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The Bear Thread

Discussion in 'Stock Market Today' started by bigbear0083, Apr 1, 2016.

  1. bigbear0083

    bigbear0083 Content Manager
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    Some October Weakness Common in Pre-Election Years
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    It certainly did not take long for the market to trigger Octoberphobia this year. Tuesday’s soft manufacturing report was at least part of the trigger. DJIA, S&P 500 and NASDAQ have already declined over 2.6% and its just the second trading day of the month. Tomorrow’s Non-Manufacturing ISM report and Friday’s jobs report could sooth some of the current recession fears and warrant close attention. However, market weakness in October, even in pre-election years is common. Our recent post showed October ranking second worst of all month in pre-election years.

    October’s tepid history in pre-election years can also be seen in the following seasonal pattern charts. The only real notably difference between this year and past pre-election years is weakness has arrived earlier. Looking at the black line in each chart, the average pre-election year October pullback has been around 3% for DJIA, S&P 500 and NASDAQ. A larger pullback this year would not be out of the question considering trade, growth and political uncertainty. If economic data proves resilient, then the usual end of year rally enjoyed in past pre-election years will likely materialize.
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  2. bigbear0083

    bigbear0083 Content Manager
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    Market Atones On Yom Kippur
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    Although not an official market holiday, Yom Kippur is observed by many New York area schools and many Jewish colleagues will also spend time observing the holiday with family and friends. Their absence can dampen trading volumes as positions are squared ahead of the holiday. This year Yom Kippur begins at sunset today on Tuesday, October 8, 2019 and ends tomorrow Wednesday October 9, 2019.

    Over the past 21 years the day of Yom Kippur (or the next trading day) has been up slightly more than 50% of the time for DJIA and S&P 500, but NASDAQ has been down 14 of the last 21 years. There have been some large declines that result in average losses across the board. More recently DJIA and S&P 500 have been up 7 times in the last 10 years (NASDAQ up 4 of 10) on the day. The day after is not much better, down 5 of the last 10 and 3 of the last 5.

    Yom Kippur’s proximity on the secular calendar puts in the volatile period prone to declines from about mid-September to mid-October.

    Happy New Year and Shana Tovah to all! To those observing we wish you an easy fast.
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  3. bigbear0083

    bigbear0083 Content Manager
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    Leading Indicators Decline
    Mon, Oct 21, 2019

    We didn't mention it Friday, but among the multitude of weaker than expected economic indicators last week, the index of Leading Economic Indicators for September was one of them. While the consensus forecast was for the index to remain unchanged from August's level, it actually declined 0.1%. At times in the past, we have highlighted how sharp downturns in the ratio between Leading and Coincident indicators have often preceded recessions.

    In the current cycle, it has now been twelve months since the ratio peaked last September, and while that raises the risk of a recession, we would note that the current downturn in this ratio has been much more gradual than the steep downturns that we saw leading up to prior recessions. Additionally, in both the 1960s and 1990s, we saw instances where the ratio saw much steeper declines without a recession.

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    The recent downturn in the ratio between Leading and Coincident Indicators isn't even the first time during this cycle that we have seen the ratio lose momentum and show similar declines. From mid-2011 through late 2013, the ratio went 27 months without hitting a new cycle high, and then again from the second half of 2015 through the end of 2016, there was an 18-month stretch without a new high. In the current period, it has only been 12 months without a new high.

    While the current lull in the Leading vs Coincident Indicator ratio hasn't been long yet, it is still declining. Therefore, it's nowhere near close to snapping the streak of months without a high. Just looking at the last two periods, for example, from the time the ratio bottomed, it took nine months in 2013 and 11 months in 2016 before the ratio fully rebounded and hit a new high for the cycle. In other words, if the ratio doesn't start rebounding soon, this period will go down as the longest period of economic slack/consolidation of the expansion.

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  4. bigbear0083

    bigbear0083 Content Manager
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    New Highs MIA
    Mon, Oct 28, 2019

    Earlier today, we noted in a tweet that despite the record highs for the S&P 500, the number of stocks hitting 52-week highs was extremely weak at 38. While that number improved slightly this afternoon, at 40 it's still very low for a day when the index itself is hitting a new all-time high. While the overall number of stocks hitting new highs is very low, we can take some consolation in the fact that more than one-third of the index is within 5% of a new high, so if we see a few more days like Monday, the list of new highs should start to meaningfully expand.

