The Morning Call
9/27/18
The
Market
Technical
After being on
the plus side for most of the day, the Averages (DJIA 26385, S&P 2905) sold
off near the close---probably due to Fed chair Powell’s comment that stock
might be overvalued. Volume was up
fractionally and breadth continued to decline from its overbought
condition. However, the indices remain
technically very strong. My assumption is that they will challenge the
upper boundaries of their long term uptrends (29807, 3065).
Update on margin
debt.
The VIX was up
on the day, seemingly getting back in sync with stock prices. I have previously noted that the VIX had been
trading in a confusing, atypical non-inverse relationship with stocks. That may be coming to an end. At the moment, it is still at the lower end
of its short term trading range and that is something of a positive for equity
prices.
The long bond rallied
¾ % on big volume---surprising to me given that stocks, the dollar and gold all
seemed to interpret the Fed chairman Powell’s statement following the FOMC
meeting as somewhat hawkish.
The dollar has up
¼ %, which, as I noted above, continues my confusion regarding its performance
viz a viz that of TLT. I have previously observed that a number of confusing or
technically negative price movements are now taking place and that could be a
sign that investors’ are re-jiggling their economic/Market models.
GLD was down ½% on heavy
volume, remaining as the ugliest chart on the block---though it stay within a
developing very short term trading range.
Bottom line: the indices
remain technically strong. I continue to believe that they will challenge the
upper boundaries of their long term uptrends.
The pin action in the long bond, the
dollar, the VIX and gold are all acting somewhat atypical. That doesn’t necessarily mean something
negative is occurring. It is just that a
change seems to be in the air; and I think we need to be alert to it.
Yesterday
in the charts.
Fundamental
Headlines
The
economic stats were slightly positive: weekly mortgage and purchase
applications were up while August new home sales were in line.
The
lead development of the day was the wrap up of the FOMC meeting. It decided to raise rates another .25%. That was expected. Its description of the economy, the labor
market and inflation was basically unchanged.
The one noticeable difference in the official statement released after
the meeting was the removal of the word ‘accommodative’ as it relates to monetary
policy. However, in Chairman Powell’s
press conference, he went out of his way to assure investors that the Fed was still
being accommodative---which I assume means that the Fed is not easing but not
tightening (?).
What may turn
out to be the most important statement in the news conference is what I referred
to above, i.e. Powell thinks that equities might be overvalued. Important because (1) the prior Fed admitted
that a major goal of QEII to QEInfinity was to raise asset prices; and, as I remind
you endlessly, it succeeded spectacularly---to the point of destroying price
discovery, (2) so if Powell’s comments mark an end to that process, then I would
assume that means quantitative tightening will go on even in the face of a
declining market---not something that investors have been counting on to
protect them on the downside.
That
said, I don’t want to make too much of this at this point. There could be any number of reasons for
Powell’s comments, none of which would necessarily signal that the Fed no
longer has the Market’s back. However,
it needs to be noted and we should be alert to further evidence that this
change in Fed policy may be occurring.
As
far as the ‘dot plot’ forecasts, they did not materially change on economic
growth, unemployment and inflation. The
numbers for growth in 2018 and inflation are higher than my own which I am not
that concerned about because the longer term outlook matches mine, i.e. slowing
growth in 2019 and 2020, reflecting the transitory impact of the tax cuts and
the longer term problem of the rising deficit/debt.
Why
investors shouldn’t fear rising rates.
This
analyst just explained why the dollar funding problem will only get worse.
The
latest salvo in the US/China trade dispute.
Bottom line: I
continue to believe that the federal deficit/debt and the willful blindness of
the Fed to its own ineffectiveness are the problems that investors have to
contend with. Though in all fairness,
Powell did admit in his press conference that the Fed is less omniscient and
omnipotent than his predecessors have contended. Now if the Fed will just start acting that
way. What a refreshing positive change
that would be. That said, he is still
stuck with unwinding the most irresponsible monetary policy experiment in this
country’s history.
15 bullish assumptions.
News on Stocks in Our Portfolios
Revenue
of $10.15B (+10.9% Y/Y) beats by $140M.
Accenture (NYSE:ACN) declares $1.46/share quarterly dividend, 9.8% increase from
prior dividend of $1.33.
Economics
US
August
new home sales rose 629,000, in line.
August
durable goods orders rose 4.5% versus expectations of up 2.2%.
The
final revised second quarter GDP came in at +4.2% versus projections of 4.3%;
the PCE price deflator rose 2.0% versus the second reading of +1.9%; corporate
profits were up 6.4% versus the prior report of +6.7%.
Weekly
jobless claims rose 13,000 versus in line.
The increase is likely due to the aftermath of Hurricane Florence.
The
August trade deficit was reported at $75.8 billion versus consensus of $70.8
billion.
International
September
EU economic confidence came in at 110.9 versus 111.3.
The
Banks of Hong Kong, India and Philippines raised interest rates.
Other
Update
on household net worth.
What
I am reading today
Investing in a market
that is due for decline.
John Steinbeck on
what it means to be an American.
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