Vegas are now 2% above where they were at their peaks in late 2006. And in 2006, prices had gotten pretty ridiculous in Vegas! While Chicago is the only city tracked by S&P/Case-Shiller where prices are still in the red versus prior highs, they're now only 1% away from a new high, and we'll probably see that new high when the next Case-Shiller report is released later this month. Below are S&P/Case-Shiller home price index charts for all of the cities tracked along with the three composite indices. Chicago is the only city not currently trading at an all-time high. Finally, the chart below shows how much home prices have risen since COVID hit. Most cities have seen home prices rise between 19-23%, but Phoenix, San Diego, and Seattle have been standouts with gains of more than 30%. On the lower end of the spectrum, New York and Chicago have seen the smallest gains at 17%.
Gas Prices High Following The Seasonal Pattern Into Labor Day Fri, Sep 3, 2021 If you're planning to drive anywhere this weekend, you may need a wheelbarrow to carry the cash you're going to need to fill up. According to AAA, based on the national average, a gallon of gas will set you back $3.184. Around the country, though, prices vary widely. In California, where prices are the highest (even higher than Hawaii), the average price of a gallon of gas is $4.40 ($4.71) if you fill up with premium). Mississippi wins the title of lowest average price at just $2.79 per gallon and is one of just 15 states where you can still get a gallon of gas for less than $3. While prices may be high heading into Labor Day weekend, the fact that it still costs less than 13 cents to drive a mile isn't all that bad (based on the average fuel efficiency of 24.9 miles per gallon), and it's much cheaper than most other areas of the world. That being said, prices at the pump are still high whether you look at things from an absolute or relative basis. For the current day of the year, the national average of $3.18 is higher than at this point in any other year since 2014, and forty cents above the median level for this time of year. On a YTD basis, going back to 2005, this year's increase is the third largest of any other years besides 2009 and 2005. At 41.3%, prices are up by more than double their average YTD increase through 9/3. On a y/y basis, average gas prices are also up over 40%. For just about any other time that rate of increase would be extreme, but given the y/y increase just hit a record high of 63.98% in May it doesn't seem that bad. Now that we've established that gas prices are high, it is worth pointing out that despite the high levels, prices have loosely followed the seasonal trend. The chart below compares gas prices this year to a composite of the average YTD increase for every day of the year going back to 2005. Through the end of May, prices were already up 35% YTD, and in the three months since then, prices have still increased, but at a much slower pace. Historically, prices tend to rise through Memorial Day and then level off through Labor Day before steadily declining to close out the year. Like the annual composite, prices dipped into the end of August this year and have spiked into Labor Day weekend. With respect to this year, increases have been exaggerated due to Hurricane Ida, but if history is any guide, drivers should start to see some relief in the final four months of the year.
Weakness Day After Labor Day & Sell Rosh Hashanah In the last 21 years, only Russell 2000 has registered an average gain of 0.04% on the Tuesday after the long Labor Day weekend. DJIA, S&P 500 and NASDAQ have struggled with negative average performance. NASDAQ and Russell 2000 have been up five of the last nine years, but DJIA, S&P 500, NASDAQ and Russell 2000 all have fallen for the last four years on Tuesday. On Wednesday the market’s performance has been varied. DJIA has performed the best, up 76.2% of the time with an average gain of 0.33%. S&P 500 is worst, up only 47.6% of the time with an average gain of 0.25%. NASDAQ has a better record up 52.4% of the time on Wednesday, but a smaller average gain of 0.14%. Sell Rosh Hashanah, Buy Yom Kippur As the High Holidays approach you may remember the old saying on the Street, “Sell Rosh Hashanah, Buy Yom Kippur.” It gets tossed around every autumn when the “high holidays” are on the minds of traders as many of their Jewish colleagues take off to observe the Jewish New Year and Day of Atonement. The basis for this, “Sell Rosh Hashanah, Buy Yom Kippur,” pattern is that with many traders and investors busy with religious observance and family, positions are closed out and volume fades creating a buying vacuum. Even in the age of algorithmic, computer, and high frequency trading these seasonal patterns persist as humans still need to turn the machines on and off and feed them money or take it away – and these algorithms and trading programs are written by people so the human influence is still there. Holiday seasonality around official market holidays is something we pay close attention to (page 98 Stock Trader’s Almanac 2021). Actual stats on the most observed Hebrew holidays have been compiled in the table here. We present the data back to 1971 and when the holiday falls on a weekend the prior market close is used. It’s no coincidence that Rosh Hashanah and Yom Kippur fall in September and/or October, two dangerous and sometimes opportune months. Perhaps it’s Talmudic wisdom but, selling stocks before the eight-day span of the high holidays has avoided many declines, especially during uncertain times. While being long Yom Kippur to Passover has produced 64% more advances, half as many losses and average gains of 7.0%. This past year DJIA gained 19.9% from Yom Kippur 2020 to Passover 2021. This year the high holidays arrive early on Labor Day eve, September 6, and end Thursday September 16 with Yom Kippur at mid-month one of the strongest days September. But with the market in full rally mode on easy Federal Reserve money and free Federal Government fiscal stimulus month selling ahead of the Jewish High Holidays could trigger a mild correction of 5% or so. The end of September after Triple Witching is notoriously the weakest part of the month, so it may be more prudent to “buy” later in the month.
