Sunday, September 16, 2018

Instilling Fear In Investors Via Charts

In the mid 1990's famed investor Peter Lynch stated, "Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves." With this quote in mind it seems a number of investment pundits are once again trying to sell fear regarding the current equity market. This morning I ran across the following chart on Twitter.



Tuesday, September 11, 2018

Job Openings And Quits Rising At Faster Pace Than Job Hires

The Labor Department's release of the Job Openings and Labor Turnover (JOLTs) report this morning is further confirmation of a strong labor market. The NFIB Small Business Optimism report I highlighted earlier today also noted the difficulty small business are having in filling open job positions. The JOLTs report continues to show the number of job openings exceeding the number of unemployed individuals. This unusual occurrence has been the case since March of this year. 


Also compounding hiring issues for companies is the fact the rate of job openings and job quits is increasing at a faster pace than company hires as seen in the below chart.


The next chart shows the absolute number of openings versus quits and hires and clearly openings appear to have accelerated.


The NFIB report and the JOLT report are reflective of a tight labor market with the likely result of continued upward pressure on wage inflation. The Fed will certainly take into account these tight labor market reports into future rate hike decisions.


New Record High For The NFIB Small Business Optimism Index

The National Federation of Independent Businesses (NFIB) reported that August's Small Business Optimism Index set a new record high at 108.8. The prior high mark for the index was set 45-years ago (July 1983) when the index reached 108. NFIB's President & CEO, Juanita Duggan, stated in the report,
"Today’s groundbreaking numbers are demonstrative of what I’m hearing everyday from small business owners – that business is booming. As the tax and regulatory landscape changed, so did small business expectations and plans. We’re now seeing the tangible results of those plans as small businesses report historically high, some record breaking, levels of increased sales, investment, earnings, and hiring."

Duggan's also noted in the report that earlier in the positive trend higher in the index was the fact many of the component gains were dominated by what she calls expectations, i.e., good time to expand, expected real sales, expected business conditions, etc. Today, the highlights in the report are related to real business activity, i.e., job openings, inventory investment plans, capital spending plans, etc. This real activity data is supportive of higher GDP growth as one looks ahead. Some of this real activity data can be seen below with the noted survey components at high levels.


Small businesses are a critical part of driving economic growth and today's survey indicates the current economic expansion has further room to run to the upside.


Friday, August 31, 2018

Watch For A Peak In Consumer Sentiment

Utilizing sentiment measures in one's analysis is not an exact science. On the other hand, at their extremes, these sentiment measures do provide signals of a potential near term change in market and economic direction.  A number of 'investor sentiment' measures are available to evaluate, but I am highlighting only two below, the NAAIM Exposure Index and the American Association of Individual Investors (AAII) Sentiment Survey.

As the below chart shows, the NAAIM Exposure Index reading of 98.3% is approaching overly bullish sentiment on the part of institutional active managers. Reflecting the individual investor sentiment is the green line on the chart showing AAII's percent bullish reading and it is trending higher at 43.5%, but not at an extreme. High readings for this measure are generally at levels near 50% bullish or higher.


Saturday, August 25, 2018

Respect The Predictive Power Of An Inverted Yield Curve

There are a few events in investing that have a high likelihood of being good predictors of the equity market's future direction, like, stock prices follow earnings, market breadth leads price, or an inverted yield curve leads economic weakness. One factor I believe the bears have missed in the recent market advance seems to be their discounting of the increasing strength of corporate earnings growth. The improved earnings growth picture has not only improved the market's valuation, but as the below chart shows, the faster earnings growth seems to be pulling stocks higher as well.


Wednesday, August 22, 2018

Yet To Break The Bull Market Record

I have been a bit lax in writing blog posts as client and investment responsibilities have taken precedence. On a day like today though, I feel compelled to type out a blog post recognizing today's record breaking bull market, or is it?


Tuesday, August 14, 2018

Near Record Small Business Optimism

As I review and highlight business and consumer optimism, I feel as though my thoughts are a bit like a broken record that plays the same song over and over again. With that, another business optimism survey is highly positive. The National Federation of Independent Business (NFIB) reported that small business optimism rose to the second highest level in the indexes history. The optimism index level of 107.9 was only .1 points lower than the record high reading reached in July 1983.


