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Weekly Unemployment Claims

The weekly unemployment claims numbers came in at 870K, which was worse than market expectations of 845K, and a slight uptick from last week's 860K number.

To put this in context, the weekly average was around 240K pre-COVID.

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Continuing Claims

Continuing claims fell to 12.58 million. While some data points have shown a V-shaped recovery, the employment numbers will likely take years to get back to pre-COVID levels, unfortunately.

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New Home Sales

The bright spot of the morning was New Home Sales for the month of August, which made a new cycle high at 1.011 million. You have to go back to January 2007 to find a monthly reading that high. A bi-product of lower rates.

The results came in +12.2% above the prior month, and +41.8% year over year.

New home sales have typically been a reliable leading indicator. However, I’m not sure how reliable it can be in this environment.

The latest GDP now updates forecast a 32% increase in Q3 GDP. Which would be a record high record, following a record low in Q2. I don’t think this should be expected to continue. I expect Q4 and beyond to revert back to the sluggish growth economy that has been exhibited throughout most of the last 10+ years.

As we discussed before, the stock market isn’t necessarily the economy for a variety of reasons. Stocks are a result of earnings and interest rates. Rates are at historic lows, which sets the bar really low for stocks.

For example, earnings growth for the S&P 500 is expected to decline by 20%. Still, earnings per share for all S&P 500 companies combined looks to come in around $130.50. That equates to an earnings yield (dividing EPS by the price of the S&P 500 index) of 4%. Which still looks pretty good when the 10-year Treasury bond is 0.67%.

Stock selloffs (even severe selloffs like March) can occur under even the best macro fundamental backdrops. But it's hard to envision a nasty bear market that lasts many years (like 2008 or 2000) occurring unless inflation becomes a problem, which restricts the Fed and prompts them to have to change their current monetary stance of 0% Fed Funds rate through 2023.

Doesn’t mean it can’t happen. But I see it as a low probability event at the moment.