A glass half-empty

Mid-week market update: About two weeks ago, I wrote a post indicating that market had focused on the positives of a Trump presidency (see The Trump Presidency: A glass half-full?). Now it seems that market psychology is subtly shifting to a glass half-empty view.

It is very revealing when the new nominees for the key commerce ans treasury cabinet posts make market soothing noises and stock prices barely move. Josh Brown's reaction to Steven Mnuchin as the Secretary of the Treasury and Wilbur Ross as Secretary of Commerce is probably fairly typical of the market:
Good morning. Just wanted to check in briefly to voice my approval for the Treasury Secretary and Commerce Secretary picks announced by the Trump transition team this morning. They’re both highly accomplished and capable people who’ve held senior roles within businesses, even if they don’t have government experience.

To my knowledge, neither is looking to eject homosexuals, Jews or brown people from the country, so that’s a step in the right direction. I don’t believe that either has an agenda against women or takes money directly from Russian banks or posts frog memes on Twitter. Neither pick is a sitcom star from the 1980’s or one of the President-Elect’s children.
The hourly SPX chart below tells the story of a lack of positive reaction to good news. Such market reaction points to short-term bullish exhaustion.



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Employment Going South. Literally.

Dietrich Vollrath:

Employment Going South. Literally: From 1990 to 2015, the US economy as a whole increased employment by about 30 million (30,056,664 according to the BLS). Employment in 1990 was 118,900,000, so that meant that there was a roughly 25% increase in employment over that 25 year period, with a little more than 1 million jobs added per year, on average.
I’m not going to surprise anyone by saying that these 30 million jobs were not spread equally across the entire US. What I didn’t have a good sense of, personally, was how disparate the change in employment was across the US. This post is just some documentation about the absolute size of the change in job distribution across the US. ...
[analysis, graphs]
... Again, I’m not claiming that this is some kind of revelation here. The movement of population, and hence jobs, from the Northeast/Midwest to the Sunbelt is well known. What I found interesting was putting some tangible numbers of the shift. The little counter-factual I’m doing here is not very rigorous; there is no particular reason to believe that the 1990 distribution is the “right” distribution of jobs to compare against. But the 1990 distribution does have the feature of being prior to NAFTA and prior to China’s accession to the WTO, both of which are at times cited as sources of manufacturing job losses in the upper Midwest and Northeast.
The scale of the relative job changes, though, indicates that more of the losses have to do with free trade within the US than free trade outside of the US. The areas with relative decline lost 13 million jobs compared to the 1990 distribution of jobs. In total the US shed 6 million manufacturing jobs from 1990 to 2015 (18 million to 12 million, roughly). So this relative decline cannot possibly be a function only of manufacturing and international trade in manufactured goods. There is just too much relative movement out of the declining counties to attribute to this. This is a sloppy way of thinking about how this would work counter-factually (I’m ignoring spillovers entirely), but if you magically added 6 million extra jobs to those counties in relative decline, they would still be in relative decline compared to the Sunbelt in terms of jobs. They’d have 84.4 million jobs (as opposed to 78.4 million), but you’d expect them to have 95.6 million based on the 1990 distribution, so they would still be 11.2 million jobs off the pace.
The breadth of relative loss, though, seems striking, and is the one thing I did not appreciate prior to looking at this data. 909 counties lost jobs in absolute terms, which is 29% of all counties. Another 1,279 counties, 41% of all counties, gained jobs in absolute terms buy lost in relative terms. 944 counties, 30%, gained in relative terms. Just as many counties gained in relative terms as lost in absolute terms. The winning locations - Houston, Dallas, Atlanta, Miami, Phoenix, Denver, Vegas - won big, but the losing was spread across a wide area.
More jobs in 2015 are still located in places in relative decline (78.4 million) than are in places in relative ascent (70.5 million). Of those 78.4 million, 18 million (or about 12% of jobs) are in counties that experienced absolute job losses over the last 25 years. Most jobs are still in places that look to be losing out to Sunbelt cities over time. To the extent that your local economy plays a role in forming your opinions, this seems relevant, although I am going to stop now before I try to do any amateur political science or sociology.