Neutral Sentiment Surge Thu, Sep 9, 2021 As we noted in today's Morning Lineup, the S&P 500 has been pulling back over the past week but it has not been a particularly sharp pullback as the index remains within 1% of its all-time high. Bullish sentiment on the other hand has seen a more significant turn lower. The percentage of respondents reporting as bullish to the AAII survey this week fell 4.5 percentage points versus last week. At 38.9%, bullish sentiment is about in line with its historical average of 38%. That pullback in bullish sentiment was not met with any pickup in bearish sentiment. In fact, bearish sentiment saw an even larger decline, falling 6.1 percentage points to 27.2%. That is the lowest level of bearish sentiment since the end of July. Given those moves in bullish and bearish sentiment, the bull-bear spread was actually higher this week. The spread rose to 11.7 which is just below the recent high of 12.1 from the final week of July. Given both bullish and bearish sentiments were lower this week by several percentage points, a large share of respondents shifted to neutral sentiment this week. That reading rose double digits to 33.9%. That is the first time since July 2018 that neutral sentiment has risen at least 10 percentage points in just one week. Throughout the history of the AAII survey, it has been rare for neutral sentiment to rise double digits in only one week. Since the survey began in 1987, there have been 85 other times that neutral sentiment has seen such a move. Looking across those instances, the S&P 500 has averaged a move higher over the following months, but returns are typically worse than the norm.
SPY Snoozing Mon, Sep 13, 2021 As of this writing, the S&P 500 (SPY) is currently up 0.24% today and is looking to snap a five-day losing streak. While the move has its own degree of excitement, overall the S&P 500 has been on a pretty boring stretch of late. August 18th was the last time that the S&P 500 rose or fell more than 1% in a single session. Not only does that make the current streak including today 17 trading days long, but that move on August 18th had also brought to an end another 17-day long streak without a move of at least 1%. With only a single day between the past two 17-day long streaks, there was also another streak identical in length ending in June. These three stretches tie for the longest run without a 1% move of the post-pandemic period with the prior streak ending in late January 2020. As shown below, going through the history of SPY this year's non-volatile stretches stand out but are far from the longest streaks on record. For example, the second half of 2016 through 2018 saw multiple streaks without a 1% move that were between 43 and 74 trading days. To find the longest stretch without a 1% one-day move, you have to go back to 1995 when SPY went 83 trading days without a daily move of 1%. Given there has only been a single day in the last 35 in which the S&P 500 (SPY) has gained or lost more than 1%, taking a look at the 3 month rolling average for the daily move in SPY shows daily volatility has certainly been at the low end of the historical range. Historically, SPY has averaged an absolute daily change of 78 bps. Over the past 90 days, though, SPY's average daily move has been just 47 bps, ranking in the bottom quintile of readings. Investors expect 'dull' trading during the summer months, but now that the calendar says September, a lack of volatility would be out of the norm.
