The Morning Call
3/14/18
The
Market
Technical
The indices
(DJIA 25007, S&P 2765) tried for a second day to challenge their prior
highs and failed. In the process, they
have now made a second lower high; and that keeps the very short term momentum
to the downside. Volume was up but remained at a low level. Breadth was negative. That said, 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. However, the indices are now stuck in a
narrowing range defined by lower highs and higher lows. In addition, they need to overcome their
former all-time highs before we have an all clear signal.
For the
optimists (medium):
The VIX was up
another 3 ½ %, but is still in its newly reset trading range. Its
recent pin action seemed to be anticipating a drop in volatility---until the last
two days. So maybe not.
The long
Treasury rose another ½ %; quite a good performance on a second day of a large Treasury
offering. The momentum remains to the
downside; though it is nearing the upper boundary of a very short term
downtrend.
The dollar was
off again, seemingly unimpressed with the positive Treasury offering. It remains an ugly chart.
GLD was up. Momentum remains to the upside, but it must
still overcome a very short term downtrend.
Bottom line: the
technicals of the equity market point higher for the long term; though the
recent pin action suggests that the level of investor euphoria has subsided. TLT, UUP and GLD seem to be confirming that.
Fundamental
Headlines
Yesterday’s
economic data releases were mixed: the February small business optimism index
was better than forecast, February CPI was in line and month to date retail
chain store sales grew slower than in the prior week. The CPI was the most anticipated of the lot
and it didn’t disappoint---which is to say there was no indication of higher
inflation.
Rationalizing
peak cycle numbers (medium):
Trump
held the headlines:
(1) firing
Secretary of State Tillerson, who is viewed by many as one of the more
qualified of the Donald’s appointees.
That, in turn, raised concerns that [a] US foreign policy could become
more erratic/aggressive than it already is and [b] given the way the firing was
done {Tillerson found out from a Twitter post}, Trump may start to have
problems attracting top notch personnel,
(2) finally
deciding to take on the real injustice in trade---Chinese theft of US
intellectual property. Yesterday, Trump
proposed $30 billion in tariffs plus visa restrictions and investment
restrictions [nixed Broadcom’s {Singapore based company} proposed acquisition
of Qualcomm]. To be sure, this needed to
happen; and it is a problem that both political parties and most of the
business sector agree needs to be addressed, though to date no one has had the
balls to do it. That said, the near term
consequences could be a lot more stomach churning than the steel/aluminum
tariffs.
Bottom
line: it appears that the steel/aluminum tariffs were just a warm up for the
main event---going after Chinese theft of US intellectual property. Depending on how the Donald handles this, the
consequences, at least near term, will certainly increase uncertainty. To be sure, this could be following the
steel/aluminum ‘art of the deal’ game plan---threaten, threaten, threaten then
back off to something more reasonable.
On the other hand, this is a direct confrontation with a major global power,
a major trading partner and one for which ‘face’ is extraordinarily
important---increasing the odds of serious unintended consequences. So my guess is that this round of trade
negotiations will involve more investor heartburn than the first.
Bond
versus stock yields (medium):
Goldilocks
versus the bears (medium):
Update
on valuations (medium):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Month
to date retail chain store sales growth slowed last week.
Weekly
mortgage applications rose 0.4% while purchase applications were up 3.0%.
February
PPI came in +0.2%, in line; ex autos, it was up 0.2%, also in line.
February
retail sales fell 0.1% versus forecasts of up 0.4%; ex autos, they were up 0.2%
versus consensus of up 0.4%.
International
February
Chinese industrial output, fixed asset investment and retail sales were all
strong and above estimates.
Other
The
budget deficit and inflation (medium):
Kudlow
is usually wrong (medium):
Corporate
debt reaching record levels (medium):
What
I am reading today
Share buybacks work
better in theory than in practice (medium):
Know when to walk away, know when to
run (medium):
Making it look easy is hard work
(medium):
Authenticity is about living our
truths not talking about them (short):
Stay on script (medium):
Five facts about the new CIA
director (medium):
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