Optimism Comes Into the Light Thu, Oct 8, 2020 Up until today, the S&P 500 has been somewhat wishy-washy on whether or not it was to stay above its 50-DMA. Despite that choppy price action in addition to a crazy few days of headlines ranging from the squashing then revival of hopes for a stimulus deal to the president's contraction of and recovery from COVID, sentiment has seen a significant pick up this week. The American Association of Individual Investors' weekly reading on bullish sentiment rose 8.5 percentage points this week to 34.74%. That is the highest level of bullish sentiment since the initial rally off the bear market lows on April 16th when bullish sentiment was only slightly higher at 34.86%. That 8.5 percentage point increase was also the largest one week rise in bullish sentiment since January when it rose 8.76 percentage points. Those gains to optimism took from the bearish camp as bearish sentiment fell to 38.97%. Although the 4.1 percentage point decline was not particularly large—for example, less than a month ago we saw a larger 8.06 percentage point decline—bearish sentiment has fallen back below 40% for just the second time since mid-June; the other week below 40% being August 27th (39.62%). Bearish sentiment is now at the lowest level since June 11th. With bullish and bearish sentiment at new highs and lows, respectively, the bull-bear spread has reached its least negative level since June 11th. At -4.23, the record streak of consecutive negative readings in the spread—meaning bearish sentiment outweighs bullish sentiment—is on the ropes, but still alive growing to 33 weeks long. The gains in bullish sentiment also took from neutral sentiment as the percentage of investors reporting as such fell from 30.69% to 26.29%. That is the lowest level for neutral sentiment since a reading of 23.79% back in mid-July. It was also the largest single week decline in the reading since that same week.
Air Passenger Traffic Achieves Upward Lift Mon, Oct 12, 2020 With COVID case counts on the rise throughout the country, you would think that Americans would be a bit more concerned about getting on airplanes. Rather than hunker down, though, Americans have been increasingly spreading their wings. The latest passenger throughout numbers released by TSA showed that on Sunday 984,234 passengers went through security checkpoints at US airports. That was the highest single-day reading since March 16th. This weekend's air passenger traffic also helped to push the 7-day average of traffic to new post-COVID highs. After rising and then falling back down after the Labor Day holiday, air passenger traffic has 'surged' in recent days to push the current 7-day average up to 819,384 passengers per day. Air travel has been on the rise, but the term surge may be too strong. When we compare air passenger traffic levels to where they were a year ago, we're still down over 65% on a 7-day average basis. Even yesterday's strong passenger numbers were still down over 61% from their same levels last year. In other words, there's still a lot of room for improvement! The chart below compares the y/y change in passenger throughput to the performance of the Airline ETF (JETS) since the start of the pandemic. Not surprisingly, there has been a pretty strong correlation between the two as increases in passenger traffic have been accompanied by rallies in the airlines and vice versa.
"Meet the Nasdaq" Mon, Oct 12, 2020 Tim Russert used to sign off from each week's episode of Meet the Press with the tagline, "If it's Sunday, it's Meet the Press." Borrowing from that phrase, the Nasdaq's tagline might as well be "If it's Monday, it's Meet the Nasdaq." With a gain of over 3% today, the Nasdaq is doing what it always does on Mondays - rally! The chart below shows the year-to-date performance of the Nasdaq so far in 2020 as well as its performance if you only owned the index on Mondays. Year to date, the Nasdaq is up an impressive 32.7%, putting it on pace for the first back-to-back annual gain of over 30% since 1998 and 1999. Even crazier, though, is the fact that the Nasdaq is up over 20% year-to-date on Mondays alone! The weekday that most people love to hate has been responsible for more than 60% of this year's Nasdaq gain. In the table below we summarize the performance of the Nasdaq by weekday so far in 2020. Monday's average daily gain of 0.57% with gains more than 75% of the time is both the best average daily return and the most consistent to the upside. Tuesdays and Wednesdays haven't been particularly bad for the Nasdaq either. Both days have seen an average one-day gain of 0.30% or more, and Wednesday has been positive three-quarters of the time. While the first three trading days of the week have been strong, Thursday and Friday have been days to forget. Although both days have also experienced positive returns more than half of the time, the average one-day change for both is negative resulting in declines on a cumulative. Thursday has been the weakest with a cumulative decline of 11.53% while Friday's cumulative decline has been more modest at just 3.46%. TGIM.
