Many were wondering why the market ripped higher post Fed meeting, I certainly got a lot of questions. But sometimes it’s just about positioning. Participants have their short term trades on, their hedges going into the meeting and when the news is finally out, whatever the outcome, the positions are sold off, whether bets on up or down. That’s it. I’ve been doing this long enough to never trust the action in the last hour of the day on Fed day, regardless of direction because of this. Big picture, we are entering a period of double tightening with rate hikes and QT and thus the economic and market headwinds only get stronger.
With regards to market sentiment, it’s still pretty dour. Yesterday Investors Intelligence said Bulls fell to 30.6 from 32.2 while Bears rose .9 pt to 36.5 w/o/w. That Bear number is the most since March 2020 when it was above 40. Today, AAII said Bulls fell 1.5 pts to 22.5, near a multi year low when it hit 19.2 four weeks ago. Bears rose 4 pts to 49.8 and compares with 53.7 a few weeks ago. After touching 13 last week, the CNN Fear/Greed index closed at 22 yesterday, still considered in the ‘Extreme Fear’ part of the dashboard. Bottom line, the mood is cautious and is historically a good set up for a rally but if we don’t get one with this backdrop, it just reinforces that the Bear has taken over and could be right for a period of time, just as the Bulls when loaded on the boat could be right for a long stretch of time.
Initial jobless claims fell to 214k from 229k last week and that was 6k less than expected. As a print of 249k fell out of the calculation, the 4 week average fell to 223k from 232k. Delayed by a week in reporting, those still receiving continuing claims fell to just 1.42mm, a new low going back to 1970.
The bottom line remains the same with the demand for labor still exceeding the amount of needed bodies with the number of job openings far above the number of people looking. Now we’ll of course see how this changes in coming months and quarters as consumers readjust their spending habits in light of an ever rising cost of living and businesses are still challenged by supply constraints but for now, the state of the labor market is still tight.
In stark contrast to the weak March NY manufacturing survey, the Philly regional survey surprised to the upside. It printed 27.4 from 16 in February and that is well above the estimate of 14.5. New orders jumped while inventories fell to zero. The NY survey showed the exact opposite. Backlogs got back most of what it lost last month. Delivery times almost doubled and both prices paid and those received accelerated. Prices paid in fact rose to the highest level since 1979. Both employment and the workweek bounced in March.
With the 6 month business outlook, it fell to 22.7 from 28.1 and that compares with the 6 month average of 25.2. Expectations for pricing rose. Capital spending plans increased. Of particular note was the sharp jump in expectations for Inventories which rose to 30.8 from 4.3. We know inventories made up 500 bps of the 7% Q4 GDP report and if this Philly read is broad based, expect a reversal in coming quarters.
Bottom line, the Philly index being completely opposite than what NY told us has me even more confused on the state of manufacturing. Let’s see others before we draw a conclusion but it is safe to say that while maybe supply chains were beginning to unfreeze in early to mid February, it is now even more uncertain in light of the war. And the demand side is ever more fragile because of the sticker shock many are now experiencing for things like cars and homes among many other things.
Lastly on the data front, housing starts in February totaled 1.77mm, above the estimate of 1.7mm and January was revised up by 19k. Both single family and multi family starts were up m/o/m. With respect to permits, they moderated from January for both categories.
Bottom line, there is one thing nowadays to start construction of a new home but because of shortages of so many things, who knows when it will get finished. That said, there are a lot of new homes being built relative to meager household formation growth so the supply/demand balance is tipping towards the former. As for demand, there is huge demand for lower priced homes but unfortunately there aren’t that many of them as prices continue to rise. Good luck finding a new home priced below $350k for lower income families. As for multi family, it’s a red hot sector as we know and supply of new inventory has been pretty steady in response. What this eventually means for rents we’ll see but after a pretty sharp pace of gains over the past year, the m/o/m pace over the past few months are showing some signs of plateauing, thankfully for those renting.
Single Family Starts
Multi Family Starts