Wednesday, May 20, 2020

The Morning Call---Labored progress

The Morning Call


The Market

The Averages  (24206, 2922) gave back part of Monday’s gains, finishing in a somewhat confused technical state: (1) neither closed Monday’s huge gap up opens, (2) the Dow created a double top; the S&P a triple top, (3) the Dow traded back into its 4/17-4/21 trading range; the S&P remained above it, (4) the S&P remained within its very short term uptrend; the Dow did not. 

My assumption continues to be that equity prices’ bias is to the upside but that effort will be labored.  The lack of follow through to Monday’s Titan III shot, the magnetic pull of those gap up opens and the pin action in the VIX, supports that notion.

                        The latest survey of Wall Street professionals.

GLD and TLT were up, the UUP down.  But all their charts remain strong, reflecting risk aversion among their investors.

                Tuesday in the charts.


            Yesterday’s stats were downbeat.  Month to date retail chain store sales and April housing starts were disappointing though April building permits were better than anticipated.

            On the other hand, overseas, the data was weighed to the positive. March UK unemployment, March EU construction output and May EU and German economic sentiment were above forecasts while March Japanese industrial production was in line and March UK average earnings were below estimates.

The coronavirus

***overnight update.

            Moderna’s drug trials not quite as good as originally thought.

But positive news from South Korea.

                Study shows that the slowdown in economic activity is a function of social distancing not the lockdown.
            The Fed

            The demand for money.

                The odds of negative rates.

                Fear of losing taxpayer money is holding Treasury and the Fed back.

                Bottom line: the economy is almost surely improving as the country emerges from lockdown.  That is clearly a positive for stocks.  However, we have no idea how quickly economic conditions will recover and to what extent.

            My Valuation Model indicates that even if the economy regains 2019 level of activity by late 2020, most stocks are overvalued.  There are a select group of stocks that are close to their Buy Value Range but lower prices are needed to get them into those Ranges.

            Dividend cuts continue their torrid pace.

             The biggest risk to bond investors.

    News on Stocks in Our Portfolios


   This Week’s Data


            Month to date retail chain store sales declined more rapidly than in the prior week.

            Weekly mortgage applications fell 2.6% but purchase applications were up 6.4%.


            March Japanese machine tool orders declined 0.4% versus estimates of -7.1%.

            April UK CPI came in at 1.4% versus forecasts of 1.5%; core CPI was 0.1% versus 0.2%.

            April EU CPI was 0.3%, in line.


What I am reading today

            Stork chicks hatch in UK for first time in 600 years.
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