Small Business Smiles Tue, Oct 13, 2020 Sentiment among small businesses continued to improve in the month of September according to the NFIB's monthly Small Business Optimism Index. As shown below, the index rose 3.8 points to 104 which is now just half of a point below the levels prior to the pandemic in February. That was also better than expectations of a smaller improvement to 101.2. Small business sentiment has now risen in four of the past five months. In the table below, we break down this month's report by each of the ten components of the headline number as well as the many other indices included in the report such as those not used as inputs to the headline number and what small businesses are reporting to be their biggest problems. Across all indices of the September report, breadth was solid with only a couple of indices falling month over month—Expected Credit Conditions and Credit Conditions Availability. Some of those that were higher saw record or near-record month-over-month increases. Some of the most notable indices this month included those regarding inventories. The Current Inventories index which gauges the net percent of owners viewing current inventory levels as too low rose 2 points to a record high reading of 5. Given this, the index for Plans to Increase Inventories is tied with the reading from November of 2004 for a record high of 11. Indicating low inventory levels, the report is consistent with some other recent data like the regional Fed manufacturing surveys. Those low inventories are resulting in higher prices as that index's 12-point increase in September marked the biggest one month gain on record. While the Higher Prices index is not at any sort of an extreme, September's move indicates that a rising number of businesses are raising prices. Additionally, those higher prices and lower inventory numbers appear to be a result of demand that continues to rapidly improve. The indices for Actual Sales and Actual Earnings Changes remain negative for a sixth and tenth month in a row, respectively, meaning a net number of businesses continue to see lower rather than higher top and bottom-line numbers. But these indices are seeing big moves higher. For the index of Actual Earnings Changes, the 13-point climb in September was the largest on record and the 9-point increase for Actual Sales Changes followed a 13-point increase in August; both being some of the largest one-month moves on record. In order to meet the needs of this demand, a higher number of businesses plan to increase employment with that index rising to 28; the highest level since December of 2018. Even though businesses seek to hire more, they also report it is hard to fill positions as the index of Job Openings Hard to Fill rose to the top 5% of all readings. Cost and quality of labor also were reported as two of the most pressing problems for businesses.
Small Businesses Cautiously Optimistic Tue, Oct 13, 2020 In an earlier post, we highlighted the details of the September NFIB Small Business Optimism report. The report showed overall sentiment among small businesses has continued to improve as demand has bounced back (though it has not yet fully recovered as still more businesses report lower sales and earnings on a net basis) leading to low inventory levels, higher prices, and a need for more employment. While generally improved conditions have lifted optimism, that is not to say small businesses have given an all-clear. The Uncertainty Index from NFIB has risen each of the past three months with September's 2-point increase bringing it back to the same level as March of this year. In other words, it is perhaps best to say that small businesses are cautiously optimistic. From the pandemic to the Election, there are plenty of reasons for businesses to be uncertain. As for what they are reporting to be the biggest problems, labor remains at the top. 30% of businesses have reported that either cost (9%) or more predominately quality (21%) of labor are their biggest issues. While off the highs from the past few years, the current readings are still historically elevated. Behind labor, government related problems also are largely on the minds of business owners. Government red tape and taxes combine to account for 29% of businesses' biggest problems. While that is a large share, neither of those indices are at any sort of extreme. Poor sales, on the other hand, remains as the third major concern for businesses. 12% of businesses reported poor sales as the single most important issue in September, down from 15% in August and 7-percentage points lower than the April peak. While improved, the number of businesses seeing demand as a major issue is still at some of the highest levels of the past several years.
