Weighing the week ahead: should investors be afraid of a higher market?

The schedule is modest, the big reports were all published last week. Investors will never have more up-to-date information on the economy, the Fed, corporate earnings and the various risks they currently have. It's hard to guess what the experts will do when we give them an open slate. We should ask:

Should we fear a market peak?

Recap of last week

At the last edition of WTWA, I took note of the avalanche of relevant data, suggesting that it was time for a synthesis and analysis. I did not expect any help from the experts, who analyzed on an ad hoc basis as planned. I hope readers have done better using the suggested framework. More on this below.

The story in a graph

I always start my personal assessment of the week by consulting a good graph. This week, I introduce Jill Mislinski, who brings together a lot of relevant information in the weekly chart without sacrificing clarity.

During another quiet week, the market was virtually unchanged. The trading range was only 1.8%. Volatility seemed higher for some, because of the two-day drop that followed the Fed meeting. As always, the summary of our indicator in the quantitative section below summarizes volatility and the VIX index over different periods.

Remarkable

OldProf wishes everyone a good day Star Wars (May 4^th, for those who need a clue). RIP Peter Mayhew.

The news

Every week, I break down the events into good and bad. For our purposes, "good" has two components. The news must be market-friendly and better than expected. I avoid using my personal preferences to evaluate the news – and you should too!

Where relevant, I include expectations (E) and prior reading (P).

The high frequency indicators of the New Deal Democrat are an important part of our regular research. In this week's post, A new trend towards positive numbers could signal a new boomhe reports that the indicators in all delays have become more positive. NDD remains skeptical and monitors the indicators closely.

Good

• Personal expenses rebounded 0.9% even more than the expected 0.8% and a P of 0.2%. But see the personal income below in the "bad" section.
• Basic ECP showed no increase over the previous and planned 0.1%. The overall index was up 0.2%.
• Earnings growth remains strong. Brian Gilmartin describes the positive revisions to the S & P 500 estimates – now taking the lead on negative changes. John Butters (FactSet) updates the results season results, which have a higher beat rate than the past five years. Here is the breakdown by sector.

• Consumer confidence for April recorded 129.2 better than the expected 125.3 and P of 124.2. The Bespoke analysis includes the graphics we expected and the reasons for the rebound. I had the pleasure of meeting their chief strategist, George Pearkes, at the meeting of the National Association of Active Investment Managers last week in Phoenix. George made a nice presentation to the whole group and answered questions with confidence.

• Factory orders have increased 1.9% in March, exceeding expectations by 1.6% and much better than the -0.3% drop recorded in February, revised by -0.5%.
• Pending home sales rebounded 3.8% in April, exceeding expectations by 1.1% and -1.0% the previous month. Calculated risk ratios and comments on seasonal factors in house prices, which have increased during the bubble and have since declined.

• Productivity increase in the first quarter 3.6% well above expectations of 2.3% and the former 1.3% (downward revision of 1.9%). (Scott Grannis)

• Job gains were strong as measured by payroll. ADP and official reports, using alternative methods, are both important for those who want a solid fact base.
  • ADP private employment increased 275K. (E 170K and P 151K revised from 129K). (ADP). Do you remember those who sifted the numbers last month until finding a subset of small businesses where there was a loss of 8,000 jobs? I guess they could not find one this month.

• • Payroll jobs increased by 263K. (E 200K and P 189K). James Picerno gives a quick overview of the reactions of some key economists.

I quickly realized that it was not as good as it seemed, but my own concerns were related to the household survey.

The New Deal Democrat, rather sad lately, identifies the leading indicators of a slowdown or a recession.

My colleague FATRADER, Eric Basmajian, prefers to use a second derivative approach, measuring the rate of deceleration. He also highlighted the key sectors with weaknesses, including jobs in auto production.

Meanwhile, the number of titles and the low unemployment rate made headlines. It was also great for political turnings. There is nothing unusual about this, except that the participants have changed sides!

