B.I.G. Tips - Wretched Retail Sales Wed, Dec 16, 2020 If Congress was looking for any evidence that additional relief for Americans was needed, the November Retail Sales report should provide some ammunition. At the headline level, Retail Sales fell 1.1%, which was nearly four times the decline of consensus forecasts. Stripping out Autos and Gas, the numbers were just as bad. As if that wasn’t enough, October’s report was also revised significantly lower dropping from a gain of 0.3% at the headline level to a decline of 0.1%. Adding it all together, Retail Sales for November were 1.5% lower than what was originally reported in October’s report. Breadth in this month’s report was also weak. Of the thirteen sectors that comprise the total pie, all but three of them were lower on the month. If you were expecting a new sweater this Christmas, don’t hold your breath as sales of Clothing were down close to 7%. Other big decliners included Bars & Restaurants (-3.99%) and Electronics & Appliances (-3.49%). With more cities imposing restrictions on activity, sales at Gas Stations also declined 2.41%. Were it not for the historic declines we saw earlier this year, drops of this magnitude would be considered pretty steep, but after the COVID shutdowns, nothing is a surprise anymore. Not every aspect of the Retail Sales report was weak, though. Bright spots included Food & Beverage Stores, Building Materials, and Online– all sectors you would expect to see hold up well as Americans hunker down. 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.
Another Disappointment From Jobless Claims Thu, Dec 17, 2020 After last week's larger than expected 146K increase in jobless claims, economists were expecting to see an improvement this week with claims falling back down to 818K. Instead, claims unexpectedly moved even higher rising to 885K. That is the highest print for initial claims since the first week of September's reading of 893K. Claims are now up around 169K in the past two weeks, the largest increase since the start of the pandemic. On a non-seasonally adjusted basis, the picture was slightly better. Unadjusted claims were actually slightly lower week over week falling down to 935.1K from 956.5K. Granted, that reading is still elevated at one of the highest levels since late July. Additionally, the current week of the year has typically seen a move lower; in all years since 1967, the 50th week of the year has seen a week over week decline 89% of the time averaging a 40K drop. That means the improvement in the unadjusted number could, to a degree, be chalked up to seasonality. While unadjusted regular state claims fell, the inclusion of other programs like Pandemic Unemployment Assistance (PUA) worsens the overall picture. Total claims between the two programs rose to 1.390 million from 1.371 million last week which is the highest level of claims since the week of September 18th. Obviously, PUA claims drove that increase as they rose to 40K WoW to 455K. Like total claims, that is the highest print for PUA claims since September. Despite last week's massive increase in initial claims, continuing claims for the week of December 4th (lagged one week to the initial claims data) resumed its move lower falling to 5.508 million. That reversed the prior week's (November 27th) uptick to 5.781 million, surpassing the pandemic low of 5.527 million from the week of November 20th in the process. Including all programs adds yet another week of lag meaning the most recent data for all programs is for the last week of November; the same week as the previously mentioned uptick. During that week, not only did regular state programs see a significant increase, but so too did PUA claims which rose back above 9 million. That was as extension programs like Pandemic Emergency Compensation (PEUC) and Extended Benefits also rose to new respective pandemic highs. These programs also continue to account for more than a quarter of total claims. In other words, the uptick in the final week of November was broad across programs resulting in the sum of all programs to rise back above 20 million after just a week below that level.