Sentiment By State Thu, Oct 15, 2020 Below is a look at the year-to-date reading for the high-frequency Morning Consult daily consumer sentiment indicator. While still well off highs seen prior to the COVID Crash in late February and early March, sentiment has generally been ticking higher off the lows. You'll notice in the chart below, however, that while the "Future Expectations" reading is still bouncing back nicely, the "Current Conditions" reading has been going more sideways over the last couple of months. We can also look closer into state level readings from the daily Morning Consult sentiment numbers. In the heat map below, we show the changes in the levels of consumer sentiment for each state since mid-February. As shown, the lower 48 have seen much larger improvements than Alaska or Hawaii with the largest improvements coming in the Northeast and parts of the Midwest. On the other hand, in addition to Hawaii and Alaska, some of the key swing states like Maine, New Hampshire, and Nevada have improved the least. Of all 50 states, Vermont's current reading on sentiment is the closest to its February levels, but even Vermont is still down 17.9 points.
Rocketing Restaurants Mon, Oct 19, 2020 In Friday's Bespoke Report sent to members, we noted two groups that have been surprisingly strong performers over the past several months: brick and mortar retailers and restaurants. Focusing on the latter, in the chart below we show the S&P 1500 Restaurants index over the past five years. As shown, up until last week the index's last high prior to the pandemic actually came well before the rest of the market's peak in February. The S&P 1500 Restaurants peaked in August of last year and only made a lower high on February 20th before falling over 40% during the course of the COVID Crash in late February and early March. Since the low on March 18th, the index has now risen over 77% and just broke out to a new all-time high. COVID lockdowns and restrictions on in-door dining have impacted the restaurant industry like nothing ever seen before. Based on the monthly Retail Sales report, the Bars & Restaurants category has seen its share of total retail sales fall more than any other group since COVID began, while the Food & Beverage Store (grocery stores) category has been one of the biggest gainers. This is what makes the recovery for the S&P 1500 Restaurants group so noteworthy. While single-location restaurants run by individuals may be having a tough time with capacity limits depending on their geographic location, the publicly-traded restaurant companies with locations throughout the US have seemingly adapted much better in the post-COVID world. That's what their share prices are telling us at least. As shown in the table below, nearly all of the stocks in the S&P 1500 Restaurant group made 52-week lows around the time of the broader market bear market low in mid-March. All but four have since seen their stock price double. Brinker (EAT), the parent company of Chili's, has risen the most since its low having gained well over 500%. Even after those massive rallies, there are still eleven that are down over the past five years and eleven that are down on a year-to-date basis. Dave & Busters (PLAY) and Red Robin (RRGB) are both down by more than 50% in 2020. Of this group, Domino's Pizza (DPZ) is the only one that has reported third-quarter earnings so far this earnings season with overall decent results beating on both the top and bottom line. As shown in the screenshot below, we created a Custom Portfolio of these stocks so members can track these names as earnings season carries on. From our Earnings Explorer data, the rest of the stocks in the group are scheduled to release earnings over the next several weeks.
It's Singles Month! Tue, Oct 20, 2020 Today's release of September data on Housing Starts and Building Permits was mixed at the headline level as Housing Starts missed expectations while Building Permits topped consensus forecasts. In each case, the magnitude of the beat or miss was similar, so in the end, it was basically a wash from a top-level perspective. Within the details of the report, two trends stood out. First, in terms of both starts and permits, single-family units were the star of the show. Single-family Housing Starts rose 8.5% m/m and more than 22% on a y/y basis, while single-family Building Permits also saw similar levels of increases. In both cases, September's levels for single-family units were the strongest since mid-to-early 2007. The second notable trend evident in this month's report was a very strong environment in the Northeast. On a m/m basis, Housing Starts in the Northeast surged 66.7% while Permits increased over 25% m/m. There's been no shortage of stories out there highlighting the exodus out of big cities like New York, and these trends suggest former residents of the Big Apple are moving out to the greener pastures of the suburbs. From a longer-term perspective, the quickly improved residential housing market bodes well for the broad economy. Housing Starts and Building Permits typically roll over leading up to and then plunge during recessions. This time around, the nature of the pandemic and the shutdowns were so instantaneous that economic data didn't have time to roll over, and the massive amounts of subsequent stimulus and liquidity made the pullback short-lived. What's most amazing about where things stand now is that even as the NBER hasn't even announced the official end of the recession, Housing Starts on a 12-month average basis are already near their pre-recession highs! Normally, once a recession ends, it takes years before Housing Starts get back to their prior highs. Taking a closer look at more recent data, the chart below shows the 12-month average of both Housing Starts and Building Permits over the last ten years. Incredibly, from their late 2018 highs through mid-2019 lows, both saw larger declines than they did during the pandemic. While the 12-month average of Housing Starts and Building Permits are knocking on the door of new multi-year highs, the strength in single-family units has already pushed those readings to new post-financial crisis highs. Whether or not the economy rolls over again as economic momentum stalls out is up for debate, but looking at this data and the homebuilder sentiment data from Monday, it's hard to look at it and say that the recession is not over.