The 5 Best Stocks in Each Sector Since the Election

The average stock in the S&P 500 has gained 4.43% since Trump won the election on November 8th.  Below we highlight the five best performing stocks in each S&P 500 sector since the close on Election Day.  Obviously, the top five stocks in some sectors are up a lot more than the top five stocks in others.  It’s a function of sector performance since the election, where we’ve seen areas like Financials, Consumer Discretionary, Industrials, and Energy do extremely well, while areas like Consumer Staples and Utilities have done poorly.  In fact, three of the five best performing Utilities stocks since the election are actually in the red.

As shown, Staples (SPLS), Advance Auto Parts (AAP), and Kohl’s (KSS) have been the best Consumer Discretionary stocks with gains of 22%+.  In Consumer Staples, however, Walgreens (WBA), Whole Foods (WFM), and Kroger (KR) have been the best with gains of just over 5%.  Transocean (RIG) has been the top Energy stock with a gain of 32%, while Navient (NAVI), Ameriprise (AMP), and Citizens Financial (CFG) have been the top Financial stocks with gains of more than 23%.  In Health Care, Humana (HUM) is up the most at 17.9%, and in Industrials, it’s United Rentals (URI) that holds the top spot with a gain of 33.7%.

Freeport (FCX) and Nucor (NUE) have been the best performing Materials stocks since the election, while in the REIT space, Host Hotels (HST) and Vornado (VNO) are up the most at 10.27%.  In Technology, NVIDIA (NVDA) is up by far the most with a gain of 31%, and in Telecom, the best stock has been Frontier (FTR).  Finally, CenterPoint Energy (CNP) has been the top performing stock in the Utilities sector since the election with a gain of…wait for it…0.89%.

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Fannie Mae: Mortgage Serious Delinquency rate declined in October

Fannie Mae reported today that the Single-Family Serious Delinquency rate declined to 1.21% in October, down from 1.24% in September. The serious delinquency rate is down from 1.58% in October 2015.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59%.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although the rate is generally declining, the "normal" serious delinquency rate is under 1%. 

The Fannie Mae serious delinquency rate has fallen 0.37 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will not be below 1% for about 7 more months.

Note: Freddie Mac reported yesterday.

S&P 500 Sector Weightings — Post-Election Update

Below is an updated look at sector weightings in the S&P 500.  As shown, Technology remains the largest sector in the index at 20.8%, while the Financial sector has moved back into second at 14.6%.  Health Care ranks third at 13.7%, followed by Consumer Discretionary (12.3%), Industrials (10.5%), and Consumer Staples (9.3%).  Energy ranks seventh at 7.5%, and the final four sectors (Utilities, Materials, Real Estate, Telecom) all have weightings between 2.5% and 3.1%.

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What’s most interesting about sector weightings is their changes over time.  We post on this topic from time to time, but today we just want to show how weightings have changed since Trump was elected President on November 8th.  As shown, the Financial sector has seen its weighting in the S&P 500 surge by 1.23 percentage points.  The Industrials sector has seen the next biggest jump at 0.39 percentage points, followed by Energy (0.26) and Consumer Discretionary (0.10).

On the downside, Real Estate, Utilities, Health Care, Technology, and Consumer Staples have all lost market share since the election, with Consumer Staples losing the most at 0.71 percentage points.  Due to its “growthy” nature, we’re wondering if Technology will be able to hold above 20% for much longer.

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“Value” Surges Past “Growth” Post Election

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Much has been discussed about sector rotation into areas like Financials and Industrials since the election, but it’s also been a rotation from growth into value.  Below is a chart that highlights this.  It shows the year-to-date performance of the S&P 500 Growth index versus the S&P 500 Value index.  While Value had been outperforming Growth slightly all year, it has been crushing it since the election (the boxed area in the chart).  Heading into December, the Value index is up 11.2% year-to-date and 4.6% since the election versus a YTD gain of just 4.8% and 1.5% since the election for the Growth index.

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