Initial Claims Continue Their Winning Ways
The headline initial claims number fell 2k WoW to 364k (down 4k after a 2k upward revision to last week’s data). Rolling claims fell 8k to 380k. On a non-seasonally-adjusted basis, reported claims fell 17k WoW to 418k. Claims are currently at a level that is consistent with a reduction in the unemployment level: generally anything in the 375-400k level has been consistent with falling unemployment.
It strikes us that claims have exhibited similar tendencies for the past few years. Starting around week 36 of the year, rolling claims begin improving and continue that improvement through year-end. While we don't have a great explanation for why that is, considering the data is seasonally adjusted, it does seem to be a recurring trend. Also important is the fact that in the first 1-2 months of the new year, claims seem to go the wrong way, or least have done so in the past few years.
We'd also highlight the sizeable divergence that has emerged between claims and the S&P. Historically these divergences have not lasted. Right now the divergence is suggesting that either claims back up to ~445k or the S&P 500 puts on a move to ~1375. Last time a comparable divergence emerged it was in the Fall. The mean reversion instrument at that time was the market, as claims showed resilience, and, ultimately, improvement.
The 2-10 spread widened 3 bps versus last week to 170 bps as of yesterday. The ten-year bond yield increased 6 bps to 197 bps.
Financial Subsector Performance
The table below shows the stock performance of each Financial subsector over four durations.
Joshua Steiner, CFA
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