Latest Commentary

August 5, 2021

Initial Jobless Claims fell slightly to 385k this past week. The good news is new claims are down significantly from 800-900k at the beginning of the year. The bad news is they have been stuck at current levels for the last two months. As a comparison, the average weekly claims for 2019 were about 220k per week.


Why You Should Watch These Stocks Today

, Commentary 8/05/2021


The new eviction moratorium extension will likely help keep a lid on core CPI through its expiration, as evidenced by the graph below from Andreas Steno Larsen. However, Primary & owners’ equivalent rent (OER/Rent), which makes up roughly 40% of core CPI, will likely push inflation readings higher when the moratorium is allowed to expire or if it is overturned by the Supreme Court.

, Commentary 8/05/2021


On quite a few occasions we have talked about how the K-shaped recovery is benefitting wealthy individuals while other income classes are not benefitting to the same degree.  As the Wall Street Journal writes in Heavyweight Companies Enjoy Outsize Rewards as Economy Rebounds, similar trends are occurring in the corporate world as well. The author provides a few examples of large companies thriving while smaller companies languish. We share the final paragraph, the story of a drone maker in Europe. Per the article: “Stefano Valentini, president of French manufacturer Drone Volt SA, said he is seeing strong demand for drones from large companies in Northern Europe and the U.S. in the wake of the pandemic, but little demand from Southern Europe, where small—and less capitalized—companies are the norm. For those companies, many of whom were slow to recover from the financial crisis, “Covid is the nail in the coffin,” he said.”

August 4, 2021

Fed Vice Chair Richard Clarida was nebulous in regard to his outlook for tapering QE. Per his speech today: “At our meeting last week, the Committee reviewed some considerations around how our asset purchases might be adjusted, including their pace and composition, once economic conditions warrant a change. Participants expect that the economy will continue to move toward our standard of “substantial further progress.” In coming meetings, the Committee will again assess the economy’s progress toward our goals. As we have said, we will provide advance notice before making any changes to our purchases.”


What Happens After The Bounce?

, Commentary 8/04/2021


Fed Governor Bullard is following in Chris Waller’s steps saying the market is prepared for taper and does not expect a negative reaction when such an announcement is made. Further, he wants to move “earlier and faster on taper so the Fed could be in a better position to combat strong inflation.


The ADP jobs report significantly missed expectations coming in at 330k versus expectations of 700k. Over the last year, ADP and this coming Friday’s BLS report have not had a great correlation. If the BLS report is similarly weak, recent talk of tapering QE as early as September may be pushed back toward the winter months.  Of note in the ADP report, over a third of the net new jobs were in the leisure and hospitality industry which tend to be lower-paying. If the BLS shows a similar strong contribution, those jobs are likely to weigh on aggregate wages.


The graph below shows the two defensive sectors, staples (XLP) and utilities (XLU), are well correlated and both sitting at or near record highs. However, there is a noteworthy divergence occurring beneath the trading surface.  93% of the utility stocks in the ETF are above their respective 200 dma and that percentage has been steadily climbing for the last 2 months. Only 66% of staples stocks are above their respective 200 dma and the percentage has been steadily falling since May. The weakening breadth of XLP may result in relative weakness versus XLU, especially if inflation and inflation expectations remain high.

, Commentary 8/04/2021


The stacked graphs on the left, courtesy of Arbor Research and the Daily Shot, show investors are clamoring for inflation insurance via the TIPs market. The top graph shows TIPs yields are trading at record low yields. The bottom graph shows TIPs have seen record inflows of cash while investment grade and Treasuries have seen large outflows. This helps explain why breakeven inflation rates have been rising. To recap, the yield on TIPs less the yield on a nominal Treasury equals the inflation break-even rate or rate where an investor is indifferent between either bond. As TIP yields fall more than UST yields, TIP investors are betting on more inflation. The third graph shows the growing divergence between 10-year TIPs and nominal bonds and the resulting rising breakeven rate.

, Commentary 8/04/2021, Commentary 8/04/2021

August 3, 2021

The graph below, courtesy of Brett Freeze, shows the strong correlation of the ISM Manufacturing Survey with the year-over-year change in 10-year USTs. As we discussed yesterday, ISM remains at historically very high levels but is starting to decline. We expect it to decline further as fewer and fewer survey respondents will be able to continue to answer that manufacturing factors are again better in the current month than the prior month. If we are correct with ISM and the correlation holds up, a further decline in bond yields should be expected.

