An Analysis of Daily Events that Impact Your Money
Friday, May 22, 2020
The Morning Call---'Less bad' doesn't mean stocks are fairly valued
The Morning Call
The Averages (24474, 2948) continue to struggle to make
upward progress, closing lower on the day and leaving the Market in a somewhat confused
technical state: (1) neither closed Monday’s huge gap up opens, (2) both finished
above the top end of the 4/17-4/21 trading range, (3) the Dow is still building
a double top formation, (4) the S&P remained within its very short term
uptrend; the Dow did not and (5) the S&P bounced down off its 100 DMA.
continues to be that equity prices’ bias is to the upside but that effort will
be labored. The resistance presented by both
indices 100 and 200 DMA, the magnetic pull of those gap up opens and the pin
action in the VIX, supports that notion.
The US numbers
were again weighted to the ‘less bad’ than had been expected scenario. April existing home sales, the April leading
economic indicators, the May flash manufacturing, services and composite PMI’s
fit that pattern. On the other hand, weekly
jobless claims and the May Philadelphia Fed manufacturing index were disappointing.
pattern was similar. May EU flash
consumer confidence as well as the May Japanese, German, EU and UK flash
manufacturing, services and composite PMI’s were better than anticipated. The only disheartening stat was the April Japanese
trade balance which was much more negative than forecast.
Another dump on
Sweden. The problem with this analysis
is that is just looks at deaths from the coronavirus. Nothing about the economic havoc wreaked on
the average citizen nor the deaths that occurred because a test, treatment, etc.
Bottom line: as
encouraging as the trend of ‘less bad’ economic data is, I still believe that
the economy faces some major headwinds (the magnitude and extent of an economic
recovery, the drag that the wildly expansive fiscal policy will exert on capital
investment and consumption, the righting of the mispricing and misallocation of
assets; plus the potential negative fallout from a US/China standoff) that
render current equity valuations excessive.
News on Stocks in Our Portfolios
This Week’s Data
existing home sales declined 17.8% versus estimates of -18.9%.