My Friday column is divided into two sections. The first uses the analytical framework developed by Arthur Burns and Geoffrey Moore that divides economic data into long-leading, leading, and coincidental indicators. The second looks at the major index-tracking ETFs.

Long-Leading Indicators

Originally, Burns and Moore used the Baa bond yield as an indicator of financial stress. I’ve replaced that with various Federal Reserve Banks’ financial market stress indexes, all of which have returned to low levels:

All graphs show a decreased level of stress after the Fed announced multiple lending and credit market supporting programs in the Spring. However, today the Treasury announced it would rescind its authorization for these programs, which might cause a spike in risk.

The hit to earnings caused by the lockdowns is starting to dissipate (From FactSet; dated November 13):

  • As of today, the S&P 500 is reporting a year-over-year decline in revenues of -1.6% compared to a year-over-year decline in earnings of -3.6% at the end of the third quarter.
  • As of today, the S&P 500 is reporting a year-over-year decline in earnings of -7.1% compared to a year-over-year decline in earnings of -21.2% at the end of the third quarter.

Leading Indicators

This week, the Census reported another increase in 1-unit building permits (emphasis added):

Privately-owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1,545,000. This is virtually unchanged (±1.3 percent)* from the revised September rate of 1,545,000, but is 2.8 percent (±1.6 percent) above the October 2019 rate of 1,503,000. Single-family authorizations in October were at a rate of 1,120,000; this is 0.6 percent (±1.0 percent)* above the revised September figure of 1,113,000. Authorizations of units in buildings with five units or more were at a rate of 365,000 in October.

The chart for the data continues to improve:

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Considering the rate of increase is declining, expect a drop in the next few months. However, the housing market overall is in very good shape.

The 4-week moving average of initial unemployment claims remains elevated at extremely high historical levels:

This remains the key stumbling block for additional growth.

Other leading indicators remain where they were last week. Please see last week’s column for additional detail.

Coincidental Indicators

This week, the Federal Reserve reported that industrial production increased 1.1% M/M. Here’s the table from the report:

With the exception of mining, all sectors increased last month.

With the latest report, industrial production is again inching higher. For more on the industrial sector, please see this monthly review.

In addition to the Fed’s industrial production report, the Census released the latest retail sales report (emphasis added):

Advance estimates of U.S. retail and food services sales for October 2020, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $553.3 billion, an increase of 0.3 percent (±0.5percent)*from the previous month, and 5.7 percent (±0.7 percent) above October 2019. Total sales for August 2020 through October 2020 period were up 5.1 percent (±0.5 percent) from the same period a year ago. The August 2020 to September 2020 percent change was revised from up 1.9 percent (±0.5 percent) to up 1.6 percent (±0.3 percent).

This data has recovered completely from the Spring lockdowns:

In fact, it is now higher than in the Spring. For more on the status of the US consumer, please see this monthly summation.

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Other coincidental data is in good shape. Please see last week’s summation for additional detail.

Fundamental data conclusion: the majority of economic indicators continue to improve. The labor market is one exception. The 4-week moving average of claims along with the lower labor force and employment to population ratio all indicate there is a fundamental weakness that will take some time to heal.

Let’s take a look at this week’s performance tables:

This week, there’s an interesting equity-market performance split: small-caps rose. Micro-caps gained 3.19%; small-caps advanced 2.25%. However, larger-caps were off modestly. And treasuries were up.

Only the energy sector ETF had a strong week, gaining 5.67%. Four other sector ETFs rose modestly. At the bottom of the table are defensive sectors.

All that’s really happened in the last two weeks is a mass consolidation of the Pfizer-spike.

SPY 30-day

The SPY has traded between the lower 350s and the mid-360s.

IWM 30-day

Small-caps had a massive spike when Pfizer announced the results of their vaccine. Prices trended modestly lower for the next week and spent this week consolidating around the 178 level.

QQQ 30-day

The QQQ was a bit more volatile after the news, selling-off pretty sharply. But it has traded in a narrow band for the last seven days.

The vaccine news caused a huge spike; it’s only natural that prices would need some time to consolidate gains.

That’s it for this week. See you on Monday.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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