Slight Dip In Consumer Confidence Tue, Oct 27, 2020 Consumer Confidence for the month of October was released earlier today and showed a slight dip relative to September. The headline index dropped from 101.3 down to 100.9 compared to expectations for a reading of 102.0. Given the rising number of cases and the upcoming election, it's not too surprising to see confidence come in a bit, so a decline of this magnitude isn't all that concerning. What is notable, though, is that even though Consumer Confidence remains right near post-COVID highs, it hasn't bounced all that much off its lows. Breaking out this month's report by the sentiment of consumers towards both how they feel now and what they expect in the future, the Present Situation Index rose from 98.9 up to 104.6 while the Expectations component dropped from 102.9 down to 98.4. The drop in the Expectations component of this month's report looks like it's a partial reflection of growing uncertainty regarding COVID and the election as we head into the colder months of November and December. In looking at the spread between Present Conditions and Expectations, it moved back into positive territory this month after dropping deeply into negative territory earlier this year. What's interesting to note about current levels is that in every prior recession since the late 1960s, by the time the spread moved back into positive territory after turning negative, the recession was already well in the rearview mirror. Sentiment towards jobs also suggests a relatively positive trend. At the current level of 26.5, the Jobs Plentiful index is still far from its 40+ reading before COVID, but it did increase again in October as it has now done in four of the last five months. While it's by no means a strong reading at current levels, it hasn't been getting worse either. Looking at past recessions, it wasn't until well after the recession ended that the Jobs Plentiful index started to rebound.
Industrials Malfunction Wed, Oct 28, 2020 With poorly received earnings reports from 3M (MMM) and Caterpillar (CAT) and general weakness overall, Tuesday was just a bad day for the Industrials sector. Just five stocks in the sector were up on the day and the sector overall was down 2.2% compared to the S&P 500 which was down just 0.3%. The chart below shows the daily performance spread between the S&P 500 and the Industrials sector over the last year. Positive readings indicate the S&P 500 outperforming the Industrials sector and negative readings indicate that the Industrials sector outperformed the S&P 500. With the S&P 500 outperforming the Industrials sector by 1.88 percentage points on Tuesday, it was the widest performance gap (in the S&P 500's favor) since 9/21. Even more notable, though, was the fact that there have only been three other days in the last year where the Industrials sector underperformed the S&P 500 by a wider margin. For the sector as a whole, it currently finds itself in a precarious position. After breaking its uptrend off the March lows on 9/21, the Industrials sector bounced back and rallied back to its former uptrend line, and while it just recently made a post-COVID high, the rally ran out of steam right at the former uptrend line. In the pullback that has followed, the sector closed yesterday right at a secondary line of support from the June lows. If this level doesn't hold through today's close, the technical picture for the sector will look a lot different than the way it looked just a few weeks ago.
More Pain for European Stocks Wed, Oct 28, 2020 Looking across the various regions tracked in our Trend Analyzer tool, broadly speaking equities are lower over the past week, but some of the worst performance comes from across the pond in Europe. As shown, the ETFs tracking European equities are all down the most over the past five days through yesterday's close. That leaves each one over 2 standard deviations below their 50-DMAs. On a year to date basis, these have similarly been serial underperformers along with the Latin America 40 ETF (ILF). Taking a more granular look at specific European countries, in the charts below we show the ETFs tracking the equity markets of each of the European countries in our Global Macro Dashboard as well as an ETF tracking European equities more broadly: the iShares Europe ETF (IEV). As shown, whereas the region was already weak headed into today's session, the pain has only gotten worse this morning. So far today, these 10 ETFs are down an average of around 4% as the region experiences an upswing in COVID cases and reinstating of lockdowns in places like Germany and France. From a technical perspective, today's big drops are not doing these country ETFs any favors. Most of these ETFs have been trading sideways over the past few months, and today's sharp turn lower is marking breaks of various support levels. For some like Sweden (EWD), it is a break below the 50-DMA while others like Germany (EWG) are falling below their longer term 200-DMAs. Other country ETFs such as Spain (EWP) and Russia (ERUS) have been trading under their moving averages for some time now, but today's decline has broken additional support that was formed from prior lows.
