Breaking Down the Employment Report and the Market’s Reaction
Today the US employment report for April was released and it took the markets by surprise. Estimates were for net job gains of 1 million. Instead, the US economy added 218K private sector jobs. This compares to 708K private sector jobs in March.
Why Rates Could Still Drift Lower, But Will Ultimately Go Higher
10 year Treasury rates peaked at the end of March at 1.74% after having risen from low of just 0.56% back in the summer of 2020. Now, the rate stands at 1.57% even as economic data continues to come in smoking hot and policy remains incredibly accommodative.
Inflation Here, There and Everywhere
What a week for price data! We have been writing about the possibility of higher inflation for months now, most recently here. We have also highlighted the most likely assets to benefit from higher inflation like copper, oil and energy stocks.
There is An Alternative to Crazy Expensive Tech Stocks, We Just Need to Remove the Kaleidoscope Glasses
To say the market is bubblelicious is a bit of an understatement given that retail “investment” in call options and penny stocks is quite literally off the charts, dwarfing numbers we saw in 1998-2000.
Productivity, an Additional Case for Homebuilders
There are a few ways to measure productivity. One simple way to measure productivity at the company level is to calculate sales per employee. Higher sales for the same number of employees obviously means each employee is pulling more weight. Profits are a byproduct.
Get Ready for Services Prices to Accelerate Higher
We’re going to keep this post short and sweet because the charts speak for themselves. Today, preliminary Markit PMIs were released for January. Headline numbers ticked up, which is great and shows a continued expansion into the new year.
What is the Best Hedge to Hot Inflation?
This week investors learned of president-elect Joe Biden’s initial bid for the next round of covid-19 relief. The number came in at $1.9tn. Importantly, included in this figure is mainly covid relief as opposed to a longer-term fiscal package that will be heavily weighted to infrastructure.
The Probability of Stagflation is Rising
This week we were privy to both new inflation and initial unemployment claims data. The CPI data revealed a rather mundane inflation scenario. Meanwhile, the weekly initial claims number came in at a whopping 853K and missed estimates by the largest amount since June.
Gold: Testing Patience But Toeing the Line (For Now)
Since early August the “barbarous relic” has corrected some 9% while many other assets have ascended to all-time highs. This has no doubt caused a bit of consternation for holders of gold who have been using the metal not as a hedge, but as a capital appreciation vehicle unto itself.
The Election has Crushed Volatility
As election results continue to trickle in suggesting Joe Biden will be the next president, there still remains a bit of uncertainty with respect the final electoral vote tally as well as any legal challenges that will emerge in the coming days.
Stock Options Traders are Back at the Speculation
In the last few weeks stock market sentiment as expressed in options has come full circle. Back in August we were noting a rather amazing level of outright speculation in stock options, mostly by small traders that were buying short-dated out of the money calls on the FAAMGs.
A Broader Market, but Not a “Value” Rotation
In recent weeks the market has been notably broader in terms of the upside participation from stocks other than FAANMGs. Typically, this type of action in the early stages of a business cycle would be strongly associated with the “value” style working, since “value” companies skew considerably smaller than “growth” companies in aggregate.
Correction Update: Correction Continues
We’ve been writing for the last month about the risks, and then the corrective activity in the stock market. Even as the market didn’t peak until the first few days of September, it “feels” like this pause has lasted longer than that.
Correction Watch: Divergences are Developing Between Large US Stocks and Everything Else
Last week we put out a succinct mid-quarter update in which we highlighted 9 negative inputs into a tactical equity framework. This post builds upon that by calling out 7 rather conspicuous divergences that are developing in the financial markets.
Financials Can’t Catch a Break, and What it Means for the Market
The bank stocks are at it again as they make another new 52-week relative performance low compared to the broad market. It’s a perennial issue. Over the last year the KBW Bank Index, an index of 24 of the largest US banks, has underperformed the S&P 500 by 30%.
Value over Growth or More of the Same?
When it comes down to it, there are a few key macro variables that are highly correlated with the relative performance of value vs growth – most of them measuring the reflationary impulse in the system in different ways.
A Trillion Here, a Trillion There…and What it Means for Stock Market Leadership
Over the weekend the world learned of the Senate Republican’s “opening bid” for the next round of fiscal stimulus in the United States. That number came in at a nice, round $1tn. Now, as large as that number is, it still pales in comparison to the $3.5tn House bill that already passed.
When the QQQs Make You Queasy
Here we are in the dog days of summer, and the hot weather is not the only thing making us a little queasy. The darling stock market group since 2011, the Nasdaq 100 stock index, has soared a cool 20% this year and well into all-time high territory. Indeed, the height is making us queasy from vertigo.
10 Major Investment Implications (and 32 charts!) of a Weak US Dollar
With the US dollar index recently having completed a so called “death cross”, we thought it would be a good opportunity to review the investment implications of a potential trend change in the USD.
The Path to Average Equity Returns in the 2020s is Challenged
The returns of the 2009-2020 bull market were nothing short of extraordinary. From the 2009 low in the S&P 500 to the 2020 high, stocks gained a massive 488%, or nearly 18% on an annualized basis.
