Everyone that’s read Burton Malkiel’s A Random Walk Down Wall Street learns the idea that the movement of stocks is random–they can rise or fall on any given day. Like a hitter in baseball or a shooter in basketball, players can go on ”runs” that temporarily give the appearance of non-randomness.
China’s flash manufacturing PMI came in at 50.9 in October vs the official reading of 50.2 in September. Readings above 50 signal expansion. The rise was mostly driven by the backlog of work and employment components (though the employment component remains below 50), but new export orders registered a small gain as well.
We perform a variety of calculations to understand the often imperceptible changes in the underlying structure of the stock market. One calculation we make is to measure the percent of stocks making a new 200-day high. Historically this metric gets the most extended during the first move off a major low–like in September 2009.
Xerox guided down 4Q EPS from continuing operations estimates to $0.28-$0.30 per share which was below the $0.33 analysts’ were expecting (they did manage to slightly beat expectations for the 3Q, however). Basically, the entire discrepancy is a charge of $0.04 for restructuring its outsourcing business.
The level of job openings has now been been basically unchanged since February. The job openings data may be signalling a stalling out of employment. Initial jobless claims fell by 12k but the prior week was revised up by 4k.
In the below charts we take the average YoY% change in consumer prices for 33 countries around the world. What we see is a trend of disinflation that started in mid-2011 and continued through September.
For the last 40 years, the employment to population ratio has been well correlated with equity valuations.As would make sense, when more people are working, income is higher, demand is more sustainable and investors rationally capitalize corporate earnings at a higher rates. When employment rates are low, the opposite happens.
So far the contraction in commercial paper has not had a negative impact on stocks, but history would suggest that this is a red flag.