Daily Chartbook #10

Welcome to PAV Chartbook: market charts, data, research, and insights pulled from various sources around the Internet by a solo retail investor.

1. China PMI contraction. The week started with concerning manufacturing PMI numbers coming out of China.

2. Oil promises. Saudia Arabia claims it can produce 12 million barrels per day. Its August target is 11 million, a level it “has only sustained for eight weeks in the past.”

3. Stateside (lack of) revinvestment. The last time oil was at +$100 per barrel, and were reinvesting $4-5 for every dividend dollar paid out. That number is down to ~$1.

4. Consumption. US distillate consumption—the most cyclically sensitive part of the oil market—is decelerating along with manufacturing activity.

5. Switching to housing. The housing market is losing steam.

6. Slowing price growth. The median sales price of homes in the US is growing at the slowest rate since August 2020.

7. Price cuts. Home sellers are reducing prices at the fastest rate since (at least) 2015. The average drop over the last 4 weeks was 7.5%.

8. Much needed relief. "For the first time since 2020, prospective buyers expect housing availability to improve".

9. Construction spending. June construction spending fell 1.1%, the largest monthly decline since April 2020.

10. Tight personal finances. According to CNBC, 61% of Americans live paycheck-to-paycheck. That number was 58% in May and 55% one year ago.

11. Financial conditions. Meanwhile, Goldman’s Financial Conditions eased over the last week mostly due to the rally in stocks, which could enable a more aggressive Fed.

12. Business sentiment. The ratio of optimistic language vs. pessimistic language among US companies is skewed heavily toward pessimism.

13. Don’t tell that to Goldman. Goldman Sachs thinks consensus estimates for 2023 growth are too conservative.

14. Atlanta Fed Q3. On Friday the GDPNow real GDP growth estimate for Q3 was 2.1%. It’s now down to 1.3%.

15. US Manufacturing PMI. The latest readings revealed the weakest growth in 2 years.

16. Prices paid. ISM Manufacturing Prices paid fell off a cliff to their lowest level since August 2020, suggesting easing inflation.

17. Employment & New Orders. Both New Orders and Employment are contracting.

18. Hmmm. “The last 4 times the spread between New Orders and Inventories in the ISM Manufacturing Index was this negative, the US was already in a recession.”

19. July asset class overview. US stocks were the best-performing asset in July.

20. Buying the rally. Retail investors are purchasing popular tech stocks at the highest level since 2014.

21. Beat & rally. Stocks reporting better than expected numbers are enjoying the largest post-earnings bump since Q3 2019.

22. Predictable. The decline in earnings and sales surprises has been drastic.

23. Discretionary pain. Not all have reported, but Discretionary stocks have seen the worst earnings surprises by far.

24. But… “Consumer discretionary has the highest probability of outperformance six months after a technical recession”…

25. And… “Especially after a significant sell-off”.

26. 2023 growth profiles. Discretionary is also set to outpace the S&P in earnings growth next year.

27. Bears. Overall short interest is nearly at 2-year highs.

28. Remember those tech-buying retail investors? US Information Technology stocks are heavily shorted.

29. Reminder: bear market rallies can be ruthless. “During the 5 major bear markets (i.e. 40%+ drawdowns) in the S&P500 since 1929, on average we have seen 5 ‘bear market rallies’ with an average return of 18% over a 2 month period.”

30. “Don’t Fight the Fed”. S&P 500 investors are buying higher interest rates?

31. Typically weak Q3. History suggests the latest rally won’t last.

32. “Wake me up when September ends”. And finally, on average over the past 25 years, August-September are the worst months for the S&P 500.