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Initial Claims Close to Flat
The headline initial claims number fell 1k WoW to 402k (down 1k after a 1k upward revision to last week’s data). Rolling claims actually increased week over week, rising 2k to 405k. On a non-seasonally-adjusted basis, claims increased 17k to 374k.
While flat week-over-week, initial claims remain high (over 400k), and are essentially flat year-to-date (405k rolling today vs. 410k at the start of this year). We've been arguing for the last several weeks that the largest divergence between the S&P and claims that we’ve seen in the last three years would likely result in mean reversion facilitated by a rise in jobless claims to the 450k+ level. Rather, thus far, the mean reversion has been driven by the market rising from 1100 to around 1 this morning. We remain skeptical that claims and economic activity will not be adversely affected by the profound loss of consumer confidence shown over the last few months. We continue to expect claims to rise, but are willing to strap on the accountability pants in the here and now and acknowledge that thus far we've been wrong.
It is interesting to note that in spite of a year's worth of record volatility, the market and claims are both essentially flat. These series are, in fact, co-integrated, as one would expect. In layman's terms that means that they tend to move together over time even if they are not especially correlated with one another in the short term. What that means is that you should pay special attention to periods in time when they materially diverge as they are likely to mean-revert going forward.
The 2-10 spread widened 3 bps versus last week to 192 bps as of yesterday. The ten-year bond yield increased 5 bps to 221 bps. This remains a very difficult environment for net interest margins.
Financial Subsector Performance
The table below shows the stock performance of each Financial subsector over four durations.
Joshua Steiner, CFA
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