    [​IMG]

    The table below summarizes the percentage of stocks in each sector that are within 5% of a new high. Topping the list is Utilities where more than half of the sector's components are less than 5% from a new high. Behind Utilities, nearly half of stocks in the Industrials sector are also on the verge of a new high. At the other end of the list, Energy has the fewest components within 5% of a 52-week high at just 7%, and then three other sectors have a quarter or fewer of their components at new highs (Health Care, Consumer Staples, and Materials).

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    The chart below is the same as the one above, but instead of sorting the components by the distance from their respective 52-week highs, we sorted it first by sector and then by the distance from a 52-week high. Five sectors currently have at least one component that is down over 50% from a 52-week high (Consumer Discretionary - Macy's and L Brands, Consumer Staples - Kraft Heinz, Energy - Concho Resources and Cimarex, Health Care - ABIOMED, and Technology - DXC Technology and Alliance Data Systems). On the other end of the spectrum, if you look closely at the chart, you can see that for both the Financials and Industrials sectors, a number of stocks are very close to 52-week highs. For the Financials, 12 components are within 2% of a new high while 20 members of the Industrials sector are just within the 2% threshold as well.

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  5. bigbear0083

    bigbear0083 Content Manager
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    Above Average November Could Stumble Before Thanksgiving
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    Stocks have been strong to start off this November. As of today’s close DJIA is up 2.39%, S&P 500 +1.79%, NASDAQ +2.34% and the Russell 2000 has risen 2.09%. This is well above historical average performance in pre-election year Novembers. DJIA and S&P 500 have averaged just 0.3% gains in 17 pre-election year Novembers since 1950. Gains this month have been driven by better than expected earnings and an improving trade outlook. However, risks still remain. Trade is likely the biggest as a deal, Phase 1 or other, still remains elusive. November also has a historical tendency to weaken after mid-month with major indexes historically surrendering the major of their first half gains beginning around the 11th trading day through the fourteenth trading day. Should such a dip occur this November, don’t despair as the month also has a historical tendency to rally strongly from around the fifteenth trading day to its end.
     
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  6. bigbear0083

    bigbear0083 Content Manager
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    Pace of Market Gains Likely to Slow in 2020
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    With pre-election year 2019 quickly nearing its end and the market closely tracking historical, seasonal performance throughout, let’s preview how election-year 2020 could unfold based upon historical seasonal patterns. In the following three charts for DJIA, S&P 500 and NASDAQ historical performance in Election Years, All Years and when a sitting Republican was running for a second term have been plotted.

    Since 1950 there have been five Republican Presidents that ran for a second term, Eisenhower (1956), Nixon (1972), Reagan (1984), G. H. W. Bush (1992) and G. W. Bush (2004). Only G. H. W. Bush failed to win re-election in 1992. DJIA’s average performance in these five election years was 4.1%. DJIA’s best year was 1972, advancing 14.6%, its worst year was 1984 with a 3.7% loss.

    When comparing these past five Election Years when a sitting Republican was running for re-election to All Years and all Election Years, average performance is noticeably weaker. Part of this could be due to strong above average performance in the preceding pre-election years where DJIA averaged 18.6% (1955, 1971, 1983, 1991 and 2003). Nonetheless, the current bull market is likely to continue into and through 2020 as the market has historically performed better with a sitting president running compared to an open field. However, gains may not match the pace of 2019.
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  7. bigbear0083

    bigbear0083 Content Manager
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    Jobless Claims on the Rise
    Thu, Nov 14, 2019

    As we have mentioned over the past couple of weeks, initial jobless claims have not done much over the past year as the indicator has been rangebound with an increasingly tighter range. That dynamic shifted a bit this week as claims came in worse than expected, rising to 225K from 211K last week versus forecasts of 215K.

    While the record streaks at or below 300K and 250K are still in place by a healthy margin (those streaks now reaching 245 and 110 consecutive weeks long, respectively), this week marked a considerable break out from the upper end of the past several months' range. This week was also the sixth highest reading for claims of 2019 and the highest since June 21st when claims were 4K higher. The 14K increase from last week was also the joint thirteenth largest one week increase of the past five years and the largest since April when claims rose by 37K right around the Easter holiday (the second-largest such increase of the past five years).

