Daily Chartbook #224

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

1. Global supply chain. "Stockpiling was the biggest driver of supply-chain stress driving goods inflation. Current elevated inventory levels meeting lower demand will trigger price reductions next, goods deflation is coming."

2. Demand- vs. supply-driven inflation. "Supply is becoming less important and demand inflation remains high and sticky...With inflation being driven by demand, more demand destruction is needed in the form of higher rates from the Fed."

3. Leading Indicator contributions. "Here’s what goes into the monthly Leading Indicators number that continues to flash recession."

4. Rising downgrades. "By simply looking at the rise in downgrades including downgrade reviews by ratings agencies, an argument could be made that a US credit cycle is already emerging...Rising downgrades typically precede defaults and are more timely indicators of credit perception changes."

5. S&P Global Flash PMIs (I). "The overall rate of expansion of business activity in the US remained robust in June, consistent with GDP rising at a rate of 1.7% to put second quarter growth in the region of 2%."

6. S&P Global Flash PMIs (II). "US Manufacturing PMI tumbled to 46.3 from 48.4 - that is the lowest since Dec 2022 (which equals lowest on record)...US Services PMI dropped to 54.1 from 54.9."

7. Workforce AI exposure. "Our estimates intuitively suggest that fewer jobs in EMs are exposed to automation than in DMs, but that 18% of work globally could be automated by AI."

8. Household spending. "Total card spending per HH was -0.6% y/y in the week ending Jun 17"...while total card spending ex-gas and retail spending ex-auto were +1.5% and -2.4% y/y, respectively. “Y/y airline spending growth for the week has turned positive again. We see signs of a solid start to summer travel.”

9. Pause periods. "Over the last 35 years, there have been five other monetary policy periods when the Fed paused after a major rate-hiking cycle...During these periods, it took anywhere from four to 15 months before the Fed started cutting rates, with the average pause lasting 6.8 months."

10. Oil positioning. "Growing demand concerns amid Chinese weakness and signs the US economy may soon record negative growth numbers has prompted CTAs, other systematic funds and discretionary traders to convincingly reduce length, with longs decreasing exposure and short positions growing."

11. Inversion. "The 10y - 3m yield spread says a recession will likely occur in the next 2-6 quarters ahead."

See:

12. Bond inflows streak. US bonds saw $4.4 billion in inflows in the week ending June 21 for the 25th consecutive week of positive flows.

13. Private client allocations. BofA's private clients have high and low allocations to equities and cash, respectively.

14. Hedge funds vs. MAGMA. "As Net exposure in mega cap tech stocks approaches multi-year highs, aggregate net trading flows in the group have seen a sharp reversal in June on the back of increased shorting activity."

15. Tech outflows. Tech saw its largest outflow in 10 weeks.

16. Financials inflows. Financials saw its largest inflow in 10 weeks.

17. Global fund flows. "Net flows into global equity funds turned negative in the week ending June 21 (-$5bn vs +$22bn in the previous week)...In EM, flows into mainland China were negative, while demand for India-dedicated equity funds remains quite strong relative to history."

18. Rebalancing. "We estimate there could be $70-95bn of US equities to be sold in pension rebalancing flows into month and quarter end, assuming $1.5-2trn of assets following a mix of monthly or quarterly rebalances."

19. Sentiment reversal. "It's not unusual to see stocks struggle in the short term when sentiment reverses from bearish to bullish. However, a year later..."

20. SPX vs. VIX. "It has long held that lower equity markets yield higher implied volatility (VIX) and higher equity markets yield lower implied volatility (VIX)... the last 10 sessions have broken that 'standard' to a degree not seen in 30+ years."

21. Equities vs. inflation. "The overall macro fear has ignored the historical data that suggests high but falling inflation is a very favorable environment for equities."

22. Discretionary vs. staples vs. PMI. "Global consumer discretionaries vs staples trading as if the global PMI is in boom mode instead of recession mode."

See: ,

23. Russell 2000 vs. Nasdaq 100. "Russell 2000 has given up nearly all June gains relative to NASDAQ 100."

24. Global return drivers. "The strong rebound since last September’s market trough has been almost entirely driven by multiple expansion, while earnings expectations have flatlined. Europe ex-UK is the one major exception."

25. Projected market caps. "The stock market capitalization of emerging markets is forecast to eclipse that of the U.S. and other developed markets in less than a decade."

26. Q3 sector Buy ratings. "After declining from March 2022 through February 2023, the overall percentage of Buy ratings has increased over the past four months (to 54.8% from 53.2%)."

27. EPS revisions. "2023 consensus EPS stopped falling after -13% since the June 2022 peak."

28. Tech P/S. "Price-to-Sales ratios of both Technology stocks & the broader market are at extremes."

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29. Equal-weight P/E. "Stocks valuation multiples still have room for re-rating as earnings recession abates in 2H. On a forward basis, the equal-weighted S&P 500 index is at 16x vs. the five-year average of 16.7x before Covid-19."

30. Valuations gap. And finally, “with the exception of the pandemic, the gap between the valuations of the top 10 and the rest is at its widest level since 2000.”

Have a great weekend!