Insurance Suddenly a Concern For Small Businesses Tue, Sep 14, 2021 In addition to the various indices regarding small business conditions, the NFIB also surveys firms on what they see as their most pressing issue. In August, by far the most common issue among respondents was labor-related. A record 28% reported quality of labor as the biggest issue; up 2 percentage points versus July. Another 8% reported cost of labor as their biggest issue which was slightly lower than July. On a combined basis, the 36% reporting either cost or quality of labor as their biggest issue was the joint highest reading on record; tying August and November 2019. Especially over the past several election cycles, the results of the NFIB survey have tended to be impacted by politics. For example, over the past few presidencies, when a Republican is in office there has been a lower percentage of respondents reporting either taxes or government red tap as their biggest issue and vice versa when a Democrat is in office. That combined reading has now completely reversed the uptick following the election of President Biden as labor concerns have increasingly come into focus. While government-related problems are still the second biggest concern(s) on a combined basis, there have been some other notable moves this month. The percentage of respondents reporting inflation as their biggest issue rose back up to the pandemic high of 13% this month. The Great Recession was the only other period that has seen as elevated a share of respondents seeing price increases as their biggest issue. Additionally, that excludes those reporting cost of labor as an issue. As for what the rise in Inflation as a problem may have borrowed from, one of the most notable has been competition from big business. The reading has seen a gradual decline since the end of 2019, and now at only 5%, it is tied with several months between September 2009 and September 2013 for the lowest reading on record.
B.I.G. Tips - Large Drops in Bullish Sentiment Thu, Sep 16, 2021 The S&P 500 is down under 2% from its record closing high on September 2nd and has been hovering right above its 50-DMA this week. While neither of those may sound dramatic, it seems to have sent shivers down the spines of individual investors given the results of this week's sentiment survey from AAII. Bullish sentiment has made a turn lower since its high of 43.4% two weeks ago, but this week, the reading plummeted down to 22.4%. That is the lowest level in bullish sentiment since the last week of July 2020 and is in the bottom 5% of readings since the start of the survey in 1987. The 16.5 percentage point drop is even more notable ranking in the 1.9th percentile of all week over week moves. It was the largest decline since August 2019 when bullish sentiment dropped 16.78 percentage points in a single week. Given that massive decline in bullish sentiment, bearish sentiment obviously picked up substantially. The percentage of respondents reporting as bearish spiked 12.1 percentage points to 39.3%. That is the highest reading on pessimism since early October of last year, and it was the largest one-week uptick in bearish sentiment since the 24.14 percentage point spike in August 2019. As a result of those big inverse moves in bulls and bears, the spread between the two crashed back into negative territory meaning bears now outnumber bulls for the first time since the week of August 19th. While it has not been too long since bears outnumbered bulls, the degree to which that is the case is significant. The last time that the bull-bear spread was as negative as it is now was in August 2019. That is not to say all the losses to bullish sentiment went to the bearish camp. Neutral sentiment rose for a second week in a row adding over 15 percentage points in that time. Currently, 38.3% of respondents are neutral. That is an elevated reading but only the highest since the end of July.
Buy Yom Kippur, Sell Passover Happy Jewish New Year 5782! May it be a sweet year for you all! As we informed you early this month the market tends to exhibit weakness during the Jewish High Holy days from Rosh Hashanah to Yom Kippur. Perhaps it is the market’s annual repentance for its own sins that drives the market lower over the years during the ten days of repentance or the days of awe as they are often referred. This trade ends tomorrow on Yom Kippur, September 16, but as of today’s close DJIA is down about 0.8% from the close on Rosh Hashanah. We attribute this perennial pullback to the fact that market liquidity drops as many market participants step away from the market and likely square positions ahead of these ten days. These days of awe also land during the seasonally weak end of Q3/beginning of Q4 period as fund managers restructure portfolios and prepare for the October 31 mutual fund deadline. This has made September the worst month of the year and contributed to the phenomenon of Octoberphobia. But there is a flipside to this trade. Buy Yom Kippur, Sell Passover. This has an even greater accuracy ratio than Sell Rosh Hashanah, Buy Yom Kippur up 72% of the time with average gains of 7%. And as I am sure our followers will realize this trade get a big boost from seasonal market strength during Q4 and Q1 and of course the Best Six Months of the Year November-April.
