JOLTS + ISM are "tame" on inflation = good. Key economic data remains July jobs (8/4) and July CPI (8/10). DeMark "13" on NYSE % >200D bears watching.

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Today’s note will include a short video update. We discuss how Tuesday’s JOLTS and ISM are “tame” for inflation but jobs matters most this week.  The DeMark “13” on NYSE % stocks >200dma bears watching.

Please click below to view today’s Macro Minute (Duration: 4:26).

Among the incoming macroeconomic data, the 2 key ones are coming in the next week and a half— July jobs report (Friday 8/4) and July CPI (Thu 8/10). Today (8/2), the ADP July jobs is out, and while this could create near-term turmoil, it is far less relevant than the BLS jobs report.

• The best way to judge how the market feels about incoming economic data is to look a few metrics:
  – US 10-yr yield: continued move >4% at 4.103%
  – Sept 2023 Fed funds odds of a hike: +17%, down 2pp
• JOLTS (June) and ISM Manufacturing (July) released Tuesday and generally constructive:
  – JOLTS shows openings fell to 9.582mm (vs Street 9.6)
  positive is job openings fell most for: food service, retail trade, warehouses
  – ISM Manufacturing rose to 46.4 vs 46.0 last month, but below Street 46.9
  details good as employment softened and new orders up
• Our data science team views these as “tame” from an inflation perspective. So this is overall supportive of our view that the July hike +25bp is probably the last hike in this cycle. Markets judged these results as “tame” as the Sept 2023 FF odds did not spike, but fell to 17% as noted above. But this is just initial reaction and the key economic data is in next few weeks with July jobs and July CPI.
• The rise in yields somewhat puzzling, particularly since fed funds futures see reduced probabilities of a Fed hike in September (above). The move in yields is more pronounced in the 10-yr and 30-yr. And now every single bond on the curve has greater than a 4% yield. This is a shift from six weeks ago.
• According to Adam Crisafulli, Vital Knowledge founder, the strong results reported by Eaton ETN -0.91%  and Caterpillar CAT 1.17%  are driving higher yields. These companies are experiencing strong demand, which means the yield curve needs to steepen. And this steepening comes from the yields on the long end rising, rather than a fall in the short end.

BOTTOM LINE: Markets in holding pattern until the July jobs and July CPI. But be wary.

In our view, stocks are in somewhat of a holding pattern until we get to the critical jobs report (Friday 8/4) and through July CPI (8/10).

• JOLTS data shows that the labor market is still strong, even though it softened. And incrementally, this puts us in the camp that Friday’s jobs report could be stronger than expected.
  – Street looking for +200k vs +209k last month
  – ADP will release its report Wed and this will add to market confusion
  – ISM leans us softer but JOLTS sort of leans us towards a stronger employment figure
• Overall, we are entering August just a bit more wary than other months. And we are not calling for any outright rout in stocks. But the combination of:
  – poor seasonals odds positive month 40%
  – chasing sentiment by sellside, who are raising targets
  – potential for strong economic data like jobs
  – technical exhaustion as flagged by Mark Newton, Head of Technical Strategy
• Tom DeMark’s team, of DeMark Analytics, just posted a “13” on the NYSE % stocks >200dma. This index measures the strength of the momentum and the more stocks >200dma the better. Their highlighting a “13” means this could be a sign of a reversal. The last 3 times this happened:
  – 8/17/22: S&P 500 -19%
  – 12/1/22: S&P 500 -8%
  – 2/2/23: S&P 500 -9%
• So, this topping “13” of this index could be a sign of a larger period of turbulence. But for now, we believe investors just simply need to be vigilant.
• As for the ISM, the investment implication for us is this strengthens the case for Industrials XLI -0.24% . To repeat the rationale, when ISM is rising, the following are win-ratio for XLI -0.24% :
  – since 1950, when level ISM is <50 and rising
  – Industrials gain 22% median over next 12 months
  – win ratio is 95%
• This is a great time to be Overweight Industrials.

FED FUNDS: Watch September 2023 hike odds over the next few weeks…

This is the chart that will matter for stocks in August.

DeMark’s team flagged this chart and it could prove to be important. So we watch it.

As shown below, these “13” did coincide with the start of drawdowns in equities, that proved painful.

I am also puzzled by the surge in yields. Every point of the curve is now above 4%.

Adam Crisafulli, of Vital Knowledge, sees this as attributable to the strong EPS results.

But economic data was generally good Tuesday.

JOLTS opening/worker ratio is getting better.

And the drop in openings is happening in areas we would like to see such as:
– retail
– food service
– warehouses

PMIs bottoming. This is hopefully what we are seeing.

