Manufacturing Activity Indices at Historic Levels Thursday, June 24, 2021 As recent economic data shows, the robust post-COVID recovery has brought about a historic rebound in U.S. manufacturing activity. Pent-up demand and low inventories of capital goods have caused companies to fire up their machines at record levels, and manufacturing supply management professionals have responded with relative delight in recent surveys. Both the IHS Markit and Institute for Supply Management (ISM) Manufacturing Indices have been robust across the board, as new order growth, hiring plans, and the backlog of orders point to better health in the sector. The downside…higher prices, as purchasing managers’ queried in the survey pinpointed high levels of input cost inflation brought about by a broad-based spike in raw materials prices. The latest survey results show the June IHS Markit U.S. Manufacturing PMI at a new all-time high of 62.6, which compares to the Bloomberg consensus estimate of 61.5 and May’s reading of 62.1. “The demand for goods and the rebound in manufacturing activity have been remarkable as folks seem determined to get on with their lives. We know that U.S. consumers like to spend, and it seems like they are more than willing to make up for lost time.” explained LPL Financial Director of Research Marc Zabicki. We believe the latest IHS Markit manufacturing readout may foretell a good result for the ISM benchmark’s expected release on July 1. That index series has also been near record levels, although just below its all-time high. The long-term ISM chart paints a fairly good picture of past peaks and troughs and the roller-coaster of activity that can occur in the manufacturing sector. In fact, the recent highs in the two manufacturing indicators we have mentioned have us looking ahead to an eventual deceleration in activity, which could come later this year. This deceleration could be brought about by the ultimate slowing of demand for some of the hottest items of late: automobiles, appliances, and technology devices. This doesn’t mean we are souring on the prospect for economic growth in the U.S….only that peak activity, as we are witnessing now, which is usually followed by an eventual slowdown in demand. We should see some of this become visible via U.S. gross domestic product (GDP) growth that is expected to advance at a slower pace in late 2021 and early 2022.
2021 is about to be one of the best first 6 months ever. Good news is a strong first 6 months usually leads to continued strength the final 6 months. In fact, when up >12.5% YTD at end of June, the median return rest of yr jumps to 9.7% vs median return of 5.0% for all yrs.
Memory Lane: The Best and Worst Days of This Week Through History Sun, Jun 27, 2021 The week before July 4th is often a quiet one for stocks as traders look to make it a vacation and tack on some days before or after the holiday. That doesn't mean it's always quiet, though. Throughout the S&P 500's history, there have been a number of big up and down days during the current week of the year. Below we highlight one of the worst and best; one from 1933 and the other more recently back in 2009. Starting off with one of the worst days back on July 2nd, 2009, with the market closed on Friday, July 3 rd in observance of the July 4th holiday, the release of the June Employment report was moved up to Thursday, but after the number was released, investors probably wished the report had been canceled altogether. Economists expected total job losses of 365K in June, but the actual decline came in significantly higher at 467K compared to May’s loss of 322K, thus breaking a 4-month streak of lower job losses. The employment report had a raft of other record figures included within it as the unemployment rate climbed up to 9.5% - a level not seen since 1983. The average length of unemployment increased to 24.5 weeks- the highest level since the government began tracking that statistic 1948- and the average workweek for rank-and-file employees in the private sector (80% of the workforce) slipped to 33 hours- the lowest level since the government began tracking that number in 1964. June’s losses brought the total number of jobs lost since the beginning of the recession to 6.5 million, erasing the total number of jobs gained in the previous nine-year expansion. The only other time that happened was back during the Great Depression. The weak employment numbers raised fears that the deepest and longest recession since the 1930s still had some time to go before a recovery would be underway, and investors looked at the data and questioned whether they had been too optimistic in bigging up stocks from the March 9th lows. The S&P 500 opened lower and continued