The Week Ahead: Data Might be the Key Commodity of the Future

We're going to rip up the script this week!

  • We're not going to talk to you about all the wireless strength at Broadcom
  • We're not going to tell you about the double digit grocery sales growth.
  • We don't need to talk about Target or how Costco continues to grab consumer wallet share.
  • We're not going to talk about that.
  • And we're not going to talk about the big misses at Nordstroms, Ross Stores, or how Disney is closing 20% of its physical store footprint.
  • Nope. We're tossing that out. Why?

Because we were going to talk about what's really driving the market over this past week and what you need to pay attention to for the week ahead.

In a nutshell, what was it? Listen to Advisorpedia's Week Ahead ... Powered by Tematica Research's Lenore Hawkins and Chris Versace and find out. The must listen podcast of your Monday.

Resources: Tematica Research | Chris Versace | Lenore Hawkins

Related: The Week Ahead: The Dip Is Alive and Well



Lenore Hawkins, Chris Versace

Chris Versace  00:01

This is the week ahead brought to you by Advisorpedia and powered by Tematica Research. I'm Chris Versace to Tematica Research as Chief Investment Officer and joining me is my gal Friday my chief macro economist Lenore Hawkins. But before we get to the week ahead, I mean, we could talk all about that stuff. Let's let's do something a little different. . .

We're going to rip up the script This week, we're not going to talk to you about all the wireless strength at Broadcom, we're not going to tell you about the double digit grocery sales growth or Cobra, we don't need to talk about target and its digital cons being 118% or how Costco continues to grab consumer wallet share. We're not going to talk about that. And we're not going to talk about the big misses at Nordstroms Ross stores, or how Disney is closing 20% of its physical store footprint. Nope. We're tossing that out. Why? Because we were going to talk about what's really driving the market over this past week and what you need to pay attention to for the week ahead. In a nutshell, what was it? It's the continued push pull between the strengthening domestic economy, fear of inflation that could prompt the Fed to move sooner than expected for remember, and I'm sure we'll talk about this historically, even before a Fed Jay Powell the Fed has been viewed as sometimes asleep at the switch when the economy heats up. The question is, are they doing that again? And remember, we're about to see 1.9 trillion and stimulus come on board as the Biden stimulus plan continues to make its way through Washington. And that's after the stimulus plan that we had in December that popped some of the January economic data. Now, with that as a preamble to put some context and perspective around that. Lenore Hawkins,

Lenore Hawkins  01:50

How do I possibly follow that up?

Chris Versace  01:54

You go do your best.

Lenore Hawkins  01:55

Okay, well, I do your best, I can possibly follow that up a little bit with holy cow where the markets fascinating on Friday, the s&p had almost a 3% range at one point down 1%, then trading up nearly 2%. It was all over the place. And I think we're probably going to continue to see things like that, because we're in one of those inflection points again, and this week, when fed Powell was questioned, you know, what do you think? Are you concerned about bonds? Not really, and he's gonna have to see things get a lot worse before he's gonna tighten? Yeah,

Chris Versace  02:31

I think I think his words were, I'm watching it,

Lenore Hawkins  02:36

something new and different. Keep in mind you were asking like, is this gonna be another one that's asleep in the will? Well, what we have seen every time is that this is a reactive Fred. Fred is a reactive fed, not a proactive fed. So I wouldn't expect to see them really do anything until like they did in December of 2018 when the market came down, 20%. And then they suddenly acted again.

Chris Versace  03:01

Well, so let's set some up. But let's just set the stage for this, right, because this week, we saw a number I should say, last people are listening to this last week, there was a number of fresh PMI data that showed Yes, the domestic economy is stronger than it is strengthening both manufacturing and services side. But we dug into it. The price component data was like off the charts strong, right? Off The Charts. Yes. Then we got other economic data, we got the durable orders data that was very positive. You know, the ADP employment report didn't really live up to expectations. But that combination, along with some fed heads who were talking saying that the feds can do anything until 2023. That really put the onus that combination put the onus on Powell to really correctly Jawbone the markets. And it didn't seem like he did that

Lenore Hawkins  03:54

No, he definitely disappointed everyone on Thursday, markets took a big hit. And actually, if we take a step back and look at where we are today, despite all the hoopla about technology being the place to be, as of Friday's close, the NASDAQ 100 is actually in negative territory down almost 2% for the year. On the other hand, you've also got gold doing pretty well. It's up about 10. Or sorry, it's Sorry, it's down as well as about down almost 11% Meanwhile, the s&p is up just a little bit 2.3%. So we've seen a lot of movement and at the end of the day, not a huge change. The markets are really trying to figure out what's going on. And I think one of the things we could talk about that was the big news for the day was the February jobs report that came out on Friday. And that's what really set the markets off. You know, they were things were looking pretty dour on Thursday, not so great Friday, and then this jobs report came out in the market said this is fantastic.

