Market breadth improves, plus Black Friday, excess savings decline, continuing jobless claims, and the busiest travel day post-pandemic
The Sandbox Daily (11.28.2022)
Welcome, Sandbox friends.
Today’s Daily discusses the strength beneath the surface of the S&P 500 index, e-commerce wins on Black Friday, household excess savings are declining, continuing jobless claims as a recessionary indicator, and yesterday was the busiest travel day since the pandemic began.
Let’s dig in.
Markets in review
EQUITIES: Nasdaq 100 -1.43% | Dow -1.45% | S&P 500 -1.54% | Russell 2000 -2.05%
FIXED INCOME: Barclays Agg Bond -0.16% | High Yield -1.05% | 2yr UST 4.461% | 10yr UST 3.698%
COMMODITIES: Brent Crude -0.04% to $83.53/barrel. Gold -0.60% to $1,758.1/oz.
BITCOIN: -1.32% to $16,253
US DOLLAR INDEX: +0.55% to 106.543
CBOE EQUITY PUT/CALL RATIO: 0.63
VIX: +8.34% to 22.21
Strength beneath the surface
Despite the S&P 500 still trading well below its August highs, 62% of its component stocks have rallied 20% or more off their lows, establishing a higher level of market breadth than that of the summer rally. As shown in the lower panel, this reading peaked and rolled over at the 56% threshold in mid-August.
The expansion in participation at the individual stock level is evidence of a bullish improvement in market internals. And here’s a look at the equally-weighted S&P 500 index hitting new multi-year highs relative to the market-cap weighted version (the version in the headlines). This recent rally off the mid-October lows is not narrow participation.
While we want to be wary of the potential failed breakouts that occurred today ($XLB Materials, $XLI Industrials, $XLF Financials), the broadening of the current rally suggests that support remains strong beneath the surface. The next big piece of information is whether stocks and indexes will correct over the coming days and weeks.
Source: All Star Charts
E-commerce wins on Black Friday
Adobe Analytics reported online sales for Black Friday this past weekend hit a record $9.12 billion, despite persistently high inflation and concerns of a slowing economy. Overall, online sales for the day after Thanksgiving were up +2.3% YoY, and Black Friday surged 221% over an average day in October.
Instead of flocking to malls, U.S. shoppers turned to smartphones to make many of their holiday purchases, with data from Adobe showing mobile shopping represented about 48% of all Black Friday digital sales.
Buy Now Pay Later payments increased by +78% compared to the past week, a reflection of the consumer struggling to grapple with high prices as savings balances are struggling to keep up.
U.S. consumers are still spending, but they’re growing more cautious after contending this year with the highest inflation rates in four decades. They’re also keeping a sharper lookout for deals, and retailers – many of them still working through inventory gluts after misjudging an erosion in demand – are trying to stand out by dangling the deepest discounts since before the pandemic.
Source: Business Wire, CNBC
Households under pressure
Multi-decade high inflation hasn't done much to curb consumer spending and that might soon become a problem.
For much of the post-pandemic period, the monetary/fiscal winds were at our backs, rising wages were helping the consumer, and the labor market remained vigilant. As such, the stock of excess savings – or the amount above what Americans would have saved had there been no pandemic – soared through much of 2020 into 2021.
Now, excess savings – which are estimated to have peaked around $2.3 trillion last year and have acted as a buffer to rising prices—are ballparked around $1.2 to $1.7 trillion, a range economists say gives households 9-12 months of cushion. The rate of personal savings has steadily dropped since nearly doubling to 16.8% in 2020, falling to 11.8% last year, and down to 3.1% in September (near GFC levels).
This leaves households (especially low-income) under pressure to balance rising prices and debt repayments (~10% of disposable income, on average) with little to fall back on.
Source: Grit Capital, Bloomberg, Wall Street Journal
Continuing jobless claims and recessions
The most closely followed measures of employment tend to be lagging indicators. However, there is one indicator that assesses the labor market in near real-time. Initial and continuing jobless claims, published weekly, provide up-to-date information on the number of employees recently fired and their ability to find new jobs. While understanding how many people are being let go is important, the health of the labor market is best gauged by how quickly those recently unemployed find new work. Therefore, continuing jobless claims provide valuable and current insight into the labor market's health.
Continuing jobless claims have been ticking higher since May but are still below pre-pandemic levels. Weekly data can be volatile, especially around the holidays. As such, in the chart below, the 3-month percentage change in continuing jobless claims is shown to smooth things out. As noted by the dotted line, a recession occurred each time the percentage change in continuing jobless claims rose above 10%. Since June 2020, the 3-month change in the number of continuing claims has been negative. In July, that number flipped to positive. It is now quickly creeping up to 10%. The number of claims and continuing jobless claims remains low, but the rate of change in both is picking up and bears watching closely in the coming months.
Source: Lance Roberts
Busiest travel day since the pandemic
Sunday marked the busiest day at U.S. airports since the start of the pandemic.
About 2.6 million people were screened at Transportation Security Administration (TSA) checkpoints Sunday. That’s the most since December 26, 2019, just a few of months before the pandemic’s arrival stateside caused an abrupt halt in air traffic. This year’s traffic was up +4% from the Sunday after Thanksgiving last year, but it’s still down -11% from the same day in pre-pandemic 2019.
Also worth noting that due to worker shortages and customer service shortfalls, U.S. airlines have trimmed the number of flights on their schedules to increase reliability. The number of scheduled fights Sunday was down -2% compared to the same day last year.
Source: CNN, Bianco Research
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.