8/10/2016 12:10 PM
Yesterday morning, labor productivity came in at -0.5% vs. estimates of an increase of +0.5%. The market seemed to shrug this news off. First off, what does this number even mean? According to Bloomberg it says, "Productivity measures the growth of labor efficiency in producing the economy's goods and services." Great, so what does this -0.5% mean, is this quarterly, yearly? What? It is the annualized rate. So of course -0.5% sounds pretty bad, but just how bad is it? Pretty Bad.
The chart above is an illustration of that same number not turned into a percent or annualized. Instead, it was just indexed to a value in 2009. So how do I see this? Well, I see that we went from a reading of 64 in 1990 to 80 in 2000, an increase of 25%. To an increase of 80 in 2000 to 96 in 2008, an increase of 20%. To an increase of 96 in 2008 to 106 today, an increase of 10.4%.
You can run the numbers however you'd like the level of productivity is clearly flattening out, and that is not okay. It just goes against what you would think. You'd think with new technologies and advances in automation, our workers should be able to have more output. The only thing I can think of is perhaps there is just not nearly as much demand. Therefore, there is not a need for a high level of output. Again, just another sign of a rather dismal economy.
The equity market shrugged this productivity number off yesterday, as if nothing even happened. Apparently, it has been shrugging it for about six years now. At some point, this number will come into play; it is just not its time yet.
Today, the S&P 500 (NYSEARCA:SPY) is down about 5 points to 2176. I went and did some math and since July 11th, the average daily change in the S&P 500 is just 2 points, with one standard deviation of 7 points. We went from crazy volatility the first six months of the year to this. However, the VIX is up nearly 3.25% today, to 12.04, which could be a sign of something changing.
|Date||S&P 500 Close||Change|
The increase in the VIX and my gut tells me something could be changing today. What is tipping me off to this shift is the action in the iShares Nasdaq Biotech ETF (NASDAQ:IBB) today, with the ETF down nearly $5 to $289.58, which is about 1.7%.
You can see we are sitting on, if not slightly below, that green trendline I drew in. This trendline has served us well since the middle of July. However, it apparently seems to be in Jeopardy. A break below the $284 level will start changing the dynamics quickly.
The Technology Select Sector SPDR ETF (NYSEARCA:XLK) is also trading lower today, by $0.12 to $47.02. The move in the XLK is not nearly as damaging as the one being felt today in the biotech sector.
The sectors performing well today are the Utilities (NYSEARCA:XLU) flat and the Consumer Sectors with the XLP up 40bps and the XLY 25bps. Again, more of a sign that perhaps something is happening. These are defensive sectors, which tend to do well in a Risk-off environment. One day is certainly not a trend, but this is something we need to pay very close attention to.
Currencies & Commodities
The Dollar is weakening today, with the Dollar Index down 0.48 to 95.70. However, this is not helping WTI crude, as the price is lower by $0.80 to $42. This is happening after oil inventories rose by 1.1 million barrels. Analyst had been expecting a draw of 1 million barrels. This is, of course, weighing on the energy sector XLE, dragging that ETF down nearly 50bps.
10-Year Treasury years are down 2bps to 1.52%
China RMB is -0.217 to 6.6405
- 8/12 US PPI +0.38% month over month
Back on August 4th, I wrote, "We will need to keep note of this. Remember this risk-on shift started to occur around the same time Trump had taken the lead over Clinton." So what has happened since this time? The Polls have shifted sharply in Clinton's favor. What day did the IBB Top in this recent rally? August 4th.
Coincidence? I don't know. The latest Bloomberg poll shows Clinton up 50 to 44 over Trump. Clinton has stated numerous times about drug pricing. Perhaps the market feels Clinton is more likely to do something about drug pricing than Trump is? We will to see how this plays out. The Real Clear Politics Average has Clinton up 48 to 40.3%
Risk Metric On/Off: ON
Oil -$0.80 to $41.97
S&P 500 -6 to 2175
Gold +6 to 1345
10- Year Treasury -0.02 to 1.52%
Copper =0.0265 to $2.1760
Dollar Index -0.53 to 95.65
VIX +0.52 to 12.18
Euro +0.0053 to 1.1171
iShares Nasdaq Biotech $-4.89 to $ 289.58
Yen -0.58 to 101.31
Technology Select Sector SPDR ETF -$0.15 to $46.99
Pound +0.01 to 1.3004
Utilities Select Sector SPDR ETF -$0.02 to $50.71
RMB -.0209 to 6.6410
Consumer Staples Select Sector SPDR ETF (NYSEARCA:XLP) $+0.18 to $54.88
Another round of lackluster economic numbers are appearing to have a nil effect on the overall equity markets. However, today feels slightly different in that you see "risk on," precisely the IBB, get hit very hard. However, sectors like the XLP are faring quite well. It is possible something is changing in the rotation cycle. Is the Trump rally coming to an end? It could be. However, I'm not ready to switch the Risk column to OFF. Not after only one day.
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