Philadelphia Manufacturing Hitting the Breaks Thu, Dec 17, 2020 This morning, the Philadelphia Fed released its monthly reading on the region's manufacturing sector. The headline index fell to 11.1, which was the second monthly decline in a row and larger than consensus expectations for a drop to 20. While the still positive number indicates further growth in the region's manufacturing sector, it is also the slowest pace of growth in the last six months. On Tuesday, the New York Fed's monthly manufacturing report showed some slowing down in the manufacturing sector as the headline number dropped, though under the hood not all was lost as most sub-indices managed to rise month over month. The same cannot be said for the neighboring Philadelphia Fed region. Breadth in the report was very weak as only two indices (Delivery Times and Inventories) managed to move higher in December. The moves higher for those indices are also not necessarily good developments as they indicate higher inventories with longer lead times. Most other indices fell double digits with the declines of some in the bottom 1% of all monthly moves. On the bright side, every index did remain in expansionary territory (readings above zero) meaning growth has continued, but there was a significant slowdown. One of the areas to have seen the sharpest drop was New Orders. Whereas last month the index for New Orders came in at a near-record 37.9, December saw a huge drop down to a barely expansionary reading of 2.3. That 35.6 point drop was the largest decline since the 49.1 point and 55.4 point declines in March and April, respectively. It also ranks in the bottom 1% of all monthly moves going back to the start of the index in 1980. The same applies to the index of Unfilled Orders. Last month's reading was the strongest since March of 1973, but the over 20 point decline in December resulted in a reading that points to much less rapid growth in unfilled orders than the previous month. That decline also ranks around the bottom 1% of all monthly moves. Given that slowdown in demand, Shipment growth also slowed in December although not to anywhere near the same degree as New and Unfilled Orders. The index for Shipments peaked back in October at 42.6. The past two months now have seen the number nearly cut in half falling to 24.9 last month and 14.4 this month. Again, the reading is still indicative of growth, but at a much more modest pace. In fact, December's reading of 14.4 is essentially in the dead middle of the historical range. Again, the only two indices that managed to move higher in December were those for Delivery Times and Inventories. Lead times remain historically high as the index for Delivery Times rose slightly to 18.5. That is in the top 1% of all readings. Elsewhere in the supply chain, inventories rose at a faster pace in December as that index rose from 1.8 to 10.3. That is the second month in a row of inventory expansion. Finally, the employment metrics this month saw similar moves to those of orders. The index for number of employees was in the top 1% of all readings last month, but a historically large decline resulted in a much lower reading of 8.3 this month. That still indicates net hiring, but at a slowed pace. Additionally, the average workweek grew more slowly as that index fell from 25.7 to 18.
Housing Inventories Keep Dropping Wed, Dec 23, 2020 Yesterday's Existing Home Sales data from the National Association of Realtors for the month of November continued to impress. As discussed in last night's Closer, Existing Sales came in at 6.69 million SAAR. Although lower, snapping a streak of five straight months of increases, sales continue to come in at some of the highest levels since 2006. With sales running at such a strong clip recently, inventory numbers have been nothing short of remarkable: there are only 1.32 million listed units nationally with 1.12 million single-family homes listed. Both respective readings are the lowest levels of the past two decades. Even with declines in volumes, the ongoing collapse in inventory levels has driven the number of units in inventory down to 2.37 months' sales (only 2.25 months for single family homes), a new record low. We should note that implied new listings have indeed risen. They stand in the mid-6mm SAAR range, the highest since 2007 but still about 20% below the 8mm range that they hit in the mid-2000s. While prices are still extremely high, they did drop sequentially on the month thanks most likely to a shift in mix towards lower value homes. Click here to view Bespoke's premium membership options for our best research available.
Vaccine Makers: Buy the Rumor, Sell the News Tue, Dec 29, 2020 Vaccinations for COVID have begun to roll out around the world over the past few weeks with over 2 million people in the US having received their first dose as shown in the chart from our Morning Lineup below. There are two vaccines currently available to the public: one from Pfizer (PFE) and the other from Moderna (MRNA). These two companies released the efficacy results of their vaccines over a month ago back in November with PFE the first of these on 11/9 and MRNA coming one week later on 11/16. In the case of Pfizer, the stock heads into year-end basically flat on the year and that is also right about where it stood at the time of that efficacy announcement. Granted, PFE originally surged alongside the rest of the equity market in the wake of its announcement in November. From 11/9 through its 52-week high on 12/8, PFE had gained 14.5%. Only a few days after that peak, the FDA issued an emergency use authorization for the vaccine, but that is when losses began to pileup for PFE as investors cashed in on the news. Since the FDA authorized its vaccine, Pfizer's stock has dropped 10.24%. The first vaccines from PFE being administered to the public have also not provided any respite as the stock is down 5.87% since that date. The vaccine saga has played out a bit differently for Moderna (MRNA). Overall, the stock has seen far larger and more positive moves than PFE. MRNA started off the year at under $20/share but has nearly quintupled through today. By the time the company announced the efficacy of its vaccine on 11/16, it was up just over 400% on a year-to-date basis. Like PFE, that announcement provided a further boost as the stock rose 73% from November 16th through its high on December 8th. But just like PFE, the stock has fallen sharply as the vaccine has actually found its way into the arms of Americans. MRNA has declined 18.68% since the FDA authorized its vaccine and it is nearly down 10% since the first doses were administered. While MRNA has seen a sharper decline since its peak, it has performed much better than PFE on the year, rising nearly 500%. In the cases of both stocks, though, the trade was the same for PFE and MRNA: buy the rumor that the FDA would authorize the vaccines based on the efficacy announcements and sell the news of the actual FDA authorization and vaccine rollout.