, Commentary 8/03/2021


Why The Fed Is In A Box

, Commentary 8/03/2021


Yesterday we shared Fed’s Chris Waller’s hawkish stance on monetary policy. It is worth adding he has had a dovish stance similar to Powell up until that speech. While we doubt Powell will make such an abrupt turn in policy we will focus on Lael Brainard and Vice Chair Richard Clarida. Clarida speaks tomorrow. If he lays out similar goals and timelines as Waller, the speeches may be a coordinated trial balloon aimed at warning the market on the schedule of tapering QE.


Noah Smith, blogger and Bloomberg Opinion author, wrote a compelling article titled  Why is China Smashing its Tech Industry. China has recently been punishing “tech” companies such as Alibaba, Ant Financial, Tencent, and Didi to name a few. At first blush, it may appear Chinese leadership harbors some of the same monopolistic concerns that are brewing in the United States. Noah thinks there is much more to the story. Per the article: “And so when China’s leaders look at what kind of technologies they want the country’s engineers and entrepreneurs to be spending their effort on, they probably don’t want them spending that effort on stuff that’s just for fun and convenience. They probably took a look at their consumer internet sector and decided that the link between that sector and geopolitical power had simply become too tenuous to keep throwing capital and high-skilled labor at it. And so, in classic CCP fashion, it was time to smash.”

Noah argues China is aiming for productivity growth, not profit growth, “fun, and convenience.” If true, China is playing the long macro-economic game which should greatly benefit their nation. While banning or even punishing ‘internet” companies is much less likely here, we should take notice of their desire for more productive growth.

August 2, 2021

Per the headlines below, Fed member Christopher Waller provided helpful guidance on the potential timing of tapering QE and what the Fed is looking for before tapering.

  • WALLER SAYS IF THE NEXT TWO JOBS REPORT COME IN AS STRONG AS THE LAST ONE, CAN TAPER BY SEPT; IF NOT, MAY NEED TO PUSH IT
  • WALLER SAYS ON TAPERING WE SHOULD BE EARLY, FAST, TO BE IN A POSITION TO RAISE RATES IN 2022 IF NEEDED
  • FED’S WALLER SAYS COULD MAKE AN ANNOUNCEMENT ON TAPER BY SEPT
  • I was in favor of tapering MBS first,” Waller says, adding, resignedly, that Chair Powell said in his press conference that it wasn’t an option.

The ISM Manufacturing Index fell to 59.5 versus expectations of 60.9 and last month’s 60.6 reading. Importantly, the prices paid sub-component fell to 85.7 from 92.1. Also of note, supplier delivery times fell 2.6 points. While early, it may mean supply line bottlenecks are easing. Employment rose to 52.9 versus 49.9. Employment is now in expansion mode as it’s above 50.


Why August Holds Danger for Investors

, Commentary 8/02/2021


Gamma Band Update

, Commentary 8/02/2021


Cartography Corner is published

, Commentary 8/02/2021


Fed President Lael Brainard indicates that the coming Jackson Hole meeting may lack any new indications about when the tapering of QE may begin. Per Lael; “I expect to be more confident in assessing the rate of progress once we have data in hand for September, when consumption, school, and work patterns should be settling into a post-pandemic normal.”  She is an important voice at the Fed and is rumored to be in the running for the Chair job if Biden does not reappoint Jerome Powell for a new term.


The economic focus this week will be on the job market and the manufacturing sectors. The ISM manufacturing survey will be released this morning and the ISM services survey on Wednesday. We will keep a close eye on the inflation/prices and employment sub-components of the surveys. Wednesday will feature the ADP labor report followed on Friday by the all-important BLS jobs report. The consensus BLS forecast is for a gain of 900k jobs, following last month’s 850k.

Earnings reports will continue, but the pace should slow markedly versus last week. We expect a slew of Fed speakers this week further clarifying their individual thoughts around the economy, inflation, employment, and most important monetary policy. We will also be looking out for any possible policy changes announced at the late August Jackson Hole Fed meeting.

, Commentary 8/02/2021

July 30, 2021

Victor Adair’s Trading Desk Notes: July 30th, 2021

, Commentary 7/30/2021


The excess savings racked up by Americans from trillions in stimulus payments is quickly waning. The chart below from Zero Hedge illustrates the effect of stimulus payments on personal savings over the past year and a half. Excess savings from the last round of stimulus is falling rather quickly, and as Zero Hedge notes, “… at the current rate that Americans are burning through savings, this means that the entire fiscal stimulus tailwind from Biden’s trillions will be gone by August… just in time for emergency unemployment benefits to end”. The upcoming fiscal cliff bears substantial risks to markets, especially as we move past the point of peak economic growth in this recovery.

