Housing Starts and Building Permits Miss Expectations

After Tuesday's big miss in home builder sentiment, today's release of Housing Starts and Building Permits for the month of January showed additional weakness.  In the case of Housing Starts, economists were expecting a seasonally adjusted annualized rate (SAAR) of 1.07 million, but the actual rate was slightly weaker at 1.065 million, which was down from December's reading of 1.087 million last month.  The miss in Building Permits was by a similar magnitude.  Economists were expecting a SAAR of 1.067 million, but the actual level came in at 1.053 million, which was down from December's reading of 1.06 million. 

The top part of the table below lists the breakdown of Housing Starts by both the size of unit and on a regional basis.  Overall, Housing Starts dropped 2% month/month (m/m) but were up 18.7% year/year (y/y).  The reason for the big improvement in the y/y reading was due to a big drop we saw last January when bad weather across the country suppressed housing activity.  As shown in the breakdown between single and multi-family units, all of this month's weakness was in single family units, which dropped 6.7% while multi-family units actually rose 7.5%.  Single family units are generally considered to have a greater economic benefit than multi-family units, so the weakness in January was a disappointment.  Looking at the breakdown on a regional basis gives us some insight into why Tuesday's home builder sentiment report showed such weakness among home builders in the Midwest, as Housing Starts in that region dropped 22.2%! 

At the bottom of the table, we have broken out Building Permits by type of unit and region.  Similar to trends we saw in the figures for Housing Starts, Building Permits saw weakness in single family units relative to multi-family units.  Additionally, on a regional basis the Midwest saw the most weakness (down 16% m/m), while the Northeast and West regions both saw double digit growth. 


2014 vs. 2015

The S&P 500 got off to a rough start to the year with a 3% decline in January.  The index has been straight up in February, though, and it's now up roughly 2% on the year.  

Where have we seen this action before?  Well, last year got off to a very similar start.  The index fell 2.93% in January, declined a couple of more days to start the month of February, and then it was straight up for the rest of the month.

Below is a chart showing the S&P 500's action through President's Day of both 2014 and 2015.

For those interested, below we have continued the 2014 performance chart out to the end of June.  Eventually the February rally ran out of steam last year, and the S&P went on to trade sideways from March through early May before making another big leg higher in June.


Countdown To Liftoff Unchanged After Long Weekend

Our estimate of the most likely date of the first Fed hike based on Fed Funds Futures prices has been mostly flat over the last couple of days, ticking lower in terms of time to hike but stable in terms of the date a hike is expected.  Please see the charts below for our current readings.


Manufacturing in the New York Area Modestly Weaker

Manufacturing activity for the New York Area is showing some modest weakness for the month of February.  The latest release of the Empire Manufacturing report declined from 9.95 in January down to 7.78, which was ever so slightly weaker than consensus forecasts for a reading of 8.00.  The real standout in this month's report, however, was expectations index for general business conditions six months from now.  That index declined from 48.35 down to 25.58.  Since 2001, the only other months where this index saw a larger monthly decline were in September 2001 and January 2009.

The table below breaks down this month's Empire Manufacturing report by each of its components.  As shown in the table, Prices Received saw the largest decline this month, falling from 12.6 down to 3.4.  While it is probably just a one month anomaly, even as Prices Received fell, Prices Paid actually rose.  That's never a good mix for a company's margins.  On the upside, Average Workweek saw the largest increase of any component, even as Number of Employees declined.

As mentioned above, this month's Empire Manufacturing report contained several different seemingly contradictory data points.  Another case in point is the expectations index for Capital Expenditures over the next six months.  Even as sentiment over the next six months saw its largest decline since early 2009, plans for Cap Ex rose from 14.74 up to 32.58.  That was the largest one month increase since April 2009.


Home Builder Sentiment Drops

Optimism on the part of home builders took a big of a hit this month as the headline sentiment index from the National Association of Home Builders (NAHB) came in weaker than expected.  While economists were expecting a one point decline from January's reading of 58, the actual reading came in at 55.  This was the lowest reading for the index since October, which also happened to be the last time that we saw this large of a miss relative to expectations.  While this month's report saw a meaningful downtick, the weather is likely to have at least had some impact.

The table to the right breaks down this month's home builder sentiment report by categories and region.  As shown, this month it was Traffic that really dragged the overall index lower.  With a decline of 5 points, the index fell to its lowest level since July and saw its largest one month decline since October.

