Weighing The Week Ahead: Market Storm Averted? -

Weighing The Week Ahead: Market Storm Averted?

Nov 11, 2018Jeremy ParkinsonFinance0

We have another normal economic calendar. The election is behind us. The Fed decision is behind us. What next?

Some of the punditry convened after Wednesday’s rally to say that it was time to get “back to reality.” Others are wondering about a year-end rally. Since everyone keys off what happened the day before (!!) the preponderance of commentary might go either way.

In either case, I expect pundits, to look back at recent volatility, technical support levels, and headline risk. They will be asking: Has the stock market storm been averted?

Last Week Recap

In my last edition of WTWA I guessed that the punditry focus on the continuing market pressures and warning technical signals. There was some validity in this until Wednesday. My suggestion that the end of the election would be a market positive proved to be correct. We do not know, of course, the exact reason. Some insisted on a “gridlock” interpretation, but the outcome was in line with expectations. My guess was OK, but not great. It was a tough week to call and we stayed on the right side of the trade.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski. She includes a lot of relevant information in a single picture – worth more than a thousand words. Read the full post for more great charts and background analysis

The market gained 2.1% (added to last week’s 2.7%) and the weekly trading range was 3.4%. The range was lower than in recent weeks, but it did not feel that way for those closely watching the market. I summarize actual and implied volatility each week in our Indicator Snapshot section below.

Noteworthy

Will a robot take your job? Jenny Scribani at Visual Capitalist pulls together the evidence.

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.

New Deal Democrat’s high frequency indicators are an important part of our regular research. This week reflects some softening in the long leading indicators, although his rating remains “neutral.”

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

The Good

Earnings forecasts are showing surprising strength. Brian Gilmartin tracks the quarter-by-quarter changes, generally not showing the declines we often see. Company reports are also mentioning tariffs less frequently on earnings calls. John Butters illustrates the pattern, sector-by-sector. See also Avondale’s excellent article summarizing conference call notes.

Initial jobless claims dipped to 214K, continuing the streak of low readings (Bespoke).

The Fed decision of no policy change was expected by all and the accompanying language was not worrisome.

Foreclosure inventory falls to the pre-recession average. (Calculated Risk).

ISM non-manufacturing registered 60.3 E 58.8 P 61.6.

Rail traffic improved but the pace of improvement is decelerating. Steven Hansen does a comprehensive analysis with special emphasis on what he calls the “economically intuitive sectors.” This is a valuable element, not seen in other sources.

Mortgage credit availability is increasing. “Davidson” (via Todd Sullivan) explains why this is significant for the economy, construction, and lenders.

The JOLTS Report continues to reflect employment strength. I especially like the chart below from Jill Mislinski. It shows the improvement of all key elements of the series, compared with a flat line for layoffs. This interesting survey only goes back to 2001, so we do not have many business cycles to analyze. Read the entire post for a collection of other charts and interesting business cycle analysis. Hint: No sign of labor market weakness.

But a look at JOLTS requires examining the Beveridge Curve.

The Bad

Individual investor sentiment becomes more bullish, viewed as a contrary indicator. (Bespoke)

Hotel occupancy declined a bit. Calculated Risk analyzes the seasonal components and comparisons with prior year. YTD 2018 is slightly ahead of the record in 2017.

PPI ran hot with core final demand up 0.5% MoM. (Jill Mislinski).

The Ugly

Forgetting veterans. Some Chicago politicians are proposing raising desperately needed cash by selling naming rights to various public holdings. I don’t mind City Hall, if they can find a buyer, but the airport idea is repugnant.

O’Hare airport began as a military installation, Orchard Field. It is still designated as ORD, but was renamed for Edward “Butch” O’Hare, the Navy’s first flying ace and the first WWII naval recipient of the Medal of Honor.

Midway Airport opened in 1926 and was originally called Chicago Municipal Airport. It was renamed for the Battle of Midway in 1949.

These names should be untouchable.

The Week Ahead

We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react.

The Calendar

The calendar is normal in significance. The CPI will be watched closely, especially after the PPI report. Retail sales are expected to show a sharp rebound – important to confirming economic strength. The Philly Fed attracts interest as the early read on November data.