to sell off into the close as investors took profits ahead of the upcoming earnings season. Economically sensitive areas of the market got hit the hardest with the Dow Transports dropping 3.7%. After rallying 40% from its March low to its June high, the S&P 500 was down about 2.5% heading into the report, so the 7/2 decline brought the total decline to over 5%. While a 3% decline is always painful, relative to the level of market volatility during that period, it wasn’t particularly extreme, and by July 13th, the S&P 500 was already back above its pre 7/2 highs, and it continued higher throughout the rest of the summer. Chart watchers were greeted with a puzzling move on Monday, July 3rd, when the market opened with large blocks of rails and industrial issues trading substantially higher than Saturday’s close (yes, there was a time when the stock market was open on Saturdays). Fundamental investors focusing on macroeconomic factors had a range of positive economic news to choose from, including reports of sharp increases in railway car loadings, copper inventories for 1933 being depleted at double the rate as 1932, as well as the moderate rise in prices not having affected the reports of Chain Stores. Volume was frantic at the open as the tape ran as much as ten minutes behind the floor’s transactions in the first hour. A statement from President Roosevelt on the federal government’s position regarding the international currency measure proposals from the World Economic Conference in London released by Secretary of State Hull was interpreted as both nationalist and inflationist. “The sound internal economic system of a nation is a greater factor in its well-being than the price of its currency in changing terms of the currencies of other nations.” President Roosevelt continued by calling upon the World Economic Conference to direct its efforts to remove trade barriers and stressed the importance of a sound internal economic system in order to reach ultimate stability. Roosevelt’s statement was met by both praise from supply-side economists like John Maynard Keynes and Irving Fisher and dismay from the gold-standard countries. The reaction of stock prices was far-reaching, with pivotal issues that had been sluggish, breaking out of their range to the upside. Numerous rails and specialties rallied on large volumes while more defensive-oriented Utility stocks experienced more modest gains. Volume on the NYSE at the close was placed at 6,720,000 shares with 266 stocks hitting new highs for the year and zero new lows. Many observers argued that inflation was behind the move in share prices as the President subordinated all efforts to his campaign for higher domestic price levels (including taking the dollar off the gold standard in April and introducing an amendment to the Agriculture Adjustment Act which drastically expanded the government’s power over monetary policy in May). However, indications that the inflation movement was not the sole inspiration for the advance could be seen in the action of the bond market where prices rose sharply and yields declined. The rally from 7/3/33 didn't last long, though, as the day's gains were erased by 7/19/1933, and the S&P 500 didn't trade meaningfully above those levels at any point in the next year. While the S&P 500 stalled out around its July 1933 levels, keep in mind that in the months leading up to that date, the S&P essentially doubled.
These SOX Aren't Quitters Tue, Jun 29, 2021 After a sideways period of consolidation that lasted more than four months, semiconductors enjoyed a nice rally to kick off the week as the VanEck Semiconductor ETF (SMH) rallied nearly 2.5% to a record high yesterday. Below we highlight the performance of each individual component of SMH from our Trend Analyzer. While some stocks have clearly done the heavy lifting in the breakout to new highs, it's pretty impressive to see that all 25 stocks in the ETF had positive returns over the trailing five days. Leading the way higher, both NVIDIA (NVDA) and Micron (MU) have rallied more than 8%, but another nine stocks in the ETF have gained more than 5% over the last week. Despite the more than four month sideways range for the semiconductor sector, it's been a very good year for most of the ETFs held in SMH. Just four of the holdings (QCOM, AMD, XLNX, and OLED) are in the red YTD, while the average gain of all 25 stocks is more than 17%. Leading the way higher, Applied Materials (AMAT) and NVIDIA are both up over 50% while four other stocks have tacked on 25% YTD. As a result of the big gains in the last week, the majority of stocks in the SMH ETF headed into today at overbought or extreme overbought levels, and all 25 stocks are above their 50-DMA.
