*** Our Updated FIG Earnings Scorecard is Included Below ***
Initial Claims Drop, Yes, But Odds Are They'll Be Revised Higher Next Week
The headline initial claims number fell 23k last week to 452k. There was a significant revision to last week’s number, increasing it by 13k. If the revised number had been printed last week, it would have represented one of the top five largest increases in reported initial claims for the year to date. The prior week’s revision has now been upward for 25 of the last 26 weeks. If upward and downward revisions were equally likely, the odds of this occurring by chance would be 1 in 2,684,355 (or 1/(26/2^25)). Rolling claims came in at 458k, a decline of 4.25k over the previous week. All told, claims remain in the same band they’ve occupied for the year, and we are still looking for initial claims in the 375-400k range before unemployment meaningfully improves.
We don't want to go out on a limb here, but it strikes us that the market is focused mainly on whatever the current print is. Based on chronic upward revision, the illusion can, and is, being created for those who look only at the current print that the jobs environment is improving. In reality, as our charts below show, however, unemployment claims have remained flat as a pancake this entire year. There is no improvement in the data. We just want to make that crystal clear.
Hedgeye Earnings Scorecard
Below we show our rolling earnings scorecard which includes all financials that have reported thus far in the earnings season, along with subsector averages and our proprietary Hedgeye Earnings Score. The score evaluates company performance across ten measures, looking for either sequential improvement or decline and performance relative to expectations. A "perfect" score would be 10 while the worst possible score is negative 10. Over the course of an earnings cycle, it can get confusing trying to gauge how both individual companies and whole subsectors are faring relative to the group. It is our intention to simplify that process with this product, which we will be publishing each morning over the course of the earnings season as an embedded table in our regular morning posts.
The following chart shows 2-10 spread by quarter while the chart below that shows the sequential change. The 2-10 spread (a proxy for NIM) has been collapsing in the past two quarters. Yesterday’s closing value of 211 bps is up from 206 bps last week.
The table below shows the stock performance of each Financial subsector over four durations.
Joshua Steiner, CFA