Jobless Claims Are Nearing Annual Peak as Credit Spreads Widen
2024.08.08 04:03
Last week’s hit +255,000, which I initially thought was the highest in the past year. However, Rick Santelli pointed out that +258,000 was the actual peak, as shown in the Federal Reserve Economic Database (FRED) graph below.
I value the jobless claims data for its frequency (every Thursday at 7:30 AM Central) and timeliness (reflecting data as of the prior Friday). Despite last Friday’s release of the July ’24 and household data, the nonfarm payroll report only covers the first 10 days of the month. Therefore, today’s jobless claims data will provide a more current snapshot, covering the end of July ’24.
I’ve always thought it was the perfect economic data point print for the above reasons, but most economists seem to brush it off.
Last weekend’s earnings talked about the importance of keeping an eye on credit spreads – even for equity investors – given credit spreads (in my opinion) are the “canary in the coal mine” for deeper market issues, I wanted to update readers on what’s happened to high-yield (below investment-grade) credit spreads this week, as of this morning’s data:
- Friday, August 2nd: +325, up from +308 the prior Friday;
- Monday, August 5th: +325, up from +308 the prior week;
- Tuesday, August 6th: +372, up from +313 the prior week;
- Wednesday, August 7th: +393, up from +320 the prior week;
These numbers are sourced from Bespoke’s Morning Lineup, and my guess is since Paul Hickey and the kids stuck up a graph of high-yield spreads widening in the Weekly Bespoke Report published Friday night, August 2nd, that the data above has a little bit of a lag to it. (It’s always best to watch credit spreads by sector, but since individual high-yield bonds are not bought for clients, instead ETFs and mutual funds are used (and more ETFs than mutual funds), I use the Bespoke spread data as a broad gauge for credit spreads.
The last time that the high-yield credit spread average was over 400 (recently), was the week of November 11 ’23 when the spread hit +408. That was 9 months ago.
This is another metric to keep an eye on, that is reflective of “fear” vs “greed”.
Conclusion
This blog has always worked with a pretty good technician – Gary Morrow found over at X – (X @garysmorrow), and thinks the gap down on the major equity equity indices on Monday morning will remain heavy, and that the various bond market asset classes may not trade back to the Monday morning, August 5th high prices (Like Treasuries, muni’s, high-grade corporate) for a while.
The number caught many people off-guard Monday morning, as it came in at 51, its first print over 50 in 5 readings, which means that the services sector is still pretty healthy. Services are 85% of the private sector .
I think we’re in for a choppy eight weeks until the October ’24 year-end rally starts.
Expect interest rates to rise a little, the data to show the US economy isn’t falling off a cliff, and stock prices could meander for 8 weeks. In terms of S&P 500 earnings, the “upside EPS surprise” is just half of what it was last quarter, meaning that S&P 500 earnings are a little less robust than the prior 5 – 6 quarters.
This could all change today, too, so don’t forget that.
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None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of futures results. Investing can involve the loss of principal, even for short periods of time.