This is good for Industrials stocks XLI -0.24%

Since 1950, you can see the strong performance of Industrials when PMIs bottom and start to rise

Key incoming data August

• 8/1 10am ET July ISM ManufacturingTame
• 8/1 10am ET JOLTS Job Openings JunTame
• 8/2 8:15am ADP National Employment Report 
• 8/3 10am ET July ISM Services
• 8/4 8:30am ET July Jobs report
• 8/7 11am ET Manheim Used Vehicle Index July Final
• 8/10 8:30am ET July CPI
• 8/11 8:30am ET July PPI
• 8/11 10am ET U. Mich. July prelim 1-yr inflation
• 8/11 Atlanta Fed Wage Tracker July
• 8/15 8:30am ET Aug Empire Manufacturing Survey 
• 8/15 10am ET Aug NAHB Housing Market Index
• 8/16 8:30am ET Aug New York Fed Business Activity Survey  
• 8/16 2pm ET FOMC Minutes
• 8/17 8:30am ET Aug Philly Fed Business Outlook Survey
• 8/17 Manheim Aug Mid-Month Used Vehicle Value Index
• 8/23 9:45am ET S&P Global PMI Aug Prelim
• 8/25 10am ET Aug Final U Mich 1-yr inflation
• 8/28 10:30am ET Dallas Fed Aug Manufacturing Activity Survey
• 8/29 9am ET June S&P CoreLogic CS home price
• 8/29 10am ET Aug Conference Board Consumer Confidence
• 8/29 10 am ET Jul JOLTS
• 8/31 8:30am ET July PCE

Key incoming data July

• 7/3 10am ET June ISM ManufacturingTame
• 7/6 8:15am ADP National Employment Report Hot
• 7/6 10am ET June ISM ServicesTame
• 7/6 10 am ET May JOLTSTame
• 7/7 8:30am ET June Jobs reportMixed
• 7/10 11am ET Manheim Used Vehicle Index June FinalTame
• 7/12 8:30am ET June CPITame
• 7/13 8:30am ET June PPITame
• 7/13 Atlanta Fed Wage Tracker JuneTame
• 7/14 10am ET U. Mich. June prelim 1-yr inflationMixed
• 7/17 8:30am July Empire Manufacturing Survey
• 7/18 8:30am July New York Fed Business Activity Survey
• 7/18 10am July NAHB Housing Market Indexin-line
• 7/18 Manheim July Mid-Month Used Vehicle Value IndexTame
• 7/25 9am ET May S&P CoreLogic CS home priceTame
• 7/25 10am ET July Conference Board Consumer ConfidenceTame
• 7/26 2pm ET July FOMC rates decisionTame
• 7/28 8:30am ET June PCE Tame
• 7/28 8:30am ET 2Q ECI Employment Cost Index Tame
• 7/28 10am ET July Final U Mich 1-yr inflation Tame

Key data from June

• 6/1 10am ET May ISM ManufacturingTame
• 6/2 8:30am ET May Jobs reportTame
• 6/5 10am ET May ISM ServicesTame
• 6/7 Manheim Used Vehicle Value Index MayTame
• 6/9 Atlanta Fed Wage Tracker AprilTame
• 6/13 8:30am ET May CPITame
• 6/14 8:30am ET May PPITame
• 6/14 2pm ET April FOMC rates decisionTame
• 6/16 10am ET U. Mich. May prelim 1-yr inflationTame
• 6/27 9am ET April S&P CoreLogic CS home priceTame
• 6/27 10am ET June Conference Board Consumer ConfidenceTame
• 6/30 8:30am ET May PCETame
• 6/30 10am ET June Final U Mich 1-yr inflationTame

Key data from May

• 5/1 10am ET April ISM Manufacturing (PMIs turn up)Positive inflection
• 5/2 10am ET Mar JOLTSSofter than consensus
• 5/3 10am ET April ISM ServicesTame
• 5/3 2pm Fed May FOMC rates decisionDovish
• 5/5 8:30am ET April Jobs reportTame
• 5/5 Manheim Used Vehicle Value Index AprilTame
• 5/8 2pm ET April 2023 Senior Loan Officer Opinion SurveyBetter than feared
• 5/10 8:30am ET April CPITame
• 5/11 8:30am ET April PPITame
• 5/12 10am ET U. Mich. April prelim 1-yr inflation Tame
• 5/12 Atlanta Fed Wage Tracker April Tame
• 5/24 2pm ET May FOMC minutesDovish
• 5/26 8:30am ET PCE April Tame
• 5/26 10am ET U. Mich. April final 1-yr inflation Tame
• 5/31 10am ET JOLTS April job openings

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