The Morning Call
1/3/18
The
Market
Technical
While
I was gone, my charting service changed its format. The charts basically look the same except for
the background color. However, the
moving averages have been given different colors (100-red; 200-blue). The bad news is that as of today some of the
charts haven’t updated. In our case, the
S&P and the VIX. So today I have
nothing to offer except verbiage.
In
the case of the S&P, it doesn’t really matter because, it looks the same
except that the uptrend has been extended.
It remains above both moving averages and in uptrends across all
timeframes. The assumption has to be
that this will continue at least until it reaches the upper boundary of its
long term uptrend
And:
In
my absence, the long Treasury recovered above its 100 day moving average and
the lower boundary of a very short term uptrend. Though yesterday, it broke back below the
uptrend, but remains above the 100 day moving average. It is also above the lower boundaries of its
short term trading range and its long term uptrend. This is a bit directionally inconclusive with
investors stewing over whether the economy is in some sort of sustained
recovery or it still has problems longer term.
On
the other hand, the dollar continues to get hammered, trading below both moving
averages, in an intermediate term downtrend and nearing the lower boundary of
its long term trading range. This group
of investors don’t appear to be buying the strong recovery, higher interest
rate scenario.
Meanwhile,
GLD is recovering, spiking through both moving averages and the upper boundary of
a very short term downtrend. Again the
pin action suggests lack of conviction in a strong recovery, higher interest
rate scenario.
Fundamental
Headlines
The
week of December 18:
The
economic data was mixed though the primary indicators were positive by a margin
of one (five versus four). Still this
keeps the economy on a path of recovery.
However, I think that the order of magnitude remains an issue. If you listen to the main stream media, you
would think that the economy is exploding to the upside and that is just not
the case. That said, I will take a
modest improvement to no improvement any day.
Of
course, the big fiscal event was the passage of the tax cut legislation. My conclusion on the final version hasn’t
changed from prior editions, i.e. it is not simpler, fairer or economically
stimulative. However, it did arouse the
animal spirits of not just the Markets but also of corporate America. I really hadn’t expected the reaction of such
giants as ATT and Boeing in announcing their intention of sharing a portion of
their tax cut with employee. In that
sense, if a number of corporations follow suit (they have), the result of the
bill does become fairer. I had noted
previously that an improvement in sentiment among businesses and consumers
could itself push economic activity higher; and seems to be occurring, at least
in the short term. That said, I also
noted that we are not really going to know the consequences of this legislation
on the economy for at least three and possibly six months. So we will just have to wait to see the results. In the meantime, my Market opinion hasn’t
changed and that is that even if the tax reforms impact on the economy is
better than my forecast, it is already well discounted in equity prices.
So
much for simpler (medium):
The
other fiscal matter that congress managed to take care of was keeping the
government open for another couple of weeks.
That keeps spirits high through the holidays; but there are some serious
issues that have to be resolved to get a new budget not the least of which is
reconciling the tax cut with the mandate in the current budget resolution of no
additional deficit spending. Settlement
of this issue will likely cause some heartburn.
The
week of December 25:
Again,
in total, the indicators were mixed.
However, this time there were no primary indicators. I am tempted to not even score the week; but
there were enough datapoints (eleven) to provide a meaningful read. So the score is now: in the last 116 weeks,
thirty-nine were positive, fifty-six negative and twenty-one neutral. My bottom line: the economy is improving from
a period of stagnation. The question is
the magnitude and length of the recovery.
Everyone
was on vacation last week, so nothing in the fiscal monetary policy realm. However, this week congress has to start dealing
with the budget (deficit) which should make for interesting headlines.
***overnight,
the December German unemployment rate hit a record low.
Investing for Survival
The
end of stock picking?
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
December Markit PMI manufacturing index came in at 55.1 versus expectations of
55.0.
Weekly
mortgage applications were off 2.8% while purchase applications were up 1.0%.
Other
Another
blow to the credibility of Chinese economic data (medium):
Update
on the Baltic Dry Index (short):
Politics
Domestic
International
This is a good summation of the
recently unveiled Trump doctrine (medium):
A lessening of tensions on the
Korean peninsula (medium)?
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