Back when singles were printed on vinyl, a song written by Neil Diamond and released on November 12, 1966, had an advance order of 1,051,280 copies. It went gold within two days of its release. “I’m a Believer” by The Monkees became the last number-one hit of 1966 and the biggest-selling single for all of 1967. The song’s commercial success was also a global phenomenon; through 1968, it reached the top spot in Australia, Austria, Belgium, Canada, Finland, Germany, Ireland, Netherlands, New Zealand, Norway, South Africa, and the U.K. In a 2008 interview with Mojo magazine, Diamond was asked if he resented the Monkees’ success. His reply: “I was thrilled, because at heart I was still a songwriter, and I wanted my songs on the charts. It was one of the songs that was going to be on my first album, but Donny Kirshner, who was their music maven, hears ‘Cherry, Cherry’ on the radio and said, ‘Wow, I want one like that for The Monkees!’”
When Smash Mouth covered the tune for the 2001 movie Shrek, it peaked at number 25 in the U.S. Unlike rock legends Aretha Franklin and Whitney Houston, who made “Respect” and “I Will Always Love You” bigger hits than Otis Redding and Dolly Parton, respectively, the “I’m a Believer” remake was not destined to take out the original. As for U.S. households in 2023, they are decidedly not believers in the stock market rally.
While the Conference Board’s May consumer confidence report bested market expectations (102.3 vs. 99.0 consensus), it didn’t make any material progress vis-à-vis April (103.7 vs. 101.3 prior). The forward-looking consumer expectations index stalled at 71.5 in May from an upwardly revised 71.7 the previous month. Aside from their stances on business conditions, employment and income, consumers also weigh in on the outlook for stock prices and interest rates.
In May, 28.6% of respondents were bullish, expecting stock prices to increase in the next 12 months, noticeably fewer in number than bears as 37.5% see equities poised to decrease. In fact, in the 17 months ended May, bears have outnumbered bulls. The current reading of net -8.9% continues the lack of belief in a stock market rally that started with February’s high of net -1.1% (orange line). If households’ crystal balls are accurate, 12-month trailing S&P 500 gains in April and May should fade. The tight relationship that held from 2015 to 2019 has reasserted itself.
And then there’s fixed income. Peak bearishness arrived in June 2022 at a net 61.7% calling for higher rates (70.6% increase less 8.9% decrease, lilac line). Four months on, last October, the U.S. 10-year Treasury yield topped out on a month-end basis (light blue line). In May 2023, a net 49.7% (61.1% increase less 11.4% decrease) expected higher rates. Bond bulls are still conspicuously absent — lower rate expectations haven’t budged since rates peaked. To be sure, the seven-point gain, from 20.5% last June to 27.5% this May among those anticipating rates will be unchanged demonstrates the Federal Reserve’s “higher for longer” narrative has permeated psyches.
Given the frantic level of real estate development in the Lone Star State, where interest rates are headed is critical. The Dallas Fed’s monthly special questions delve into what could put a floor under rates – persistent inflation. By way of backdrop, the Conference Board’s read on 12-month forward inflation expectations drifted to 6.1% in May, a good bit lower than 2022’s double-peak of 7.9%. The Dallas Fed endeavored to capture the ‘why’ behind the ups and downs in foreseen selling prices. Two factors rose to the top: at a 40.4% share were higher input costs excluding labor followed by 37.2% who cited higher labor costs. Falling selling prices are being driven by lower demand, at 56.3%, and lower input costs excluding labor, at 25%. Clearly, there are haves and have-nots when it comes to uncontrollable input costs.
The Conference Board presages relief on the labor cost front. Jobs Plentiful continues to fall from its March 2022 record high. After a five-month reprieve through February, at 43.5%, May’s print marked a two-year low (yellow line). Jobs Plentiful proxies Job Openings, scoring a .86 correlation since the latter series’ December 2000 inception. Consumers clearly concur with economists’ consensus call for a -2% drop in today’s JOLTS release. At 13.6%, More Jobs slumping to a fresh seven-year low adds conviction (green line).
Back at QI HQ, only 3.1% of execs the Dallas Fed queried saw lower labor costs catalyzing disinflation. Even as consumers see fewer Help Wanted signs that manifest as easing wage pressures, lower demand is the key. The negative response on current employment, i.e., Jobs Hard to Get (12.5% in May), has not broken out of a very low range for two years. Since the survey’s 1967 inception, Jobs Hard to Get has been a phenomenal tracker of official unemployment with a .89 correlation.
Drilling down on demand, a rare pattern emerged in May. For only the ninth time since the survey’s birth in June 2004, both the Future Company Outlook (blue line) and the Future Growth Rate for Orders (red line) declined in tandem. Seven of the prior eight occurrences fell during the 2007-09 recession and 2020’s COVID flash crash; June 2022 was the sole false signal. Persistence in this trend would flag disinflation segueing to deflation, which is anything but Monkee business.