Political Calculations
Unexpectedly Intriguing!
May 25, 2017

We're going to use charts to tell a short term story and a long term story about new home sales in the United States. Let's start with the most newsworthy of those charts, where we find evidence that new home sale prices in the U.S. have flatlined since January 2017, with our chart showing the relationship between the trailing twelve month average of median new home sale prices and median household income.

U.S. Median New Home Sale Prices vs Median Household Income, Annual: 1999-2015, Monthly: December 2000-April 2017

If this is the first time that you've seen this chart, that "loop-de-loop" is what the bursting of a housing bubble looks like as the U.S. economy experiences a major recession. Next, let's zoom out to see all the data we have for median new home sale prices and median household income, which for annual data, extends back to 1967.

U.S. Median New Home Sale Prices vs Median Household Income, Annual: 1967-2015, Monthly: December 2000-April 2017

One of the cool things about this chart is that it illustrates why the first U.S. housing bubble was such an exceptional event in the context of the long term relationships between median new home sale prices and median household incomes.

Speaking of which, the only reason we go back to 1967 in this chart is because the U.S. Census Bureau has only reported median household incomes for the U.S. since 1967 (monthly data is available from Sentier Research going back to December 2000). The Census Bureau's data on monthly new home sale prices however goes back to January 1963, where the following chart shows that data, and as a bonus, the average new home sale prices, which have only been reported since January 1975.

Median and Average Monthly U.S. New Home Sale Prices, January 1963 through April 2017 (Median) and January 1975 through April 2017 (average)

Let's next zoom in on those streams of data since January 2000, while also showing the official periods of recession for the U.S. economy during that period of time:

Median and Average Monthly U.S. New Home Sale Prices, January 2000 through April 2017

In our final chart, we'll calculate the trailing twelve month average of U.S. median new home sale prices while zooming in even closer to look at the period from July 2012 through April 2017, which contains three separate trends for the rate of escalation of median new home sale prices in the U.S.

Trends in Trailing Twelve Month Average of Median U.S. New Home Sale Prices, July 2012 through April 2017

And so, we come full circle, as we once again confirm that U.S. median new home sale prices have flatlined since January 2017 (although the three most recent months will still be subject to revision during the next several months).

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May 24, 2017

A story for investors in a single chart: the quantified expectations of the S&P 500's future dividends per share, as projected 2017-Q2 through 2018-Q2, as told by two different sets of dividend futures!

The Expected Future for S&P 500 Dividends Per Share, Snapshot on 23 May 2017

The story is told by our two main sources for information about the expectations of future dividends for the S&P 500: CME Group and IndexArb. Here are some quick notes about the data....

  • IndexArb uses a "bottoms-up" approach to estimating the dividends per share of the S&P 500 index, built up from the projected cash dividend payments projected for each of the index' dividend paying component firms after accounting for each firm's market capitalization. The CME Group's projected dividends are produced through a more "top-down" approach, where the trading of options contracts linked to future S&P 500 dividend payouts sets the projected dividend per share level for future quarters extending out through the current and next four quarters.
  • The "quarters" for both sources run from the end of the third Friday of the month ending the previous quarter through the end of the third Friday of the month ending the indicated quarter. As such, the data reported for both sources will not match with the quarterly dividend data reported by Standard and Poor for the S&P 500, since S&P follows regular calendar quarters when reporting dividends per share for the index.
  • Because of that term mismatch, S&P's reported dividends and the dividend futures will tend to greatly differ from each other for the data that applies to the last quarter of the year and to the first quarter of the next year. This apparent discrepancy arises because a number of firms that pay annual dividends will pay them out during the last week of the year, or in the case of firms that pay variable dividends, where they'll pay their largest dividends of the year during that last week, with both dividend paying strategies affected by tax considerations. Where dividend futures are concerned, that mismatch in the terms covered by a quarter will most often make Q4 dividends appear low and Q1 dividends appear high compared to the S&P's "official" dividends per share accounting.
  • IndexArb's dividend futures data follows a cumulative payout approach, where the value for each indicated quarter represents the projected total dividends per share that will be paid out between the current day and the third Friday of the month ending the indicated quarter. Values for the actual dividends per share can be calculated by taking the indicated dividends per share that apply for the quarter of interest and subtracting the indicated dividends per share for the preceding quarter. For the current quarter, the last time that math can be done is on the last day that the value of dividends per share remaining to be paid out in the preceding quarter is reported. In the chart above, the projection for IndexArb's 2017-Q2 dividends per share was made on 8 March 2017.
  • Since the CME Group's dividend futures data continues all the way through the expiration of the quarter's options contracts, changes can continue to be observed for that stream of data, which is why we use it in our long-running S&P 500 forecasting project. We had previously used dividend futures data provided by the Chicago Board of Exchange in our project, but they opted to discontinue their reporting at the end of April 2017.

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May 23, 2017

Although you wouldn't know it from the just completed earnings season for 2017-Q2, the number of dividend cuts announced to date in the current quarter indicate that recessionary conditions have returned in May 2017 after largely having been on hold in April 2017.

Cumulative Announced Dividend Cuts in U.S. by Day of Quarter in 2017, Snapshot on 2017-05-22

After outperforming the pace of dividend cuts recorded in 2017-Q1 during the first month of the quarter, 2017-Q2's pace of dividend reduction announcements quickened to match 2017-Q1's pace during the last several weeks, before quickening further to exceed it during the last week.

Compared to a year earlier however, 2017-Q2 is still markedly better, with considerably fewer dividend cuts having been announced during the quarter through the same point of time.