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    Given the new high in the seasonally adjusted data, the four-week moving average ticked higher to 217K from the previous reading of 215.25K. At 217K, the moving average is now the highest since July 12th when it was 218.75K. Despite this move higher, unlike the seasonally adjusted number, this increase did not break the moving average out of its recent range.

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    On a non-seasonally adjusted basis, claims rose by 31.1K to 236.7K. That is a slightly smaller change than the average change (+36K) for the current week of the year (45th) over the past ten years. Given these seasonal factors, it was also the largest one week increase to the non-seasonally adjusted data of 2019 and marked a 0.7K increase from the same week last year.

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    As we have mentioned in the past, 2019 has seen a big increase in the number of weeks with a year-over-year increase in the non-seasonally adjusted data. So far this year there have been a total of 19 weeks were claims have risen YoY. Given there are only 7 weeks left in 2019, it won't be possible to reach similar levels to the financial crisis, but 2019 has seen the highest frequency these weeks for all years of the current cycle. One interesting point to note though is that weeks with these types of changes in claims have also been subdued in the years following the last recession. As shown in the chart below, of the past 20 years, the years prior to 2009 would typically see a high number of weeks with an increase versus the prior year, but that has simply not been the case from 2010 on. That is, until this year.

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  8. bigbear0083

    bigbear0083 Content Manager
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    Homebuilder Sentiment Cools
    Mon, Nov 18, 2019

    After its largest ten-month increase in more than six years, homebuilder sentiment unexpectedly cooled in November. According to the NAHB, while overall homebuilder sentiment was expected to remain unchanged, the headline index actually declined from 71 down to 70. While this month's sentiment report was slightly weaker than expected (economists were expecting a reading of 71), the modest decline should not come as too much of a surprise given the large uptick in long-term rates since the last report.

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    The table below breaks down this month's report by various factors as well as on a regional basis. While both Present Sales and Traffic were down, sentiment towards Future Sales actually increased slightly, and at the current level of 77 is not far from its high in early 2018.

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    While sentiment was down on a national level, the only area of the country where sentiment was down was in the South where optimism had been at its highest level in more than ten years. Outside of the South, sentiment was actually higher in every other region, including the Northeast and West where sentiment is right near ten years highs.

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  9. bigbear0083

    bigbear0083 Content Manager
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    Technology Sector Valuation Has Gotten Elevated
    Mon, Nov 18, 2019

    Bespoke's Daily Sector Snapshot (view sample here) is a popular one-page report that subscribers use to stay on top of sector themes. One data point that has stood out recently is where valuations stand within their historical ranges (past ten years). As shown below, the only sector with a current valuation that's in the bottom half of its range over the last ten years is Financials. Every other sector is currently trading with a valuation above the 60th percentile.

    Utilities and Technology are currently extremely elevated in the 97th and 99th percentiles, respectively. The trailing price-to-earnings ratios for Consumer Discretionary and Communication Services are also in the top 10% of all days of the past 10 years. Finally, the S&P 500 as a whole has a current P/E that is higher than 89.1% of all readings over the last ten years.

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    The chart below shows the Technology sector's trailing price-to-earnings ratio over the past ten years. In the time since the dramatic sell-off around this time last year, valuations have more than recovered rising from a low of 16.11x earnings on January 3rd to 24.75 on Friday. In the chart below, the red dots indicate the only times that Tech had a higher P/E than now over the last ten years. As shown, in the past decade there have only been a handful of times, just nine trading days in fact, that the Tech sector's P/E ratio moved above 24.75; 0.4% of all days in that time frame. Those days came in two pockets. One in February and March of last year and the other in late December of 2009. While Tech is at a premium compared to the past decade, it is still well off of levels from the late 1990's/early 2000's around the time of the tech bubble. The current valuation would need to more than triple to reach the 1999 peak of 82.62x earnings.

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  10. bigbear0083

    bigbear0083 Content Manager
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    S&P 500 Streaks Without a 50 Basis Point Downside Gap
    Wed, Nov 20, 2019

    The S&P 500 opened lower this morning, so since we don't seem to get these opportunities much anymore, we wanted to highlight just how benign the US equity market has been in recent weeks. While downside gaps aren't uncommon, using SPY as a proxy, the S&P 500 has now gone 31 trading days without a downside gap of 0.50% or more at the open. For perspective, it has now been over a year since the S&P 500 had a longer stretch of time without at least one downside gap of 0.50%. To find a longer streak, you would have to go back to October 2018 when the S&P 500 went 47 trading days without a 0.50% decline and before that January 2018 when there was a streak of 53 trading days without a 0.50% decline.

