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Weighing The Week Ahead: Why Are Stocks Stuck In Neutral?

Jeff Miller profile picture
Jeff Miller


  • Economic news has been marginally good, a Goldilocks story.
  • The economic calendar will feature inflation data and more detail on possible labor market tightening.
  • The week will start with plenty of news and ideas from Warren Buffett and friends.
  • Pundits are more interested in why the news flow (especially earnings) and stock prices do not seem to match up.
  • This market mystery represents a "sideways correction" of about 14%.

The economic calendar is normal, with an emphasis on inflation data. The week will begin with analysis of the annual Berkshire Hathaway (BRK.A) (BRK.B) meeting, the wisdom of Buffett and Munger, and a multi-hour CNBC program including Warren Buffett, Charlie Munger, and Bill Gates. While the questions will range widely, the punditry will soon turn to the mystery of the moment:

Why are stocks stuck in neutral?

Last Week Recap

In my last edition of WTWA, I asked whether the avalanche of economic data would send interest rates higher. That was part of the discussion, particularly around the FOMC announcement. At the end of the week, Elon Musk stole the headlines. Friday’s trading seemed to leave pundits bewildered. The reports on the economy were fine, but not super-strong. Inflation expectations and interest rates did not change.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. I especially like the version updated each week by Jill Mislinski. She includes a lot of valuable information in a single visual. The full post has even more charts and analysis, so check it out.

While the market was unchanged for the week, once again there was action along the way. The trading range was about 3.2%. I summarize actual and implied volatility each week in our Indicator Snapshot section below. As you can see, volatility has been moving lower.

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too!

Feel free to add items that I have missed. Please keep in mind that we are looking for current news, especially from the

This article was written by

Jeff Miller profile picture
Seeking Alpha mourns the passing of Jeff Miller, on May 7, 2021. During his time at Seeking Alpha, Jeff attracted a following of close to 40,000 readers and published more than 1,500 articles. He was a portfolio manager at Incline Investment Advisors, LLC. Jeff also was President of NewArc Investments, Inc., and served as a university professor.....................................................................................................................................Jeff is Portfolio Manager for Incline Investment Advisors, LLC.,manager of both individual and institutional investments. A registered investment advisor, he was formerly President of NewArc Investments, Inc. Jeff is a former college professor with a hands-on, real world attitude. His quantitative modeling helped inform state and local officials in Wisconsin for more than a decade. A Public Policy analyst, he taught advanced research methods at the University of Wisconsin, and analyzed many issues related to state tax policy. Jeff began in the financial business as Research Director for a trading firm at the Chicago Board Options Exchange. He investigated anomalies in the standard option pricing models, taught classes for beginning options traders, and developed new forecasting techniques. In 1991 he established a general research consultancy, working with professional traders at all of the Chicago financial exchanges. In 1998 he started NewArc Investments, Inc. Jeff has a commitment to the specific needs of individual investors. It is not a one-size-fits all approach, but one that emphasizes the unique circumstances of each client. Jeff also serves on the board of a small technology company. He occasionally serves as an expert witness in legal cases involving financial markets and hedging.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (82)

The SPX will breach the Feb 9th(L), on it way to 2,400 - 2,500
and in a sling shot, move up again, to close the above gap from May 16/19.
Market Map profile picture
An investor shouldn't worry about trying to devine the week to week market movements or why the market "did what it did". With the use of a quantitatively, evidence based investment approach based on long term holding of equity based assets combined with very infrequent risk management, diversified over many premia factors, an occasional glance at 10 year rolling compound returns ( Appendix, Chapter 4, Chart 2 tinyurl.com/y8d33264 ( paste link into browser address bar ) ) may suffice ( just to reassure oneself of the testament to the power of compounding and proper asset selection )
07 May 2018
1. The FED and EU have been the big drivers of free $ since 2009. I'm not sure today's investors have that much disposable income to push the market to a higher level.
2. While salary hasn't gone up much over the last few years, people have been buying more expensive cars, phone, and subscriptions like $119 Prime 2-day delivery.
3. Analysts dropped the earning estimates and companies magically beat, with the help lower corporate tax cut. Next year's EPS will not be that impressive unless the government can pass another corporate tax cut. Some companies like Catepillar have also warned of peak earning in 2018.
4. The DOW may hit 26500 this year, but why sit tight to milk another 10% if you have been riding the DOW from 6500 to 24000 over the last ten years? The DOW didn't make a new high from 2001 to 2006. It didn't break out until 2012.
Mayascribe profile picture
Jeff: For many years I have been a weekly reader of your always-bountiful WTWA articles.

