Daily Chartbook #240

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

1. Housing starts & building permits. "Both down in June, with starts slightly better than expected at -8% (-9.3% est) but permits came in weaker than expected at down -3.7% (+0.2% est)."

2. SFH starts vs. permits. "Single-family building permits rose for the fifth consecutive month to 922,000 units SAAR, the highest level in a year. Implies recent drop in single-family [starts] will be temporary. Recovery over the summer."

3. Distressed debt. "Total outstanding corporate bonds and loans trading at distressed levels exceed $590 billion."

4. Credit outlook. "Credit growth continues to slow and credit conditions continue to deteriorate."

5. Policy lag. "Typical central bank models point to the peak impact from a rate hike occurring after around 4 quarters for the level of GDP and about 6 quarters later for inflation...What we're seeing now is the impact of (still-low) policy rates from around the middle of 2022."

6. Household savings. "Party is over for US consumers. Surplus in household savings are depleting which is why TD Securities see a recession early next year."

7. Inflation psychology. "Differences in consumption patterns across consumers...no longer matter as much as they used to. This makes general price level more relevant for individual decisions, which could be a sign that sort of 'inflation psychology' is becoming entrenched."

8. UK inflation. Both headline and core inflation in Britain fell more than expected, dropping to 7.9% and 6.9% YoY, respectively. UK CPI remains the highest among most advanced economies.

9. National Financial Conditions Index. The US NFCI "edged down to –0.37 in the week ending July 14, suggesting financial conditions loosened again."

10. Money velocity. "The change in M2 money velocity drives inflation and accurately predicts the Fed’s aggressiveness when responding to rising prices, and current deltas are extreme."

11. US commercial petroleum inventories. Total "inventories fell a modest 1.1 MMbbl last week...This obviously isn't gangbusters but certainly an improvement over last week's ~17 MMbbl mega-build."

See:

12. Global electricity generation. Renewable sources will account for 1/3 of the total global power supply in 2024, according to the IEA.

13. HY bond high/low. "The spread between high-yield bonds closing at a 52-week high versus a 52-week low as a percentage of issues exceeded 10%, a level associated with excellent annualized returns for the S&P 500. What do the bond guys know?"

14. Risk sentiment. "Investor sentiment is in 'extreme optimism' territory."

15. HF net leverage. "Fundamental L/S Net leverage ratios-beta adjusted or not-are both at one-year highs. However, they remain below historical peak levels and are roughly in line with longer-term averages vs. the past three and five years."

16. HFs vs megacaps. Hedge funds have taken some profits but exposure to megacaps remains near the top end of its historical range.

17. Client flows. Last week, BofA "clients were net buyers of US equities (+$3.0bn) for the third consecutive week...Clients bought stocks in five of the 11 sectors, led by Communication Services and Real Estate."

18. Retail flows. "Retail’s buying of cash equity products has been sitting near all-time highs after an incredibly rapid ascent, thus it is not surprising to see some consolidation."

19. Retail pre-earnings positioning. "Retail traders have never bought equities this aggressively in the runup to the 'official' start of an earnings reporting season."

20. Sector fund flows. Inflows to tech continue.

21. Sector positioning. Investors are overweight Staples and Technology and underweight Materials and Healthcare.

22. Overbought sectors. "The S&P and most of its sectors continue to trade in extreme overbought territory."

23. Implied correlation. "The implied correlation among US stocks is the lowest in 17 years. Are we overdue for a vol spike?"

24. Financials vs. Econ Surprise. "Financials (vs SPX) has lagged the surge in US economic surprises."

25. SPX vs. liquidity. "With the YTD rally, the $SPX has decoupled from the global liquidity proxy for the first time since pre-2020."

See:

26. Interest expense vs. EBITDA. "Interest expense grew +4.9% in the quarter, outpacing EBITDA growth (which was only +0.4%) for the second quarter in a row."

27. Long-term returns. "Long-run valuation indicators suggest that equity returns are expected to be lower over the next decade (4% annualized total return expected)."

28. EPS vs. USD. "The steady weakening in the dollar seen since September should soon provide a tailwind for US earnings."

29. EPS revisions. "A visual of analyst earnings estimate revisions for the S&P 500, they have been sideways since mid-June."

30. Earnings growth estimates. And finally, “following a 5-quarter TECH+ earnings recession, technology-related companies are expected to add substantially to 2024 EPS.”

Thanks for reading!