Daily Chartbook #21

Welcome back to PAV Chartbook: market charts, data, research, and insights pulled from various sources around the Internet by a solo retail investor.

1. We begin with housing. The market is cooling as housing starts (blue) fell by 9.6% and building permits (orange) declined by 1.3% in July.

2. Monthly rate of change. For housing starts and building permits.

3. Zooming out. Looking at single-family (red) and multi-family (blue) housing starts going back to 1968, both are trending up but are historically low.

4. Zooming back in. Looking at building permits, we can see a “rotation toward multifamily construction in the midst of a housing affordability plunge”.

5. Regional housing. Housing starts in the South have fallen sharply while starts in the Northeast have risen.

6. Builders bottlenecks. Contributing to a cooling housing market are stubborn supply chain bottlenecks for builders.

7. The Fed & inflation. An evolution of the Fed’s inflation forecasts.

8. GDP forecast (I). Goldman Sachs is still predicting that Q3 GDP will increase by 0.9%.

9. GDP forecast (II). Atlanta Fed GDPNow model has Q3 GDP growth at a more optimistic 1.8%.

10. Will the Fed raise by 50 bps in September? Goldman Sachs thinks so.

11. BofA Global Fund Manager Survey (I). The outlook among global fund managers for a stronger economy has moved up from worst-ever to still-really-bad.

12. BofA Global Fund Manager Survey (II). They also consider emerging market and business cycle risks to be at their “highest since May’20”.

13. BofA Global Fund Manager Survey (III). And they increasingly believe a recession is imminent.

14. Recession, but… Here’s what Goldman Sachs thinks about a recession: “We believe that any post-covid US recession would likely be mild, with a limited increase in the unemployment rate of around 1pp. This would be unprecedented in postwar US history, though recessions with similarly limited increases have occurred in other G10 economies, such as Germany and Canada”.

15. Surprise Index up. Goldman Sach’s index of economic surprises “is in positive territory”.

16. Industrial production. Industrial production rose more than expected (0.6% vs 0.3%) in July but the 3.9% YoY increase was the smallest since January.

17. Manufacturing production. In contrast to yesterday’s abysmal NY manufacturing report, manufacturing production in the US (grey) rose by more than expected (0.7% vs 0.2%) but the YoY gain of 3.2% was also the smallest since January.

18. Monetary policy and the S&P 500. From BofA: “Based on the strong linear relationship between QE and S&P 500 returns from 2010 to 2019, QT through 2023 would translate into a 7ppt drop in the S&P 500 from here”.

19. Earnings before Interest & Taxes. “All S&P 500 sectors except for Health Care have EBIT margins that are currently above their historical medians.”

20. Investor flows. Equity ETFs have been the target of “43% of inflows on rolling 1-month basis”.

21. Fear & Greed (I). We’re finally back in Greed territory.

22. Fear & Greed (II). It’s been a while…since early April.

23. Nothing changes sentiment like price. Goldman’s average percentile of sentiment indicators has moved up but remains depressed.

24. Hedge funds (I). Hedge funds are less bullish as Q2 “outflows of $27.5 billion more than offset inflows of $19.8 billion” in Q1.

25. Hedge funds (II). They are also not buying the latest rally as “positioning is most net short since summer 2020”.

26. Hedge funds (III). The Goldman Hedge Fund VIP Index tracks hedge funds’ favorite stocks. The basket is having “its best quarter thus far since 4Q20”.

Top 10 holdings:

27. JPM client survey. Clients of JPMorgan do not have a bullish outlook for equities.

28. BofA Global Fund Manager Survey (IV). Back to the fund managers. Cash levels have moved down slightly but still remained at bearish levels with “cash at 5.7% (down from 6.1% BUT well above the long-term avg of 4.8%), too bearish for immediate reversal of bear rally.”

29. BofA Global Fund Manager Survey (V). And finally, the evolution of what fund managers think the “biggest tail risk” is. It’s currently persistent inflation and hawkish central banks.