The weekly unemployment claims numbers came in at 870K, which was worse than market expectations of 845K, and a slight uptick from last weeks 860K number.
To put this in context, the weekly average was around 240K pre-COVID.
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.
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 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 its 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.