All or Nothing Days Back on the Rise Wed, Oct 28, 2020 The S&P 500's A/D line for the day (number of advancing stocks minus number of declining stocks) currently stands at about -460, which would be the weakest one-day reading since June. Today's A/D reading also is notable in that it represents the tenth 'all or nothing' day for the S&P 500 since the index's last peak on 9/2. We consider 'all or nothing' days to be those days where the S&P 500's daily A/D reading is either above +400 or below -400. To put the frequency of 'all or nothing' days into perspective, while there have been ten in the last forty trading days, in the forty trading days before that there weren't any. The chart below shows the percentage of 'all or nothing' days on a 50-day rolling basis. The current pace of 20% is still well off the extraordinary level of 44% we saw back in late April/early May, but it is still relatively high. Including today, there have now been 41 'all or nothing' days so far in 2020. If the current pace for the entire year keeps up that will put us on pace for fifty days this year. If the current pace keeps up and we do reach 50 'all or nothing' days this year, it will be the third-highest annual total behind 2011 (70) and 2008 (52), but even if there isn't another 'all or nothing' day this year, 2020 would still rank fifth behind the years from 2008 through 2011.
Earnings and Economics Diverge Wed, Oct 28, 2020 This earnings season, we have frequently mentioned how beat rates have continued to rise relentlessly. From our Earnings Explorer database, our 3-month rolling EPS beat rate currently stands at a record high of 78.19%. That is nearly 20 percentage points higher than the historical average of 59.37%. The sales beat rate is not at a record, but it too is elevated at 69.09% versus the historical average of 56.45%. That means that of the companies that have reported earnings over the past three months, a massive proportion are exceeding consensus sales and EPS estimates. While earnings beat rates have continued to grind higher, economic data is another story. The Citi Economic Surprise Index basically tracks macroeconomic data and how it comes in relative to forecasts. Higher readings indicate the data is trending stronger than expected and vice versa for negative readings. With the unprecedented shock to macroeconomic data in 2020, this index for the United States plummeted, but that was followed by a sharp rebound to record highs. Although the index for the US remains higher than anything prior to the pandemic, it has been heading lower since the summer. In other words, economic data is still coming in better than expected but is not massively exceeding expectations to the degree it was back in the spring and early summer. The two charts below compare EPS and revenue beat rates to the Citi Economic Surprise Index. Comparing the two series to the Citi Economic Surprise Index shows that while EPS beat rate has been somewhat connected (correlation: +0.325)) there is very little in the way of correlation between the Surprise Index and the revenue beat rate (+0.084). Given that EPS figures are typically easier to massage than revenues, that was a bit of a surprise. What is notable about the recent decline in the Citi Economic Surprise Index is that in prior periods where it became elevated and then pulled back as it did in (2003, 2009, and 2018), the EPS beat rate typically didn't peak and start to trend lower for another few months.