October Optimism For Homebuilders Mon, Oct 19, 2020 Given housing inventories remain historically low thanks to still strong demand, homebuilders have plenty to be optimistic about. The National Association of Home Builders (NAHB) has continued to show this strength as its monthly sentiment survey set a record high for the month of October. Back in August, the index tied the previous record level of 78 from December of 1998. Over the past two months, it has only raised that bar, coming in at 85 this month; 2 points above forecasts and last month's reading of 83. The rise in the index comes on broad strength across each of the sub-indices. Present Sales, Future Sales, and Traffic all matched or made record highs in October. The only sub-index that was not higher was for Traffic, though, it was unchanged at a record high. As for the look across each of the four US regions, the West and Northeast both saw sizeable upticks to new records, but sentiment in the Midwest and South were actually slightly lower. For the Northeast, this is the third record in a row. Meanwhile, the West's record high in October finally surpassed the prior high of 91 from October of 2005. Finally, even though sentiment fell in the Midwest and South, both remain at higher levels now than any month other than September's record highs.
California Back in the Game as Claims Continue to Fall Thu, Oct 22, 2020 Another week, another pandemic low for jobless claims. Initial jobless claims came in at a seasonally adjusted 787K this week. That is down 55K from last week's revised number which was taken down by a similarly large 56K from the original print of 898K. Since the report released on October 1st, reporting of claims out of the most populous state in the US, California, has been on pause in order to reduce backlogs and implement fraud protection. As a result, California claims have been held constant at 226K over the past few weeks. This week the revisions for those past weeks are in and reporting from the Golden State has resumed. The most recent claims reading from that state came in at 158K compared to the revised 176K last week. In other words, although it did not account for the entirety of the big moves, California's numbers accounted for a large portion of the downward revision last week as well as this week's decline. Regardless of the nuance concerning California, overall national claims were healthier this week. Unadjusted claims fell as is seasonally normal for this week of the year, coming in at a pandemic low of 756.6K. That is a 73.1K decline from last week's revised 829.7K print (revised down from 885.9K). Lagged one week to initial claims, continuing jobless claims were also lower this week falling to 8.373 million. That is not only the lowest level since the final two weeks of March, but it was also the first time that continuing claims were below 10 million in back to back weeks since then. Again, with the point that state-level reporting quirks could play a role in the large moves, this week also marked a third consecutive week that claims have fallen by more than one million week over week; the only time in the history of the data that has happened. While regular continuing claims have continued to fall, they do not necessarily tell the full story as there are multiple other programs like Pandemic Unemployment Assistance (PUA), Pandemic Emergency Unemployment Compensation (PEUC), and extended benefits to name a few. Although these are lagged yet another week (most recent data for the first week of October), they show the same story of continued improvements as total claims have fallen for three straight weeks. The two largest programs—regular state claims and PUA claims—have been the main drivers. On the other hand, one worrying sign is PEUC and extended benefits have been on the rise in recent weeks, though they both remain relatively small but still a growing shares of total claims.