, Commentary 7/30/2021


The Chicago PMI surprised to the upside for July. It came in at 73.4 compared to expectations of 66.1 and a June reading of 66.1. The survey results suggest that, in July, business conditions improved more than expected in the Chicago area.


Personal income and outlays data were stronger than expected in June. Personal income increased 0.1% compared to a consensus estimate of -0.7%. Personal consumption expenditures increased 1% in June versus expectations of 0.6%.

The PCE price index increased 0.5% MoM (0.6% expected) and 4.0% YoY (4.1% expected). The core PCE price index, the Fed’s preferred measure of inflation, rose 0.4% MoM (0.5% expected) and 3.5% YoY (3.7% expected).

, Commentary 7/30/2021


Technical Value Scorecard is published

, Commentary 7/30/2021


The toughest part of forecasting inflation is trying to properly assess the supply line problems and labor shortages. Wells Fargo put out a handy table recently, shown below,  which tracks price pressures due to supply, inventory, shipping, and labor problems. Per Wells Fargo: “It suggests that bottlenecks are not yet easing in any widespread fashion, let alone close to being fully resolved”. The conclusions reached by Wells Fargo align with the reasons for missed expectations we saw in the second quarter GDP report yesterday.

, Commentary 7/30/2021


Next week begins the weakest two months of the year for the markets, as shown below. While the graph below points to weakness, there have been plenty of prior Augusts and September’s that have produced positive returns.

, Commentary 7/30/2021

July 29, 2021

NKLA founder, Trevor Milton, was charged with fraud this morning regarding lies to investors about breakthroughs and prototype vehicles. NKLA went public via SPAC in June 2020, thus Milton was not bound by the usual post-IPO restriction period on communication with investors. He quickly took to social media with the apparent intention of pumping the stock. According to MarketWatch:

“Prosecutors said in the initial period following Nikola starting to trade publicly, the value of Milton’s shares shot up by $7 billion”.

It doesn’t stop there.

“Prosecutors said that, in fact, the prototypes that had been unveiled didn’t function and were Frankenstein monsters cobbled together from parts from other vehicles. At public events, the vehicles were towed into position and were powered by plugs leading from hidden wall sockets”.

Milton has posted bail and proclaims his innocence. NKLA stock has sold off roughly 65% from its June 2020 highs.


Robinhood completed its IPO today and is trading under the ticker symbol HOOD. The stock opened in line with the IPO price at $38 per share after the indicated open fell from a high of $42 this morning. Based on the IPO price, HOOD is being valued at $32B.

Update: HOOD finished the day at $34.71 after retreating 8.7% from its open price. .


Why Q2 Earnings Matter

, Commentary 7/29/2021


US GDP (initial) grew 6.5% in the second quarter versus expectations of 8%. This compares to first quarter GDP growth of 6.3%. PCE was above expectations at 11.8% versus the consensus of 11.4%. A key factor in the GDP miss was the decline in inventories, which highlights the supply-chain problems the economy is facing have yet to abate.

, Commentary 7/29/2021

Initial jobless claims fell by 24k to 400k this week, slightly higher than expectations of 390k. Although weekly claims are falling, they remain elevated compared to levels you might expect to see in an improving economy.


The first estimate of second quarter GDP will be released this morning at 7:30 CT. This chart from The Daily Shot shows that economists’ estimates of GDP growth have been moderating in recent weeks.

, Commentary 7/29/2021


The graph below charts the MBA’s mortgage purchase applications. These are the number of applications for mortgages, not the refinancing of existing mortgages. As shown, the number of applications has been steadily declining and now sits at pre-pandemic levels. The housing market is increasingly showing signs of normalizing. It is quite possible home prices will follow suit and begin to stabilize and possibly decline over the next few months.

, Commentary 7/29/2021


The graph below, courtesy of Nautilus Investment Research, shows the current bull market rally, starting March 2020, is getting into rarefied territory. The market has gone 337 days without a 10% retracement. Of the 135 instances in the study, only ten bull market runs have been longer in duration, and of those, only two have gone up a higher percentage.

, Commentary 7/29/2021

July 28, 2021

Changes to the FOMC statement are highlighted below. While most of the changes are inconsequential, they added the following to the section which discusses QE:  ” Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings.”

