Friday, May 15, 2020

The Morning Call--Recovery progress + expansive fiscal/monetary polices = higher stock prices

The Morning Call


The Market

The Averages  (23625, 2852) bounced hard on a roller coaster day, but remained within the  4/17-4/21 trading range.  The good news is that as long as they remain within those ranges, I have to assume that momentum continues to the upside.  The bad news is that yesterday’s pin action did nothing to void the Dow’s head and shoulders formation or  the S&P’s double top. 

GLD, TLT and UUP again rose on strength.  As I continue to note, they should not be trading in unison to the upside unless investors are nervous---and it is not clear that equity investors are nervous.
            Markets bet against Powell and are starting to price in negative rates.
            Thursday in the charts.



Yesterday was a slow day in a slow week for data.  In the US, weekly jobless claims again outpaced expectations.

Employment losses may be slowing.

                High frequency data show signs of recovery.

                More recovery stats.

Overseas, April German CPI rose more than estimates while April Japanese machine tool orders fell more than forecast.


***overnight,  the Commerce Department moved to block shipments of semiconductors to Huawei Technologies from global chipmakers.
            March snapshot of US/China trade.

China’s pandemic problems.

The economy

            Our long term debt crisis has now become a short term problem.
            Cares Act gives tax benefits to the wealthiest.

The coronavirus

***overnight update.

Georgia reopening a success.

It is the models, stupid (must read).

            Bottom line: the dataflow is showing signs of economic recovery.  To be sure, that is a positive for the economy.  But we still have no idea regarding the magnitude and duration of that recovery.  Nor do we know the ultimate impact this crisis will have on the social and spending habits of Americans.  These four factors will probably largely determine corporate profitability over the next two years or so. 

How do you value stocks when corporate profitability is subject to so much uncertainty?  I know that the Street is constantly attempting to do just that.  And God bless it for that.  But how much confidence can one have in the results?  Even for companies whose earnings have above average earnings certainty?

At the moment, investors do not appear to be all that worried about the math of valuations.   In my opinion, that is largely a function of the expansive Fed policy.  If you believe that fiscal policy will continue to throw money at the economy and Fed policy will finance it, then the bias in equity prices will be to the upside, valuation be damned.

    News on Stocks in Our Portfolios
Altria (NYSE:MO) declares $0.84/share quarterly dividend, in line with previous.

United Parcel Service (NYSE:UPS) declares $1.01/share quarterly dividend, in line with previous.

V.F. Corp (NYSE:VFC): Q4 Non-GAAP EPS of $0.10 misses by $0.04; GAAP EPS of -$1.22 misses by $1.28.
Revenue of $2.1B (-11.0% Y/Y) misses by $180M.

V.F. Corp (NYSE:VFC) declares $0.48/share quarterly dividend, in line with previous.


   This Week’s Data


            April retail sales fell 16.4% versus expectations of -12.0%; ex auto, they dropped17.2% versus -8.6%.

             The May NY Fed manufacturing index came in at -48.5 versus estimates of -63.5.


            April Japanese PPI was -1.5% versus consensus of -0.9%.

            April Chinese YoY industrial production was up 3.9% versus forecasts of +1.5%; retail sales were -7.5% versus -7.0%; fixed asset investment was -10.3% versus -10.0%; April unemployment was 6.0% versus 6.3%.

                April German PPI was -0.7% versus projections of -0.6%; Q1 GDP growth was -2.2, in line.

            Q1 EU GDP growth was  -3.8%, in line; its March trade balance was +E28.2 billion versus +E22.9 billion.


            Oil market improves as production drops.

What I am reading today

            Quote of the day.

            Public pension plans are in a world of hurt.

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