Thursday
Nov062014

Lots of Bull

With the S&P 500 hitting new all-time highs again this week, the bulls are back out in force.  According to the weekly survey from the American Association of Individual Investors (AAII), bullish sentiment rose to 52.69% this week, up from last week's reading of 49.4%.  This is the highest reading of bullish sentiment we have seen all year. It is also the 6th highest reading of bullish sentiment in the current bull market and only the 17th time it has exceeded 50% since March 2009.

While bullish sentiment is at a lofty level, the decline in bearish sentiment was even more extreme.  In the latest week, bearish sentiment dropped from 21.07% down to 15.05%.  This is the lowest level of bearish sentiment in the entire bull market, and just the 10th time bearish sentiment dropped below 20%.

Thursday
Nov062014

Jobless Claims Continue to Decline

After two straight weeks of slightly higher than expected readings, Initial Jobless Claims came in lower than expected for the latest week.  While economists were forecasting a level of 285K, the actual reading came in at 278K.  With another week where claims came in below 300K, October 2014 represents the first time since February 2006 that claims were below 300K for the entire month.

With this week's decline, the four-week moving average also declined by a little more than 2K, falling from 281.25K down to 279K.  This represents the fifth straight week where this indicator made a new post-recession low.  It is now also close to taking out its lows of 266.25K in April 2000.  If that level goes, you'll have to go all the way back to the early 1970s to find a lower reading.

On a non-seasonally adjusted basis (NSA), jobless claims fell by about 5K to 266.2K.  This is also a notable low for this indicator as well.  For the current week of the year it is the lowest reading since 1999, and nearly 100K below the average of 365.8K for the current week going back to 2000.

Wednesday
Nov052014

Utilities Valuation Ticks Above Market Levels

The S&P 500 Utilities sector is up another 2% today, as it continues to act more like the 90s Internet group than the no-growth defensive that it is.  The recent run higher for the Utilities sector has pushed it to new all-time highs.  With the run higher, the sector's valuation has also spiked.  As of this afternoon, the sector's trailing 12-month P/E ratio stood at 17.86.  While not startingly high, 17.86 is notable because it's 0.01 points higher than the P/E ratio for the S&P 500 as a whole.

Below is a chart showing the ratio between the S&P 500's P/E ratio and the P/E ratio for the Utilities sector going back to 1990.  When the ratio is above one (1), the P/E for Utilities is higher than the P/E for the S&P 500.  As shown, a ratio above one has been relatively rare over the last 24 years, but it's not without precedent and has been increasingly frequent.  The spread was actually above one for much of the last bull market from 2005 to early 2008, and it has been above one many times during the current bull market going back to late 2011.

While you wouldn't expect to see Utilities stocks more highly valued than the market as a whole, during this bull market, investors have routinely been willing to "pay up" for the sector to capture dividends in a low-rate environment.  Since 1990, the sector's average P/E ratio has been 14.57, so at some point we expect the sector to revert back to its mean.  To get back to its mean, the sector needs to start growing earnings faster than its price is increasing, or its price needs to fall back down to earth.  The latter is the more likely scenario in our opinion.

Wednesday
Nov052014

ISM Services Weaker Than Expected

While Monday's read on the Manufacturing sector in October was better than expected, activity in the Non Manufacturing sector came in a little bit softer.  With economists expecting a reading of 58.0 in the ISM Non Manufacturing PMI report, the actual reading came in at 57.1.  As shown in the top chart below, though, even after the miss, the actual level of the PMI report is still right near expansion highs.  On a total basis, accounting for each sector's weight in the overall economy, the combined ISM reading (lower chart) came in at 57.3 compared to last month's reading of 58.4. 

The table below breaks down this month's ISM Non Manufacturing report by each of the index's ten subcomponents.  On a month over month basis, it was a sea of red in October as only two components (Employment and Import Orders) showed an increase.  The increase in the employment component was especially noteworthy as that saw its highest reading since August 2005 (see chart below), and should bode well for Friday's non farm payrolls report.  With respect to Import Orders, the strength in the US dollar is boosting demand from outside US borders.  Compared to a year ago, the internals of the ISM Non Manufacturing report looked much better with seven out of ten components showing year/year increases.

