Thursday, January 26, 2017

The Morning Call--Don't confuse better social policy with better economic policy

The Morning Call

1/26/17

The Market
         
    Technical

The indices (DJIA 20600, S&P 2298) soared again, pushing the Dow above the magic 20000 mark. Volume was flat, but remains at elevated levels; breadth improved.   The VIX (10.8) fell another 2%, closing below the upper boundary of a very short term downtrend, below its 100 and 200 day moving averages (now resistance), in a short term downtrend and is once again nearing the lower boundary of its intermediate term trading range (10.3).
                               
The Dow ended [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term uptrend {18560-20600}, [c] in an intermediate term uptrend {11708-24558} and [d] in a long term uptrend {5730-20736}.

The S&P finished [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {2169-2512}, [d] in an intermediate uptrend {2030-2631} and [e] in a long term uptrend {881-2500}.

The long Treasury fell 1 ¼ %, closing below the lower boundary of a five week uptrend, in a very short term downtrend, in a short term trading range and below the 100 day moving average (now resistance), falling further below its 200 day moving average (now resistance).

GLD declined fractionally, ending in a short term downtrend and below its 100 day moving average (now resistance) which continues to push further below its 200 day moving average (now resistance) and  finished below a very short term uptrend (if it closes there today, that trend will be negated).

The dollar dropped, finishing above its 100 or 200 day moving averages (now support) and in a short term uptrend.   However, it continues to develop a very short term downtrend and is near its 100 day moving average.

Bottom line: clearly the challenge is on with the Dow mounting 20000 but the S&P falling short of 2300.  It seems like the universe believes that the challenge is already over.  It maybe; but the S&P isn’t there yet.  If the challenge is successful, there is no resistance for the indices between 20000/2300 and the upper boundaries of their long term uptrends.  I don’t believe a challenge of those boundaries will be successful.  But first things, first; let’s get through 20000/2300.

TLT, GLD and UUP were all down, once again sending a mixed message.


    Fundamental

       Headlines

            Only one US datapoint yesterday: weekly mortgage and purchase applications were up.

            Overseas, December Japanese exports were the highest in the last 15 months; January German business confidence was less than expected.

            ***overnight, fourth quarter UK GDP rose 0.6% equal to the growth rate of the prior two quarters.

            Wednesday with Trump:

(1)   signs executive order to build wall on southern border,

(2)   signs executive order to strip federal grant money from sanctuary cities

Both were part of the Donald’s campaign pledges; but they both have more social than economic implications.  I try to avoid social commentary; the only thing I will observe is that as long as Trump continues to fulfill his promises, irrespective of their impact on the economy or corporate profits, investors are likely to view them as a plus for the Market.

That said, I am going to continue to hammer on a problem that Trump is creating---protectionism:

Protectionism brings misery (medium):

                More thought on the subject (short):

                How Trump’s China bashing fits into this problem (medium and a must read):

And one that he didn’t create: the federal debt.  Like it or not, he still has to deal with it.

Obama’s deficit legacy (medium and a must read):

                And how it will affect Trump’s fiscal flexibility (medium):

The problem with the normalization of interest rates (short and a must read):

Bottom line: the Donald again acted to fulfill yet another campaign promise; and that, in itself, seems to be the fuel driving stock prices higher.  Whether or not you appreciate this change in the social/political direction of this country, it nevertheless seems to be welcomed by the investor class as a whole.  It is a bit puzzling to me that the policies being followed, to date, having the greatest economic implications are negative.  I am not going to beat on the corporate intervention, talking the dollar down and free trade themes again.  But that doesn’t mean that they aren’t there.  Further, as the above budget discussion suggest, the math of lower taxes and higher infrastructure spending doesn’t work with a federal debt and budget deficit of the current magnitude.  How Trump and the GOP address this issue will say more about the economy and corporate profits in the next five years than anything else that has or will be done. 

Here is the good news (medium):

My best advice is to sit back and enjoy the ride; but get up morning and remind yourself that the most optimistic earnings and discount factor numbers don’t get stocks to current valuations.  So caution is advisable for all but the nimble traders.


       Investing for Survival
   
            Extrapolating without analyzing.
           
     

    News on Stocks in Our Portfolios
  
Illinois Tool Works (NYSE:ITW): Q4 EPS of $1.39 beats by $0.02.
Revenue of $3.4B (+3.7% Y/Y) misses by $10M.

T. Rowe Price (NASDAQ:TROW): Q4 EPS of $1.21 may not be comparable to consensus of $1.43.
Revenue of $1.09B (+3.8% Y/Y) misses by $10M

Caterpillar (NYSE:CAT): Q4 EPS of $0.83 beats by $0.17.
Revenue of $9.57B (-13.2% Y/Y) misses by $270M.

Sherwin Williams (NYSE:SHW): Q4 EPS of $2.34 beats by $0.13.
Revenue of $2.78B (+6.9% Y/Y) beats by $90M.

Praxair (NYSE:PX) declares $0.7875/share quarterly dividend, 5% increase from prior dividend of $0.75.

Praxair (NYSE:PX): Q4 EPS of $1.41 in-line.
Revenue of $2.64B (+1.5% Y/Y) misses by $30M.

W.W. Grainger (NYSE:GWW) declares $1.22/share quarterly dividend, in line with previous.

Exxon Mobil (NYSE:XOM) declares $0.75/share quarterly dividend, in line with previous.

Qualcomm (NASDAQ:QCOM): Q1 EPS of $1.19 beats by $0.01.
Revenue of $6B (+4.0% Y/Y) misses by $120M.

AT&T (NYSE:T): Q4 EPS of $0.66 in-line.
Revenue of $41.8B (-0.8% Y/Y) misses by $240M.


Economics

   This Week’s Data

            The December US trade deficit was $65 billion versus expectations of $65.5 billion.

            Weekly jobless claims rose 22,000 versus estimates of up 12,000.

            The December Chicago national activity index was reported at .14 versus the prior reading of -.33.

   Other

            House flippers are back at again (short):

Politics

  Domestic

  International War Against Radical Islam


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