We think this new statement, and its deliberate placement in the section describing asset purchases is a reminder they are closing in on their goals and a signal to the market to prepare for the tapering of QE and ultimately higher interest rates.

, Commentary 7/28/2021


The Dichotomy of the Indexes

, Commentary 7/28/2021


The Financial Times (LINK) put yesterday’s earnings from Google, Microsoft, and Apple into perspective.

“The three US tech groups brought in combined after-tax profits of almost $5bn a week during the latest quarter. At $56.8bn, the total was almost double the year before and 30 percent more than Wall Street had predicted. The figures were “absolutely stunning”, said Jim Tierney, a portfolio manager at AllianceBernstein, adding that “digital advertising is just on fire”, as advertisers race to follow audiences who have turned to online services in huge numbers.”


Since today is Fed day we thought we would share a quote about monetary policy from Jim Grant: “Persisting with the easiest policy in memory in the teeth of the fiercest inflation in a generation, the Fed reminds us of a diamond-handed Reddit bro pushing his last chips on to AMC Entertainment. He’d better not be wrong.”


Have trucking costs finally peaked? If the recent rise, as shown below courtesy of Arbor Research, is forming a peak, another factor pushing inflation higher may be abating. This would be welcome news for Amazon and other e-tailers.

, Commentary 7/28/2021


The graph below compares the S&P 500 to the Shanghai Composite. As shown, the broad Chinese market did not perform nearly as badly as the S&P 500 during the early days of the pandemic but has since grossly underperformed the S&P. It is essentially flat over the last year. The tepid performance of their stock market along with signs China’s economic activity is slowing sends macro warning signs to the world. China has the second-largest GDP in the world and has been growing at twice the rate of most developed nations. Simply, Chinese economic activity contributes significantly to global GDP growth. We are also keeping an eye on the Chinese yuan for signs they devalue it versus the dollar to stimulate export growth.

, Commentary 7/28/2021


July 27, 2021

Thinking of buying today’s dip? If so, you may be proven correct in a record short period of time as shown below.

, Commentary 7/27/2021


Consumer Confidence rose to 129.1 versus 127.3 last month. Both the present and future indexes were up versus last month. Interestingly, inflation expectations are showing signs of stabilizing. The report shows 1-year inflation expectations at 6.6% versus 6.7% last month.

The Case-Shiller Home Price Index rose 1.8% monthly and 17% on a year-over-year basis. The data is for May so it will be interesting to see if the gains continue next month amidst poor home buyer sentiment and the very weak new home data released yesterday.


Market’s Minsky Moment

, Commentary 7/27/2021


The table below shows the clear outperformance by sector, style, and factors of large-cap stocks versus mid and small caps.

, Commentary 7/27/2021


The graphs below tell the story of the growth/cyclical rotations of the past 7 months. The graph on the left is the ratio of the equal-weighted S&P 500 (RSP) versus the weighted S&P 500 (SPY). When RSP outperforms SPY, the ratio increases and vice versa. RSP has a much higher percentage of cyclical stocks, including- value, energy, financials, and materials. The S&P 500 is heavily weighted with technology and growth-oriented stocks. The graphs on the right compare the correlation of the RSP/SPY ratio to the NASDAQ, S&P, and ten-year UST yields. With Tech and the S&P 500 recently outperforming RSP, the correlations versus the QQQ and SPY are strongly negative. Conversely, the correlation to yields is currently strong, meaning yields are falling as RSP underperforms. Simply, the market is rotating fiercely, and it is important to be on the right side if you want to keep up with the market. Currently, the growth rotation is in vogue.

, Commentary 7/27/2021 , Commentary 7/27/2021


Yesterday we wrote that 10 year real yields hit a new all-time low. The graphs below show that the price of gold and real yields have been well correlated over the last decade. In particular, the scatter plot on the right, shows a statistically significant correlation with an R squared of .82 between gold and real yields. The red square shows the current instance and the arrows direct your eyes to where a reversion to the mean would bring gold or real yields. Per the graph, either gold is underpriced by about $200 or real yields should increase to about -0.60% from -1.20%.

, Commentary 7/27/2021 , Commentary 7/27/2021


There are a lot of companies in our equity model reporting earnings today as shown below.

  • AAPL – After Close
  • GOOG – After Close
  • MSFT – After Close
  • RTX – Before Open
  • SBUX – After Close
  • UPS – Before Open
  • V – After Close