Tuesday
Nov042014

The Closer: End of Day Commentary From Bespoke

Each night Bespoke puts out The Closer, our take on the day's events and a highlight of what we're watching for the coming days.  Packed with data, digestible commentary, and market insights, The Closer is all you need to get a handle on the day that was and form opinions for the next trading session.  Below is today's edition of The Closer, including commentary on recent equity performance, thematic trends, a review of what the Cantor upset means for markets, and a highlight of tomorrow's economic data.  Please click the thumbnail to view the full report.

The Closer

Subscribe to Bespoke Premium now to receive The Closer in your inbox every evening!  The first five days of every subscription are free, so if you you don't like The Closer or any other piece of Bespoke's research, you can cancel at no charge.

Tuesday
Nov042014

Bespoke's October "Financial Condition" Reading

Last week we published our October Consumer Pulse Report for Pulse subscribers.  Bottom line -- this month's report is must-see for investors looking for a full picture of the US economy ahead of the big jobs report this Friday.  This month's report found key trend shifts in labor markets, housing, consumer sentiment and consumer spending activity.

If you're unfamiliar with our new Pulse service, each month we survey between 1,500 and 2,000 US consumers, which represents a statistically significant sampling of the US population.  The survey these consumers take consists of 75 questions related to their personal finances, spending habits, and economic and investor sentiment levels.  From our monthly survey, we're able to get a real-time look at the state of the US economy, and we break it into six key sections -- Economic Sentiment, Consumer Activity, Labor Markets, Housing, Investor Sentiment and Personal Finances.  In this month's report, a few of these sections of the economy were flashing very positive, but a few others were flashing very negative.  You'll have to sign up for the Pulse service to find out which are which.  

One of the questions we ask consumers in our monthly survey is to compare their current financial condition with the financial condition of the average person.  A famous 1983 study of American students once found that 93% of them put themselves in the top 50% (better than median) with regards to driving ability.  Mathematically, this is impossible, but it emphasizes that perception is often more important than math.  In a more positive application of the same effect, 40.3% of Americans rate their financial condition as better than average, while only 22.3% believe that they are in worse condition than the average.  Given widely-quoted statistics about income and wealth distributions skewing steeply towards higher income and more wealthy Americans, we take this as a positive sign that Americans as a whole are relatively optimistic about their financial conditions.

And this data has only gotten more positive since we began running our survey in July.  In the second chart below, we provide a tracker for this question.  As you can see, sentiment towards financial condition has picked up in each of the past two surveys, and in October it reached the highest level we have seen.  

Our "Financial Condition" question provides a unique look into the mind of the US consumer.  There are numerous questions like this throughout the Pulse survey that give subscribers a great look at the current and projected state of the economy.

Why not sign up for a 5-day free trial today to view the full October Consumer Pulse Report?  It's free for the first five days, and you can cancel at any time.  And since this is a relatively new subscription offering (launched in August), we're providing you with a 30% discount to the service for the life of your membership!  Simply enter "pulsecharter" in the coupon code section of the Pulse subscribe page to recieve the 30% discount.  

Head on over to the Pulse website to learn more about the Pulse report.  There's even a sample of a past report at the site so you can get an idea of just how impressive it is.  

Ready to give it a try and see our October Pulse Report for free?  Sign up now now!  If you're unhappy after viewing the report, simply give us a call and cancel at any time.  For the first five days, the service is on us.

Tuesday
Nov042014

October Asset Class Performance

We're a couple of days late publishing our October asset class performance matrix, but nonetheless, it's provided below for those interested.

US equity related ETFs saw steep declines to start the month of October, but across-the-board 8-10% gains from October 15th through month end pushed most of them into the green for the entire month.  As shown on the left hand side of the matrix, smallcaps did the best in October with gains of nearly 7%.  After months of underperforming, smallcaps finally made a comeback.