June's Best and Worst Performing Russell 1,000 Stocks Tue, Jun 29, 2021 The month of June, the second quarter, and the first half of 2021 are almost in the bag. In the table below, we take a look at the best and worst performers in the Russell 1,000 month to date. For the best performers, we look at the 21 names that are up at least 25% MTD. As for the other side of the performance spectrum, we show the 20 worst performers. Topping the list with a 75.6% MTD rally through yesterday's close has been Virgin Galactic (SPCE). A large portion of that has come in the past few sessions alone with a 38.87% gain last Friday which has been partially erased early this week. Given that huge one-day jump, SPCE is over 90% above its 50-DMA and as such, it is the stock that is currently the most extended above its 50-DMA in percentage terms of the whole Russell 1,000. The next best performer in the index has been a recent IPO (debuted on April 15th), TuSimple Holdings (TSP). The stock was also up over 70% in June through yesterday's close leaving it just off its high from June 14th. After TSP and SPCE, there is a big drop in the percent change this month as Iovance Biotherapeutics (IOVA) is next up with a gain of 45%. That move has reversed some of the declines earlier in the year, although the price is still half of its 52-week high. It is a similar story for Fastly (FSLY) and Skillz (SKLZ) which are also more than 50% below their respective 52-week highs. Additionally, IOVA, FSLY and Sunrun (RUN) are the few names that are still down on the quarter even after being some of the top performers in June. Pivoting over to the worst performers, there are 38 stocks in the Russell 1000 that are down double digits month to date. By far the worst of these has been CureVac (CVAC). Similar to how a significant portion of SPCE's gains came from a single day, most of CVAC's losses are a result of a 38.99% decline on June 17th. The catalyst for that decline was the announcement that the company's COVID-19 vaccine was only 47% effective. The next worst performers are two more Health Care stocks that plummeted on disappointing trials data: Exelixis (EXEL) and Sage Therapeutics (SAGE). Of the 20 worst performing Russell 1,000 stocks, EXEL is the closest to a 52-week low. One of the next worst performers is the polar opposite. Upstart (UPST) is up massively off the past year's lows, and even after the 16.41% decline MTD, the stock is still up over 200% on the year. While many Health Care names are at the bottom of the list of month-to-date performance, one other notable theme is reopening plays. Cruise liner Carnival (CCL) as well as multiple airlines like America (AAL) and Southwest (LUV) also found their way onto the list. Additionally, with metals like gold and copper broadly falling off their highs after significant runs over the past year, Reliance Steel & Aluminum (RS), Newmont (NEM), and Freeport-McMoRan (FCS) are also a few of the worst performers this month.
First Trading Day of July—S&P 500 has Advanced 85.7% of the Time July’s first trading day is the third best performing first trading day of all twelve months based upon DJIA points gained with DJIA gaining a cumulative 1,215.30 points since 1998. Over the past 21 years, DJIA’s first trading day of July has produced gains 76.2% of the time with an average gain of 0.33%. S&P 500 has advanced 85.7% of the time (average gain 0.37%). NASDAQ has been slightly weaker at 76.2% (0.27% average gain). Looking back even further to 1989, S&P 500 has advanced 87.5% of the time (up 28 times in 32 years) with an average gain of 0.49%. DJIA has advanced 26 times in the same 32 years (81.3%) and NASDAQ has risen in 24 of those years (75.0%) with an average advance of 0.33% in all years. No other day of the year exhibits this amount of across-the-board strength which makes a solid case for declaring the first trading day of July the most bullish day of the year over the past 32 years.
Stocks Only Going Up In The First Half Wed, Jun 30, 2021 One of the most remarkable aspects of the past six months has been the lack of a significant pullback. The S&P 500 has not seen a 5% pullback since October, and since the start of the year, the most it had fallen from a high was 4.23% from mid-February to March 4th. Besides that and another smaller 4% pullback in May, it has been a one-way trip higher. Looking back through the history of the S&P 500, there are not many other years in which the index went the entire first half without at least a 5% pullback. Below we show the chart of the S&P 500 for each of the 14 years that, like this year, did not experience a pullback of at least 5% in the first half. . As shown, six of these (highlighted in green)—1954, 1958, 1964, 1993, 1995, and most recently 2017—actually did not see a 5% or larger pullback in the second half of the year either. As for the other years, the S&P 500 did generally tend to move higher for at least part of the second half, but there have been a range of declines. The year with the largest decline in the second half was 1986 when the index fell 9.42% in September. And that was after a 7.53% decline shortly after the midpoint of the year in the first two weeks of July. The 1959 occurrence similarly saw a 9.17% decline from August through September. While it did not necessarily all happen within the second half of the year, the declines in the final days of the 1961 occurrence actually marked the beginning of a bear market that ultimately would see the S&P 500 fall 23.6% from its late 1961 peak.
