Friday, May 1, 2020

The Morning Call--Month end rebalancing

The Morning Call


The Market

The Averages  (24345, 2912) continued this week’s see saw pin action, ending lower on the day.  Nonetheless, they remained above their 4/17 highs, reestablishing very short term uptrends.  On the one hand, it has taken a lot of energy to overcome those 4/17 highs suggesting a diminished rate of upward momentum.  On the other hand, traders that I talk to said that there was a lot of month end portfolio rebalancing yesterday; so, I am not sure how much information we can take away from the price action.

            BofA: It ain’t over.

TLT, GLD and UUP got whacked yesterday.  That is informationally inconsistent and like stocks could have been a function of month end rebalancing.

            Thursday in the charts.



The numbers remain disappointing.  March personal income, personal spending,  PCE price index, the April Chicago PMI and weekly jobless claims all made poor reading.

Overseas, the data wasn’t so bad. March Japanese industrial production, housing starts, and  construction orders, March German retail sales, the April Chinese manufacturing, small business manufacturing and nonmanufacturing and Q1 EU unemployment were better than anticipated.  Still, all was not upbeat.  March Japanese retail sales, April consumer confidence and Q1 EU GDP growth and inflation were worse than expected.

Yesterday, there were reports that Trump is considering action to prevent a government retirement plan from investing in a fund containing Chinese securities.  While that is almost meaningless as a single action.  The question is, is a trade war with China about to re-escalate?  Certainly, such as occurrence would only exacerbate the economic damage done by the coronavirus shutdown.

The Fed

            In defense of the Fed.  The dots that the author doesn’t connect is that (1) it isn’t lower interest rates that drive up the Market, it is the liquidity and (2) the dollar isn’t weak because every other central bank is pushing QE even harder than the Fed; in other words, it is the cleanest shirt in a bag of dirty laundry.
            But, Jerry, we have to have sex to save the friendship.

                The coronavirus

                ***overnight update.

                The latest coronavirus data.

                Bottom line: the stats are horrible and will remain so for the near future.  We expected that.  To be sure, steps are already being taken to bring the country out of lockdown.  Plus, the stats from overseas are starting to improve (i.e. getting less bad).   From a valuation standpoint the questions are, how fast will US numbers recover, by how much and what is that worth?  The answers are that much about the speed and magnitude of recovery isn’t knowable right now unless the assumption is that conditions return to the way they were pre-coronavirus within a reasonable timeframe.  And that may happen; but I don’t think it is prudent to be paying current valuations based on that assumption. 

            That said, the Fed along with the other major central banks are pushing money into the financial system---with the Fed and ECB promising this week to continue to do so as long as there is a question about economic growth.  Investors are using that liquidity to buy stocks (the Fed ‘put’) just as they have for the last decade.  As long as that remains the modus operandi, stock prices will have an upward bias. (must read):

             When you have no idea what happens next.

The latest from Ed Yardini.

    News on Stocks in Our Portfolios
Altria (NYSE:MO): Q1 Non-GAAP EPS of $1.09 beats by $0.10; GAAP EPS of $0.83 misses by $0.14.
Revenue of $5.05B (+15.0% Y/Y) beats by $430M.

McDonald's (NYSE:MCD): Q1 GAAP EPS of $1.47 misses by $0.09.
Revenue of $4.71B (-6.2% Y/Y) beats by $50M.

Qualcomm (NASDAQ:QCOM): Q2 Non-GAAP EPS of $0.88 beats by $0.09; GAAP EPS of $0.41 misses by $0.08.
Revenue of $5.2B (+6.1% Y/Y) beats by $160M.

Microsoft (NASDAQ:MSFT): Q3 GAAP EPS of $1.40 beats by $0.13.
Revenue of $35.02B (+14.4% Y/Y) beats by $1.32B.

Apple (NASDAQ:AAPL): Q2 GAAP EPS of $2.55 beats by $0.29.
Revenue of $58.31B (+0.5% Y/Y) beats by $3.67B.

Exxon Mobil (NYSE:XOM): Q1 Non-GAAP EPS of $0.53 beats by $0.47; GAAP EPS of -$0.14 misses by $0.18.
Revenue of $56.16B (-11.7% Y/Y) misses by $2.09B.

Exxon Mobil (NYSE:XOM) declares $0.87/share quarterly dividend, in line with previous.


   This Week’s Data


            The April Chicago PMI came in at 35.4 versus estimates of 38.0.


            April Japanese CPI was reported at -0.1% versus expectations of +0.1%; the April manufacturing PMI was 41.9 versus 43.7.

            March UK consumer credit fell L3.8 billion versus forecasts of +L0.7 billion.

            The April UK manufacturing PMI was 32.6 versus consensus of 32.8.


            Hotel occupancy rates crash.

            Restructuring US debt (must read).

            Inflation versus deflation.

            Inflation versus deflation. Part 2.

What I am reading today

            How Trump pressured the Saudi’s to cut production.

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