Cumulative Announced Dividend Cuts in U.S. by Day of Quarter, 2016-Q2 versus 2017-Q2, Snapshot on 2017-05-22

According to the online databases recording dividend declarations in near-real time of both Seeking Alpha and the Wall Street Journal, we can trace the apparent increase in economic distress in the U.S. to the oil and gas sector, where at least six multiple master limited partnerships declared during the last week that they would reduce their monthly dividend distributions to their shareholders by anywhere from 7% to 52%.

Those particular dividend cuts likely have a lot to do with falling revenue attributable to sizable percentage dips in oil and gas prices during the current quarter.

We've also seen recent upticks in the number of dividend cutting firms in the financial sector and also that produce chemicals used in the agricultural sector.

Though we keep hearing reports of struggling U.S. retailers, we have so far only seen one, Stage Stores (NYSE: SSI) announce a dividend cut this year. This will be an industry to watch should retail sales turn negative, increasing the distress in the industry.

Update 25 May 2017: By request, here is the chart comparing the cumulative number of dividend cuts announced in the current quarter of 2017-Q2 and the year-ago quarter of 2016-Q2, excluding the dividend reductions declared by firms in the U.S. oil and gas industry.

Cumulative Announced Dividend Cuts in U.S. by Day of Quarter, 2016-Q2 versus 2017-Q2, Snapshot on 2017-05-22, Excluding the Oil and Gas Industry

If not for the distress in that sector, the private sector of the U.S. economy might qualify as being relatively healthy in 2017-Q2, whereas in 2016-Q2, the economy was definitely experiencing recessionary conditions outside of the oil and gas industry.

Data Sources

Seeking Alpha Market Currents. Filtered for Dividends. [Online Database]. Accessed 22 May 2017.

Wall Street Journal. Dividend Declarations. [Online Database]. Accessed 22 May 2017.


May 22, 2017

In Week 3 of May 2017, the S&P 500 provided a small demonstration of what can happen to stock prices whenever investors shift their focus from one point of time in the future to another.

Because we've already discussed that "almost interesting" event, where investors partially shifted their forward-looking attention from 2017-Q2 to 2017-Q3, we'll simply note that the S&P rebounded in the latter part of the week as investors had reason to shift their focus back toward 2017-Q2, with stock prices behaving accordingly.

Alternative Futures - S&P 500 - 2017Q2 - Standard Model - Snapshot on 19 May 2017

Stock prices aren't the only data that suggest that a partial shift in focus for how far forward in time investors are looking took place during Week 3 of May 2017. U.S. Treasury futures also communicated similar information, as Mike Shedlock observed:

The futures market is starting to question the June rate hike thesis. For its part, the bond market is behaving as if the Fed is hiking the economy into a recession. Here are some pictures.

June Rate Hike Odds

Mish Annotated: CME Group FedWatch June Rate Hike Odds

No Hike in June Odds

  • Month ago – 51%
  • Week Ago – 12.3%
  • Yesterday – 21.5%
  • Today – 35.4%

The CME Group provides this data through its FedWatch tool, which uses futures contracts for the Federal Funds Rate to divine the probability that the Fed will hike that particular interest rate by the various upcoming meeting dates of the Federal Reserve's Open Market Committee (FOMC). They've been providing that kind of insight from futures contracts since at least the last quarter of 2015.

We've been using dividend futures to do somewhat similar analysis, where the Fed has often had an outsized role in determining how far forward in time investors in the U.S. stock market focus their attention, where our dividend futures-based model can explain a good portion of why stock prices behave as they do whenever investors shift their forward looking attention.

At least, when that information is combined with the more significant market moving breaking news of the week....

Monday, 15 May 2017
Tuesday, 16 May 2017
Wednesday, 17 May 2017
Thursday, 18 May 2017
Friday, 19 May 2017

For the week's major economic data points, be sure to check out Barry Ritholtz' succinct summary of the week's positives and negatives.

Note: Following our confirmation of the CBOE's decision to terminate reporting its implied future DVS indicators at the end of April 2017, we switched to using the CME Group's S&P 500 Quarterly Dividend Index Futures quotes in their place for our analysis, with the changeover taking place on 11 May 2017. The change in data source accounts for the apparent volatility on that date for the alternative future trajectories that our model projects for the S&P 500 for when investors would be focused on either 2017-Q3 or 2018-Q1 in our chart above.

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May 19, 2017

Every three months, we take a snapshot of the expectations for future earnings in the S&P 500 at approximately the midpoint of the current quarter, shortly after most U.S. firms have announced their previous quarter's earnings. Today's snapshot of the trailing year earnings per share for the S&P 500 confirms that the stock market's earnings have continued to rebound off their 2016-Q3 bottom, where they will likely recover to their pre-earnings recession levels during the current quarter of 2017-Q2.

Forecasts for S&P 500 Trailing Twelve Month Earnings per Share, 2014-2019, Snapshot on 4 May 2017

The recovery in the S&P 500's earnings has been a significant factor in boosting the value of the S&P 500 since the index bottomed at 1829.08 on 12 February 2017. The index has since gone on to set its all time record closing value of 2402.67 earlier this week (on 15 May 2017).

Data Source

Silverblatt, Howard. S&P Indices Market Attribute Series. S&P 500 Monthly Performance Data. S&P 500 Earnings and Estimate Report. [Excel Spreadsheet]. Last Updated 4 May 2017. Accessed 18 May 2017.

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