Thursday, May 21, 2020

The Morning Call--US/China tensions heating up


The Morning Call

5/21/20

The Market
         
    Technical

The Averages  (24575, 2971) reversed direction again, closing higher on the day.  But that didn’t cure the Market’s 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 S&P broke above its double top [negating a potential triple top] while the Dow is still in a double top formation, (4) the S&P remained within its very short term uptrend; the Dow did not and (5) the S&P ended right on its 100 DMA [now resistance]; the Dow remains below its comparable level.    

My assumption 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.

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

            Wednesday in the charts.

    Fundamental

       Headlines

            The economy

Only a single datapoint yesterday.  Weekly mortgage applications while purchase applications were up.

            Overseas, the trend in ‘less bad’ numbers continued.  March Japanese machine tool orders and May EU flash consumer confidence were better than estimates, while April EU CPI was in line and April UK CPI was slightly lower than anticipated.

            The coronavirus

            Update of coronavirus stats.

            Embracing facts over fear.

            Did the lockdown save lives?

            Rationale exuberance over coronavirus vaccine?

                Trust is being undermined.

                        The Fed

            The FOMC released the minutes of its latest meeting.  Given that it was three weeks ago and events have been progressing at warp speed since then (including a Powell speech and congressional testimony), they are almost out of date.  That said, they provided no new insights to Fed thinking.  Text below.
                    
            The Fed’s middle market ‘Main Street’ lending facility is a disaster.

            Why Powell is in over his head.

            No free lunches.

            China

            The senate ups the ante again in the US/China faceoff.

            Bottom line:  most stocks are overvalued.  That may not mean that they will decline in price but, if they don’t, then the only way for investors to earn any kind of future return would require equities to become even more overvalued.  I have difficulty believing that will occur when (1) there are so many unknowns regarding the magnitude and extent of an economic recovery, (2) it necessitates investors continued faith in a monetary policy with no successful historical precedent, (3) the US/China standoff seems to be getting more unstable daily.

    News on Stocks in Our Portfolios
 
Tiffany (NYSE:TIF) declares $0.58/share quarterly dividend, in line with previous.
           
Medtronic (NYSE:MDT): Q4 Non-GAAP EPS of $0.58 misses by $0.17; GAAP EPS of $0.48 beats by $0.05.
Revenue of $6B (-26.4% Y/Y) misses by $100M.

Medtronic (NYSE:MDT) declares $0.58/share quarterly dividend, 7.4% increase from prior dividend of $0.54.
Hormel Foods (NYSE:HRL): Q2 GAAP EPS of $0.42 misses by $0.01.
Revenue of $2.42B (+3.4% Y/Y) beats by $20M.

Economics

   This Week’s Data

      US

            Weekly jobless claims rose 2,438,000 versus forecasts of 2,400,000.

            The May Philadelphia Fed manufacturing index came in at -43.1 versus estimates of -41.5

     International
                 
            The April Japanese trade balance was -Y1930 billion versus consensus of -Y560 billion.

            May EU flash consumer confidence was reported at -18.8 versus expectations of -24.

            The May Japanese flash manufacturing PMI was 38.4 versus projections of 36.0; the services PMI was 25.3 versus 17.5; the composite PMI was 27.4 versus 20.6.

            The May German flash manufacturing PMI was 36.8 versus forecasts of 39.2; the services PMI was 31.4 versus 26.6; the composite PMI was 31.4, in line.

            The May EU flash manufacturing PMI was 39.5 versus estimates of 38.0; the services PMI was 28.7 versus 25.0; the composite PMI was 30.5 versus 25.0.

            The May UK flash manufacturing PMI was 40.6 versus expectations of 36.0; the services PMI was 27.8 versus 25.0; the composite PMI was 28.9 versus 25.0.

    Other

What will happen to the $150 million in frozen credit card payments?
           

What I am reading today

            Aliens likely exist but they are probably not very smart.

                Scientists discover evidence of a parallel universe.

            Quote of the day.

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