Market Stronger Day Before than After Independence Day Over the last 21 years, the trading day before Independence Day has been stronger than the day after. DJIA and S&P 500 have advanced 66.7% of the time with average gains of 0.13% and 0.11% respectively on the day before. Based upon average performance, NASDAQ and Russell 2000 are slightly softer on the day before, but still lean bullish. On the trading day after Independence Day DJIA, S&P 500 and Russell 2000 have declined more frequently than advanced. DJIA has recorded the fewest number of advances while Russell 2000 has the worst average performance with a 0.10% loss.
Energy and Ethereum Lead The Way Higher in First Half Thu, Jul 1, 2021 The first half of 2021 is now in the books. Below is a look at our Asset Class Performance Matrix highlighting total returns in June, Q2, and the first half of 2021 using key ETFs that we monitor on a regular basis. Across asset classes, energy was the winning theme with commodities like oil (USO) and natural gas (UNG) boasting some of the strongest first-half returns alongside Energy sector stocks (XLE). USO was the top performer of these with its 51.11% total return since the start of the year. Alongside XLE and UNG's over 40% gains, the Ethereum Trust (ETHE) also rallied 44.32%, albeit there has been a significant pullback in the past month. Although ETHE posted big gains, Bitcoin (GBTC) took a loss with a 6.84% decline in the first half. That is not to say it was not up significantly at one point during the first half as Q2 alone saw a 40.43% loss that brought it into the red for the half. The only other assets to have fallen by more than Bitcoin in the first half were the Japanese Yen (FXY), Gold (GLD), and long bonds (TLT). TLT saw the weakest returns of all of these over the course of the past six months but more recently it has experienced better performance relative to other assets. In fact, its 4.42% rally in June was almost double that of the S&P 500. In the equities space, again Energy was the top performer while small caps and value outperformed as well in the first half. That was not necessarily the case in June though as there was evidence of rotation out of value and into growth. The NASDAQ 100 (QQQ) and S&P 500 Growth (IVEW) were two of the top-performing ETFs in June and Q2 while value stocks actually fell in June. As for international equities, Canada (EWC) and Russia (RXS) were the strongest country ETFs in the first half. While it was not enough to lift its first-half gain to the high end of the range of countries shown, Brazil (EWZ) did see a large degree of outperformance in Q2 with a 23.05% gain. That is nearly double the next best performer, Russia. Additionally, these were the only two countries up significantly in June as most countries saw a loss. Year-to-date, China (ASHR) and Japan (EWJ) have been the weakest of the country ETFs.
Jobless Claims Back to Pandemic Lows Thu, Jul 1, 2021 Initial jobless claims fell to 364K this week from last week's upwardly revised level of 415K (originally 411K). That 51k decline was the biggest one-week drop since a 156K decline between the first and second week of April. Additionally, this week's print leaves claims 10K below the previous low of the pandemic. On a non-seasonally adjusted basis, claims were likewise lower falling from 397.4K to 359.1K. It is somewhat unusual for the current week of the year to experience a decline as historically it has seen claims rise three-quarters of the time. While regular state claims were lower, PUA claims rose for a third week in a row. Rising to 115.27K, PUA claims are at the highest level since the week of April 23rd. In spite of the two programs having moved in opposite directions, the drop in regular state claims was larger as total combined claims fell back below 500K and are roughly 40K above the low of 435.8K from three weeks ago. Continuing claims were once again not as strong as the reading continues to flip back and forth between increases and decreases week to week. This week saw a small 56K uptick which left seasonally adjusted claims at 3.469 million. While higher and 56K off last week's low, claims remain at a healthier level than the rest of the pandemic. On a non-seasonally adjusted basis and including all other programs through the week of June 11th, claims fell from 14.87 million down to 14.68 million. That marked the seventh week in a row that total claims across all programs fell week over week. The Extended Benefits program was the biggest contributor to that decline as the program saw 86.82K fewer claims than the previous week. Regular state programs were the next biggest contributor to the overall decline with claims dropping 64.7K. With the consistent declines in regular state programs, pandemic era programs (PUA and PEUC) now account for 76.3% of all continuing claims. That share is likely to drop in the coming weeks though as there will be an acceleration in states withdrawing from those programs which will begin to be reflected in this data.