In terms of the regional breakdown, sentiment for home builders in the Northeast actually increased by five points rising to 48.  The big area of weakness, however, was in the Midwest where sentiment dropped ten points to 49.  The only other month since 2004 where sentiment among home builders in the Midwest saw this large a drop was in February of last year, when sentiment saw the same ten point drop, falling from 59 down to 49.  There must be something about February in the Midwest lately.


Bulls Rush In

Bullish sentiment surged up to 67% in our weekly Bespoke Market Poll.  As shown below, this is at the top end of the range we've seen since we began running our sentiment poll at the start of 2012.  Earlier this month, bullish sentiment dropped below 50% for the first time since the end of September.  But the sub-50% bullish level only lasted one week, and since then we've seen the bulls rush back in as the market trades to new highs once again.  




New Highs With the VIX at 15

The S&P 500 closed at new all-time highs last Friday, but as shown below, the VIX Volatility index remains in the mid-teens instead of the low-teen levels it was at when the S&P was making new highs last year.  There's definitely some room on the downside for the VIX to get to before "complacency" worries start to show up again. 


Key ETF Performance Through President's Day 2015

Below is a look at the performance of various asset classes through President's Day 2015 using key ETFs from our daily ETF Trends report available to Bespoke Premium members.  For each ETF, we show its performance last week, so far in February, and so far in 2015.  US-related ETFs are generally on the left side of the matrix, while international, commodity and fixed income ETFs are on the right side of the matrix.

US equities are up sharply so far in February, which has allowed them to erase January losses and move into the green for the year.  The S&P 500 (SPY) and Dow 30 (DIA) ETFs are both up more than 5% in February, while the Nasdaq 100 (QQQ) is up 5.75%.  Largecaps and midcaps are outperforming smallcaps year-to-date, while growth is outperforming value.  

Looking at the ten sectors, Energy (XLE), Materials (XLB), Telecom (IYZ) and Consumer Discretionary (XLY) are all up 7%+ this month already.  On the flip side, the Utilities (XLU) sector has plummeted this month, leaving it down more than 4% on the year.

Outside of the US, most countries are in the green for the year, with the exception of Brazil (EWZ), Canada (EWC), Mexico (EWW) and Spain (EWP).  The Russia ETF (RSX) is up the most of any ETF in the matrix with a year-to-date gain of 23.38%.

Commodities have been all over the place this year.  Oil (USO) is up 10% in February, but it's still down 3.63% year-to-date.  Gold (GLD) is down 4.43% in February, but it's up 3.87% YTD.

Finally, fixed income ETFs have run into a rough patch over the last couple of weeks, especially the 20+Yr Treasury (TLT) with a decline of 7.3% on the month.  Even after the pullback, though, fixed income ETFs remain in the green on the year.

Check out this week's Bespoke Report newsletter for a more in-depth discussion of various asset classes. 

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Long Weekend? Check Out Our New Weekly Chart Book.

Over the years, we’ve found that one of the most helpful yet time-consuming tasks for investors is analyzing stock charts on a regular basis.  Whether you’re a market technician or not, simply browsing through price charts can give you a great feel for the underlying trend of the market.  Of course, chart browsing is also very useful for investors that do use technical analysis in their process, as it’s one of the best ways to find new long and short ideas.

While hard-copy chart books are still in print, we’ve yet to find a great online source that makes it easy to quickly look through a large number of stock charts.  To fill this void, we have created our own chart book that is laid out perfectly for fast analysis.  Bespoke’s Weekly Chart Book contains one-year price and volume charts for every stock and sector of the S&P 500, and it’s sorted alphabetically by sector so users can make quick relative strength comparisons.

Our Weekly Chart Book can be intensively studied, but it can also be read from start to finish in under five minutes if you need expediency in your research process.  So whether you want to do deep technical analysis to find the perfect long or short set-up, or do a quick thumb-through to get a better feel for the market, our Weekly Chart Book is the perfect tool.  You’ll have a tough time finding a report that allows you to look through this many charts in so little time!

Bespoke’s Weekly Chart Book is part of our Bespoke Premium and Bespoke Institutional services, and it is published towards the end of each trading week.  

Please click on the thumbnail image below to view Friday's version of the report with charts updated ahead of Tuesday's open.  To receive our Weekly Chart Book going forward, simply sign up for a Bespoke Premium orInstitutional membership today.  Use "chartbook" in the coupon code section of our Subscribe page to receive a 10% discount on your new membership!


S&P 500 Higher or Lower from Here?

The S&P 500 closed out the week at a new all-time high.  But which way will the market go from here?  Please take part in our 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 Tuesday before the open.  Thanks for participating and have a great President's Day weekend!

