Thursday, April 16, 2020

The Morning Call--Poor numbers versus QEV


The Morning Call

4/16/20

The Market
         
    Technical

The Averages  (23504, 2783) gave back Tuesday’s advance yesterday, though as I noted in the Morning Call, breadth has been strong and they were nearing overbought territory.  So, a rest is not surprising.  On a positive note, the VIX held fairly well on a big down day, ending in a very short term downtrend.  Further, both indices remained above the lower boundaries of their very short term uptrends---though the Dow just barely. 

            Short term optimism has spiked.

            And.

TLT was up big, leaving its technical picture unchanged (positive). UUP also rose though it remained near both DMA’s as well as the lower boundary of its short term uptrend.   GLD sold off; some profit taking is not surprising given its recent powerful run.  Still, it finished above the upper boundaries of its very short term and short term uptrends.

            Wednesday in the charts.

    Fundamental

       Headlines

Yesterday’s data releases were abysmal.  March industrial production (primary indicator) and retail sales (primary indicator) were well below estimates.  Backing up this poor showing was weekly purchase applications, February business inventories/sales, the April housing market index and the April NY Fed manufacturing index.
           
Update on big four economic indicators.

            IMF predicts biggest downturn since great depression.

                The Fed released its latest Beige Book report which made for pretty depressing reading---the main theme being that economic activity contracted across all industries in every region of the country.  A more detailed summary and the full text are below.

                        Nothing from overseas.

            The coronavirus

            ***overnight update.

            Update on coronavirus stats.

            Tucker Carlson on the shutdown.
           
The small business bailout fund ran out of money Wednesday evening.

Bottom line: now that the economic data is turning really bad, investors are in a position of either worrying about the fallout from the government shutdown or embracing the Fed’s aggressive stimulus policy.  If history repeats itself, the latter will win out.  That said, I have maintained for years that the mispricing and misallocation of assets will end at some point.  Though again, if history repeats itself, it remains a low probability bet.  So, for the moment, I think that the bias of the Market is to the upside; although in the absence of a coronavirus cure or vaccine, the almost assured poor economic numbers will likely make any progress erratic.  I have no intent of chasing stock prices in that environment.

    News on Stocks in Our Portfolios
 
BlackRock (NYSE:BLK): Q1 Non-GAAP EPS of $6.60 beats by $0.05; GAAP EPS of $5.15 misses by $1.08.
Revenue of $3.71B (+10.7% Y/Y) beats by $50M.

Economics

   This Week’s Data

      US

            February business inventories fell 0.4%, in line; sales declined more.

            March industrial production dropped 5.4% versus estimates of -4.0%; capacity utilization was 72.7% versus 73.8%.

            The April housing market index came in at 30 versus expectations 55.
    
            March housing starts fell 22.3% versus consensus of -19.6%; building permits decreased 6.8% versus -10.9%.

            Weekly jobless claims were up 5,245,000 versus projections of up 5,105,000.

            The April Philadelphia Fed manufacturing index came in at -56.6 versus forecasts of -30.

     International

            February EU industrial production rose 0.1% versus estimates of -0.2%.

March German CPI was up 0.1%, in line; PPI fell 0.4% versus -1.2%.

    Other

            Problems in China’s belt and road projects.

                        OPEC’s production cuts not enough to offset decline in demand.

                        What is we hadn’t bailed out Chrysler in 1980?

                Banks have a huge problem.


What I am reading today

            Fixing college corruption.

            The more you walk, the less likely you are to die.

                Life wasn’t easy in ancient Mesopotamia.


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