The bad

• The ISM manufacturing index, The only measure of the PMI to have a long history dropped to 52.8, with missing expectations of 55.0 and 55.3 last month. Read the official ISM website for colors, including delays at the border with Mexico and suppliers leaving China to avoid tariffs. ISM data suggest that a reading of 52.8, "if it is annualized, corresponds to a 2.9% increase in real GDP".
• Sales of light vehicles for March only 16.4 million euros (SAAR), or 5.7% less than in February. The series is quite noisy, including the erratic effects of holiday promotions. Jill Mislinski's graph shows both actual sales for each month and a moving average.

• The FOMC rate decision was exactly as expected. A word or two in President Powell's press conference provoked a negative reaction from the market. Tim Duy, Fed analyst, explains how The Fed has confused its message of inflation. That was the reaction (via the Daily Shot).

• Construction expenses decreased -0.9% compared to the expected gain of 0.1% and the February gain (revised downward) of 0.7%.
• Diminished hotel occupancy on an annual basis. It is down -1.4%. Another presumed Easter effect? (Calculated risk).
• Rail traffic has decreased on an annual basis. (Steven Hansen, GEI)
• Initial jobless claims stayed a bit out of the levels of a month ago. 230K was identical to the previous week, suggesting that the explanation of "Easter timing" was not correct.
• ISM not manufactured down 55.5 vs. 56.1 last month and the missing expectations of 57.4. The official website of the ISM provides details and colors. They state: "The past relationship between the NMI® and the global economy indicates that the April NMI® (55.5%) corresponds to a 2.4% increase in real gross domestic product (GDP). ) on an annualized basis ".
• Employment reflected by the household survey was very different from the pay report. The BLS reported an unemployment rate of only 3.6%, and that was the newspaper's headline. Unemployment fell by 387,000, but the labor force by 490,000. Business cycle expert, Bob Dieli, assigned a rating of "F" to the Household report. The WSJ chart (see full article for more) shows the slump among workers in the strength of age.

The ugly one

There are so many incidents of senseless violence. We also have massive natural disasters, like the typhoon in India. Anyone unaffected should be grateful and helpful to those who have been.

The week ahead

We would all like to know the direction of the market in advance. Good luck with that! Second, plan what to look for and how to respond.

The calendar

After the avalanche of data from last week, this week's schedule is light. Inflation data will grab attention, especially considering the debate over whether the Fed is considering other measures. The JOLTS report is of interest to me, as it gives an overview of the structure of the job market, but most of the time simply serves to gauge employment growth.

Briefing.com has a good US economic calendar for the week. Here are the main American versions.

Theme of the next week

Last week's calendar included key reports, leaving us with a much lighter schedule this week. While profit reports continue, we have key trends in mind. Fresh data include IPP and IPC. As they should increase more than last week's PCE measure, one could talk about the Fed's move to another measure.

I have not seen a good synthesis of what we have learned from the fragmented methods of the financial media. We should ask:

Should investors fear a market peak?

Last week, I provided a guide for the interpretation of the data. It was not as fun as the Buffett Bingo Card for today's meeting, but should be more expensive for readers. Remember that we are suggesting a base growth of 2 to 2.5% of real GDP, sufficient to sustain earnings and a steady recovery of equities. The key questions are below, with the result in italics.