Pandemic Claims Still There Thu, Sep 23, 2021 Rather than the expected decline to 320K this week, seasonally adjusted initial jobless claims rose to 351K (from weekly FRED data). That is the second week in a row that claims were higher and in which claims were worse than forecasts. After the past two weeks of increases, claims are also now at the highest level in a month, though, that is still near pandemic lows. On a non-seasonally adjusted basis, claims were also higher rising by 40.3K week over week. That brings regular state claims back above 300K for the first time since the week of August 13th. Pandemic era programs technically ended in the first week of September and last week's release was the first data point to capture this. PUA claims did drop substantially that week with an over 70K decline, but they did not fall to zero as one might expect. The same is the case this week with PUA claims falling further to a very low level of 15.16K. As for why PUA claim counts are still being recorded following the end of the program is not exactly clear, but it could be due to backdating of claims. While PUA claims will likely continue to drop and become even less of a factor than is already the case, we are now past the point of the year in which claims have seasonal tailwinds. As shown below, on average claims historically rise from mid-September through the end of the year with week over week increases happening more than half the time. In other words, pandemic programs falling off have and will keep lowering claim counts but that will also be to some degree offset by seasonality. Continuing claims are lagged an additional week to initial claims making the most recent data through the week of September 10th. Here too, claims saw a surprise uptick to 2.845 million versus expectations of a further decline to 2.6 million. The inclusion of all programs adds yet another week's lag to the data making the most recent data through the week of September 3; the last before the end of pandemic programs. Leading into the deadline for pandemic programs, total non-seasonally adjusted continuing claims fell to a fresh low of 11.26 million. PUA claims and PEUC claims were the biggest contributors to that decline as the former fell by 591K and the latter fell by 161K. Regular state claims also experienced a significant decline of 290K. As those programs all saw significant declines, that was offset by another sizeable increase in extended benefits programs although there is a caveat to that move. Over the past couple of months, we have frequently made note of the volatility in claim counts for extended benefits programs. Week to week this reading has been in a cycle of big increases followed by big drops. To quantify just how volatile it has been, in the second chart below we show the 8 week rolling average in the program's absolute week-over-week change. That average not only surpassed last year's highs but it hit a record last week, surpassing the prior high from after the Global Financial Crisis.
Dallas Drop Mon, Sep 27, 2021 The fourth of five regional Fed manufacturing surveys came in this morning from the 11th district in Dallas. Whereas the New York and Philly Fed saw strong readings earlier this month, the Kansas City Fed and now the Dallas Fed's survey were less positive. The Dallas Fed's index fell to 4.6 versus expectations for an increase to 11. While the headline index was lower, it remained in expansionary territory in the middle of its historical range. The majority of other categories throughout the report also remain in expansion and are even at historically high levels with many in the upper decile of readings. The only real outlier was the index for Company Outlook. The Company Outlook index plummeted 14.3 points month over month which is the seventh-largest decline of any month on record. That massive decline brought the index to its first negative reading since May of last year. While the readings are still showing expansion, indices covering order volumes were also weaker versus August. Orders are growing at the weakest pace since last July, but on the bright side, shipments improved slightly to 18.7 in September. Paired with the slowed pace of new orders, the index for Unfilled Orders pulled back to the lowest level since February. While that means that businesses are likely working off backlogs, the index remains in the upper 5% of readings well above anything observed prior to the pandemic. After falling back in July, Prices Paid continued to bounce back reaching 80.4 this month. That is only 0.4 points below the record high from back in June. Prices Received, meanwhile, set a new record high after gaining another 5.9 points. Even though those prices continued to rise, Wages and Benefits saw another decline in September. That index peaked at 48.1 this past June and has declined to 42.7 in the months since then. That being said, the current level of the index is well above any other reading outside the past several months. In other words, companies are reporting that they are continuing to raise wages at a rapid pace. Meanwhile, if the rise in wages and benefits is not evidence of labor market tightness enough, employment also saw a modest pickup. That index rose 4.4 points to the highest level in five months when it was at a record. Although that indicates a modest acceleration in hiring, employers are looking to take on far more workers. The expectations index for this category rose to a record high in September; the only expectations index to do so.
