The Morning Call
5/15/20
The
Market
Technical
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.
Fundamental
Headlines
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.
China
***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
Revenue of $2.1B (-11.0% Y/Y) misses by $180M.
Economics
This Week’s Data
US
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.
International
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.
Other
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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