Sentiment Has Perked Up Thu, Jul 1, 2021 Sentiment has taken a big step up in the past week. The AAII weekly sentiment survey saw 48.6% of respondents report as bullish this week, up 8.2 percentage points from last week for the highest reading since the week of April 22nd when over half of respondents reported as optimists. Not only is this week's reading ten percentage points above the historical average, but the one-week increase was the largest since an 11.1 percentage point jump during the week of April 8th. Similarly, the Investors Intelligence survey of newsletter writers saw bullish sentiment jump from 56.5% last week to an eight-week high of 59.6%. Considering bearish sentiment was already muted, that big increase in bullish sentiment was only met with a 1.1 percentage point decline in bearish sentiment. Only 22.2% of respondents reported as bearish this week, the lowest reading since June 10th. While bearish sentiment did not experience a particularly large decline, it was an inverse move to bullish sentiment which resulted in the bull-bear spread climbing 9.3 points to the highest level since April 22nd. That means sentiment continues to largely favor the bulls. Prior to the past year, late 2017 and early 2018 was the only other period in recent years that the bull-bear spread was at similar levels to now. Given the jump in bullish sentiment did not borrow from bearish sentiment, neutral sentiment took a significant hit this week falling 7.4 percentage points. That was both the biggest one-week decline and marks the lower level in neutral sentiment since April.
The S&P 500 Index has closed at a new all-time high 7 days in a row. Since 1950, that has happened only 8 other times and the SPX was higher a year later every single time. The S&P 500 Index is up 5 consecutive months. One year later? Higher 25 out of 26 times.
Value (VLUE) Giving Way To Quality (QUAL) Wed, Jul 7, 2021 In last night's Closer, we noted how until February the Momentum factor (MTUM) was keeping up with Value (VLUE), but it has since given up ground as VLUE, even after stumbling of late, remains the clear top performer of the four factor-based ETFs from MSCI. On a total return basis, VLUE has gained 45.42% over the past year which is roughly 7 percentage points more than the next best performer: the Quality ETF (QUAL). Granted, that return was even stronger at 51.49% at the high on June 4th. With VLUE's outperformance having wavered over the past month, QUAL has been gaining ground. Additionally, although QUAL has underperformed, alongside Minimum Volatility (USVM) there has been a much less 'exciting' and steady grind higher than VLUE or Momentum (MTUM).
Mega Cap Stocks Relatively Strong Wed, Jul 7, 2021 Mega cap stocks are an important area to watch and have been an area of our focus recently as the relatively small number of names hold a large weight within the S&P 500. Their recent strength has propelled the broad market to a series of new highs in spite of what has been weaker breadth outside of this space. In the chart below, we take a closer look at the relative performance of the four largest stocks versus the S&P 500 over the past year. Alphabet (GOOGL) has performed the best versus the S&P 500 of the four names shown and is at one-year highs. Apple (AAPL) outperformed the S&P significantly in 2020 but gave it all back from late January through May. Since June, however, Apple has been on a tear versus the market. Microsoft (MSFT) and Amazon (AMZN) are both still underperforming the S&P over the last twelve months, but they have made solid moves higher since June.