In terms of sectors, Utilities, Health Care and Industrials did the best in October, while Energy and Materials both saw declines. 

Internationally, most countries still finished in the red for the month, even though they saw nice bounce backs after the October 15th low.  It's notable that through October, France, Germany and the UK are all down 9-14% year-to-date.  India, on the other hand, is up nearly 30% YTD.

Commodities really struggled in October, and while they fell from 10/15 through month end, Treasury-related ETFs still posted gains for the entire month.

Monday
Nov032014

Commodity Prices Down in ISM Manufacturing Report

In addition the strong headline reading in the ISM Manufacturing report for October, there was also good news for the consumer related to commodity prices.  In addition to the six point decline in the Prices Paid Index (largest one month decline since March 2013), the number of commodities rising and falling in price also showed pressure (to the downside) on commodity prices.  In this month's survey, manufacturers noted price increases in six commodities (Aluminum*, Electrical Components, MRO Supplies, Polyethylene, Polypropylene, and Stainless Steel) and declines in eight (Aluminum*, Carbon Steel, Copper, Corn based products, Diesel, Galvanized Steel, Gasoline, and Silver).  This was the first time that more commodities were down in price in a given month than up in price since November of last year, and only the eleventh month in the entire recovery (since June 2009).

The chart below shows the net number of commodities rising in price, using a three month moving average, going back to 2007 (blue line) and compares it to the y/y change in the CPI.  As shown, shifts in the number of commodities rising in price (up or down) have tended to precede moves in the CPI.  Based on that, don't expect to see any major upside surprises in CPI in the coming few months.

* Aluminum was reported as being both up and down in price according to ISM.

Monday
Nov032014

ISM Manufacturing Report Stronger Than Expected

Economic data for the month kicked off on a positive note today with a better than expected ISM Manufacturing report.  While economists were expecting a headline reading of 56.1, the actual reading came in at 59.0.  This is a level we saw in August and that was the highest level since March 2011.

The table below breaks out this month's report by each of the ISM's subcomponents and compares the current levels to where they were last month and last year.  As shown in the table, all but one of the components were above 50 this month (the threshold for growth), and just two (Prices Paid and Export Orders) declined relative to last month.  Given the decline in commodity prices, the drop in Prices Paid is not surprising.  Likewise, with the strength we have seen in the dollar, the drop in Export Orders is to be expected as well.

Compared to one year ago, October's ISM Manufacturing report was nearly equally as impressive.  Again, of the ten subcomponents seven are higher now than they were then.  Components where we saw the biggest increases were in Customer Inventories, New Orders, and Production, while the biggest decline came in Prices Paid.  Finally, with the October nonfarm payrolls report coming up on Friday, the employment component of the ISM Manufacturing provided some support as it increased to 55.5 from last month's level of 54.6 and last year's level of 54.8.

Monday
Nov032014

Internet Earnings In The Spam Folder

This earnings season, stocks in the Technology sector have seen quite a positive reaction from market to their earnings reports.  Through Friday, stocks in the sector rallied an average of 1.26% in the first full trading session after they reported earnings, which was ahead of the 0.99% average gain for all stocks.   Even as Tech stocks have been doing well, though, stocks in the internet space have had a brutal go of it this earnings season.  

For stocks in the Nasdaq Internet Index that have reported earnings, the average one day change in reaction to earnings has been a decline of 0.49%.  That doesn’t sound terrible until you only look at the 20 of the 41 companies that have reported and have declined on the day following their report: their average decline is 9.9%!  There are some huge names in that undistinguished crowd too: S&P 500 components include Netflix (NFLX), Amazon (AMZN), Facebook (FB), eBay (EBAY), and Google (GOOGL).  Those five stocks declined an average of 7.03% the day after their earnings, even though the S&P 500 has flown higher to a new all-time closing high over the last two weeks.  When it comes to stock performance this earnings season, not all tech is created equal.

