The Morning Call
3/8/18
The
Market
Technical
The indices
(DJIA 24811, S&P 2726) retreated yesterday.
Volume was low (though it was up slightly on the day). Breadth remained mixed. The Averages are above both moving averages
and within uptrends across all major timeframes. The technical assumption is
that long term stocks are going higher.
However, the indices just made a second lower high, which suggests
gathering downside momentum. In
addition, they need to overcome their former highs before we have an all clear
signal.
The VIX fell another
3 ¼ %, but remained in the narrowing trading range formed by lower highs and
higher lows. It continued to trade at an
elevated level, suggesting that there is no end to the recent volatility.
The long
Treasury was down fractionally, which reinforced its downward momentum and
moved its closer to the lower boundary of its long term uptrend, a breach of
which would clearly intensify investors’ concern about rising interest
rates/inflation
The dollar declined
slightly, ending below both moving averages and in an intermediate term
downtrend. It remains an ugly chart and isn’t
being helped by rising concerns about a trade war.
GLD was retreated
by ½ %, but still finished above its 100 and 200 day moving averages and in a
short term uptrend. So momentum remains
to the upside, though it must still overcome a very short term downtrend.
Bottom line: the
technicals of the equity market point higher for the long term, though short
term there could be more downside. TLT,
UUP and GLD had another one of those days in which they were out of balance
with themselves.
Fundamental
Headlines
Yesterday’s
data was mixed: February ADP private payroll report showed better job growth than
expected; weekly mortgage applications rose slightly while (the more important)
purchase applications were down; fourth quarter productivity was marginally
above estimates while unit labor costs rose more than consensus; the January
trade deficit was larger than forecast.
In
addition, the latest Fed Beige Book was released and it read like a precursor to
Fed rate hikes, i.e. the economy is growing accompanied by higher wages and
prices in all districts. Not to be
repetitive, but these guys read the data they want to read. Looking at the numbers that I report daily in
these pages, I have no idea where they come up with this optimistic outlook. The only explanation that I have is that the
Fed has realized that it has waited too long to start tightening and the only
way they can sell the unwinding of QE is to pretend the numbers are something
that they are not.
Tariffs
continued to command attention. The narrative
out of the administration was less aggressive, continuing the pattern of hard
talk followed by a slightly more accommodative stance. This leaves open the question of exactly
what is Trump’s end game. At this point,
I don’t think any of us know---which is likely his intent.
Trump
crawfishing on tariffs (short):
A
look at the money flows related to trade and how higher tariffs might impact
the interest rates and the dollar (medium):
Stockman
not sorry Cohn is gone (medium):
Bottom
line: reiterating yesterday’s bottom line, this is a time I do nothing. If
the current tariff brouhaha ends with a Trump victory, stocks will likely go
higher and if any hit their Sell Half range, then I would continue to
trim. If it doesn’t, I have already done
enough selling that a major sell off is not a worry. In either case, I would not be buying in the absence
of a major sell off. In the meantime, patience.
More
on valuation (medium):
News on Stocks in Our Portfolios
Revenue of $878M (+8.7%
Y/Y) beats by $7.85M.
Economics
This Week’s Data
US
The
February ADP private payroll report showed job growth of 235,000 versus
expectations of 205,000.
The
January trade deficit was $56.6 billion versus estimates of $55.1 billion.
Fourth
quarter productivity was flat versus forecasts of -0.1%; unit labor cost rose
2.5% versus consensus of +2.2%.
February
retail chain store sales were mixed/soft.
Weekly
jobless claims rose 21,000 versus consensus of up 10,000.
International
February
Chinese exports spiked 44.5% while imports were up 6.3%. Tell me that won’t get the juices flowing in
the Donald.
January
German factory orders decline 3.9% versus estimates on down 1.3%.
The
ECB met and left rates unchanged. In its
formal statement, it did however drop language stating that it could increase
QE if necessary---which gave it a slightly more hawkish tone.
Other
China’s
household debt problem (medium):
What
I am reading today
Social security shouldn’t
be your main source of retirement income (medium):
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