• It is very unlikely that the FOMC meeting reflects a policy change, so be careful if this happens. I do not consider that modest changes to the current policy are very important, but the market reacts aggressively in such cases. Here is a checklist based on the recent FedSpeak.[[[[There was no change in policy. Nearly all members of the Fed weighed after the report on employment. The Fed is "patient" and waiting.]
• Personal income and (March) and expenses (February) are key elements of the economic situation. We are still catching up. Income is particularly important. [Personal spending was high while income had only a slight gain. Since spending drives the GDP benchmark, it meets our test, but ultimately income gains are required.]
• PCE price index. The key rate is the favorite of the Fed. It is therefore more important than the other indicators of inflation. If it stays low, the Fed will stay on hold. [This was good news.]
• The ISM manufacturing index is important as almost simultaneous reading on a large sector. It has main qualities for the job. ISM non-manufacturing covers a larger number of companies but has a shorter history. Historical relationships are the key to any inference on the overall economic strength. Beware of dramatic reactions to a small change. [As expected, the result drifted lower. Despite this “bad” news, the data are consistent with our benchmark suggestion.]
• Employment is a fundamental element in measuring economic strength. We need this information so much that we do not often criticize the data. I am also interested in the ADP report and the non-agricultural "official" pay report. They use different methods, and each brings a value. [Both the payroll jobs and ADP reports were excellent. The household survey has drifted away from these results and needs further consideration. In any case, it does not suggest weak economic growth.]
• Corporate earnings should support the current economic environment, both in terms of continued earnings and prospects. [The earnings story continues to be excellent. Current earnings have a high beat rate, and forward earnings are seeing upward revisions.]
• Housing data is less interesting. Case-Shiller prices are older and correspond to a subset of the data. Pending sales are interesting, but less important than data on new home sales. Construction expenses are also of minor importance. [The pending sales data were strong and construction spending weak. The mixed picture is in line with the benchmark growth suggestion.]

Does the evidence support the basic case of growth of 2 to 2.5%? This should be the question for every report – not if there is a small change from the previous month. [It was a clean sweep. While some reports were lower than expectations nothing suggested a violation of our base case.]

I have some additional conclusions in today's latest thought.

Corner and risk analysis

I have a rule for my investment clients. Think first about your risks. Only then, should you consider possible rewards. I monitor many quantitative reports and highlight the best methods in this weekly update, which presents the instant indicators indicator.

Short- and long-term technical conditions are maintained at the most favorable level. Our fundamentals remained bullish throughout the December decline and rebound. The C-Score reflects the increase in overall inflation, despite the slight steepening of the yield curve. I am watching this closely, including analyzing the signs of a possible confirmation of a higher probability of a recession. We stay well in the warning period.

The sources presented:

Bob Dieli: Analysis of the business cycle via the "C Score.

Brian Gilmartin: All in all benefits, for the market in general as well as for many companies.

RecessionAlert: Solid quantitative indicators for economic and market analysis.

Georg Vrba: Business cycle indicator and market timing tools. The last update of the Georg Business Cycle Index does not signal a recession and he has postponed the date to indicate any concerns that may be identified by his employment model.

Doug Short and Jill Mislinski: Regular update of a range of indicators. Great graphics and analyzes, especially the four most important indicators for recession dating. Here is the current picture.

The photo has some red dots but remains strong.

Guest comment

"Davidson" (via Todd Sullivan) explains the constitution of an oil stock that has driven down oil prices and energy ETFs – refinery downtime for capacity upgrades.

Exxon (NYSE: XOM) reportedly restarted its refineries after being shut down for capacity upgrades, but other refiners stopped for similar capacity upgrades. The Net-Net shows that the refining activity is exceptionally low for this time of the year and that we are witnessing a significant reduction in gasoline stocks, which generally increase for summer demand.

We can only look to see when the refining activity returns to normal seasonal levels.

Overview for traders

Check out our weekly "Stock Exchange". We combine links to important trading publications, news topics and ideas from our trading models. Last week, we took up a theme of this sage, Yogi Berra, the future is not what it was. We have provided specific trading themes as well as the expected expert advice. As always, we have cited some excellent sources and discussed recent choices in our trading models. With all models back in action, there are more business ideas and interesting contrasts with a fundamental approach. Felix ranked the top 20 stocks in the S & P 500 and Oscar did the same for the most liquid ETFs. Blue Harbinger, our usual editor, has made that clear.

Insight for investors

Investors should accept volatility. They should join my joy in a well-documented list of problems. As worries (closure, Fed policy, trade) are resolved or even resolved, the investor who looks beyond the evidence can raise good money.