Services Dip Wed, Nov 4, 2020 Whereas Monday's manufacturing release of the ISM report for the month of October exceeded estimates and continued to rise to new highs for the pandemic, this morning's service sector report was weaker. The release was anticipated to show a slight decline, falling to 57.5 from 57.8 last month. Instead, that decline was even larger with the headline number dropping to 56.6. That is the lowest level of the index since May, and while it is still indicative of expansionary activity, it was at the slowest rate of the recovery. That has led the composite of the manufacturing and non-manufacturing readings to similarly be a bit on the weak side, falling from 57.5 to 56.9. Again this is consistent with overall growth versus last month, but at a slower rate. Given the headline number's decline, breadth in this month's report was a bit weak. Just six of the ten sub-indices were higher this month. Despite this, every index remains in expansion with those for Inventories and Import Orders actually exiting contraction. Broadly speaking, the survey showed that conditions have continued to improve but at a slowed pace in October. Given this, the key phrase of the commentary section seemed to be "cautiously optimistic". Multiple comments made mention that business has gotten better with solid demand and workers coming back, but uncertainty has persisted. New Orders have continued to grow, but at a slowed pace as the corresponding index fell 2.7 points to 58.8 in October. Unlike the same index for the manufacturing survey which is at multiyear highs, the services index for new orders is in the middle of its historical range. On the other hand, given orders have continued to rise, backlogs have also continued to rise. The index for Backlog Orders rose 4.3 points to 54.4 which is the highest level since the summer. As demand sits at solid levels, Inventory Sentiment remains historically low. That index fell to 51.1 in October which is the third-lowest level since 1997 behind July and March. In other words, very few businesses are reporting that inventories are too high. Despite this, the index for Inventories actually indicated that inventory levels grew in October as the index rose to 53.1. That compares to a reading of 48.8 last month which is consistent with drawdowns in inventory levels. Employment experienced its first expansionary reading of the pandemic in September, but in October hiring appeared to slow as the index fell to 50.1. Although that is still indicative of net hirings, it shows that businesses were slower to bring in/back workers.
Extended Benefits Expand Thu, Nov 5, 2020 Initial jobless claims for the final week of October came in at another pandemic low at 751K. That would have been unchanged from the previous week's number, but that was revised up 7K to 758K. Regardless of that revision higher, initial claims have declined for three straight weeks although the pace of decline has been slowing. Given this week's decline was comparably small to recent weeks, this morning's release did miss estimates calling for a level of 735K. On a non-seasonally adjusted basis, initial claims were pretty flat only falling 0.5K to 738.2K. That established a slightly lower post-pandemic low and marked the 14th consecutive week that initial claims have come in below 1 million. Continuing claims data is released at a one week lag to initial claims, and last week's sizable decline led continuing claims to also reach a new low for the pandemic. At 7.285 million, it was still above estimates of 7.2 million. Continuing claims have now fallen for 7 of the past 8 weeks, and the one week where they didn't drop, they were unchanged. Including Pandemic Unemployment Assistance (PUA) to get a more complete picture, the declines in regular state initial claims have been slightly offset by rising PUA claims. Total initial claims (PUA plus regular state claims) were up this week from 1.098 million to 1.101 million meaning claims continue to hover around 1.1 million as has been the case over the past month. Whereas regular state claims have fallen for three straight weeks with a total decline of 91.5K, PUA claims have risen for three straight weeks totaling 25.66K. Although inflows to the unemployment insurance system have been stable at around 1.1. million, on net, the number of people receiving benefits has continued to fall. In the charts below, we show the total count (in millions) of continuing claims across all programs. The data is lagged yet another additional week to regular state claims. As of the week of October 16, total continuing claims reached 21.6 million which is the lowest level in seven months. Claims have now fallen in seven of the last eight weeks with regular state claims and PUA claims (the two largest contributors) driving those declines. On the other hand, extended benefit programs for those who have seen their insurance expire like Pandemic Emergency Unemployment Compensation and regular state extended benefits have been on the rise. These two measures are at new highs in terms of both the number of claims and their share of total claims. That means that despite an overall improvement in the number of people on unemployment, there is a growing share that have been unemployed for an extended period of time.
One Sentiment Survey Soars While Another Sinks Thu, Nov 5, 2020 In an earlier post, we discussed how bullish sentiment in the AAII survey has been on the rise, but looking at another weekly sentiment survey from Investors Intelligence, the opposite is true. The percentage of respondents reporting as bullish fell sharply this week, 7 percentage points, down to 53.6%. While a majority are still optimistic and that reading is in the middle of its range, that was the largest weekly decline since a 7.4 percentage point decline to 41.7% in the first week of March. Meanwhile, the percentage of newsletter writers that are "looking for a correction" rose sharply to 25.8% this week following last week's over 5% decline for the S&P 500. The Investors Intelligence survey has a long history dating back to 1963, and in all weeks in that time, only 5% (174 weeks) have seen bullish sentiment fall 5 percentage points or more while the percentage of respondents looking for a correction has risen at least 5 percentage points in the same week. In the chart below, we show the average performance of the S&P 500 following these past occurrences when there has not been another in the prior 3 months. The S&P 500 has frequently been higher over the following weeks and months, but there is a slight underperformance relative to all periods since 1963 when the survey begins.