Leading Indicators Returning Back to a Normal Range Thu, Oct 22, 2020 Like some other indicators earlier this year, the index of Leading Economic Indicators released each month by the Conference Board experienced both its largest-ever m/m decline and increase in the span of under six months. In March, when the US economy was essentially shut down, the index of Leading Indicators dropped a record 7.4% in just a single month. By June, as the economy started re-opening, the index saw a record m/m gain of over 3%. While it hasn't been enough to erase all of the declines, it has come a long way. Since that June surge, though, the last three months have seen a deceleration of the growth in Leading Indicators for three months in a row to September's level of 0.66%. While 0.66% is down a lot from the June high, before the last three months, 0.66% would have been the strongest level of growth in this index since February 2018. As mentioned above, the index of Leading Indicators is still well off of its highs, but it has still erased more than half of the declines we saw prior to the COVID crash. The chart below shows the Leading Indicators index going back to 1959, and looking at the index's behavior during prior recessions would once again suggest that the recession is over. In every recession of the last 60 years, never before has there been a time where the index saw this large of an increase from its lows with the economy still in recession. The ratio of Leading Indicators to Coincident Indicators also shows an interesting trend with regards to the current period relative to others. First off, as we have noted in the past, throughout history the ratio has typically started to roll over well before the onset of a recession. Even in the current period, the ratio peaked more than a year before the recession started. Compared to prior periods, the rollover wasn't nearly as large in magnitude as prior periods, and there's obviously no way this ratio could have predicted a global pandemic, but technically speaking its record of accurately predicting recessions remains intact. The lower chart shows a larger version of the ratio since the start of 2009, and in it, we show each of the prior periods during this span where the ratio saw an extended period without making a new high. For the current period, it has now been 24 months since the ratio's last peak. While that's a long time, from the middle of 2011 through mid to late 2013, the index went even longer without making a new high.
NASDAQ 100 Battles Support The big tech NASDAQ 100 index ($^NDX), which is tracked by the $QQQ ET, is struggling to hold current support at 11615. We had some folk ask us to post our current support and resistance levels for the NDX. In addition to several support levels there are a couple of Candlestick Doji patterns that our good friend, the venerable John Person (@PersonsPlanet), schooled us on when we did the Commodity Trader’s Almanac together. It is featured in his most excellent book, Candlestick and Pivot Point Trading Triggers. It looks like we logged a Dragonfly Doji at the high on September 2, which has bearish implications. Then today there was a likely failed Morning Star Doji, which is a bottom reversal pattern, when NDX closed below yesterday’s close. NDX needs to hold support here around 11615, which lines up with the 9/4 and 10/6 opens and the top of the September cup pattern. If 11615 fails to hold, the next level of support seems to be around 11245, which aligns with the top of the mid-August consolidation and the bottom of the mid-September consolidation as well as the 9/28 Doji Hammer gap and the early October consolidation. Further support is shown in the chart down at 10750, 10470 and the old February 2020 high at 9775. Current resistance sits around 12130 near the top of the September mini-Waterfall decline and the October highs and then above that at the September Doji high of 12420. A move higher over the next day or so with a green candlestick would be constructive. A break below 11615 would bring 11245 into play.
Texas Manufacturers Continue to Improve Mon, Oct 26, 2020 Just like last week's preliminary Markit PMIs and the first three regional Fed indices of October, this morning's release from the Dallas Fed on the region's manufacturing sector similarly showed a positive backdrop. The headline number was expected to come in at 13.3, which would have been a slight decline from September's reading of 13.6. Instead, the index smashed those expectations rising to 19.8. As the index did the opposite of what was expected, it has now risen for each of the past six months with each reading since August indicative of expansionary (and accelerating) activity. At its current levels, the index for General Business Activity is now at its highest level in two years. Breadth across the various components of the index also remains strong with only one index sitting in contraction: inventories. While every other index continues to show expansionary readings, October numbers for Unfilled Orders, Delivery Times, Employment, Hours Works, and Cap. Ex. were all lower month over month. New Orders continue to rise at a strong clip. Even though outlook pulled back from a multiyear higher, the index for current conditions of new orders rose to its highest level (19.9) since August of 2018 (23.3). The growth rate also ticked slightly higher to 14.3 from 13.2. Again this was the strongest reading since August of 2018. Shipments on the other hand experienced a more modest increase of just 0.4 points which still leaves it below its August highs. Meanwhile, growth of Unfilled Orders showed a sizable deceleraion this month as that index fell 1.9 points to 4.1. That leaves that index at its lowest level since it exited contractionary territory back in June. Meanwhile, expectations for unfilled orders fell much more dramatically, with its 11.4 point decline in the bottom 5% of all month over month changes. Given demand continues to strengthen, production has continued to rise. The current indices for Production and Capacity Utilization are right around the upper decile of historical readings and at their highest levels since August of 2018. While expectations for Production fell slightly this month, these indices also have relatively rosy outlooks with both indices around multiyear highs. One notably weaker area of this month's report concerns employment. Both the index for Employment and Hours Worked declined from September. For Employment, this month was the first decline since April. As for Hours Worked, October marked a back to back decline. These readings continue to indicate that the region's businesses are on net hiring more people while also lengthening the hours worked, but it does mark a decelaration from the past few months.
