The Averages (DJIA 25887, S&P 2832) rested yesterday---not really that surprising given a solid eight day run to the upside. S&P closed well above the 2800 as well as the 2811/2815 resistance level, paving the way for a challenge of the indices’ all-time highs (26917/2942)
Volume rose and breadth improved.
The VIX rose 3 ½ %, finishing back above the late February/early March double bottom, negating last Friday’s break. Barring a follow through to the upside, I view this as not being that significant.
The long bond was off fractionally. It remains in the upper tier of the trading range defined by a quad top and a double bottom. The chart remains reasonably strong.
The dollar declined three cents, closing below the upper boundary of the November to present trading range and below the lower boundary of a recently established very short term uptrend for a second day, negating that trend. Nonetheless, the chart remains strong, ending above both MA’s and within a short term uptrend.
GLD advanced, finishing above both MA’s and in a short term uptrend.
Bottom line: the S&P ended above 2800/2811/2815, leaving little visible resistance between its current price and its all-time high.
TLT and GLD are pointing at a weak economy/easy Fed, the latter likely being the reason equity investors have been jiggy. However, the price action in the dollar doesn’t exactly fit the weak economy/easy Fed scenario, unless it is being viewed as a safety trade. So, I remain confused about the messages being sent by our indicators.
Tuesday in the charts.
Yesterday’s economic data releases were somewhat disappointing: month to date retail chain store sales growth declined, just not as much as in the prior week; January factory orders and orders, ex transportation failed to meet expectations.
Overseas, January EU construction output was very poor while the March economic sentiment index was down but less than anticipated.
Aside from their normal focus on an FOMC meeting, investors were treated again to the erratic news flow on the US/China trade talks with (1) early reports from China that the talks were not going that well (2) to be answered quickly by reports that Lighthizer was headed for China because negotiations were so positive.
The production of money does not create wealth.
Nouriel Roubini on the Fed.
Bottom line: anyone who thinks he/she knows what is happening in the trade talks is most likely self-delusional. I have said repeatedly that I think Trump’s stated goal of changing Chinese industrial policies and IP theft is the right thing to do long term for the US economy. So, I am cheering the process. But the Chinese have centuries of negotiating experience and they have the luxury/patience of being able to look decades ahead in accomplishing their goals. That is why I am OK with (1) no deal or (2) a limited deal that will leave the parties at odds; but fear (3) a deal that looks good on paper, will bring out the champagne and cigars but will be meaningless in correcting Chinese industrial policies and IP theft.
I believe that the universal consensus is that the narrative coming out of the FOMC will simply parrot the recent ‘patient’ guidance and that it won’t disappoint. If so, then the Fed ‘put’ will remain in place. Aside from some major exogenous event, I think that means that equities will maintain their positive bias; and that only ends when either (1) inflation forces the Fed to tighten irrespective of Market sensitivities or (2) the economy weakens further and the Fed eases to no avail.
I have long opined that normalization of Fed monetary policy would not damage the economy but would cause severe heartburn in asset pricing. Here is a decent argument on why I could be wrong---that severe heartburn in asset pricing could damage the economy. Which would be the ultimate irony: QE didn’t help the economy but helped the Market so while QT wouldn’t hurt the economy, it would hurt the Market which would hurt the economy.
News on Stocks in Our Portfolios
This Week’s Data
Month to date retail chain store sales slowed their pace of decline versus the prior week.
January factory orders rose 0.1% versus expectations of up 0.3%; ex transportation, they fell 0.2% versus estimates of +0.3%.
Weekly mortgage applications were up 1.6% and purchase applications up 0.3%.
January Japanese leading economic index came in at 95.9. in line.
February UK inflation rose 0.5%, in line; PPI advanced 2.2% versus forecasts of up 2.3%; the industrial order index was reported at 1.0 versus consensus of 2.0.
The latest on Brexit.
Why the oil price rally has a limit.
The cost of the dem’s new universal healthcare, green America, guaranteed income and free college proposals.
A look at income inequality.
The rise of the dual economy.
Global trade is declining.
What I am reading today
Discovering the Oracle of Delphi.
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