    If you've been paying attention, the dates 10/22/18 and 1/29/18 likely stir up bad memories if you are a bull. From the close on 10/22/18, the S&P 500 went on to decline 15%, while in the weeks that followed the end of the 1/29/18 streak, the S&P 500 dropped 10%. Before you start heading for the hills, though, we would also note that there were a number of similarly long streaks following the election in 2016 and throughout 2017 that were just as long or longer and when those streaks came to an end, there was little negative impact on the equity market's performance going forward.

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  11. bigbear0083

    bigbear0083 Content Manager
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    Claims Revised Higher and Stay Higher
    Thu, Nov 21, 2019

    Initial jobless claims last week came in surprisingly high at 225K. That number has since been revised even higher to 227K. Despite expectations of a decline to 218K, this week's print was unchanged from the previous week's revised number. The past two weeks' reports represent the highest level for jobless claims since June 21st's reading of 229K. Given the lack of improvement this week, the indicator remains above the past few months range, although the record streaks at or below 250K and 300K are still going strong at 111 and 246 weeks, respectively.

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    Given the increase in the seasonally adjusted number over the past two weeks, the moving average has also begun to tick higher, especially given the narrow range it has remained in recently. Rising to 221K, the four-week moving average is also now at its highest level since June's when it reached 222.5K. This was also a slight increase, 0.25K, from the same week last year.

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    Turning to the non-seasonally adjusted data, jobless claims actually fell to 226.4K from 239K last week. That is a bit of a break from the seasonal trend higher towards the year's highs around this time of year. This week's reading was down year over year as NSA claims sit well below the average of 335.1K for the current week of the year since 2000.

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    Continuing claims were also a disappointment in labor data today as they rose to 1695K compared to estimates predicting no change at 1683K. As with initial claims, last week's number was also revised higher to 1693K. Yet another parallel with initial jobless claims, continuing claims have been fairly flat over the past year. As shown in the second chart below, the year-over-year change in continuing claims can no longer boast the same strength that it has since the start of the cycle. In the final week of September, continuing claims experienced their first year-over-year increase since 2010 when claims were still recovering from the last recession. Since then, claims have seen seven consecutive weeks rising versus last year.

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  12. bigbear0083

    bigbear0083 Content Manager
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    Bulls No Longer in Charge
    Thu, Nov 21, 2019

    As the S&P 500 has pulled off of its record highs in the past week, investors have been more hesitant to label themselves as bulls. This week's survey of individual investor sentiment from AAII saw 34.24% of investors responding as bullish compared to 40.72% last week. This was the biggest one week decline since an 8 percentage point drop in the first week of October. After spending two weeks above it, this decline has also brought bullish sentiment back below its historical average. Additionally, this is the first time in two weeks that bullish sentiment was not the predominant sentiment level. Despite this, the bull-bear spread is still in favor of bulls by 5.21 percentage points as has been the case for the past six weeks.

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    Although the bull-bear spread still leans positive, it has been narrowing over the past couple of weeks. This is on account of bullish sentiment pulling back with those losses going to the bears. Bearish sentiment is now at 29.03%, up from 24.82% last week. Bearish sentiment is still below (but now close) to its historical average of 30.36% as has been the case for the past five consecutive weeks. This is the longest such streak since a seven-week run ending on May 9th.

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    As mentioned before, bullish sentiment no longer takes the crown for being the predominant sentiment. Instead, the highest share of investors, 36.72%, now consider themselves neutral.

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    Neutral sentiment has been above its historical average for 15 consecutive weeks now. This is just the eighth time in the history of AAII's survey where there has been a streak of 15 weeks or more. Most of these have actually occurred in the current bull market with at least one occurring in each of the past five years except for 2018. Even though the current run is long, previous streaks lasted much longer. The current streak is the longest streak since the one in 2017 that ultimately ended at 25 weeks long. Even that was not the longest streak on record though. That accolade belongs to the 41-week streak that lasted from 2015 through late 2016. In other words, there is a historical precedent for extended streaks of above-average neutral sentiment.