The Biggest Winners Are Still Big Losers Mon, Nov 9, 2020 With household names like Carnival (CCL), Wynn Resorts (WYNN), Simon Property (SPG), and Royal Caribbean (RCL) all up over 20% today, more than a few people out there are probably kicking themselves for not owning any of them. But before you start ripping your hair out, keep in mind that just about all of these stocks are down (and in a big way) on the year. Of the 33 stocks in the S&P 500 that are up over 20% following today’s vaccine news, all but one of them are still down year to date. The only exception is Expedia (EXPE), which even after a 20%+ gain is still up just 18% on the year. In terms of sector representation, Energy tops the list with more than a third of the names (12) on the list. Behind Energy, Real Estate (8), Consumer Discretionary (6), and Financials (6) are the only other sectors with multiple stocks listed. Just as the best-performing stocks are all still underperforming the S&P 500 on a year to date basis, the biggest losers today are among the year’s biggest winners. There are 25 stocks in the S&P 500 that were down on the day as of the middle of the afternoon, but the only one that is down on the year is Biogen (BIIB), a stock whose decline has nothing to do with the vaccine news. Including BIIB, the 25 biggest losers are still up an average of 41% YTD (median: 31%). Behind BIIB, the two worst-performing stocks in the S&P 500 today are Pool (POOL) and Etsy (ETSY). Both stocks are down over 10% on the day, but for the year are still holding onto gains of 56.4% and 190.5%, respectively.
Policy Uncertainty Spiked Into the Election Tue, Nov 10, 2020 For the month of October, the NFIB's reading on small business sentiment was unchanged at the headline levels but many of the sub-indices broadly pointed to further improvements in business conditions. That is not to say small businesses do not have their share of concerns. As shown in the chart below, the NFIB's index on Economic Policy Uncertainty rose another 4 points in October to 98 which is the second-highest reading on record behind November of 2016; around the time of the last presidential election. The election played a role in the uncertainty as 31% of small businesses surveyed reported government-related concerns as their biggest problem in October (lower chart). That was up for the second month in a row and is around the high end of the past couple of year's range. Additionally, as discussed earlier, labor also dominates the minds of small businesses as small businesses report struggles in filling roles. 30% reported cost or quality of labor as the single most important problem (top chart). That is unchanged since August. As for the other problems, poor sales remain elevated but were improved again in October dropping one percentage point to 13%.
Big Tech Fades and Small Caps Soar Pfizer’s announcement that its vaccine for covid-19 appears to be 90% effective on Monday morning also gave new life to small-cap stocks, many of which have struggled throughout the pandemic. The announcement has also triggered an exodus from mega-cap tech stocks that had been the “go-to” positions throughout most of the pandemic. The chart above is based upon a similar chart from page 112 of the Stock Trader’s Almanac 2020. It shows the typical one-year seasonal pattern of the ratio of the Russell 2000 to the Russell 1000 from July through June (scale on right). Overlaid on top of this pattern is the performance of this ratio in 2020 so far through today’s close (left scale). When the ratio is declining, large-cap stocks are outperforming small cap stocks. When the ratio is climbing, small caps are outperforming. In a typical year, small-caps will lag until around late-September or early October and then take off right around mid-December. Covid-19 related shutdowns and unemployment had kept small caps essentially sidelined this year. There were bouts of strength in late-July to mid-August and a brief surge in mid-September and again in early October. The recent surge higher could be an early start to the major move higher that typically begins around mid-December.