GDP Up Big But Still Deep in the Hole Thu, Oct 29, 2020 Following the record decline in Q2, economists were expecting Q3 to be a record in the opposite direction. And that's exactly what we got. While economists were expecting growth of 32.0% on a seasonally adjusted annualized rate (SAAR), the actual reading came in even stronger at 33.1%. With economic growth of 33.1% following a quarter where activity shrank 31.4%, a person's first reaction may be to think it's a wash, but you know math, so you know that's not how it works. The chart below shows US GDP in dollar terms going back to 2000. After Q2's decline, economic activity in the US was more than 10% below its prior peak, and even after Q3's rebound, we're still down 3.5% from Q4 2019. 3.5% may not sound like much of a hole, but it's still a large number. The chart below shows how far GDP was off its record high each quarter since 1950. Because the US economy is normally growing, GDP is typically at record highs, and even when activity contracts, the magnitude of the decline is usually measured in the low single-digit percentage range. Prior to the COVID shutdowns, in fact, there was never a time in the last 70 years where GDP was more than 4% off a prior peak. At the end of Q2, the hole was more than twice that at 10.2%. Because of that, even after a record quarter of growth, GDP is still further below its peak than it has been in all but two other periods (1958 & 2009) in the seventy years leading up to the start of 2020.
November Almanac: Usually a Top Month in Election Years November maintains its status among the top performing months as fourth-quarter cash inflows from institutions drive November to lead the best consecutive three-month span November-January. However, the month has taken hits during bear markets and November 2000, down –22.9% (undecided election and a nascent bear), was NASDAQ’s second worst month on record—only October 1987 was worse. November begins the “Best Six Months” for the DJIA and S&P 500, and the “Best Eight Months” for NASDAQ. Small caps come into favor during November, but don’t really take off until the last two weeks of the year. November is the number-two DJIA (since 1950), NASDAQ (since 1971) and Russell 2000 (since 1979) month. November is best for S&P 500 (since 1950) and Russell 1000 (since 1979). November is a mixed bag in presidential election years. DJIA has advanced in 10 of the last 17 election years since 1952 with an average gain of 1.7%. Significant DJIA declines occurred in 2008 (-5.3%) and 2000 (-5.1%). For S&P 500 November ranks best with a similar record to DJIA. NASDAQ, Russell 1000 and Russell 2000 are not as strong ranking #7, #3 and #6 respectively. Fewer years of data (12 for NASDAQ and 10 for Russell indices) combined with sizable losses in 2000 and 2008 drag down rankings and average gains when compared to DJIA and S&P 500.
Whatever the Outcome, Day Before Election Day Historically Bullish Looking back at the last seventeen presidential elections since 1952, the day before Election Day has a clear bullish bias. DJIA and S&P 500 have declined just three times and average gains of 0.51% and 0.44% respectively. NASDAQ and Russell 2000 are slightly weaker, but still bullish. Election Day (or the day after prior to 1980) leans bullish, but with a greater frequency of losses. Incumbent party victories are shaded in light grey.