Having difficulty filling open job positions seems to be a common theme in these optimism and confidence surveys and today's NFIB report is no different as it is noted,
"The July 2018 report also set new records in terms of owners reporting job creation plans and those with job openings. A seasonally-adjusted net 23 percent are planning to create new jobs, up three points from June. Thirty-seven percent of all owners reported job openings they could not fill in the current period, a one-point increase from June (emphasis added.)"
Another category contributing to business optimism is the fact top line revenue growth remains robust. The report shows that "July is the eighth consecutive strong month of reported sales gains after years of low or negative numbers. A net 35% of owners expect better business conditions, ticking up two points from June."

All in all this is another strong confidence report. Historically, recessionary periods do not occur until several years subsequent to peaks in the NFIB index and other economic data suggests further economic growth ahead. 


Saturday, August 11, 2018

Is Korea Equity Market Weakness A Precursor To Weakness In U.S. Markets?

About a year ago I provided an update on the Korea Stock Exchange Index (KOSPI) and the fact it can serve as a leading indicator to U.S. equity market performance. As noted in that earlier post, I referenced noted economist, Ed Hyman of Evercore ISI, who believes the KOSPI index is a leading indicator of the global economy as South Korea's exports account for over 40% of the country's gross domestic product. In other words, the KOSPI Index performance is a reflection of the health of the global economy. Also worth noting is the largest sector weighting in the KOSPI index is the technology sector, accounting for over 40% of the index weight. The below chart compares the KOSPI index, in US Dollars, to the S&P 500 Index. Since early June the performance of the KOSPI Index has diverged to the downside versus the S&P 500 Index. Even with the KOSPI priced in Won a similar divergence is seen.


Some of the weakness may be attributable to investors reducing emerging market positions in ETFs like the iShare MSCI Emerging Market Index (EEM) as Korea remains classified as an emerging market country and makes up about 14% of the index. China is the largest weighting at 32%. The EEM ETF has experienced outflows of nearly $5 billion since June 1. Last week though, EEM had inflows of about $178 million.

Some of the weakness in the Korean market might be related to tariff issues. The Trump administrations comments about increasing tariffs on more Chinese exports is being felt in other Asian countries. However, economically, the Korean economy is continuing to expand, but higher tariffs could have a negative spillover impact on their economy.



Friday, August 10, 2018

Another Highly Optimistic Business Owners' Survey

Many of the consumer and business sentiment surveys continue to be reported at or near record levels. I highlighted a few of these high level optimism surveys last month in a post titled, Sentiment Is Widely Positive. Earlier this week Gallup released the results of the quarterly Wells Fargo/Gallup Small Business Index and Gallup noted, "small business owners are more optimistic than at any point in the 15-year history of the Index." The index level high of 118 surpasses the prior high of 114 reached in 2006.


The interviews for the survey were conducted in mid July so it does account for any issues surrounding trade and tariffs. If record high optimism is any indication, business sentiment around the trade issues seems much less worrisome at the moment than the headlines from news commentary may be suggesting.

As I have recently noted in earlier articles, the job market is tight so it is not surprising business owners mention finding qualified workers as their biggest challenge. The survey notes,
"The Wells Fargo/Gallup Small Business Index includes an open-ended question asking small-business owners to name the most important challenge facing their businesses. In the current update, owners remain more likely to say that hiring poses a greater challenge than any other single issue, with 18% citing this as their top concern. Hiring is the only issue cited by at least 10% of owners."


Thursday, August 09, 2018

Sentiment Measures Not At Extremes

Keeping in mind sentiment data is contrarian in nature and most predictive at its extremes, today's American Association of Individual Investors Sentiment Survey report shows bullish sentiment increased over seven percentage points to 36.36%. The plus and minus one standard deviation levels for the bullishness reading are 48% and 28%, respectively. Although the bullishness reading jumped higher in this week's report, the reading remains below the average reading of 38%. In order to minimize the weekly volatility often the 8-period moving average is evaluated as well. This week the 8-period moving average continued moving lower to 33.3% and is represented by the red line on the below chart.



A Tight Labor Market Evidenced By Declining Jobless Claims

Further evidence of a tight labor market is seen in today's decline in weekly jobless claims to 213,000. This was the first decline in the last three weeks and the 4-week moving average of initial claims continues its trend lower. This report coincides with Tuesday's JOLT report that shows job openings continue to exceed job hires as well. Jobs are plentiful at the moment.


Tuesday, August 07, 2018

Job Openings Continue To Exceed Job Hires

Today's June Job Openings and Labor Turnover report once again shows job openings exceed the number of hires for the month by 1.0 million. This continued trend higher in openings versus hires is a sign employers continue to have difficulty filling open positions.