They're Selling Winners Early In 2020 Mon, Jan 4, 2021 So far price action today is showing a pretty heavy New Years hangover for investors with markets dropping steadily across the first half of the first trading day of 2021. What's interesting is how much this looks like profit-taking in the wake of a spectacular second half last year. Obviously, there was a big bounce off the lows back in March, but even stripping out that initial bounce by looking just at the second half of the year, there's a clear pattern in today's trading for big winners leading the way lower. In the chart below, we show the average intraday performance of stocks in the Russell 3000, grouped by their performance last year. This broad index includes both large and small-cap stocks. As shown, by far the biggest losers today are the stocks that were the biggest gainers in the second half of last year. Conversely, stocks that were at the bottom in terms of performance in the second half of last year are nearly unchanged so far today. Investors accumulated a lot of gains in the second half of 2020, and based on today's performance, it appears as though they were waiting for the calendar to turn before locking in some of those gains. Like what you see?
ASHR Arises While SPY Stumbles Mon, Jan 4, 2021 US equities are stumbling out of the gate to start 2021 as the S&P 500 (SPY) is on pace to finish the first trading day of 2021 down 1.8%. Meanwhile, Chinese equities have caught a bid. The Xtrackers CSI 300 ETF (ASHR) is up 1.5% today. Today is actually set to be the third day in a row that ASHR has risen well over 1%, the first such streak since September. That brings ASHR to its highest level since August of 2015. That compares to SPY which is looking to have one of its worst days since late October. On a relative basis, the ratio of SPY to ASHR has now hit its lowest level since July. In the same vein, the move in this ratio today is on pace to be the largest single-day decline since July 6th when ASHR had risen double digits in just one session. During the COVID Crash last year there were also a handful of days in which the ratio had experienced similarly sharp declines. But overall, today's drop in SPY relative to ASHR stands in the bottom 4% of all daily moves since ASHR began trading back in 2013. Chinese equities have taken an early lead against US markets to start 2021.
Claims Make A Big Swing Higher Thu, Jan 14, 2021 Overall, it was a bad week for jobless claims with both initial and continuing claims missing expectations. Initial jobless claims came in at the worst level since the week of August 21st rising to 965K versus forecasts for a jump to just 789K. That 183K increase versus last week was the largest move higher since April when claims were rising in the millions per week. Additionally, of the states that offered comments on the changes in jobless claims, many noted layoffs in industries like retail, accommodations and food services, and transportation. Despite the acceleration in the vaccine rollout, due to the fact that case counts remain near record highs and COVID restrictions remain in place, businesses and workers in the customer-facing services sectors are still feeling the pain. While the seasonally adjusted number managed to stay below a million, before seasonal adjustments that wasn't the case. Initial claims by this measure came in at 1.151 million this week, the highest reading and first time above 1 million since July 30th. While the most recent week's uptick is likely not all due to seasonality, as shown in the second chart below, the second week of the year usually does see a fairly large uptick in claims. Last week we noted how PUA claims experienced a significant drop potentially due to the timing of the signing of the spending bill and the holidays. While there were yet again a handful of states unusually reporting zero PUA claims this week, total PUA claims across the nation were higher by 123.3K up to 284.47K this week. In other words, both regular state claims and auxiliary programs contributed to this week's uptick. Continuing claims are lagged one week to initial claims meaning this week's increase in the initial number was not factored into the continuing claims number, but nonetheless, it was also higher rising to 5.271 million from 5.072 million. That brings claims back to around where they were in mid-December. Adding in all other programs to regular state claims adds another week's lag. As of the last week of 2020, total continuing claims across all programs fell to 18.422 million from 19.183 million the prior week. That number is likely to move higher given the significant uptick in initial claims this week, but another problematic aspect of total claims is the growing number of unemployed who have been out of work for a long period of time. The share of claims from extension programs like PEUC and Extended Benefits accounted for nearly 30% of the most recent week's total claims.