Manufacturing Employment Finally Expands Mon, Nov 2, 2020 Both Markit and ISM's readings on the manufacturing sector exceeded expectations this morning indicating that the sector of the economy continued to grow at an accelerated pace in October. In regards to the ISM report, the headline number rose to 59.3 after falling to 55.4 last month. The index is now at its highest level since September of 2018. Commentary from respondents is backing up the strong showing of the headline number. The bulk of comments made mention that demand has continued to improve with some companies saying that conditions are almost back to or even better than pre-COVID levels. Looking across the various categories of the report, breadth was very strong with all but one index rising month over month. That index that moved lower was for Customer Inventories which has fallen deeper into contraction. On the other hand, the indices for Business Inventories and Employment exited contractionary territory with significant increases this month; both MoM increases around the top 10% of readings. Elsewhere in the report, demand is very strong with New Orders, Backlog Orders, and Export Orders all heading higher. Meanwhile, as businesses ramp up production to meet that demand, Imports, Production, and Employment also improved. That has also led prices to rise while supply chains still are showing some signs of stress as lead times remain elevated as seen through the Supplier Deliveries index. As noted in the comments section, many businesses have reported that demand has been very healthy. The index for New Orders is consistent with this. After pulling back in September, the index rose past the August high of 67.6 in October. At 67.9, the New Orders index is at its highest level since late 2003/early 2004 and the 7.7 point month over month increase was in the top 5% of all monthly moves. As new orders expand at a rapid pace, backlogs have been on the rise as well. The index of Backlog Orders rose to 55.7 from 55.2; the highest level in two years. That strong demand has been taking its toll on inventories over the past few months. After three straight months of contraction in inventories, October saw inventories expand for the first time as the index rose to 51.9 from 47.1 in September. That is the highest level since April of last year. The improvement in business inventories indicates some normalization for supply chains that are seeking to match historically strong demand. Meanwhile, the index for Customer Inventories, which tracks whether inventories are too high, too low, or just right, fell to 36.7 in October versus 37.9 in September. At its lowest level in a little more than a decade, around a third of respondents are reporting that customer inventories are still too low. In other words, inventories are finally beginning to build but still have a ways to go to meet demand. Taking the spread of New Orders and Customer Inventories, there have only been two other months in the past two decades (December of 2003 and December of 2009) in which the spread was higher. That means that new orders continue to rise much faster than inventory levels which will be a tailwind for production in the future. One of the most promising areas of the October report was that for the first time since July of 2019, the index for Employment rose above 50, meaning there was finally net hiring. That rise in employment is surely on account of rising production to meet the surging demand.
ISM Manufacturing Report and Elections Mon, Nov 2, 2020 With the ISM Manufacturing report coming in at the highest level in two years today we wondered whether a strong manufacturing sector ahead of an election has any impact on the results. One would think that surging activity in the Manufacturing sector would be good for a President's re-election chances. To shed some light on this, the table below shows the election results of each election since 1952 based on which party was in the White House and which party won the election. For each Presidential Election, we also show the level of the October ISM Manufacturing report, its three-month change as well as the distance of the most reading relative to its 52-week range. Looking at the overall results, we were surprised to find that there's not that much of a connection between levels of the ISM Manufacturing report before an election and the actual results of the election. Overall, when the party of the President in the Oval in the Oval office stays the same, the median level of the ISM Manufacturing report ahead of the election is 54.1. When the party flips, the median level is modestly lower at 52.0. October's ISM Manufacturing report was also the third-highest level heading into a Presidential election on record. The only two that were higher were the election of 1972 (67.0) when Nixon defeated McGovern and 1964 (60.7) when Johnson defeated Goldwater, and in both of those elections, the party of the President stayed the same. Additionally, when the party in control stays the same, the ISM Manufacturing report has been slightly closer to a 52-week high (-4.2) than it has when the parties flip (-5.4). However, the only two times that the ISM Manufacturing report was at a 52-week high leading up to the election were in 1972 and 1980. In 1972, Nixon was re-elected, but in 1980 President Carter lost his re-election bid despite the ISM Manufacturing report being at a 52-week high, and the three-month change was the strongest of any other election since 1952. While those two metrics would suggest a slight case for a strong ISM Manufacturing report helping the party in power, the median three-month change has actually been worse when the party of the President stays the same (-0.7) versus when there is a change (-0.5).