Monday
Nov032014

For Truck Sales Decline Again

Truck sales are one of the less traditional indicators we like to follow to gauge overall strength in the US economy, and more specifically the small business sector.  With that premise, this morning's monthly sales figures from Ford weren't exactly positive.  In the month of October, Ford sold 63.4K F-Series trucks which was a fractional decline over the total from last October.  This represents the third straight month where the monthly total was below the total for that month in the prior year.  While this is a negative at the surface, as we have been pointing out over the last few months, some of the slowdown is due to the changeover of plants for the introduction of the new F-150.  As the plants and production of the new F-150 come online, these results should improve.

For the first ten months of the year, Ford's sales of F-Series trucks in 2014 now total 620K, which is also down slightly compared to last year's total of 623K.  Again, while the declines are somewhat expected, it does mark the first year/year decline since 2009.

Monday
Nov032014

Bullish Sentiment Up to 68%

Bullish sentiment in our weekly Bespoke Market Poll came in at 68% this weekend, which ties for the highest reading we've seen since we began our poll at the start of 2012.  Interestingly, as you'll see in the second chart below, November has been a sweet spot for bulls over the last few years.  We've seen spikes into the high 60s each November for the past three years.  

There's lots of bullishness out there heading into the final two months of the year.

Monday
Nov032014

New All-Time Closing Highs

On October 15th, the S&P 500 reversed with incredible violence off of an intraday low at 1820.66.  Since that intraday low, the S&P 500 has ripped higher, gaining 10.85% and only closing lower on three of twelve trading days since.  It's almost impossible to believe, but on Friday the index closed at an all-time closing high of 2,018.05.  S&P 500 stocks aren't alone though: the Dow also closed at a new all time high.  The blue chips hit an all-time intraday high as well, a feat the S&P 500 was a few points below.  As for the Nasdaq, the index hit a multi-year high, but it's still below its lofty levels established during the internet bubble days.  Finally, small caps in the Russell 2000 Index have done well in their move higher from the October 16th intraday lows.  They've also smashed through a downtrend that had been in place since the June highs.  All four major US indices are now back above 50- and 200-day moving averages.  Below we chart each index's performance over the past year.

Interested in index analysis, technical trends, and macro market commentary?  Sign up for a free trial of Bespoke Premium today to access our weekly Bespoke Report newsletter.  The Bespoke Report makes for an easy, comprehensive read, jammed with charts, statistics, and actionable commentary in an easy to read and accessible format.  Sign up now to gain access!

Friday
Oct312014

S&P 500 Higher or Lower From Here?

After a rough start to October, the S&P 500 finished the month at a new all-time closing high.  So which way will the market go from here?  Please take part in our weekly Bespoke Market Poll below by letting us know whether you think the S&P 500 will be higher or lower one month from now.  We'll report back with the results on Monday before the open.  Thanks for participating, and have a great weekend!  Happy Halloween!

Looking for Bespoke's take on this huge upside rally and what it means for the market going forward?  Become a Bespoke subscriber today and check out our just-published Bespoke Report newsletter.  This week's report is packed with analysis on the economy, earnings and everything else that impacts equities and other asset classes.  Sign up for a 5-day free trial to view this week's report for free!  If you're unsatisfied, you can cancel at anytime.

Will the S&P 500 be higher or lower than its current level one month from now?
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Free polls from Pollhost.com

Friday
Oct312014

Health Care Surging on Earnings; Energy Not So Much

As highlighted in our prior post, the average stock that has reported this earnings season has averaged a big gain of 0.99% on its report day.  Below is a look at the average one-day performance on earnings this season broken up by sector.  As shown, the average Health Care stock that has reported has gained a whopping 2.14% on its report day this season.  No wonder the sector has gone parabolic recently!  Telecom, Consumer Discretionary and Technology are the three other sectors that are seeing out-sized gains on their report days.

On the downside, Energy sticks out like a sore thumb.  As if the sector didn't have enough trouble coming into earnings season, investors have continued to unload Energy shares even after they report.  As shown below, Energy is the one sector where stocks are averaging declines on their report days.  When will the bottom be put in?