The Morning Call
6/25/20
The
Market
Technical
The Averages (25445, 3050) sold off dramatically
yesterday. They (1) remain out of sync
on their 200 DMA’s, (2) have now established very short term downtrends and (3)
still have those ‘island tops’ weighing on them.
Though short term the
technical picture is getting ever shakier, 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 was off
fractionally but remained above its prior (before Tuesday’s) seven year high. The long bond was up over 1% but didn’t
overcome the struggle to break out of its month long soft spell. The dollar was also up, but its chart remains
ugly.
Wednesday in the
charts.
Fundamental
Headlines
The
economy
Yesterday was a
slow day data wise. In the US, weekly
mortgage and purchase applications fell while the April house price index was rose
more than anticipated.
Update on inflation
forecasts.
Overseas,
the April Japanese leading economic indicators as well as the June German business
climate index were better than expected.
IMF
June update on global growth.
The coronavirus
***overnight, update.
The latest state level coronavirus tracker.
The
Fed
This is a great
article on the evils of QEInfinity.
On the other hand,
you can’t not do what people know is possible (today’s must read).
Bottom line. a sharp rebound in coronavirus infections was
the lead story yesterday. The Market’s
reaction to this news seemed to support my observation in yesterday’s Morning
Call regarding investor skittishness. That
said, I do not think what appears to be the second wave of the coronavirus will
be as disruptive to the economy or the Market as the first time around.
For one, the worst
of the damage has already been done and is in stock prices. Number two, everyone knew a second wave was
coming. Maybe not this quickly; but it
was well advertised. Third, a major portion of the newly infected are a
younger cohort which evidence to date shows are less susceptible to the severe expressions
of the disease. Finally, it is unlikely
that there will be the lockdown that occur initially---barring a significant
rise in hospitalizations and deaths. So
taken by itself, I do not see a major impact of a second wave on either the
economy or the Market. In short, I don’t
think this a trigger for mean reversion.
That said, longer
term, we still don’t know the order of magnitude or the extent of the destruction
wrought by the initial lockdown. We have
no idea about the changes that could occur in American’s work, social and
spending patterns. We don’t know how
many of the millions of small businesses that were forced to close will stay
closed and what that means in terms of employment and consumer income. The answer to these questions is what could
drive mean reversion. And we won’t know
them for a while.
In the meantime, I
am sticking with the thesis that the major force moving equity prices is…….drumroll
please……….QEInfinity/Forever.
That doesn’t mean
buy, buy, buy. Only if a stock reaches
its Buy Value Range will that happen.
More on
valuations.
News on Stocks in Our Portfolios
Revenue of $11B (-0.9% Y/Y) beats by $110M.
FactSet Research Systems (NYSE:FDS): Q3 Non-GAAP EPS of
$2.86 beats by $0.42; GAAP EPS of $2.63 beats
by $0.41.
Revenue of $374.08M (+2.6% Y/Y) misses by $2.27M.
Economics
This Week’s Data
US
Final
Q1 GDP growth was -5.0%, in line; corporate profits were -12.4% versus -14.2%;
the price index was u[ 1.6% versus up 1.4%; the core price index was up 1.7% versus
up 1.6%.
Weekly
mortgage applications fell 8.7% while purchase applications were down 3.0%
Weekly
jobless claims rose 1,480,000 versus forecasts of 1,300,000.
The
April house price index increased 0.2% versus consensus of -0.4%.
https://www.advisorperspectives.com/dshort/updates/2020/06/24/fhfa-house-price-index-up-0-2-in-april
May
durable goods orders were up 15.8% versus expectations of +10.9%; ex
transportation, they up 4.0% versus up 2.5%.
May
wholesale inventories dropped 1.2% versus predictions of -0.6%.
International
The
April Japanese leading economic indicators came in at 77.7 versus estimates of
76.2.
The
June German business climate index was reported at 86.2 versus forecasts of
85.0.
The
June Japanese all industry activity index declined 6.4% versus projections of
-7.4%.
July
German consumer confidence came in at -9.6 versus consensus of -12.0.
Other
EU
banks are expected to incur huge loan losses in 2H2020.
Oil markets are
right to be nervous.
Vehicle miles
driven down 40% YoY.
Architectural
billings downward trajectory moderates.
What
I am reading today
Was the Kennedy
assassination a regime change operation?
Part 1.
Factfulness
rules of thumb.
Why
are credit card interest rates so high?
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