Best of the week

If I had to recommend a single article to read absolutely for this week, it would be Dr. Brett Steenbarger Trading Psychology: How to improve your trading results. It is further amplified in this Forbes article. As he often does, Mr. Brett highlights the important principles for traders and investors. Here is a key quote:

Many traders focus on their results – their P / L – and never bring process changes that can lead to lasting results. A large number of writings in the field of operations psychology focus on the changes that traders should bring – these are not the techniques that traders could use to make those changes.

Brett gave a dynamic presentation at the NAAIM conference, drawing rave reviews. His comments have inspired my own ideas on how investors are concerned about the short-term implications of a trade. The immediate result in dollars is not the best criterion, despite its popularity. What's a good job?

Stock Ideas

Chuck Carnevale continues its sector-by-sector research for attractively valued stocks. Each article in this series provides both interesting insights and a lesson on how to do a solid analysis. It analyzes the technology services sector where "a good evaluation has been set aside". Despite this, he identifies five values ​​to take into account, by comparing them to some of the biggest names. Its article on the transport sector concerns only four candidates (you will recognize them all): airlines, air freight, trucking, railways and other transport.

Kirk Spano analyzes cross-flows in oil and gas stocks. It identifies the current sources of sales as well as the effect of the Anadarko Petroleum Corp (APC) buyout offer. Given the long-term downward trend in oil stocks, it is important for investors to follow these trends and continue to consolidate. He refers to a previous article (to which I made a link at the time) dealing with his "dirty" choices for 2019.

Stone Fox Capital believes that the reaction of the Alphabet Action (GOOG) face the shortfall has been exaggerated – a "crazy reaction". Peter F. Way sees more upside potential on Facebook (F).

Peter F. Way argues that the best car stock does not make cars. What does it take for the wheels to go around? His unique market maker method displays a risk graph for this universe.

My colleague from FATRADER, Bhavneesh Sharma, was recently ranked # 1 on SumZero's institutional securities platform. Last week, I quoted the first part of his analysis of Moderna Therapeutics (MRNA). Here is the second part.

Charlie Munger prefers Costco (COST) to Amazon (AMZN). (WSJ). [I’m not sure he is considering Amazon Web Services in reaching that conclusion]. And why is Amazon a choice of Warren Buffett?

Or how about the third non-price retailer, Burlington Stores (BURL). (Barron's).

A Gilead background (GILD). (John C. Ogg, 24/7 Wall St.)

yield

Ploutos examines dividend aristocrats, including performance since the beginning of the year and long-term comparisons.

The Rose portfolio had an excellent month of April, with a 19.7% increase in revenue compared to April 2018. This is a fully transparent portfolio with little turnover.

It is also important to know when to sell your dividend stock. Dividend Sensei identifies three blue-chips that you might want to sell. And also three that you could buy.

Gold

Gold represents a challenge for the value investor. As Lyn Alden Schwartzer writes:

Gold stocks, that is, companies that mine gold or finance gold production, can potentially ruin a value investor's plan. Gold is an esoteric product; a substance that has ideal characteristics for storing wealth but is constantly being discussed about how to value it. It generates no cash flow, which excludes the analysis of discounted cash flows as an evaluation tool. Most of this amount is not consumed by the industry. The immediate balance between supply and demand does not dictate the price, as most of the gold ever mined is still stored and can be sold. And yet, to value gold stocks as a business, we must be able to determine if gold is largely overvalued, deeply undervalued or somewhere in the middle. Hence the problem.

She uses two graphics to help her adjust her allocation. Here is one of them but read the full post for the reasoning and the second method.

Personal finance

Abnormal returns always provide interesting ideas on a wide variety of topics. I subscribe and read it every day. Each Wednesday edition includes an article on personal finances. This week, I particularly appreciated the great message from FATTAILED, Prepay the mortgage or invest? Leverage and negative obligations. This question is common and the article provides a good analysis with examples easy to understand. I doubt that most people view their mortgage as a negative link. And your risk calculation depends essentially on the real estate cycle.

