Thursday, February 6, 2020

The Morning Call--A little circumspection, please

The Morning Call


The Market

The Averages (29290, 3334) continued their powerful rally, nearing the upper boundaries (their all-time highs) of my watch range (29373/3337).  A close above that level for two consecutive days will reset very short term uptrends.  Strong money flows suggest that a reset is a good probability.  And, of course, there is the indices’ underlying long term technical strength.   The only bothersome thing is that the VIX remains at a much higher level than seems normal in such an explosive Market (suggesting that investors are more risk averse than is obvious in stock prices).

            A new catalyst emerges to push stocks higher.

Nonetheless, the ‘improving economic growth rate’ scenario appears squarely back on the table and is being supported by declining bond prices and a stronger dollar---yesterday, the latter broke above its 200 DMA (now resistance; if it remains there through the close on Monday, it will revert to support).  If this challenge is successful, then the technical position of UUP will improve. 

GLD’s pin action belied the aforementioned scenario; but it could be that increasing inflation expectations are becoming a part of the outlook.

            Wednesday in the charts.



            This week’s dataflow continues upbeat.  The January services and composite PMI’s, the January ISM nonmanufacturing index and the January ADP private payrolls reports were favorable as were mortgage applications; however, purchase applications and the December trade deficit were disappointing.

            Overseas, January German, EU and UK services and composite PMI’s all beat estimates while the Japanese PMI’s were below expectations and the Chinese Caixin PMI’s were mixed.
            ***overnight, OPEC fails to agree on oil production cuts.

            Bottom line.  all in all, a solid day for the global economy.  However, I remind you that the impact of the coronavirus has yet to show up in the numbers.  Not that the economic outlook will change when it does.  But the point is that we don’t know yet.  So perhaps some circumspection might be in order. 

            More important, it is not clear from the recent trend in stats that a pickup in global growth was occurring anyway.  Certainly, I opined that the completion of the two trade deals would  almost surely add to global growth prospects.  But I also think that the growing massive government deficit/debt and an irresponsible monetary policy act as drags on growth.  My conclusion being that improved trade would contribute to growth potential but perhaps only enough to offset the damage being done by fiscal/monetary policies.

            For the moment, I am sticking with that outlook and am not considering altering my forecast if and until there is a bit more clarity.   
            Goldman cuts global GDP growth prospects.

            ***overnight, China cuts tariffs on some US goods.
            What we can learn from the 1980 Japanese stock market bubble.

    News on Stocks in Our Portfolios
Becton, Dickinson (NYSE:BDX): Q1 Non-GAAP EPS of $2.65 beats by $0.01; GAAP EPS of $0.87 misses by $1.67.
Revenue of $4.23B (+1.7% Y/Y) beats by $40M.


   This Week’s Data


            The January services PMI was 53.4 versus projections of 53.2; the composite PMI was 53.3 versus 53.1.

            The January ISM nonmanufacturing index was 55.5 versus estimates of 55.0


            December German factory orders fell 2.1% versus expectations of  +0.6%; the January construction PMI was 54.9 versus 52.9.


            An alternative view of the Trump economy.

            Choosing between wages and benefits (must read).

What I am reading today

            War for fun and profit (today’s must read):

            The Pentagon’s $35 trillion black hole.

            Three outdated retirement rules that you should ignore.
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