Small Business Owners Didn't Like the Election Results Tue, Jan 12, 2021 Today's release of the December Small Business Optimism Index from the NFIB saw a large drop as the index dropped from 101.4 to 95.9. After a sharp drop in the wake of the COVID outbreak, the index bounced back nicely but now looks like it's really rolling over. Not only was this month's headline index weak, but it caught economists completely off guard. While the index fell to 95.9, economists were expecting a drop to 100.2. That 4.3 spread between the actual and expected reading was the biggest miss relative to expectations in more than five years (July 2015) and was the third weakest reading relative to expectations since the December 2012 report. Given the big drop in the headline index and the fact that it was so weak relative to expectations, should we be concerned about a double-dip? As an investor, we should always be worried about what could go wrong, but in the case of this report, you can probably wait for further confirmation from other data. The reason for the skepticism is that you could argue that politics plays a role in this report. To illustrate this, we would note that going back to 2010 (as far back as we have data) and right up through Election Day 2016, the NFIB only topped expectations 42% of the time. Following Trump's election in 2016, though, this index surged and has since topped expectations 63% of the time. Since Election Day 2020, though, the headline index has now missed expectations three times. From a longer-term perspective, dating back to 1974, the average reading of the NFIB Small Business Index during Republican administrations has been 100.1 while the average level under Democratic Presidents has been 96.2. Now, that would make sense if the economy was also in a recession more often in those periods, but over that same span, even though the percentages are low for both political parties (<20%), the economy has actually been in a recession a higher percentage of the time during Republican administrations than it has in Democratic administrations. The lesson to take from all this is that even if it's often hard to separate when it comes to business or investing (or a lot of other aspects of our lives for that matter), it's usually best to leave politics outside.
Homebuilder Sentiment Disappoints Wed, Jan 20, 2021 The NAHB's reading on homebuilder confidence was expected to go unchanged at a very strong reading of 86 in January. Instead, the NAHB's headline index fell down to a reading of 83. Although that is lower, it remains well above any pre-pandemic reading. In other words, homebuilders are less confident than they have been in the past couple of months but sentiment remains overwhelmingly positive. Even after falling two months in a row, the overall market index and most of its sub-indices remain near record highs. As for the regional indices, there is a bit more variation. The index for the Northeast has seen the sharpest decline falling 10 points in January. That is tied with August of 2018 for the seventh-largest month over month decline on record. While still in the top decile of historical readings, it is far lower than the other regions. On the other hand, albeit lower, the Midwest and the West are the two regions that remain at the highest ends of their historical ranges. With earnings season underway, the next month will see the vast majority of the S&P 1500 homebuilder stocks report earnings. The snapshot below is from our Custom Portolfios tool. This should give more color to the overall picture for homebuilders. As for the companies reporting, only one, MDC Holdings (MDC) has averaged a full day decline in response to earnings. Additionally, historic beat rates are generally pretty strong across the board.
Disappointment Out of Dallas Mon, Jan 25, 2021 Following very strong readings from the Philly Fed and preliminary Markit PMIs last week, the Dallas Fed's Manufacturing report released this morning disappointed. The headline index came in at 7 compared to forecasts of a reading of 12 and last month's adjusted reading of 10.5. That reading is still consistent with overall growth in the region's manufacturing sector, but at a slower pace as the index fell to the lowest level since August. The index for General Business Activity was far from being the only one to fall month over month. As shown below, breadth in this month's report was terrible. Of the 17 different indices for current conditions, 13 fell month over month. That brought several of these readings from the top decile of historical readings down to the middle of their historical ranges. While the pullbacks were significant, only inventories remain in contraction. Meanwhile, breadth was a little bit better for the indices for future expectations. One area that saw declines across the board were the indices concerning demand. As shown below, the indices for New Orders, New Order Growth Rate, Unfilled Orders, and Shipments were all lower in January. All of these are now at the lowest levels since June, or July in the case of order growth rate. These lower readings are still indicative of growth, but at a slower rate. Just as we have seen in other recent manufacturing reports, survey respondents are reporting price increases. The index for prices paid rose to a reading of 55 from 50.8 in December. That is nearly in the top decile of all readings as the index sits at the highest level since April of 2011. The index for future expectations similarly ticked higher reaching its highest level since March of 2012. While prices paid were higher, the same sort of acceleration in prices was not observed for prices received. The index for prices received fell from 19 down to 13.9. Although lower month over month, that is still around some of the highest levels of the past couple of years. Additionally, expectations are calling for prices received to follow the path of prices paid. The index for future prices received rose to the highest level since 2017 which was also in the top 5% of all readings. Similar to prices received, the current conditions index for wages and benefits fell this month, but the index for future expectations rose much more sharply and to one of the highest readings of the past couple of years. In other words, although price hikes were not observed, they are foreseen on the horizon. For wages and benefits, that expected uptick comes as hiring continues with the index of employment remaining in expansionary territory. Additionally, hours worked rose this month from 9.5 to 12.6; the highest in September of 2018. Click here to view Bespoke's premium membership options for our best research available.