Eurozone's Late October Surprise Tue, Nov 3, 2020 As we noted last week, while earnings beat rates are historically high, economic data is still consistently coming in better than forecasts, but the beats are not as dramatic as they were in the spring/early summer. In the charts below, we show the Citi Economic Surprise Indices for the US and some other regions of the world. Higher readings point to data being better than forecasts and vice versa. At current levels, the US index is down significantly from its July highs and continues to head lower, but it is still well above any readings seen prior to the pandemic. Meanwhile, Emerging Markets data never spiked in the same way the US did, but it has been on the rise recently reaching its highest level in over a decade in the past few days. Of all daily readings, there have only been five other days that the index was higher than Friday's reading of 63.1. For G10 countries and the global index, trends more closely resemble the US with one caveat. Late last week the indices saw another big turn higher. The reason for that jump was the Eurozone. As shown in the charts below, over the past few months the index was headed lower approaching zero, meaning the region's economic data was not beating forecasts in the same way that the rest of the world has. But that is not so much the case now thanks to a big beat for GDP last Friday which likely holds a massive weight on the index. That resulted in the index to jump by the most ever in a single day. The index rose 89.9 points compared to the historical absolute median daily change of just 3.8 points. That single day move was even larger than any of the readings from the rebound in the more immediate aftermath of the worst days of the pandemic. Despite deteriorating COVID conditions, new lockdowns, and plenty of other worrisome factors, European equities have seemed to have received a bit of a boost coincident with the turnaround in the economic surprise index. Last week the Stoxx 600 fell below support and out of the past several months' range, but after reaching extremely oversold levels, the index began to turn higher on Friday.
Winners and Losers During Trump's Presidency Tue, Nov 3, 2020 With Election Day upon us, below we take a look at the biggest winners and losers across financial markets during the Trump Presidency from Election Day 2016 through today. First off, below is a chart of the market cap of the Russell 3,000 since Election Day 2000 which George W. Bush eventually won. The Russell 3,000 makes up more than 98% of the total US equity market cap, so it's a good gauge to use for measuring the overall change in market cap levels. The current market cap of the Russell 1000 is just north of $35 trillion, which is up $11.5 trillion since Election Day 2016. President Obama oversaw US market cap growth of $12.3 trillion over his two terms, while President Bush actually saw market cap decline by $4.1 trillion after his two terms. Below is a look at the total return of various asset classes since Election Day 2016 using key ETFs listed on US exchanges. The S&P 500 (SPY) is up 70.6% since Trump was elected, while the Nasdaq 100 (QQQ) more than doubled that at +144.3%. Of the broad index ETFs in the matrix, the Smallcap Value ETF (IJS) is up the least since Election Day 2016 at just +17.2%. Looking at US sector ETFs, the Energy sector (XLE) is a huge outlier with a decline of 48.3% since Trump was elected. Technology (XLK) and Consumer Discretionary (XLY) are up the most with gains of 154% and 97%, respectively. Along with Energy stocks, the oil (USO) and natural gas (UNG) ETFs have been more than cut in half since 11/8/16, while gold (GLD) is up 47% and silver is up 29.5%. Not every country has seen stock market gains since Trump was elected. As shown below, Mexico (EWW) is down 28.5%, Brazil (EWZ) is down 19.4%, Spain (EWP) is down 6.8%, and the UK (EWU) is just slightly in the red. The US (SPY) is up more than any other country with a gain of 70.6%, while China (ASHR) is up the second most at +51%. Whatever happened with the trade war certainly didn't hurt the US and China versus the rest of the world on a relative basis. Within the Russell 1,000 in its current form, there are nine stocks that are up 1,000% or more since Election Day 2016, with Enphase Energy (ENPH) at the top with a gain of 8,590%. Trade Desk (TTD) is up the second most at +2,448%, followed by Novocure (NVCR), SolarEdge Tech (SEDG), and Quidel (QDEL). Square (SQ) ranks sixth with a gain of 1,203%. Other notables on the list of big winners since Trump was elected include Etsy (ETSY), Teladoc (TDOC), Tesla (TSLA), NVIDIA (NVDA), Atlassian (TEAM), Boston Beer (SAM), and Lululemon (LULU). In terms of market cap gains for individual stocks, the numbers below are quite eye-popping. Apple (AAPL) has gained the most in market cap since Trump was elected with an increase of $1.257 trillion! Amazingly, both Amazon (AMZN) and Microsoft (MSFT) have added more than $1 trillion in market cap as well. Prior to the last few years, no company was even close to having a $1 trillion market cap, but at this point, AAPL, AMZN, and MSFT have gained that much in the last four years.