B.I.G. Tips - Retail Sales Slow Tue, Nov 17, 2020 The October Retail Sales report missed expectations this morning on both a headline and core basis. In addition to the weaker than expected reading for October, September's report was also revised lower. Breadth in this month’s report was also negative for the first time since April. Of the thirteen sectors tracked in the report, just five showed growth while eight declined. On the positive side, Non-Store retail was the main bright spot with m/m growth of 3.11%. That’s the last thing every traditional retailer wants to hear and could be indicative of another wave of retrenchment on the part of consumers as the weather gets colder and case counts rise. Electronics and Appliances also reported strong sales growth likely aided by the launch of the iPhone 12. On the downside, Clothing and Sporting Goods both saw m/m declines of over 4%, while sales at General Merchandise retailers dropped 1.1%. While the monthly pace of retail sales is back at all-time highs, the characteristics behind the total level of sales have changed markedly in the post COVID world. In our just-released B.I.G. Tips report, we looked at these changing dynamics to highlight the groups that have been the biggest winners and losers from the shifts.
Richmond Manufacturing Taking a Rest Tue, Nov 24, 2020 After a record high of 29 last month, the Richmond Fed's monthly reading on the manufacturing sector was expected to decline. Rather than the drop to 20 that was forecasted, this month's decline left the index even lower at 15. The 14-point month-over-month decline is the largest since the spring and tied January of 1999 and April of 2004 for the sixth-largest monthly decline in the index's history. Considering that historically large decline is coming off the record high, though, the November reading is still consistent with further improvements in the district's manufacturing sector just at a decelerated rate from October. Given the large decline in the headline index experienced, breadth in this month's report was notably weak. Across the 17 different sub-indices, all but four turned lower this month. As shown in the table below, similar to the composite reading, some of those declines were in the bottom 5% of all month over month changes on record for those respective indices. Granted, for several indices, those large declines come from historically elevated levels. As for those indices that managed to avoid a decline, Service Expenditures went unchanged, Raw Material Inventory declines decelerated, and prices paid and received both rose. Again though, the bulk of these readings were still indicative of expansionary activity but at a slower rate than the prior month. While current conditions broadly showed deceleration, expectations were more optimistic. There were still a handful of indices for future expectations that declined this month—with those for Finished Good Inventories, Wages, and Availability of Skills the most significant decliners—but generally speaking outlook has continued to improve. While still consistent with gains in new orders, the growth rate moderated significantly in November as the index dropped 20 points from a near-record high of 32 down to 12. Whereas the decline in November resulted in most other indices staying at the high end of their historical ranges, new orders is less elevated from a historical perspective only in the 73rd percentile. Similarly, the backlog of orders continues to grow but at a slower rate. Granted, the deceleration of order backlogs was much smaller than new orders in November as the index only dropped 3 points down to 11 which is still in the upper decile of all readings. Given orders are still growing, inventories continue to be drawn upon at a rapid rate. In terms of raw material inventories, this month saw a contraction for just a fourth time in the history of the survey. Three of those contractionary readings have come from the past three months with last month's reading a record low. Finished good inventories on the other hand are being drawn upon at a more rapid rate. That index fell 5 points this month to a record low of -7. Other than the indices for inventories, those covering expenditures are the other indices that remain at historically low levels. This month saw sizable declines for Capital Expenditures and Equipment and Software Expenditures with the reading of the former consistent with more firms reducing spending rather than increasing. In other words, broadly speaking companies are not increasing spending on capital like they were a few months ago. While that side of the production function has weakened, employment metrics are a bit healthier. As with the rest of the survey this month, these readings were consistent with decelerations, but overall manufacturing firms continue to increase hiring, wages, and workweek while they also report a lack of workers with in-demand skills. Not only are wages rising but so too are Prices Paid and Prices Received with the former outpacing the latter.
