Wednesday, June 24, 2020

The Morning Call--The economy continues to improve

The Morning Call


The Market

The Averages  (26156, 3131) had another good day.  But they remain out of sync on their 200 DMA’s (intraday, the Dow challenged its 200 DMA but fell back) and, at least to date, have been unable to mount a challenge on those ‘island tops’---the longer this goes on, the more likely the next move is to the downside. 

Though short term the technical picture is getting a bit shaky, for the moment, I am sticking with my assumption that the Market’s bias is to the upside---at least until/unless the Averages revert their DMA’s to resistance.

Gold made another strong move higher on volume, making another new seven year high.  The long bond was down.  It just can’t break out of its month long soft spell.  The dollar was down again, confirming a new lower high and completely voiding that positive seven day run to the upside.

            Tuesday in the charts.



            The economy

Data was yesterday’s main headline.  In the US, month to date retail chain store sales, May new home sales, the June flash manufacturing, services and composite PMI’s plus the June Richmond Fed manufacturing index were all better than anticipated. 

Overseas, June EU consumer confidence, June German, EU and UK flash manufacturing, services and composite PMI’s were above forecasts while the June Japanese flash manufacturing, services and composite PMI’s were below.

            ***overnight, the US draws up plans for $31 billion in tariffs on EU products.

            The coronavirus

            ***overnight update.

            Sweden thankfully tries something different.

Updated analysis of Arizona’s experience.

                        A new study on the coronavirus.

                        And another.


            China is stuck in a vicious cycle (must read).

            China and India agree to a disengagement along contested border.

Bottom line.  Japan notwithstanding, the data continue to point to the global economy recovering from recessionary lows.  That trend is apt to continue, barring an overwhelmingly adverse second wave of the virus.  Couple that with a historically expansive monetary policy and the Market will continue to have a good deal of air beneath its wings.

Nonetheless, risks exist.  Not the least of which are extraordinarily generous valuations.  Another is investor skittishness (not surprising in a richly valued Market)---which we witnessed overnight on Monday when Peter Navarro made a negative comment about the US/China trade deal and the futures plunged. 

But as I said yesterday, I have no idea when, as or if these factors will lead to mean reversion. 

            How to explain the Market’s wild mood swings.

            The diversification benefit of bonds in a sharp drawdown are less than you might expect.

    News on Stocks in Our Portfolios


   This Week’s Data


            May new home sales rose 16.6% versus estimates of +2.9%.

            The June flash manufacturing PMI was 49.6 versus consensus of 48.0; the services PIM was 46.7 versus 46.5; the composite PMI was 46.8 versus 44.0.

            The June Richmond Fed manufacturing index came in at 0.0 versus forecasts of -14.0.



            Weekly bankruptcy filings soar.

            Including those of hospitals.

What I am reading today

            In search of King David’s lost empire.  This article is long but if you are interested in biblical history, it is a must read.

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