Chris Versace  04:53

Well, well it's funny though, because pre market before 830 the futures were up a little bit than they were Pork crossed in the market fell apart. And then all of a sudden, it's back again.

Lenore Hawkins  05:05

Yep. And this is this is what's really interesting, the headline looked great 379,000 new jobs were crushed. Crushed, the construction consensus was for about 200. So it's almost double what was expected. And on top of that, But wait, there's more. January's initial estimate was revised up 166,000. So that's just that's fantastic. Almost two X for February, January gets revised up. Okay, so let's dig into the details on this one a little bit, though. So the 379,000 new jobs was really coming out of three highly highly COVID-19 sensitive sectors, leisure and hospitality alone, added 355,000. And that's about 94% of all came in from leisure and hospitality, retail added another 140 1000 education 44,000. So you put that all together. And it's low paying highly sensitive to COVID-19. sectors. If we dig in a little bit deeper, the number of people who were unemployed 27 weeks or more rows 125,000 to get this almost 4.2 million. And if you look at that percent long term, unemployed, 27 weeks or more, as a percent of all unemployed, it has now hit a nine year high, hitting 41.5% of all the employed up from 39.5 in January 37.1 in December and 36.8 in November, so it has just continued to go up. And what that means is those people who are unemployed are staying unemployed for longer, the median duration of unemployment rose from 15.3 weeks to 18.3 weeks. Now, to put that into perspective, the median duration of unemployment is now about twice what it was before the whole pandemic start. Now, here's where it gets also really concerning for me, the workweek in February fell 2.9% in the private sector. So we actually had the number of aggregate hours worked. So if you take all the hours worked by everybody employed, that fell point 5% in February and has dropped into the past three months, and is now lower today than it was in October. So the total number of hours worked by everyone in the economy is today lower than it was in October. So any growth we're seeing is actually coming from productivity. That is a major,

Chris Versace  07:33

Really, you're really killing the buzz of the whole reopening trade. You know that right?

Lenore Hawkins  07:37

Exactly. That's why you got to look into these details. Now, if we were to look at the decline in the week workweek, and then also look at the fact that the average weekly earnings dropped point 6%. So people are working less, and the average weekly earnings less you put those two together, you actually get a 10% drop annualized. Wait a minute. Wait a minute come last month? Yep. So

Chris Versace  08:06

I thought two negatives made a positive one. They're multiplied together. That's what they taught me in math class.

Lenore Hawkins  08:12

Well, the market should not stop, though. Thought. So what is worth my time today? Sure, thought so by the end of the day, but what it really was, we've seen effectively, that $379,000 increase in payrolls was actually result of the sharpest decline in real average weekly income since June. And prior to that the last time we saw something that's rough was June of 29th, of 2009.

Chris Versace  08:38

So what you're saying is headlining number might point to, you know, hate some excitement about the reopening because more jobs are being created, but not so fast. It's really not as good as it might seem.

Lenore Hawkins  08:49

And if we look around the world, we'll see other reasons to be a little bit worried. So China, which has done really well so far, relative to a lot of the rest of the world, with managing the pandemic and reopening its economy. Well, its manufacturing, PMI slowed to a nine month low, and it's just barely in expansion territory. So China, who's way ahead of everyone else on reopening its economy is seeing its manufacturing, barely in expansion. new export orders declined to 48.8. Now that that level, anything below 50 is in contraction. So new export orders are actually in contraction. I mean, the world's biggest exporter is seeing exports declined. Is that a good sign? Not really.

Chris Versace  09:30

So what did you make of what China said about their revised GDP forecast on the rolling basis where where I think people were looking for 8% coming out of the pandemic? And they said, a little over 6%?