Rising COVID-19 Cases Could Pressure the Recovery COVID-19 cases have been rising in several regions around the world, prompting many countries to implement new restrictions to curb the spread of the virus. Governments in a few European countries have rolled out what has been dubbed “lockdown 2.0,” and high-frequency data in the region, highlighted in our blog Europe’s Lockdown 2.0 May Be Smarter, has shown a reduction in economic activity. While new restrictions are more targeted than those used in the spring, economies currently are in a more fragile position and some could even be at risk of a “double-dip” recession. As shown in the LPL Chart of the Day, COVID-19 data in the United States has gotten worse in the fourth quarter. With conditions deteriorating and the weather getting colder, there is a growing risk that more restrictions will be enacted in the United States as well. California and New York have already implemented some initial rollbacks such as nighttime curfews and school closings, while additional measures are being considered elsewhere. The US economy appears to be in a better position to withstand these curbs than it was in the spring, but unemployment remains high at 6.9%, and economic data for service-oriented industries has shown fading momentum in recent months. If the uptick in jobless claims last week is the beginning of a trend, consumer spending may decline, which could affect roughly 70% of the US economy. “The worsening trends in COVID-19 data present a very real risk to an economy that remains on soft ground,” noted LPL Chief Market Strategist Ryan Detrick. “While recent news on vaccine progress has been a welcome development, the actual rollout of a vaccine could take longer than people realize.” Even without new lockdowns, it appears that consumer behavior has already begun to react to the rise in cases, presenting a risk to economic activity regardless of any policy decisions to curb activity. Real-time data series like restaurant bookings through OpenTable have been declining in recent weeks, particularly since the acceleration in new case growth in October. Curiously, however, the stock market appears to be discounting the chances of new lockdowns—or at least the nature of them. As the S&P 500 Index sits near all-time highs, cyclical stocks are outperforming defensives, small caps have outperformed large caps, Treasury yields have been rising, and there’s been a rotation out of the “stay at home” stocks—certainly a very different market environment than we saw leading up to the March volatility. Recent progress on the path forward for a vaccine is a material development for a forward-looking mechanism like the stock market, and this may be what is altering the market’s perception of the risk of additional restrictions. While a double-dip recession is not our base case and we are encouraged by the market’s resilience, the worrisome trend in COVID-19 data may have raised the chances of tripping up the recovery. We’ll continue to monitor real-time data indicators for insight on the path forward for the virus and the economy.
Lone Star Slowing Mon, Nov 30, 2020 The fifth and final regional Fed index for November came out of the Lone Star State today. The index was expected to show expansionary, but decelerating activity in the month of November. The results were just that as the headline number fell from 19.8 in October down to 12 which was a bit weaker than the expected decline to 14.3. Although a slower rate of growth, activity has continued to expand and the index still at some of the highest levels of the past two years. Similar to the other manufacturing reports from the other districts released this month, under the hood things were pretty mixed. All but one index (Finished Good Inventories) has continued to be consistent with further growth, but more than half of those indices declined this month, That means activity has generally continued to expand, but at a slower pace than last month. For some components like New Orders and Production, the deceleration was significant while employment metrics held up better. In November, New Orders continued to grow as the index remained positive at 7.2. While that is still indicative of overall growth in new orders, it also marks a significant deceleration from October when the reading was 19.9. Given this, the index for New Orders Growth Rate likewise fell to 9.7 from 14.3. The indices for Capacity Utilization and Production saw even more dramatic declines. The month over month declines for both indices were in the respective bottom 2.5% of all monthly changes. With Capacity Utilization at 6.9 and Production at 7.2, this month's readings were still indicative of the district's firms increasing output for six months in a row. Even though production overall has continued to pick up, inventories continue to decline at a rapid pace. The index for Finished Good Inventories fell sharply this month, dropping from -1.9 to -14.7. Outside of August's low of -17.3, that is the lowest level since January of 2010. As inventories drawdown at one of the most rapid paces of the past decade, lead times have risen. The index for Delivery Time bounced back in November after a decline in October. At 12.2, the index is now at the highest level since the summer of 2018. That is also nearly in the top 5% of all readings in the survey's history.