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    Performance following past streaks once they reach 15 weeks has leaned on the weaker side with underperformance one month, three months, and six months later. One and three months out the S&P 500 has actually averaged a decline. On the other hand, the next week has typically experienced outperformance as has the next year, albeit to a lesser extent on average.

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  13. bigbear0083

    bigbear0083 Content Manager
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    Huge Underperformance of Consumer Discretionary
    Mon, Nov 25, 2019

    In a post last week, we noted that despite headlines suggesting the strength of the consumer, Consumer Discretionary stocks have been lagging the market in a major way recently. Another way to illustrate underperfromance is in the rolling 20-day performance of the S&P 500 versus the Consumer Discretionary sector. As of last week, for example, the S&P 500 was up 4.1% over the trailing 20-trading days whereas the Consumer Discretionary sector was down over 1%. That wide of a performance gap over such a short period of time has been extremely uncommon in the last ten years. In fact, it has been non-existent.

    The chart below shows the rolling 20-day performance spread between the S&P 500 Consumer Discretionary sector and the S&P 500. Last week's nosedive in this reading took it below -5% for the first time since coming out of the recession in May 2009! Besides the fact that we haven't seen a reading this low in so long, we would note that prior to 2009, these periods of short-term underperformance (and outperformance as well) were a lot more common, occurring every couple of years. During the last recession alone, for example, there were at least four periods to both the downside and upside where the spread was wider than +/-5%. These wide performance disparities don't only happen during recessions either. During the 1990s, there were multiple occurrences to both the upside and downside. Want to see Bespoke's most actionable insights in real-time?

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  14. bigbear0083

    bigbear0083 Content Manager
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    Consumer Confidence Drops Again
    Tue, Nov 26, 2019

    While the magnitude of the decline hasn't been particularly large, Consumer Confidence dropped for the fourth straight month in November, in what is now tied for the longest monthly losing streak of the entire expansion. The only other streak since the end of the last recession that was as long was from March through June 2012. Not only did the headline index decline in November, but it also came in weaker than expected. While economists were expecting the Conference Board's headline index of Consumer Confidence to rise to 127.0, the actual reading came in at 125.5.

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    Breaking out this month's report by Present Situation and Expectations, these two indices actually moved in opposite directions with Expectations rising to 94.5 while the Present Situation index moved down to 173.5.

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    Even with both indices moving in the opposite direction, the spread between the two remains extremely elevated. The only period besides the current one where the spread was wider came in the late 1990s and early 2000s leading up to and during the dot.com bust.

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    We also closely track the percentage of consumers who think jobs are plentiful. November's reading of 44.8 remains relatively high, but we have really started to see some volatility in this reading over the last few months which is unlike the pattern of the last several years.

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    Where we have really started to see volatility, though, is in confidence levels by age. Over the last few months, confidence among consumers under the age of 35 has been all over the map. After a two-month increase of 32.3% in August, confidence has declined 23% over the last two months. The result of these swings is that just two months after confidence among consumers under the age of 35 hit the highest level since at least 1980, it has now cratered down to its lowest level since May 2016! Those swings are dramatic enough, but the fact that they have occurred during a period when sentiment readings among other age cohorts haven't seen moves even remotely as large is a bit confusing.

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    Finally, the chart below shows the historical spread in confidence between young (under 35) and older (over 55) consumers. Because of the extreme volatility in the confidence reading for younger consumers, the spread between the two age cohorts is now at a record low. Traditionally, it has always been young Americans who have been the most optimistic as they have their entire lives and careers ahead of them. In the last few years, though, younger consumers have become much more downbeat relative to their older peers. For all the blame on boomers for everything wrong in this country, when it comes to confidence, they're pulling their weight.

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  15. bigbear0083

    bigbear0083 Content Manager
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    Manufacturing ISM-iserable
    Mon, Dec 2, 2019

    Manufacturing activity contracted more than expected last month as the ISM Manufacturing report for November came in weaker than expected. While economists were expecting the headline index to come in at a level of 49.2, the actual reading was 48.1, which was a slight decline from October's reading of 48.3. While November's reading didn't mark a new short-term low for the ISM Manufacturing index, it's not far from September's low of 47.8.

