INITIAL CLAIMS - FURTHER IMPROVEMENT

Takeaway: The labor market continues to improve and we continue to like unsecured consumer lenders like COF & DFS.

More Sub-300k Thoughts 

The labor market is chugging along with seasonally-adjusted initial jobless claims tracking well inside of the magic 300k line, which represents a frictional floor of sorts. We've shown in recent weeks that when claims breached 330k to the downside in the last two economic cycles, the market has continued its upward march for another 31 and 45 months. This go-around, we're currently at 8 months suggesting the market may not yet be done with its rally.

 

Conversely, the fact that we're sub-300k also represents a warning call of sorts as it has historically signified that we're in the proverbial 8th inning of the rally. Moreover, there's no guarantee that this cycle will play out similarly to the last two, especially considering the less-than-robust sample size (n = 2). As such, we'd be keeping Financials exposures on a relatively short leash from a big picture standpoint and we'll continue watching the labor data closely for any signs of negative inflection.

 

All that being said, so long as the good times keep rolling, we continue to like unsecured consumer lenders like Capital One (COF) and Discover (DFS) on the long side. Resurgent credit card loan growth dynamics coupled with stable credit quality metrics should combine to push estimates higher and potentially expand the multiple by a point or two.

 

The Data

Prior to revision, initial jobless claims were unchanged at 287k WoW, as the prior week's number was revised up by 1k to 288k.

 

The headline (unrevised) number shows claims were lower by 1k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -7.25k WoW to 287.75k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -13.3% lower YoY, which is a sequential improvement versus the previous week's YoY change of -6.5%

 

INITIAL CLAIMS - FURTHER IMPROVEMENT - 2

 

INITIAL CLAIMS - FURTHER IMPROVEMENT - 3

 

INITIAL CLAIMS - FURTHER IMPROVEMENT - 4

 

INITIAL CLAIMS - FURTHER IMPROVEMENT - 5

 

INITIAL CLAIMS - FURTHER IMPROVEMENT - 6

 

INITIAL CLAIMS - FURTHER IMPROVEMENT - 7

 

INITIAL CLAIMS - FURTHER IMPROVEMENT - 9

 

INITIAL CLAIMS - FURTHER IMPROVEMENT - 10

 

INITIAL CLAIMS - FURTHER IMPROVEMENT - 11

 

INITIAL CLAIMS - FURTHER IMPROVEMENT - 19

 

Yield Spreads

The 2-10 spread fell -1 basis points WoW to 187 bps. 3Q14TD, the 2-10 spread is averaging 187 bps, which is lower by -12 bps relative to 2Q14.

 

INITIAL CLAIMS - FURTHER IMPROVEMENT - 15

 

INITIAL CLAIMS - FURTHER IMPROVEMENT - 16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more

Europe's Battles Against Apple, Google, Innovation & Jobs

"“I am very concerned the E.U. maintains a battle against the American giants while doing everything possible to sustain so-called national champions," writes economist Daniel Lacalle. "Attacking innovation doesn’t create jobs.”

read more

An Open Letter to Pandora Management...

"Please stop leaking information to the press," writes Hedgeye Internet & Media analyst Hesham Shaaban. "You are getting in your own way, and blowing up your shareholders in the process."

read more

A 'Toxic Cocktail' Brewing for A Best Idea Short

The first quarter earnings pre-announcement today is not the end of the story for Mednax (MD). Rising labor costs and slowing volume is a toxic cocktail...

read more

Energy Stocks: Time to Buy? Here's What You Need to Know

If you're heavily-invested in Energy stocks it's been a heck of a year. Energy is the worst-performing sector in the S&P 500 year-to-date and value investors are now hunting for bargains in the oil patch. Before you buy, here's what you need to know.

read more