Initial Claims Rise ... Expect More of the Same
The headline initial claims number rose 17k WoW to 381k (up 15k after a 2k upward revision to last week’s data). Rolling claims fell 5.75k to 375k. On a non-seasonally-adjusted basis, reported claims rose 69k WoW to 490k.
We've pointed out for the last several weeks that in the last two years claims have shown a tailwind from week 36 through year-end, and then tend to reverse that trend in the opening 1-2 months of the new year. This morning's print is consistent with that trend. That said, the larger, secular trend in place at the moment is ongoing improvement in claims. This is obviously a tailwind for lenders from a delinquency standpoint. That said, it will be dwarfed by the elimination of reserve release that will rear its head in 4Q earnings when companies start reporting in two weeks. We often look at Discover as a leading indicator on this front as they're an off-cycle reporter (November fiscal year-end). Discover's quarter told the tale quite clearly. Although they beat estimates and generally reported solid metrics, the optical sequential slowdown driven by the absence of reserve release led the stock to get sold. Don't be surprised when the impact is far greater at the big banks.
The 2-10 spread tightened 2 bps versus last week to 165 bps as of yesterday. The ten-year bond yield fell less than 1 bp to 192 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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