Lenore Hawkins  09:42

Yeah, I think that's another thing to be really worried about. That's, that's a bit of a headwind to all the interest in emerging markets. Now, I think the emerging market, that may be a great place to invest and this is going to hit that for a bit. So it might make things even cheaper because, you know, we're looking at a market that the US market is pretty much the most expensive in the world. Okay,

Chris Versace  10:04

Should we talk about what to watch for next week?

Lenore Hawkins  10:08

I think we should do that.

Chris Versace  10:09

Alright, so when we return from the weekend, we have one of the lightest weeks ahead of us in terms of economic data and quarterly earnings reports. While that may sound like a bit of a reprieve compared to the recent weeks, given the inflationary comments tucked into the February PMI reports, and investors focusing on the rising Treasury yields, two of those reports out next week, the February CPI and the CPI consumer price index producer price index will likely be in the crosshairs big time. As we digest those two reports. Let's remember, the feds next FOMC meeting will be held on March 16 17th. In addition to the update on potential monetary policy changes, if there are any, always check the wording as we know, the Fed is also going to be releasing its latest economic projections. So we'll want to make sure that we dig into that, again, that's March 16, and 17th. Aside from those two reports on inflation, we've got the possibility of a profound influence on Treasury yields. And the week's trading the balance of the reports to be had next week aren't likely to have a meaningful impact on GDP expectations for the quarter. Now, aside from those two, what else do we have on hand, we've got the usual weekly economic data that's coming out. And by the end of the week, we've got the march University of Michigan consumer sentiment for for I almost said February, March. Sorry about that. All right. So in terms of earnings reports, we've also got a very, you know, slow week, some of the ones that we'll be looking at Dick's Sporting Goods, what do they have to say about the spring season, that's usually a barnburner. for them. comments from United natural foods are likely to confirm the continued shift in consumer preferences towards healthier, cleaner living. That's one of our key themes to medical research, the cleaner living investment theme, as well as our index. And while we expect gogo we expect the results to talk about the continued thirst for connectivity. It's really it's really it's gonna be it's comments on the aviation industry that really that we are really focused in on and then the nor I think you're likely probably to parse this report rather closely. It's going to be from Lending Club. The reason I say that is, when they report their earnings, they tend to talk about the consumer financial profile across their customer base. And as we get ready for stimulus checks to be paid, you and I know that they don't always go straight to consumer spending, I think comments from Lending Club might give us an idea as to how much might go to consumer spending, how much might go to debt reduction.

Lenore Hawkins  12:41

We actually saw that last month for every dollar that went into spending $5 actually went into savings. And I think one of the things to keep in mind is we don't really know what the long term consequence is going to be. From all the trauma of 2020 2021 people losing their jobs, the world turning upside down how much that's going to change consumer behavior. And also next week, one of the things I will be looking for is what's going on with the January wholesale report, because one of the things that we're hearing across the board almost completely independent of what sector you're looking at, is that the global supply chains are still a mess. Here we are about a year into the shocks from the pandemic, global supply chains are still a mess. Transportation is still cheap to try. You've got shipping containers, all over the place, things are a complete mess, the cost of transport is skyrocketing. And we're also seeing where manufacturers are rethinking their supply chains. The whole idea of just in time manufacturing is kind of getting thrown out the window, because there's such concerns going forward that you need to have inventories and those inventories. I'll be looking for the report on Monday, the January wholesale inventory, that there they've really had a tough time keeping things in inventory. I mean, we've seen that we've talked about it before with what's going on with the chips in it.

Chris Versace  14:06

I'm glad you brought that last part up. There's some reports laid out last week that the Senate will vote on a $30 billion stimulus package for the semiconductor industry. That vote is set for April, I believe, that'll be something we want to watch. And at the same time, China turned around and said that they are going to invest heavily in their own semiconductor and technology infrastructure, really targeting 5g ai, and a couple other key technologies like that. So the race is on.

Lenore Hawkins  14:37

Oh, beside the races, forget the Cold War. Forget about weapons anymore. It's about microchips.

Chris Versace  14:43

Exactly. You know, a friend of ours might be right; data might be one of the key commodities of the future.

Lenore Hawkins 14:48

I think you're right.

Chris Versace  14:49

I think you're right. And I think Lenore I think that's the week ahead.

Lenore Hawkins 14:54

Have a great one.


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