CLAIMS FLASHING WARNING SIGNALS OF TURBULENCE AHEAD FOR XLF

Each week we provide an update on initial jobless claims because we think it's one of the best leading indicators for the credit-sensitive names we follow and history has shown there to be a very high correlation. The reality, however, is that there has been quite a divergence that has taken place in the last four to five months.

 

Let's just get this week's data out of the way first. Claims for the most recent week, out this morning, dropped 24k to 456k from 480k (revised down 4k) in the prior week. This caused the rolling 4-week average to actually increase by 3k to 459.5k from 456.8k.

 

We hate to be the ones to take away the punchbowl, but consider this. As the charts below show, at 456,000, claims are at the same level they were at on 11/28/09 (457,000). In other words, claims have gone nowhere in almost five months. Compare this with the colossal improvement in claims from April 2009 through November 2009. In stark contrast to recent claims trends, the XLF has barreled higher some 17% over the last 4.5 months, with high-beta Financials rising by multiples of this.

 

While we've been patient in our weekly posts, waiting for claims to resume their downtrend, we think that enough data (20 weeks now) is in to begin to warrant some caution around prospective performance in the XLF. If claims continue to trend sideways at these levels, it will be difficult, and, frankly, unlikely, for Financials to continue to move higher if the backdrop of further employment gains stagnates. Because claims are a leading indicator, we treat them with greater significance than the unemployment rate. We have other reasons to be cautious heading into the seasonal summer doldrums, namely renewed housing concerns. Couple this with the blowout 1Q10 results so far, and layer on the marked increase in consensus expectations around normalized earnings, and it is starting to feel like the Financials are better positioned for correction than further gains. We don't want to be alarmist with this call, but the reality is that it was the inflection in jobless claims that marked the bottom at the March 2009 lows, and claims are now sending us a new signal so it's time to pay attention.

 

As a final word around the census, we've been bullish on the lift the census would add going into its peak employment months, but we're almost at the point now where it's time to start focusing on the drag it will create on the backside as the peak month of employment, May, is just 8 days away.

 

CLAIMS FLASHING WARNING SIGNALS OF TURBULENCE AHEAD FOR XLF - rolling claims

 

The following chart shows the raw claims data.

 

CLAIMS FLASHING WARNING SIGNALS OF TURBULENCE AHEAD FOR XLF - raw claims

 

 

The following chart shows the census hiring timeline.

 

CLAIMS FLASHING WARNING SIGNALS OF TURBULENCE AHEAD FOR XLF - census chart

 

Joshua Steiner, CFA

 

Allison Kaptur


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more