The Morning Call
5/2/19
The
Market
Technical
After a see saw
day, the Averages (26430, 2923) declined largely on the back of a less dovish
narrative out of the Fed (more below). Volume
remained low and breadth was weak. The
S&P fell below the upper boundary of its short term trading range (all-time
high) negating Monday’s break as well as the lower boundary of its very short
term uptrend (if it remains there through the close today, that trend will be
voided). The Dow touched its all-time
intraday, then backed off.
I don’t view the
selloff as anything other than a much needed short term consolidation. As I have been pointing out, there are
factors that would suggest some near term backing and filling: (1) the VIX
continues to reflect a high level of investor complacency, historically a sign that
portends lower stock prices, (2) the April 1st gap up open still
needs to be closed and (3) having failed on their first attempt to successfully
challenge their all-time high, the Averages need some rest to bring in new
buyers.
The VIX was up 11%,
leaving its technical picture a bit mixed.
It remains below both moving averages but is building a very short term
uptrend.
The long bond rose
¼ % on volume, continuing the third bounce off of the lower boundary of its
very short term uptrend---a potential sign of lower interest rates. Though clearly not reflective of a more
hawkish Fed statement.
The dollar was up; its chart remaining quite
positive.
GLD
declined 5/8 %, but its chart remains broken.
Its 100 DMA and the upper boundary of its very short term downtrend
represent overhead resistance.
Bottom line: the
indices are back in sync. In addition,
they backed off their initial challenge of their all-time highs. That doesn’t mean a reversal in trend, just
that they are probably entering a short period of much needed consolidation.
A higher dollar
and lower gold prices suggest higher interest rates, higher bond prices just
the opposite.
Wednesday in the
charts.
Keep an eye on the high
yield market.
Fundamental
Headlines
Yesterday’s
economic releases were weighed to the negative: March construction spending (primary
indicator), the April ISM manufacturing index and weekly mortgage/ purchase
applications were below estimates while the April manufacturing PMI and the April
ADP private payroll report were above.
However,
investor focus was on the FOMC meeting in which it left rates/QT policies
unchanged and maintained the emphasis on ‘patience’ (i.e. doing nothing). The only noticeable comment in its press
release was the observation that inflation continues below its goal (a hint at
a lean toward easing). However, in Powell’s
press conference following the meeting, he re-introduced another favorite word in
the Fed’s lexicon---transitory; in which he dismissed the prospect of near term
need for a rate cut due to the ‘transitory’ nature of inflation. Apparently, this seeming contradiction
confused and disappointed Markets. I don’t
think this particularly important as far as (easy) monetary policy goes; but I
can only conclude that investors were hoping for a more dovish narrative.
***overnight,
the Bank of England met. It left rates unchanged,
but the accompanying statement was a bit more dovish than anticipated.
There
were also rumors of a trade deal with China by next Friday. Have I said before that I don’t believe
anything Trump et al says about this deal?
Bottom
line: still no support in the US macroeconomic numbers for that 3.2% Q1 GDP report. Though a China trade deal would be a plus.
Still,
the Fed/monetary policy remains, in my opinion, the key to Market direction and
yesterday’s pin action seems to confirm that thesis---with investors seemingly
disappointed that a rate cut wasn’t made or, at least, hinted at.
What investors
really need, in my opinion, is for the Fed to go on vacation for a year so that
it can be removed as a factor in their consciousness.
What
kind of investment return can we expect from here?
News on Stocks in Our Portfolios
Revenue of $4.9B (-5.8%
Y/Y) beats by $70M.
Economics
This Week’s Data
US
March
construction spending was off 0.9% versus estimates of +0.1%.
The
April ISM manufacturing index came in at 52.5 versus expectations of 55.0.
The
April manufacturing PMI was reported at 52.6 versus consensus of 52.4.
Weekly jobless
claims were 230,000 versus forecasts of 215,000.
Q1 nonfarm
productivity rose 3.6% versus projections of +2.2%; unit labor costs declined
0.9% versus an anticipated increase of 1.5%.
International
March
German retail sales fell 0.2% versus expectations of -0.4%.
The
April EU manufacturing PMI was 47.9 versus estimates of 47.8.
April
UK construction spending index came in at 50.5 versus consensus of 50.3.
Other
Busting
the budget spending caps.
March
median household income.
Paris erupts.
What
I am reading today
Religion,
sex and reproductive strategies.
60%
of bird species came from Australia.
Quote
of the day.
Testing the Peter Principle.
The security risks with
5G.
An interesting fact about
global warming.
Senator Warren
wants to put the bankers that allowed the financial crisis to occur in
jail. So do I. But is this the way to do it.
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for Survival’s website (http://investingforsurvival.com/home)
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