Services Slowing Thu, Dec 3, 2020 Just like the reading on manufacturing earlier this week, the ISM's Non-Manufacturing survey showed overall growth in November, albeit at a slower rate. The headline reading for the services index beat expectations (55.9 vs 55.8 expected) but still came in below last month's level of 56.6. That is a sixth consecutive month of expansionary readings (readings above 50 indicate growth/below 50 indicate contraction) although the reading for November was the lowest of those six months. The same applies to the composite of the manufacturing and services which fell from 56.9 to 56.1. Looking across each of the individual indices of the report also resembled the manufacturing report. While most components continue to be consistent with further growth, November did see some slowing across a range of indicators. The improvements in business activity have considerably moderated over the past few months. After a near-record high reading back in July, this index has fallen every month except for in September. At 58, the index is around levels similar to just before the pandemic began earlier this year. A slowdown in orders likely plays a role in this as the index for New Orders similarly sits in the middle of its historical range following a 1.6 point decline to 57.2 in November. While that is still indicative of new orders growth, it would be the slowest growth since August. Export order growth slowed in November as that index fell to a barely expansionary reading of 50.4. While orders from outside the US were a bit weak, the index for imports rose to 55 which is the strongest level since January of this year (55.1). One important thing to note with these indices, though, is less than half of survey respondents report that they do not use or track imports/exports (only 29% for exports and 37% for imports). In other words, these readings only apply to a smaller sample of responding firms. The continued growth in new orders has resulted in smaller inventories. For only the second time in the index's history (the other instance being March of this year), the index for Inventory Sentiment came in below 50. That indicates a larger share of companies are reporting that inventories are too low rather than too high. As a result, the index for Inventories showed a contractionary reading of 49.3. That is not any sort of extreme reading but again points to declining inventories. Stronger demand has filtered through to lower inventories which has, in turn, resulted in higher prices. The index for prices paid rose to 66.1 from 63.9 in October. That points to prices growing at their fastest pace since February of 2013. Staying on the topic of prices, with housing flying high, prices for construction contractors and construction supplies like lumber, PVC, and steel have all been on the rise as they remain in short supply. Outside of construction contractors, labor, in general, was cited as in short supply. That is consistent with some commentary concerning employment in Monday's manufacturing release. But unlike Monday's report in which the employment component fell to a contractionary reading, the services employment index showed a third straight expansionary reading at 51.5. Additionally, as COVID has made a resurgence in the past few months, PPE and other related products continue to be cited as some of the commodities seeing price increases. For PPE this month saw a 10th month in a row that these products were in short supply with higher prices. The commentary section reaffirms the COVID ressurgence impact. Quotes from various industries stated how higher infection rates have had negative impacts.
The two-thousand publicly traded companies which represent "small capitalization" firms in the U.S. are now collectively worth 11.4% more than they were at their pre-covid all-time highs in January, and worth 20% more than they were a month ago before the spike in covid cases and renewed lockdowns..