Here’s 5 Reasons Why Gold Miners Have Massive Outperformance in the Tank
As I write this note on a dreary Friday afternoon from Boulder, CO I am reminded of my town’s origin. Its first non-native settlers established the town 1858 as a base camp for gold and silver miners.
Here’s Where Friday’s Employment Report Could Really Disappoint
Given the surge in unemployment claims over the last month the US unemployment rate is expected to rise to 16% in April from just 4.4% in March. Shocking as that number is, we have no problem with that forecast.
Here’s Why 2/3rds of US Oil & Gas Companies May not Exist a Year from Now
Energy companies are facing a life or death moment in 2020 with the price of WTI crude oil falling to $13.64/barrel as of this writing. Indeed the collapse in energy prices combined with poor fundamentals leading into the COVID crisis make most of the oil…
Anatomy of a Panic Selloff
Anyone reading this post already knows that palpable panic has set into equity markets over recent days. We present these charts to highlight the extreme nature of the selloff so far, and as a reminder of the rarity of these events. In times like this, it’s important to remind oneself that these kind of extremes are transient and often present, at the very least, unique tactical opportunities.
A Selloff, But Not An Actionable Low…Yet
Watching while the largest equity market in the world falls by a whopping 8% in four trading days brings us back to the 2008-2009 meltdown period of the financial crisis. Normally an 8% drop in such a short time frame would present an interesting intermediate-term buying or rebalancing opportunity outside of a recessionary environment.
What’s Behind the Breakout in Gold?
This week’s breakout in gold is an epic expression of our times in which potential economic problems are quickly followed by massive actual and expected responses by central banks and governments. The problem de jour (for both markets and the public) is of course the real and scary health and economic consequences of a further spread COVID-19.
New All-time Highs on Declining Breadth is Reason for Caution
There are a number of factors that have us tactically concerned about a period of over-exuberance among equity investors. Those include record low put/call ratios and extreme inflows into equity ETFs. But among the more troubling facts of late is the breakdown in breadth we are witnessing even as the equity markets rally to new cycle or all-time highs.
Strong 4th Quarter, Election Year Supports the Case for a Strong Q1
Unless something dramatically changes in the final few days of 2019, the 4th quarter for equity market performance will be one to write home about. The S&P 500 is currently on track to deliver about a 9% price return, which would be the second best quarterly performance in the last five and a half years.
Economic Growth Has Not Hit Bottom Yet
Even as left tail risks to US and global economic growth seem to have been mitigated over recent weeks (more accommodate financial conditions, rising of some PMI data, worst case trade outcome seemingly a lower probability now), incoming data continue to suggest the nadir of this slowdown cycle has not yet been reached.
Not So Fast on the Cyclical Chinese Recovery
Investors were unfortunately treated to a rather disappointing package of October Chinese economic data. Three of the most important hard data series were reported: fixed asset investment, industrial production and retail sales.
Technology & Materials: Do You Take the Over or the Under?
As each day passes and more evidence of some sort of bottom in economic activity emerges, the chances of market rotation into the more beaten down areas of the global equity market would seem to be rising.
If International Equities Outperform, Will You?
I wrote a week ago about how international equities may be finally getting the help they need to break the back of a long-term underperformance trend. It’s a trend that has caused international stocks to underperform US stocks in eight of the last eleven years.
EAFE Equities: Can they Ever Work Again?
EAFE stocks, those in the developed Europe and Asia regions, have underperformed US stocks in eight of the last eleven years. That batting average might be decent if you are a professional baseball player, but not so much if you are a professional investor.
Hard Data Gets Put to the Test
United States and indeed global economic data have been weak – at least that is the unabated message from the PMI data that were released this week on both manufacturing and services. At this stage everyone knows the survey data, or “soft” data, are weak.
International Value: Optionality on Reflation
At some point the global economy will get a dose of reflation. Whether that comes from the current central bank easing cycle, fiscal policy response, coordinated fiscal-monetary action, or a détente in the US-Sino trade dispute is not yet known.
Is the Bond Rally Over or is This a Correction in a Downtrend in Treasury Yields?
With interest rates on the 10-year US treasury bond having moved nearly 50bps higher over the last 10 days it is certainly worth asking the question if we’ve seen the low in interest rates or whether this is more of a correction in an ongoing downtrend in rates.
The Calculus for Fed Inaction is Getting Tougher by the Day
Over the last few days investors have been given a good amount of information to digest from incoming economic data, Federal Reserve meting minutes, and Fed speakers opining about monetary policy at the annual Jackson Hole conference. Even still, everyone is waiting on THE speech from Fed Chairman Powell tomorrow to set to the expectations for the Fed’s upcoming meeting in mid-September.
3 Reasons Why More Tariffs are Bullish for Government Bonds
Today’s news of 10% tariffs on the remaining $300bn of imports from China took markets by storm today with US stocks moving from a 1% gain to almost a 1% loss on the day. Meanwhile, gold closed at a 6-year high of $1445.
The Debt Ceiling Impasse Has Meant Mini QE Since May – Will Mean QT When Resolved
When the US government gets near its statutory debt limit, congress must lift the debt limit in order for the Treasury to continue to issue debt to pay for government expenses. Simple enough.