Looking for some weekend reading?  Be sure to check out our just-published Bespoke Report newsletter.  This week we cover earnings season, retail sales, international markets, tax returns, market internals, the pullback in Utilities and much more.  Sign up for a 5-day free trial to any of our subscription services to view this week's report.

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Guidance Spread Still Negative

So far this earnings season, the spread between the percentage of companies raising guidance minus lowering guidance is -9.2 percentage points.  As shown below, that's the lowest reading seen since the two quarters that came right at the end of the financial crisis.  Pretty amazing that the only time this many companies have been this negative over the last 10 years was when the S&P was nearly 1,400 points lower than it is now.  

For more earnings season analysis, sign up for a 5-day free Bespoke Premium trial and check out our Bespoke Report newsletter set for publication this evening.


S&P 500 Approaching New Highs

After another rally today, the S&P 500 is now just 5 points below its prior all-time highs reached at the end of December.  As shown below, the index and six of ten sectors are now in overbought territory, with Consumer Discretionary leading the way higher.  The one sector that has not participated in the fun recently is Utilities.  In fact, the sector is now trading in oversold territory as the rest of the market rallies.  

You can see the sideways pattern the S&P 500 has been in over the last few months in the chart below.  Even more recently the S&P had been in an even tighter sideways range, but we managed to break convincingly above that today.  Should we manage to take out the December highs in the coming days, you'll hear a lot of bulls cheering on another big leg higher.

Earlier today we noted the weak relative strength of the Utilities sector.  Below we provide one-year relative strength charts (vs. the S&P 500) for all ten S&P 500 sectors.  In the charts below, rising lines mean the sector is outperforming the S&P 500, and vice versa for declining lines.  Levels above 0 mean the sector was outperforming the S&P 500 over the last year at that point in time, and vice versa for levels below 0.  Dots represent FOMC days.

Relative strength for the Utilities sector has fallen apart since the last FOMC meeting, which coincided with the short-term low in interest rates as well.  Taking its place on the positive side are sectors like Consumer Discretionary -- which is now outperforming the S&P 500 over the last year -- Materials, Financials, and Technology.  Other sectors that have seen relative strength pull in a bit recently include Consumer Staples (another defensive) and Health Care.

Every week at Bespoke Premium, we publish our Sector Snapshot, which provides commentary along with multiple pages of sector charts of things like trading ranges, advance/decline lines, valuations, relative strength and long-term breadth.  To check out this week's Sector Snapshot, sign up for a 5-day free Bespoke Premium trial today.



Utilities On the Elevator

There's an old saying on the Street that stocks take the stairs up and the elevator down.  In other words, gains typically occur over a period of weeks or months, but can be erased in days or even hours.  The recent performance of the Utilities is a prime example.  For months, investors have been amazed at how even in an up market one of the best performing sectors had been the Utilities sector.  

Take a look at the chart below, which is from our weekly Sector Snapshots report, though.  In the span of two weeks, the sector's fortunes have turned on a dime, and as of this afternoon, the sector has nearly given up all of its outperformance versus the S&P 500.  The fact that the peak of the sector's relative strength coincided with the trough in Treasury yields just illustrates how sensitive to interest rates the sector is.


Jobless Claims Back Above 300K

After two straight weeks with a two-handle, jobless claims rose back above 300K this week.  While economists were expecting first time claims to come in at 287K, the actual reading was 17K higher at 304K.  Even with the higher than expected reading, though, we would stress the fact that claims are still exceptionally low by historical standards.

Even after this week's increase in claims, the four-week moving average declined from 293K to 289.75K.  This is the lowest level for the four-week moving average since mid-November, but is still nearly 11K above the post-recession low of 279K from 15 weeks ago in late October.

On a non-seasonally adjusted (NSA) basis, initial claims rose by 17.1K to a level of 323.7K.  For the current week of the year, this is the lowest level since 2005, and more than 88K below the historical average of 412.1K for the current week dating back to 2000.


Bearish Sentiment Crashes

After a strong week for equities, bullish sentiment rebounded this week partly erasing last week's nine percentage point decline.  According to the weekly survey from the American Association of Individual Investors (AAII), bullish sentiment rose to 40% from last week's reading of 35.49%.

Along with an increase in bullish sentiment, we also saw a monster decline in bearish sentiment.  After rising ten percentage points last week, bearish sentiment erased all of that increase and then some by dropping 12.12 percentage points to 20.3%.  This is the lowest reading of bearish sentiment since the first week of 2015, and was also the largest one week decline in more than three years.  Based on this week's survey readings, investors appear to have breathed a huge sigh of relief after last week's rally in equities.