Daily Chartbook #217

Welcome back to Daily Chartbook: the day’s best charts & insights, curated.

1. Small business outlook (I). "NFIB Small Business Optimism index ticks up [to 89.4 from 89]. The 'hard' components are doing much better than the 'soft' components."

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2. Small business outlook (II). "While average selling prices continue to decline, plans to raise selling prices rose to their highest level since January and percent of firms citing inflation as their single-most important problem hit a three month high."

3. FMS sentiment. Sentiment levels among FMS investors has improved slightly but remains historically low.

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4. China outlook. "The China reopening effect is old news and won't help the global economy to hold up any longer. Less than 20% of surveyed fund managers expect a stronger Chinese economy."

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5. Biggest tail risk. "Credit crunch worries down, central bank worries back up."

6. Inflation and rates expectations. "Only 2% [of FMS investors] expect higher inflation. Strong conviction on inflation being lower a year from now. 67% expect lower s-t rates (i.e. Fed cuts) in the next 12 months, up from net 43% at the start of the year."

7. CPI (I).  Headline inflation rose 0.1% (vs. 0.2% expected) while core prices increased by 0.4% (in-line).

8. CPI (II).  Headline and core inflation fell to 4% (from 4.1%) and 5.3% (unch) YoY, respectively.

9. CPI (III). Supercore inflation—which is closely watched by the Fed—rose 0.24% in May (prev. +0.11%) and is down to +4.6% YoY.

10. CPI (IV). "The annual data includes a lot of old info, and the monthly data is volatile. So it helps to look at 3-month averages to get a sense of the current trend. By that measure, headline inflation is now running at its slowest pace since late 2020. Different story for core, though."

11. CPI (V). "CPI core goods (blue) saw year/year rate tick up to +2% year/year in May … conversely, core services (orange) saw year/year rate move lower to +6.6% (but taking longer to come down)."

12. Real earnings. "Real (inflation-adjusted) earnings down for a 26th consecutive month. The longest stretch in US history by far (twice as long as the Global Financial Crisis)."

13. Redbook. "Retail sales declines (-1.2%) to (+0.4%) for 13 Jun ’23 Vs 16 May '23 level of (+1.6%). YoY growth of (+0.4%) for Jun '23 (Vs Jun '22) is the lowest level YoY growth for ‘23."

14. Overweight bonds. "Investors are most overweight IG bonds and HY bonds in 8 years."

15. Rates vs. liquidity. "The nascent rise in excess liquidity points to US rates finally beginning to become less restrictive, turning a headwind for risk assets into a tailwind over the next 3-6 months."

16. Risk sentiment. "After basically being nailed to the same spot on the 'risk-off' cross, this week sentiment makes a big move."

17. Sentiment indicator. "The GS sentiment indicator remains positive."

18. Exposure plans. "51% of JPM clients are considering increasing equity exposure."

19. FMS positioning. "Biggest standout in fund manager positioning is the overweight to bonds and underweight to equities...This type of positioning is only going to work in 2 scenarios: 1. Bonds rally, stocks fall; 2. Bonds rally, stocks rally, but bonds do more."

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20. Cash levels. "Survey shows the lowest cash level (5.1%) since Jan'22 BUT asset allocator conviction confined to tech & IG bonds. Allocation to stocks at 5mth lows; so risk asset 'pain trade' still up."

21. SPX short positioning. "Sharp reversal lately for large speculators’/hedge funds’ net short positioning in S&P 500 futures … bearish tilt remains, but there has been an easing from recent low (which was near 2007 levels)."

22. IWM call options. “IWM call open interest and volumes have exploded to the upside.”

23. CTAs vs. equities. CTA positioning in US equities continues to rise.

24. Equity buying. “May ranked as the largest month of buying of US equities since 2010. US L/S net leverage rose to 12 month highs as a result of the buying.”

25. Sector fund flows. Flows into tech have cooled off while those into industrials and financials have ticked up.

26. Sector correlations. "Correlation data suggests we are now positioned to see the start of a ‘real’ bull market, where sectors trade even more independently than they have over the last 30 days. This would not only propel further index gains, but also likely keep the CBOE VIX Index capped at current levels (14 – 15)."

27. EPS growth. "Earnings expectations shifting from 0 to -5% to 0 to +5%."

28. Megacap EPS growth. "When growthy mega caps were leading market higher in 2020, their forward EPS growth that year reached nearly +70% … this year, annualized pace is less than half of that at +26.8%."

29. AI effect. "When asked about potential widespread adoption of AI, 40% of respondents said it would increase profits. Just 2% said it would increase jobs, while 14% it would boost both and 29% said neither."

30. Valuation driver. And finally, at the October low, NTM earnings and forward P/E were $236 and 15.17, respectively. Today, they are $233 and 18.67. "The sentiment/valuation swing has been the driver of the recovery."

Thanks for reading!