Jobless Claims Back to Seasonal Norms Thu, Jul 8, 2021 Initial jobless claims disappointed this week rising to 373K versus expectations of a reading 23K lower. Not only was this week's print higher than expected, but last week's number was revised up from 364K to 371K. Even though last week's data was not as strong as it originally appeared to be and this week marked a slight worsening, taking a step back, claims are still at some of the lowest levels of the pandemic and only around 160K above pre-pandemic levels. On a non-seasonally adjusted basis, claims were again slightly higher rising from 366.5K to 369.7K. While higher, given seasonality trends, this was a notable move. Since 1967, the current week of the year (27th) has only seen UI claims fall week over week once. That decline came last year when claims were coming off of historically elevated levels. While initial claims returned to the usual seasonal pattern this year, it wasn't by much. Outside of last year, for the 27th week of the year, this past week saw the smallest increase on record. Turning to the impact of Pandemic Unemployment Assistance (PUA), claims fell back below 100K this week as a handful of more states withdrew from the program. Total claims between the two programs summed to 468.7K this week, dropping week over week but still above the low of 435.8K from the first week of June. While initial claims disappointed, continuing claims fell week over week and came in below the forecasted reading of 3.35 million. Claims this week totaled 3.339 million, setting a new low for the pandemic which is around twice as high as pre-pandemic levels. Including all programs into continuing claims counts creates an additional week's lag in the data meaning the most recent reading is through the week of June 18th. On a combined basis, continuing claims have continued to improve putting in another low at 14.23 million. While they remain the two largest programs accounting for the highest share of total claims, significant declines in PUA and PEUC programs drove that overall decline, offsetting a 53.1K increase in regular state claims.
Stocks Are Going Streaking Wednesday, July 7, 2021 To quote the great Frank the Tank from Old School, “We’re going streaking!” Although Frank had another idea, stocks have been streaking in some historic ways, both near-term and longer-term. Let’s start with the more recent action. The S&P 500 Index was recently higher seven consecutive days for the first time since last August, but even more impressive is it made new highs all seven of those days. You have to go back to June 1997 to find the last time we saw a streak like that! Incredibly, this has happened only eight other times since 1950 and stocks were higher a year later every single time. Stocks have also streaked to monthly gains for five consecutive months. “Although a five month win streak for the S&P 500 feels like a lot,” explained LPL Financial Chief Market Strategist Ryan Detrick, “a year later stocks were higher 25 out of 26 times after such long monthly win streaks. So the real strength could only be beginning.” As shown in the LPL Chart of the Day, five month win streaks tend to be followed by strong performance over the next 12 months. Lastly, the S&P 500 has streaked to five consecutive quarterly gains. Some more color on this: The average return a year later has been only 6.6% because of very poor returns during the Great Financial Crisis. The median return a year later, though, is a solid 10.4%. The last time it was up five straight quarters was in the fourth quarter of 2016, when it went on to gain nine consecutive quarters. One year after that streak of five quarters stocks managed to gain more than 19% a year later. It has gained more than 5% for five consecutive quarters. Only from Q4 1953 through Q4 1954 did that last happen and stocks gained another 26% the following year. There is no doubt that stocks have put up some amazing streaks lately and history would suggest the path of least resistance remains higher. We listed some potential near-term worries in Three Things That Worry Us, but bigger picture going out a year or so, this bull market looks alive and well and these recent streaks do little to change that.