Gil Weinreich's Seeking Alpha (SA for FAs) series is apparently aimed at financial advisors. The analysis is much broader than that. Most independent investors will find it very useful. This week, I particularly enjoyed the post, The problem of too much money. He summarizes the analysis of Jim Sloan, who concludes that Buffett should buy back more shares. He compares the problem to that of the average investor. It's interesting and timely.

Pay attention to…

Stocks of newspapers. Warren Buffett says the company is a "toast". Excellent data and interactive WSJ graphics provide support. There is a sharp decline, even for newspapers that have set up paywalls successfully, and it is even stronger for regional newspapers.

Bet on robotaxie. Beth Kindig plays the role of mythical maniac in this discussion of autonomous vehicles. There are implications for Intel (INTC) and Tesla (TSLA), among others.

Final thought

This week, I tried to showcase the many attractive investment ideas. I encourage readers to take a little time with these ideas. You will never have more facts available. As markets reach new heights, stocks are much more attractive than they were last fall. The new highs are part of the process of any bull market.

Eddy Elfenbein has noted the new information and updated the excellent results of his shopping list. He wrote:

The delivery is clear. All the unhappy people of a few months ago were exaggerating the affair. The economy is still expanding and the markets are reacting.

I am always concerned about investors who are supported by stories designed to scare them without wit (euphemism TM OldProf). These seem to belong to a few key groups:

• Economic data that "decelerate" or "turn around". No economic series remains indefinitely at its peak. A series of "vague style" is quite normal. If the economy has been too "clogged" after tax cuts, it's not surprising to see it back to the trend.
• Newly created experts of the recession. I am absolutely dismayed by the choice of publisher Seeking Alpha regarding a story that has been in the news for days – how will the next recession happen? It's a typical exercise to take a popular economic concern – debt – and say that everything will end badly. The author has no references in recession forecasts nor evidence of causal reasoning. The main source of market commentary on the e-mail market has been on the same topic for six weeks. Debt is a fact. The implications are conjectures. I am often concerned about the public debt. When I see this as a short-term threat to investors, you will hear about it. Meanwhile, beware of those who are selling just something.
• Bashers fed. They are back in action. As usual, some think that the rates are too high, others see them as too low. The nuanced argument is that the Fed has missed the opportunity to raise rates earlier and that it is now blocked. I am absolutely amazed at the number of people who claim to know more than all the economists at the Fed. A little peer review would go a long way.

The consequence is that a lot of smart investors are punished. In their professions, they are rewarded for acquiring knowledge. In the financial world, they are punished because "knowledge" is false.

A final example from Dr. Brett's NAAIM presentation, illustrating an incorrect focus. He gave the example of a trader concerned about a long term problem like debt. Disaster. And also an investor stuck to the trading screen. It does not work either.

If you want long-term gains without having to guess the short-term schedule, contact us. We have an excellent program for safe and less risky investment income. Send an email to the newarc dot com main address. We will provide you with some useful and free information and, at your choice, a free wallet consultation.

And also, some longer-term items on my radar

I am more worried about:

• The continuing drag of commercial policy. It's happening so slowly that it's hard to see. At the same time, the main economic data eased the internal pressure in favor of a policy change.
• After the Mueller report policy. The necessary compromises can not occur with such intense partisanship. The last likely victim is an infrastructure compromise – still at an early stage – that we highlighted earlier this week. Here is the real story.

I'm less worried about

• Share buybacks. Some members of the relentless bearish clan say that it is the only reason for the rebound in stocks. Ed Clissold examines alternatives, showing that the impact has been modest (5% since 2010), even if the alternative was to conserve cash. HT GEI and UPFINA.
• Disability insurance. Recent data show that a short-term solution has taken longer to reach solvency. (Timothy Taylor)

Disclosure: I am / we are long GILD. I have written this article myself and it expresses my own opinions. I do not get compensation for that. I do not have any business relationship with a company whose shares are mentioned in this article.