Weighing The Week Ahead: Is It Time To Worry About 2020? -

Weighing The Week Ahead: Is It Time To Worry About 2020?

Jul 01, 2018Jeremy ParkinsonFinance0

The economic calendar is loaded with the most important reports. The four trading days are divided by a Wednesday holiday, meaning some extra days off for most. Normally the data would dominate the discussion. But many find the current story — steady growth, improved earnings, and lack of oomph in stocks—a boring one. This week’s Barron’s cover story by Ben Levisohn, discussed more extensively below, is a good illustration.

With fewer immediate worries, the punditry is looking ahead. Are they correct?

Is it time for investors to worry about 2020?

Last Week Recap

In my last edition of WTWA I guessed that discussion would focus on the apparent economic headwinds. While the data were not bad, the emerging story on trade grabbed attention every day. A slight increase in volatility provided more fuel for analysis, as we can see below.

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 was down 1.3% wider daily ranges than we have recently seen. The week’s trading range was about 2%, the highest in several weeks. I summarize actual and implied volatility each week in our Indicator Snapshot section below. Volatility is back into the long-term range.

A longer perspective (one of several great charts in this weekly article) puts the first half of 2018 in context.

This year’s flat stretch is not unlike prior periods in 2012 and 2013. The 2015-17 period was a longer version, ending with the election. None of this tells us what will happen next, of course, but it does show that periods like this are typical – even in bull markets.

Humor

I try, but Alan Steel is so much better – clever, witty, and colorful. I had the idea of including something about data from all the weeks that had a holiday on Wednesday. You could look at what happened in the first part and the last part. You could break it down by season. You might not have very many cases, but that is the way to “prove” anything!

Alan makes a similar point about slender and contradictory evidence. Here is my favorite segment but read the entire post to pick your own.

These made-for-TV plots and market parodies are being paraded about in apocalyptic scenarios – aloof to any action or inaction on our part – where we’re damned in either direction… and there’s always a piano falling down towards the spot where we’re currently standing.

An example?

On any given day someone might say interest rates will rise, fall or stay the same, which will then be made to mean that something bad is, will or has already happened.

Now try replacing “interest rates” with any common market, economic or environmental parlance or barometer – like oil prices, iceberg melt or inflation – and see how panic and paranoia determines how long the story rolls on…and the increased charges to advertisers to capture all those clicks, hits and “uniques.”

Then watch as they roll out the TV news anchors’ protracted red carpets – with single variable correlation starlets posing garbed and garbled in a fancy dress extravaganza of big words with small meanings.

If you understand the line about starlets, you qualify as a veteran WTWA reader!

Noteworthy – Voice Search Facts

SEO Tribunal has a wonderful infographic with 106 facts about voice search. It is huge, so I can’t post it here, but it is interesting and educational. Here is one tidbit, questioning which voice search method is the smartest. Mrs. OldProf and I disagree on this – Mars and Venus, Siri and Alexa.

Another interesting segment looks at voice search by generation. Another traces the history. You get the idea.

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!

The Good

New home sales were up 14.1% year-over-year to a SAAR of 689K. Calculated Risk analyzes the report and updates the gap originally caused by distressed sales. For this gap to close, builders must offer some smaller, less expensive homes.

A “buyback bonanza” writes Ed Yardeni. He explains that repatriation of funds and the favorable comparison between expected earnings and the cost of borrowing explain the surge.

Personal income increased 0.4%, in line with expectations but better than last month’s 0.2%.

Serious mortgage delinquencies declined in June. (Calculated Risk). The recent increase came from hurricane effects, which do not show up for three months.

PCE prices remained stable at an increase of 0.2%. This is good news since it is the Fed’s favorite measure, implying a moderate policy course.

The chemical activity barometer continues to climb. Calculated Risk cites this as a leading indicator for industrial production.

Bearishness increased. Since this is a contrarian indicator, this is good news for stocks. David Templeton (HORAN ) has the story and this chart. He notes the fourth largest swing to bearishness in the last five years.

The Bad

Pending home sales decreased 0.5%, falling (on an annualized basis) for the fifth straight month. Expectations were for a gain of 0.7%. Calculated Risk has the details, including explanations and a regional analysis.

Canada strikes back. The July 1^st measure imposes $12.63 billion in tariffs on American goods and includes a C$2 billion package to assist Canadian workers. (MSN)

Initial jobless claims increased to 227K, up 9000 from the prior week. While there are some weekly shifts, the main story is the continuing low level.

North Korea has increased nuclear production at secret sites. (MSN).

Personal spending increased 0.2%, below expectations (0.4%) and April’s downwardly revised 0.5%.

Michigan sentiment registered 98.2, missing expectations of 99.0 but above the prior month data of 98.0.

Consumer confidence from the Conference Board was 126.4 versus May’s adjusted prior reading of 128.8 and expectations of 127.1. Jill Mislinski’s article tells the story for both sentiment measures.

The Ugly

Hyperinflation. Bloomberg illustrates the Venezuela story with the cost of a cup of coffee, the equivalent of 29 cents. In bolivars, the cost has gone from 450 to one million over the last two years. It is now most of a worker’s entire month’s wages.