Small Businesses Want More Employees and Inventories Tue, Jul 13, 2021 Early this morning, the NFIB released their June reading on small business sentiment. The headline reading has historically been correlated with changes in the political landscape and exactly that happened following last year's Presidential election. However, the 2.9 point rise in June leaves the index fully recovered from its post-election losses as it came in at the highest level since September and October's joint high of 104. Breadth was generally strong across the categories of the report with seven of the ten inputs to the headline index rising month over month. As we noted earlier in the Morning Lineup, the indicators regarding employment are some of the most impressive. While actual employment changes remain negative, meaning more firms reported decreases than increases in hiring, hiring plans came in at a record high. In other words, businesses would like to be hiring more workers than they can. To make up for that, they are raising wages with both the indices for Compensation and Compensation Plans coming in at or near records. That appears to be enticing workers as there was a slight downtick in the number of firms reporting that openings are hard to fill in addition to the month-over-month uptick in the index for Actual Employment Changes. Wages are not the only area of inflationary pressure though. More broadly, a net 47% of businesses reported higher prices. That is far and away above the normal historical range and marked the third month in a row with a record high. Wages and prices were not the only areas to see a record. The index of Inventory Satisfaction, which measures the net percentage of respondents saying current inventory levels are "too low" versus "too high," is also at the highest level to date. While not at a record high, that sentiment has brought Inventory Accumulation (the net percentage of companies reporting actual increases versus decreases in inventory levels) to the highest level since October which is in the top 1% of all months in the history of the survey. While companies are investing in wages and inventories, capital expenditure readings are more muted. The indices for Capital Expenditure Plans and Actual Changes in Capital Expenditures came in the 19th and 15th percentiles.
Claims Flatter Than Shown Thu, Jul 15, 2021 It was a busy morning of economic data with weekly jobless claims part of the onslaught of releases. Overall, this week's report was mixed. Last week's reading on initial jobless claims was revised higher from 373K to 386K. While this week's number did mark an improvement falling to 360K, it was less than the expected decline to 350K. Regardless, that leaves claims at the lowest level of the pandemic and a little over 100K above the levels from last March; the last week before claims began to print in the millions. While the decline in the seasonally adjusted number marked an improvement, we would note that actual claims were flat which was better than you would expect for this time of year. Early July historically has seen a seasonal headwind to claims, and as such, seasonal factors would have suggested a 26.5K increase this week. But on a non-seasonally adjusted basis, claims were actually little changed (up only 0.6K). At 383.2K, unadjusted claims still sit 20K above the pandemic low of 362.9K from two weeks ago. PUA claims meanwhile fell back below 100K as the withdrawal of individual states from pandemic era programs continue to apply to the data. Overall, claims continue to show improvement albeit at a slower pace. While initial claims were worse than expected, continuing claims fell by 126K versus the expected 67K decline. Seasonally adjusted claims now are at 3.241 million which is the lowest level since last March. That also marked the first back-to-back decline since the first two weeks of April which was part of a much longer 14-week streak of declines. Pivoting back over to the unadjusted data, which includes all other auxiliary programs but creates an additional week of lag, the most recent week saw broad declines across all major programs resulting in total continuing claims to fall below 14 million. The 372K decline this week also extended a streak of eight consecutive weeks of declines. As for the main drivers of that decline over the past couple of months, PUA and PEUC programs have by far been the biggest contributors, in part, due to the withdrawal of various states from the programs. This week alone the two programs accounted for 90% of the decline, and over the previously mentioned eight-week span, the two programs account for 70% of the total decline.