Richmond Back in the Red Tue, Sep 28, 2021 The fifth and final manufacturing survey for the month of September from the regional Federal Reserve banks was released this morning, and it did not end the month on a high note. The Richmond Fed's headline reading fell into contractionary territory this month for the first time since May 2020 as the index dropped 12 points month over month falling from +9 down to -3. Relative to all the other regional Fed reports, Richmond only Richmond reported contraction in September. The 12 point decline month over month in the headline reading was significant ranking in the bottom 5th percentile of all monthly moves. But it was actually a smaller decline than last month when the index dropped 18 points. Regardless, the 30-point combined decline over the past two months is the second largest on record behind the 38 point drop in April of last year. Factoring into that headline weakness, most of the categories of the report were also lower month over month. Given those declines, most readings are also now in the bottom end of their historical ranges with some exceptions. Order Backlogs, Vendor Lead Times, Equipment and Software Expenditures, Employees, Wages, and price indices are all still in the upper decline of readings. By far the largest decline in September was for New Orders. That index plummeted 24 points versus August for the fourth-largest decline on record and putting the index in the bottom 5% of its historical range. In other words, demand slammed on the brakes in September. In spite of that decline, expectations have held up relatively well at 24; unchanged month over month. Shipments also fell into contraction albeit less dramatically. Meanwhile, Vendor Lead Times improved as the index fell 2 points, but that remains an extremely elevated reading indicating continued pressures on supply chains. One potential reason for shipments having pulled back is a complete lack of inventories. Both readings on raw materials and finished good inventories fell month over month and are at historically depressed levels across both current conditions and expectations. Indices tracking employment were perhaps the healthiest area of the report. The index tracking the Number of Employees edged higher to 20 while expectations saw an even larger jump, stopping just short of a record high. Wages, meanwhile, declined 9 points from a record high. That reading is still the third-highest on record, though, and expectations were at a record high. While the Average Workweek index was also lower MoM, there has been another improvement in the number of firms reporting a lack of availability of skilled workers. The other area of the report to touch records this month concerned prices. Prices paid came in at a new high with prices increasing 14% annualized. Prices Received were slightly lower at 9.13%, but that is well above other readings throughout the survey's history and the expectations index set another record.
October’s First Trading Day Mixed Over Past 22 years Based upon data in the soon to be available Stock Trader’s Almanac for 2022 on page 90, the first trading day of October is DJIA’s third weakest of all monthly first trading days since September 1997 based upon total DJIA points gained. Only August and September have been weaker. S&P 500 has been up 12 of the last 22 years on the first trading day of October. DJIA’s record is slightly softer with 11 declines and NASDAQ’s performance has been the worst of the group, down 12 times with an average loss of 0.12%.
Pandemic Claims Evaporate Thu, Sep 30, 2021 This week's initial jobless claims number disappointed with a surprise increase to 362K rather than the anticipated 21K decline to 330K. After that increase, claims are at the highest level since the first week of August when total adjusted claims were 15K higher at 377K. While seasonally adjusted claims were disappointing, the unadjusted number actually improved week over week falling back below 300K. Albeit lower, claims are still off their low of 265.9K from two weeks ago which could be expected given the seasonal tendency for claims to rise at this time of year. With the program's official end date now a few weeks in the rearview, PUA claims remain muted, but there was actually an increase of early 2K this week. Seasonally adjusted continuing claims fell this week to 2.802 million. Although lower, that was not as large of a decline as expected. That makes for the second-lowest reading of the pandemic outside of the first week of September when continuing claims came in at 2.715 million. On a non-seasonally adjusted basis and including all auxiliary programs creates a couple of weeks of lag to the data making the most recent reading through September 10th. That was the first week of data to encapsulate the end of pandemic programs, and the drop was significant. Total claims across all programs were more than cut in half falling 6.22 million to 5.03 million. As could be expected, declines in PUA and PEUC claims drove that decline with the two programs shedding a combined 6.49 million claims. That being said, these two programs still have a total of over 2 million claims left on the table and likely to fall off over the coming weeks.
