Wednesday, March 7, 2018

The Morning Call--Patience


The Morning Call

3/7/18

The Market
         
    Technical

The indices (DJIA 24884, S&P 2728) rose modestly, though volume continued to decline and is now at a relatively low level; breadth remained mixed.  The Averages are above both moving averages and within uptrends across all major timeframes. The technical assumption is that long term stocks are going higher; though the Averages need to overcome their former highs before we have an all clear signal. 

The VIX fell another 2%, but remained in the narrowing trading range formed by lower highs and higher lows.  It continued to trade at an elevated level, suggesting that there is no end to the recent volatility.
               
The long Treasury was up fractionally---which did little to halt its downward momentum or widen to any extent the gap between its current price and the lower boundary of its long term uptrend, a breach of which would clearly intensify investors’ concern about rising interest rates/inflation

The dollar declined, ending below both moving averages and in an intermediate term downtrend.  It remains an ugly chart and isn’t being helped by rising concerns about a trade war.
           
GLD was up 1%, finishing above its 100 and 200 day moving averages and in a short term uptrend.  So momentum remains to the upside, though it must still overcome a very short term downtrend.
               
Bottom line: the technicals of the equity market point higher.  TLT, UUP and GLD had another one of those days in which they were out of balance with stocks and themselves.
           
    Fundamental

       Headlines

            The economic data released yesterday was again mildly upbeat: month to date retail chain store sales grow improved from last week; and while January factory orders were below expectations, the prior month revision made the two months a wash.  Still a wash for two months is hardly indicative of an improving economy.

            The stunner of the day came after the Market close.  Gary Cohn, Trump’s national economic director, a Wall Street favorite and a leading voice against tariffs, resigned.  Of course, the press releases by Trump, chief of staff Kelly and Cohn himself were full of praise and joy of experience.  And most of the ‘unnamed sources’ contended that Cohn’s departure was the result of cumulative issues. 

Whether or not that is the case (see below), the end result appears to be that the pro-tariff faction within the administration is now in ascendancy.  So getting back to the potential scenarios that could be playing ([a] Trump is right about the extent of price cheating and that there will be little response, [b] he is about to start a real trade war or [c] all this theater is just part of the Donald’s ‘art of the deal’ negotiating strategy) alternative [c] as a potential likely outcome in seems to have taken a body blow. 
      
            Trump is running a personal trade deficit (medium):

            EU imposes its own tariffs on Chinese steel (short):

            Bottom line: I have no idea what the final results of Cohn’s resignation means.  When a significant event like this occurs, it is always best to take a few deep breaths before coming to any conclusion.  We will probably know more within the next couple of days that will help clarify the situation.  In the meantime, patience.

            More on valuation (medium):

            The February dividend score (short):

            I have debated with myself in these pages on exactly how much of the tax cuts will go to shareholders (doing nothing for economic growth) and how much to workers and cap ex (doing something for economic growth).  Here is the first data analysis that attempts to provide an answer.  It is likely not the last; so it shouldn’t be accepted as gospel.  However, in this study, the score is shareholders 65, workers 15.


    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

            Month to date retail chain store sales grew more rapidly than in the prior week.

            January factory orders fell 1.4% versus expectations of down 1.3%; however, the December reading was revised up by 0.1%, making the two months a wash.

            Weekly mortgage applications rose 0.3%, but purchase applications fell 1.0%.

     International

            Global economic growth strengthens in February (short):

    Other

            Dismantling Dodd Frank (medium):

            More (medium):

                More on consumer credit (medium):

                Jeffery Snider on the implications of the Italian elections (medium):

What I am reading today

            Reasons not to claim social security early (medium):

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