Empire Fed Shatters Expectations Thu, Jul 15, 2021 Of the array of economic data released this morning, perhaps the most impressive was the New York Fed's reading on the manufacturing sector. The headline index came in at 43, smashing estimates by 25 points. As we show below, that was one of the strongest readings relative to expectations since 2002 with the only bigger beat being last June. Not only was it impressive relative to expectations, but the release also set a record high. In addition to the July reading being a record high, the month-over-month change was the fourth largest on record behind May and June of last year and May of 2003. Driving the surge in the headline number were big improvements across categories, but especially for New Orders, Shipments, and Inventories. The MoM increases for each of those categories ranked in the top 5% of all months and left them at some of the highest readings on record. While most categories improved versus June, there were three outliers: Delivery Time, Prices Paid, and Average Workweek. Demand-related indices were some of the most impressive areas of the report. New Orders surged 16.9 points to 33.2 which was the highest level since 2004. That massive acceleration in orders growth meant backlogs grew at a more rapid pace as Unfilled Orders rose 4.2 points. Even though that is a historically strong level, it was 9.3 points below the even more elevated readings from earlier in the spring. Fortunately, manufacturers appear at least somewhat more capable of fulfilling those orders. Shipments surged to 43.8 which, like new orders, was the highest level in the index since 2004. Additionally, inventories grew at a rapid rate. The Inventories Index rose 18.8 points from a contractionary reading last month to one of the highest levels on record. One likely reason for the massive increase in inventories and shipments is some normalization in supply chains. The index for Delivery Times measures how long it takes for supplier products to arrive. Higher readings indicate longer lead times and vice versa. Over the past year, these indices have surged to unprecedented levels across regional Fed and other manufacturing reported. While the Empire Fed's reading is still extremely elevated from a historical context, the 9.6 point drop month over month marked a significant improvement in lead times. Input price pressures have also subsided a bit. Similar to the Delivery Times index, the index for Prices Paid is extremely elevated but showed some relief in July. That was not the case for Prices Received though. That index continued to rise with both the current conditions and 6-month expectation indices reaching record highs in July. In terms of the expectations indices, the only other one to reach a record in June was for the Number of Employees. The increase in that index was matched by a sizeable uptick in the current conditions index as well. That index rose 8.8 points to the highest level since June 2018 indicating the region's manufacturers continue to have a strong appetite for labor and are in fact taking on more workers.
Strong Starts, Some Building Weakness In Permits Tue, Jul 20, 2021 This morning's release of Housing Starts and Building Permits for the month of June was mixed relative to both last month's levels and expectations, but the overall trends remain positive. Starting out with the details, Housing Starts rose 6.3% versus March and topped expectations by 53K (1.643 million vs 1.590 million). Building Permits, meanwhile, missed expectations by nearly twice the amount that Starts beat expectations (1.598 million vs 1.7 million), and they also fell just over 5% relative to May. In terms of single versus multi-family units, Housing Starts saw a uniform increase rising just over 6%, but on a regional basis, strength was seen in the West and South, while both the Northeast and Midwest experienced high single-digit declines. Building Permits were weaker at the single-family level than the multi-family level, which could be a result of higher input costs. On a regional basis, though, Permits were down all over the country with the South seeing the most modest declines. One note regarding the miss in Permits - although they were lower than Starts in June, they were higher than Starts in each of the past 15 months, so they have been running at a stronger pace than Starts for quite some time. As far as overall trends in Housing Starts and Permits are concerned, the longer-term trend remains positive. Housing Starts are a great leading indicator of the business cycle, and the 12-month average continued to surge to new multi-year highs in June reaching the highest level since June 2007. Zooming in on just the last ten or so years, both Housing Starts and Building Permits experienced a brief dip in the aftermath of the COVID outbreak but quickly resumed their upward trend and have been accelerating to the upside. Also, barring a complete cratering of the monthly numbers, these 12-month averages should continue to rise in the months ahead. Single-family Housing Starts and Building Permits are rising at an even faster rate. Also notable is that despite the fact that there was a notable divergence between Building Permits and Housing Starts this month, the 12-month average of single-family Starts and Permits were practically the same (1.130 million vs 1.138 million). The fundamental backdrop for Housing Starts and Building Permits may still look positive, but homebuilder stocks have been under pressure lately after an insanely strong rally earlier in the year. Since its peak in early May, the iShares Home Construction ETF (ITB) has dropped 15% in a series of lower highs and lower lows. Higher labor and input costs have weighed on sentiment for the sector, but some of the input costs have reversed and lower interest rates should also act as a tailwind. Looking at a longer-term chart, there has been a positive correlation between Housing Starts relative to the performance of ITB, and as these charts illustrate, while the short-term picture for ITB (above) looks somewhat ominous, the longer-term picture looks much more benign. As shown below, the recent pullback in ITB looks more like a reversion to the mean as they got a bit ahead of themselves earlier this year. One trend to keep in mind going forward for the homebuilders is that if the recent price declines for housing inputs remain in place, they have the potential to see some significant improvements to margins if they can continue to command higher prices.