Claims Back on the Rise Thu, Dec 10, 2020 Over the past few weeks, initial jobless claims have seen a subtle drift higher though last week saw a return back towards the lows of the pandemic. This week the rise in claims resumed. Claims were expected to rise once again from 712K up to 725K, but the increase was far larger than expected with an increase to 853K. Last week's print was also revised up by 4K to 716K. Back above 850K, this week's initial jobless claims number was the highest since the week of September 18th. Meanwhile, the week over week increase of 137K was even more notable. Topping the 133K increase from mid-August, it was the largest uptick since the 3.56 million spike back in the last week of March. Taking a deeper dive into the numbers, a week over week increase in claims could be observed across a vast majority of the nation as the only states and territories to report declines were Alabama, Louisiana, Kentucky, Michigan, Oregon, and the Virgin Islands. The states that reported the largest increases include some of the most populous like California (+47.454K), Illinois (+31.468K), Texas (+19.871K), and New York (+17.528K). Again, they are some of the most populated states, but these four together accounted for more than half of the nation's overall increase. On a non-seasonally adjusted basis, the number was even higher at 947.5K. As we have been highlighting over the past couple of months, a seasonal drift higher is the norm for this time of year. For example, historically, the current week of the year (49th week) has seen claims rise WoW 81.5% of the time with the average size of that increase 82.15K, but this week's increase was far larger at 229K. That brings claims to the highest level since the final week of July while the WoW uptick was the largest since the massive increases in March. With the addition of the Pandemic Unemployment Assistance (PUA) program, on a combined basis, claims are still at their highest level since the week of September 18th, totaling 1.375 million this week versus 1.443 million back in September. Both regular state claims and PUA claims experienced significant upticks. For PUA claims, the 139.38K increase week over week was the largest increase since a 140.19K climb during the last week of August. In other words, the significant rise in claims this week has been geographically broad and across multiple programs. Given continuing claims are lagged an additional week, that surge in initial claims is unrepresented in the most recent continuing claims print. Despite this, the number for regular state claims for the final week of November nonetheless was disappointing. Seasonally adjusted continuing claims rose to 5.757 million from 5.52 million. That was also worse than the expected decline to 5.21 million. While higher, continuing claims are not at any sort of multi-month high like initial claims. This week's print of 5.757 million is actually still below the 6+ million levels from just two weeks prior. So while claims disappointed, they were still at healthier levels than the past several months. Including continuing claims across all programs adds yet another week's lag to the data meaning the most recent data is through the week of November 20th and again would not reflect the most recent uptick in initial claims. For the first time since the early days of the pandemic (the week of April 17th), claims across all programs fell below 20 million. Regular state claims (-683K) and PUA claims (-313.7K) drove the bulk of the decline, but every other program also fell. Programs for extensions like PEUC claims and Extended Benefits both improved on the week, but were still above levels from the week prior. As a result of the moves, extension programs' share of total continuing claims continued to rise through the week of November 20th. PEUC and Extended Benefits together accounted for 27% of total continuing claims, a pandemic high.
Is Inflation Looming? The November reading for the Consumer Price Index (CPI), the most well-known measure of inflation, was released Thursday, December 10, and while both the headline and “core” readings (excluding food and energy) came in slightly higher than the Bloomberg-surveyed economists’ consensus, core inflation remains tame at 1.6% over the trailing year. Inflation is likely to pick up as the economy improves and may run a little hotter than we’ve seen in recent years in 2021, but we believe the risks of a substantial inflation surprise over the next year is limited. “Congress and the Fed provided massive stimulus this year and it seems like that should be inflationary,” said LPL Chief Market Strategist Ryan Detrick, “but it’s important to remember that the stimulus was there to fill a giant hole from lost wages and an economy running well below its potential.” As shown in today’s LPL Chart of the Day, core inflation on a trailing-year basis still has some catching up to do, although the one-month reading is now largely consistent with pre-Covid levels. inflation over the last decade has remained subdued and largely steady.
VIX Run Above 20 Tops 200 Days Tue, Dec 15, 2020 With today's close, the VIX has now stuck above 20 for 207 trading days and counting. That marks the fourth-longest streak since the inception of the volatility index, and is approaching the late-1990s and early-2000s record runs. The index was above 20 for 239 trading days through the end of June 1999, and 236 trading days through May 8th, 2003. Of course, from 2008 to December 21st of 2009, the VIX was over 20 for 331 trading days (more than a year). Surprisingly, the current VIX streak has had an average reading higher than the two longer streaks in 1999 and 2003. The average 32.0 reading over its course so far is second only to the streak recorded over the global financial crisis. It's also interesting to note that at this stage in the streak (207 trading days), the current run has a higher reading than the three streaks which actually lasted longer.
