5/1/19
The
Market
Technical
The Averages
(26592, 2945) inched higher, with the S&P finishing above its all-time high
(2942) for a second day. However, volume
remains low and breadth mixed---not the kind of action I generally associate with
a challenge of a significant resistance/support level. The Dow remains below its comparable level
(26656). If the S&P remains above
that high (the upper boundary of its short term trading range) through the close
today, it will reset to an uptrend and clear the way for a move to the upper boundary
of its long term uptrend (~3191).
On the other
hand, as I continue to point out, there are factors that would suggest some
near term consolidation before that occurs: (1) the VIX voiding its very short
term downtrend notwithstanding, it continues to reflect a very high level of
investor complacency, historically a sign that portends lower stock prices, (2)
the April 1st gap up open still needs to be closed and (3) the Dow has
yet to successfully challenge its all-time; historically, it is almost impossible
for one index to break above a key resistance level and continue to advance without
confirmation from the other.
The VIX was up a
penny, again, a little unusual on a day when a major index is challenging a key
resistance level, so far successfully. However,
It
could certainly go on to challenge the lower boundary of its short term trading
range and perhaps even the lower boundary of its long term trading range (its
all-time low). But those are mere points
away. So, I am not sure just how much
downside there is (how much further investor complacency can be stretched).
The long bond was
up 5/8%, making this the third bounce off of the lower boundary of its very
short term uptrend---a potential sign of lower interest rates.
The dollar was down on decent volume, managing
to close one of the two gap up opens.
Its chart remains quite positive.
GLD
was rose 3/8 %, but its chart remains broken.
Its 100 DMA and the upper boundary of its very short term downtrend
represent overhead resistance.
Bottom line: the
S&P ended above its all-time high but once again on poor volume, weak
breadth and no confirmation from the Dow.
Still a challenge is a challenge; and if it holds 2942 through the close
today, it opens the way to the upper boundary of its long term uptrend.
Lower rates
(TLT), higher gold prices (GLD) and an unchanged dollar does not suggest
economic strength.
Tuesday
in the charts.
Fundamental
Headlines
Yesterday’s
stats were mixed: March pending home sales and April consumer confidence were
better than anticipated; month to date retail chain store grew at the same pace
as the prior week; the April Chicago PMI and the February Case Shiller home
price index were disappointing.
The latest data
on Q1 S&P earnings as of the close Monday night: 77% beat profit estimates;
they are currently 0.7% higher than 2018 Q4 which is much better than consensus;
and revenues are up 5% versus 2018 Q4.
So, the trend here remains upbeat versus projections.
Overseas,
Chinese numbers turned negative---the April Chinese manufacturing and
nonmanufacturing PMI’s as well as the small business manufacturing index came
in below estimates. However, the Q1 EU
flash GDP growth was above expectations.
Other
developments:
(1)
senior US and Chinese negotiators completed the next
round of talks on Tuesday, accompanied by only a modicum happy talk out of Trump
et al. In fact, in a speech yesterday, acting White House Chief of Staff
Mulvaney sounded notably downbeat about the prospects. That said, I don’t believe anything these
guys say anymore.
(2)
Trump and congressional democrats agreed that a $2
trillion infrastructure plan would be a jim dandy thing to do. There were few details; we taxpayers will get
the gory details later. On general principal,
I think that infrastructure spending is a plus.
It is, after, all an investment
in America. On the other hand, it comes
at the same time the budget deficit is running at a $1 trillion annual rate and
exploding entitlement spending is in woeful need of reform.
So, on the surface that number seems awfully big. However, there are plenty of factors that will
determine how fiscally irresponsible it is [assuming it ever gets passed]: the
timeframe over which the money is spent; how much of it will be pissed away on ‘environment
studies’ and other nongrowth aspects versus actually building something; how
much of it will go to projects similar to the Obama ‘shovel ready’ offerings;
how much of it will just be more handouts. At this point, we know nothing but the
headline number. Beware of politicians bearing
gifts.
Bottom
line: still no support in the US macroeconomic numbers for that 3.2% Q1 GDP report,
though earnings season continues more upbeat than anticipated. On the other hand, the only economic data bright
spot in the world over the last month has been China but yesterday’s stats
raise questions. So, while I have the
yellow light flashing on a potential upgrade in my outlook, the more data I get,
the more confused I get.
A
China trade deal and a $2 trillion infrastructure program could have a positive
effect on cyclical growth and profit growth; ‘could have’ being the operative
words since we are clueless on details.
Still,
the Fed/monetary policy remains, in my opinion, the key to Market direction;
and at the moment, there is every reason to think that it will continue to let
the Markets tell it what to do. Further,
the combination of easy money with a trade deal and massive government spending
(if they were to occur) would likely be a heady mix.
News on Stocks in Our Portfolios
PepsiCo (NASDAQ:PEP) declares $0.955/share quarterly dividend, 3% increase from
prior dividend of $0.9275.
Apple (NASDAQ:AAPL): Q2 GAAP EPS of $2.46 beats by $0.10.
Revenue of $58.02B (-5.1%
Y/Y) beats by $620M.
C.H. Robinson Worldwide (NASDAQ:CHRW):
Q1 GAAP EPS of $1.16 beats by $0.02.
Revenue of $3.75B (-4.6%
Y/Y) misses by $230M.
Automatic Data Processing (NASDAQ:ADP):
Q3 Non-GAAP EPS of $1.77 beats by $0.08;
GAAP EPS of $1.73.
Revenue of $3.84B (+4.1%
Y/Y) misses by $70M.
Economics
This Week’s Data
US
Month
to date retail chain store grew at the same pace as the prior week.
The
February Case Shiller home price index rose 0.2% versus expectations that it would
be unchanged.
March
pending home sales were up 3.8% versus consensus of +1.1%,
The
April Chicago PMI was reported at 52.6
versus projections of 59.0.
April
consumer confidence came in at 129.2 versus estimates of 126.0.
Weekly mortgage
applications fell 4.3% while purchase applications were down 3.7%.
The
April ADP private payroll report showed an increase of 275,000 jobs versus
expectations of 180,000.
International
Other
New
give away: A proposal for the government
to bail out underfunded pension plans.
The
world’s fastest growing economies.
What
I am reading today
New battery storage technology
could alter the politics of climate change.
The importance of
checking your work.
Nobody
gets out alive.