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    Breadth in this month's report was also weak. Of the report's ten subcomponents, six declined on a m/m basis while four increased, but all but one are still in contraction territory for the fourth straight month, which is a trend we haven't seen since late 2008/early 2009. The biggest increases this month were in Imports and Production, while Inventories showed the largest declines. Looking at the changes in each component relative to last year at this time, though, shows how quickly conditions have changed as all but one (Customer Inventories) are down on a y/y basis.

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    Two charts we wanted to highlight individually are Employment and Prices Paid. In the case of Employment, that component dropped to 46.6, which is still modestly above the recent low of 46.3 in September. Even still, this doesn't bode particularly well for Friday's employment report. More important to watch, though, will be the ISM Services report on Wednesday.

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    Similar to Employment, Prices Paid also turned back lower this month and is right near its recent lows. This indicator serves as a reminder that inflation readings are still showing no signs of accelerating to the upside. That coupled with the fact that the Fed has suggested on multiple occasions that it is willing to remain on hold until well after inflation rates reach or exceed their target levels indicates that any rate hikes by the FOMC are a way off.

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  16. bigbear0083

    bigbear0083 Content Manager
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    ISM Services Weaker Than Expected
    Wed, Dec 4, 2019

    It hasn't been a great day for US economic data. Less than two hours after the ADP Private Payrolls report missed expectations by around 75K, the November reading in the ISM Services index came in weaker than expected, falling from 54.7 down to 53.9 and below consensus forecasts for a reading of 54.5. Combining this morning's report with the ISM Manufacturing report from Monday and accounting for each sector's weight in the overall economy, the November ISM fell from 54.0 down to 53.3.

    [​IMG]

    Looking at the internals of this month's report, the m/m readings were mixed, while the y/y readings were all lower. Relative to October, more components actually saw increases (5) than declines (3), while two were unchanged. Furthermore, we didn't see any increase in the number of components in contraction mode (below 50). On a y/y basis, not only is every component lower versus last year at this time, but they are down pretty significantly with an average decline of 6.2 points.

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    The biggest decliner of them all on a y/y basis is Business Activity. Back in February, this component climbed to its highest level since August 2005. Now, just nine months later, it's down to its lowest level since December 2009. From a 14-year high to a 10-year low in just nine months. Pretty quick turnaround.

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    Behind Business Activity, the Imports component of the ISM Services report has also seen a large pullback. After falling from 48.5 down to 45.0, this component is now at its weakest reading since July 2012.

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    One bright spot in this month's report, especially with the November Non-Farm Payrolls report coming up on Friday, was the Employment component. With an increase from 53.7 up to 55.5, it saw the largest two-month gain since January 2018.

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  17. bigbear0083

    bigbear0083 Content Manager
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    Less Optimistic But Not Pessimistic
    Thu, Dec 5, 2019

    As equities have pulled off of their highs, so too has sentiment which has continued to shift more negative in the three weeks since its recent peak of 40.7%. This week marked a third consecutive week with a decline for AAII's bullish sentiment reading. Now at 31.72%, it is the lowest level since October 10th when it had fallen to a much lower level of 20.31%. For reference, that was the lowest bullish sentiment reading since May of 2016. This week also marked the seventeenth week in a row that bullish sentiment has been below its historical average. That is the longest such streak since the one ending at 25 weeks in October of 2017. While bullish sentiment has been restrained, levels haven't been extreme as we're still within one standard deviation of the historical average.

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    Another survey determining investor optimism, the Investors Intelligence survey also showed a decline in bullish sentiment this week with 54.8% of respondents reporting as bullish. That is down from the 13-month high of 58.1% from last week. Meanwhile, the survey's reading on bearish sentiment ticked up to 17.3% and the percentage of respondents looking for a correction rose to 27.9%. Although higher, both of these are only the highest since late October/early November.

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    While investors have been less bullish, they are not becoming increasingly bearish either. Unlike the Investors Intelligence survey's slight increase, the percentage of respondents reporting as bearish in AAII's survey actually fell this week down to 29.13% from 30.28% the prior week. That is the first decline after three consecutive increases, brining it right around the historical average of 30.36%.

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    As investors failed to take a bullish or bearish stance, neutral sentiment was the major mover this week rising to 39.16%. The 3.07 percentage point increase was the largest since mid-September as the indicator is back near the upper end of the past year's range.

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