There is a huge economic calendar in a holiday-shortened week. The mid-term elections are impending, so politicians will be on the stump. With Labor Day setting the stage and the week loaded with key employment reports, expect plenty of attention to employment issues. Much of this will be confusing and unproductive spinning. Financial news pundits could provide a better focus by asking: What investment opportunities are provided by the employment debate?
Last Week Recap
In my last edition of WTWA I expected plenty of discussion of the yield curve, with most asking the wrong question – would it invert? My analysis showed that the current yield curve action was better described as “compression” and had nothing to do with the strength of the economy. As expected, the determined economic and market bears ignored these arguments and presented the same tired charts showing yield curve inversions before recessions.
I agree, as does leading business cycle expert Bob Dieli, who has made the yield curve part of his model for decades. But he is more sophisticated in its application, which provides an advantage for those who really understand the fundamentals. The indicator is an indicator, not a cause. And as Bob stresses, we should not try to forecast the indicator.
It was a good theme for last week, especially illustrated by the upbeat economic news about the Mexico trade deal.
The story in one chart
I always start my personal review of the week by looking at a great chart. I especially like the version updated each week by Jill Mislinski. She includes a lot of valuable information in a single visual. The full post has even more charts and analysis, including commentary on volume. Check it out.
The market gained 0.93% on the week and has reached a new all-time high. The chart reflects variation, but the scale is one again a narrow one. The weekly trading range was about 1.3%, still very low. I summarize actual and implied volatility each week in our Indicator Snapshot section below. Volatility remains well below the long-term average.
Noteworthy
Have you ever heard of a micromort? Or a microlife? These measures help in comparing the various causes of death, in both frequency and magnitude. The entire article, from Visual Capitalist, also provides some links to perception versus reality in causes of death. This is yet another illustration of how newsworthy items create elevated perception of likelihood. One micromort corresponds to a one in a million chance of sudden death. Traveling 6000 miles by train or 230 miles by car reflect one micromort. Riding a motorcycle costs ten.
The News
Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too.
When relevant, I include expectations (E) and the prior reading (P).
The Good
The Bad
Long-term, high frequency indicators turn negative – again, reports New Deal Democrat. He reports that this is worth watching, but not an immediate recession indicator, suggesting the following criteria:
I will require two events before this translates into a “recession watch” for over 12 months later: (1) The weekly reports must remain negative consistently for at least one full month, and (2) they must be reflected in a reliable monthly measure where available.
