Daily Chartbook #49

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

1. Utility bills. The average customer utility bill in August was 16.3% higher than a year ago, primarily due to sharp increases in electricity and gas prices.

2. Petroleum exports. The US exported record amounts of petroleum in the first half of 2022.

3. Bleak world outlook. Global growth projections for 2022 and 2023.

4. Labor market vs. inflation. "One reason Powell wants to soften labor market conditions: higher unemployment means lower inflationary pressure. Demand destruction can be achieved by subduing the availability of jobs, which in turn can be accomplished by tightening financial conditions and slowing the economy".

5. Sticky services inflation. From Goldman: “We continue to expect that services categories will not contribute much towards disinflation until 2024, barring a recession".

6. Terminal rate. The highest projected terminal Fed funds rate based on contracts 10 months out is at 4.51%. The “market has generally done OK job of seeing where rate ultimately landed”.

7. Inflation expectations. "Market-based inflation expectations have moved down to 2.38%, their lowest levels in 15 months and over 1.2% below their peak in late March (5-year breakeven rate)".

8. FOMC outlook. "Nearly all FOMC participants see downside risk to GDP growth, and upside risk to both unemployment and inflation".

9. National Activity Index. "Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) decreased to a neutral value in August from +0.29 in July".

10. Texas manufacturing. Texas' manufacturing production index improved by eight points to 9.3 (suggesting stronger growth output) despite general business activity for manufacturing dropping to -17.2 from -12.9.

11. Rush to protection (I). Put volume spiked to its highest since 1992 on Friday as investors seek protection.

12. Rush to protection (II). "Equity put/call ratio spiked on Friday to highest since March 2020".

13. Rush to protection (III). "Retail traders spent $18 billion buying put option protection last week, a record. They're holding $46 billion worth of index futures net short, a record."

14. Extremely light positioning. "Stock positioning across retail, institutional, and foreign investors versus the past 12 months" is back to extremely light levels.

15. Capitulation requirements. "In order to get June level capitulation (-3 reading), we need SPX ~3200, +80% of stocks 20% off 52wk highs, and +30% stocks 40% off 52wk highs".

16. Worst yet to come? "Major market bottoms have occurred in October more than any other month".

17. Peak to trough. The typical peak-to-trough drawdown for the S&P 500 in a recession is 30%.

18. Dip buyers beware. "The S&P 500 has slid around 1.2% the week after a 1% decline, the worst performance since 1931".

19. Duration. Short duration stocks typically outperform in a rising rate environment.

20. Large-cap managers vs. index. 37% of large-cap active fund managers have performed the Russell 1000 benchmark.

21. Global bond bear market. From Deutsche Bank: "We are now in the first global bond bear market for over 70 years".

22. Banks vs US10Y yield. "Bank stocks have significantly undershot the move in yields."

23. Valuations are up. "The Street has cut its forward 4-quarter earnings estimates by 4.0% since the start of Q3, but the S&P is “only” down 2.4% QTD. Valuations are up in Q3, not down".

24. Q3 earnings (I). From Michael Kantro: "We’re at the doorstep of Q3 Earnings. Guidance is more relevant than last quarter’s earnings. The world is slowing rapidly, this earnings season won’t be as kind as Q2, when the global economy was in better shape. Today, 53% of global PMIs are <50 compared to 23% in Q2".

25. Q3 earnings (II). 41 S&P 500 "companies have issued positive EPS guidance for Q3 2022, which is above the numbers for Q1 2022 (29) and Q2 2022 (32)".

26. Q3 earnings (III). The S&P 500 "is expected to report Y/Y earnings growth of 3.2% for Q3 2022, which would be the lowest growth since Q3 2020 (-5.7%)".

27. Q3 earnings (IV). The S&P 500 "is expected to report Y/Y revenue growth of 8.7% for Q2 2022, which would be the lowest revenue growth since Q4 2020 (3.2%)".

28. Dollar headwind (I). "U.S. dollar strength to this degree has historically coincided with weaker growth in S&P 500’s forward EPS … yet there is some variability; i.e., 2015 when dollar surged but EPS drop was mild, but also GFC when dollar surged and EPS collapsed".

29. Dollar headwind (II). From Morgan Stanley's Mike Wilson: "On a year over year basis, the DXY is now up 21% and still rising. Based on our analysis that every 1% change in the DXY has around a -0.5% impact on S&P 500 earnings, 4Q S&P 500 earnings will face an approximate 10% headwind to growth all else equal".

30. Historically bad breadth. And finally, “after today’s session, the S&P 500’s 10-day advance/decline (A/D) line dropped to .. a record low, meaning underlying breadth over the last 10 trading days has been the weakest it has ever been in the last 32 years”.