The Morning Call
5/17/21
The
Market
Technical
The S&P
started the week on its back foot with a big gap down open on Monday (on a hot
CPI stat). I commented at the time that it would likely have to be filled
before any major move down would occur.
It then proceeded to challenge its short term uptrend on Wednesday only
to negate that break on Friday and very nearly close Monday’s gap down open. That
late in the week rally seemed to be in response to really lousy economic data
(see below)---which all fit into an economic scenario that would (1) prompt
continuing QE and more fiscal stimulus and (2) reduce the threat of inflation---the
operative phrase being ‘prompt continuing QE’.
So, my bottom line remains:
Notwithstanding deteriorating technicals and nosebleed valuations, my
Market assumption remains: ‘I can’t see an end to this uptrend as long
as the money keeps flowing with abundance and in the absence of any major
negative exogenous event.’
However, I was a
bit confused by the performance of the long bond. It got hammered early in the week on that
unexpectedly high inflation number.
While it did generate a modest rebound Thursday and Friday on those
aforementioned poor datapoints, a challenge of its March low still appears likely. In other words, the bond guys are apparently not
nearly as convinced as the stock boys that inflation is ‘transitory’. Stay
tuned.
As you can see,
GLD investors also were not buying the ‘transitory’ inflation scenario. It is back in a position to begin a challenge
of its 200 DMA.
The dollar tried
to rally last week but failed to make a new higher high. It now seems poised to challenge its early
January low. If successful, the next
visible support exists at the lower boundary of its intermediate term trading
range. Its price action suggests
investor concern about higher relative inflation or lower relative economic
growth (or both) in the US versus the rest of the globe.
Friday in the
charts.
Fundamental
Headlines
The
Economy
Review of Last Week
US statistical
releases were downbeat again last week with the primary indicators weighing two
to zero on the negative side. However,
it was not just a matter of two consecutive weeks of lousy numbers. In the prior week, the data was positive,
just not as positive as forecast. Last
week, stats were bad---higher than expected inflation, poor retail sales,
disappointing industrial production and declining consumer confidence.
While a couple of
weeks of datapoints doesn’t make a trend, those numbers suggest that consumers
have already satisfied all that pent up demand from the lockdown and blown
through the free money from the government.
If so, then this economy is a lot weaker than even I thought. On the
other hand, inflationary pressures may just be ‘transitory’ as the Fed has
forecast.
https://www.zerohedge.com/markets/here-comes-stagflation
But again, two
weeks of numbers hardly makes a trend.
Overseas, the data
flow was again positive side. That is three
in a row; so maybe the rest of the world is starting to catch up to the
US. I need a bit longer trend to be convinced of that.
Bottom line. ‘As
you know my opinion is that following an initial snapback (which may already
be over), the US economy will likely return to its former subpar secular growth
rate, stymied by irresponsible mix of fiscal/monetary policies.’---which are only
getting more irresponsible.
https://www.zerohedge.com/political/us-government-track-top-last-years-record-breaking-deficits
US
International
Other
Jeffrey Snider of the usefulness of crypto currencies.
Inflation
Transportation costs are escalating.
Home prices soaring.
Bottom line. Caveat emptor.
https://www.zerohedge.com/markets/kass-speculation-has-been-taken-interplanetary-level
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