Thank you!

My question comes in response to the forward PE S&P coming down from 18.6 to 16. I see how you arrived at a potential 14% drop. I would love to read more on this development. Do you have any links handy?

The idea that forward PE has dropped so significantly just might be more important during this quarter than the trade talks.
Mayascribe profile picture
Found a PE Q4 2019 guidance chart:

Jeff Miller profile picture
wwfjmg -- You do not need a lesson! The jobless claims might well be viewed as a percentage of the work force, and therefore even better than the absolute number suggests. I have tried to mention this occasionally, but perhaps not often enough.

Thanks for the good point.

I am hoping for a brief, free lesson in basic economics. Every week, the unemployment rate is expressed as a percentage of the total work force but the initial jobless claims is expressed as an absolute number. The charts show the initial jobless claims number over the past several decades. I am guessing that the size of the workforce has grown of this time period, making the jobless claims today a much smaller percentage than is would have been 20 years ago. Why is the absolute number of claims more meaningful?

Many thanks to Jeff and all of the readers for sharing your knowledge and insights every week.
Tom Bergerson profile picture
The answer to the question is pretty simple and two fold mainly. First liquidity is scaling back as the Fed buys fewer and fewer bonds as theirs roll off. Second, rates have risen so on balance the TINA bid is scaling back too. And with rates rising the multiple people will pay for earnings drops. I guess maybe thats a third dynamic. Anyway it is as simple as that. And the future will be dominated by the same things.

So if liquidity continues to drop stocks will also drop. If rates continue up, stocks will drop. Even if the S&P hits the magical unicorn $140 that some expect, the S&P index could be anywhere from 1200 to 3000 depending on the multiple people will pay.

One other dynamic that plays in also is the ever shrinking number of shares available for public ownership. There is a big and ever growing pot of money needing to be invested, and the number of shares is something like 60% of what it was. So each one is worth more, though a real analysis would proceed on the basis of total market cap available for ownership
Jeff Miller profile picture
Tom -- As you would guess, I disagree completely. Let's start with "liquidity scaling back." What does this mean? Do you have a measure? M2? Do you know the size of the Treasury market or the daily volume? I have written about all of these points and I don't see the data in your history.

As to the TINA comparison, that is the point of my indicator snapshot, which updates the information each week.

Do you really believe that number of shares is relevant?

Looking forward to your answers, especially if you have some facts.

Tom Bergerson profile picture
Jeff, liquidity scaling back is mainly the Fed allowing now $30 billion of assets to roll off per month, while the ECB also cut their $60 Billion a month in half to $30 Billion a month. The BoJ is still going, nobody really know what the PBoC is doing, and the SNB can be relied on to buy lots of debt and equity every month. I pay to get information on money supply, so I cannot share the figures, but they were dropping both seasonally and well below the last few years until two weeks ago. There are plenty of SA articles also showing money supply and lending figures trending down, though I would not that the Chicago liquidity conditions index has turned for the better recently.

And yes, as far as index values go, the number of shares, or really the total market cap available for public ownership is absolutely relevant. The less there is available the higher the price people must pay for it if they HAVE to own some. As corporations and private equity have taken huge numbers of shares and entire companies off the market, there is less for others to own. The Wilshire as I am sure you are aware, used to have more than 5000 names in it, now approaching 3500. That earnings are now breaching their 2014 peaks is great, but there is a lot of fluff. Own it while liquidity is behind you. Beware when it is not.
Jeff Miller profile picture
Tom - The daily volume in the cash Treasury market is $500 billion per day -- and that does not include futures trading. The Fed actions have little impact on bond liquidity and even less on stocks. http://bit.ly/2G2k3M4

I have read your last paragraph three times. I do not understand why the number of shares or companies is relevant. Suppose two companies merge and we add together the market caps. There are fewer companies, but no real difference. When a company goes private, those who sold shares invest somewhere else. Even if some have a stock mandate, others do not. Assets flow where the opportunities are best. I am especially confused by the "less for others to own" statement. You mean fewer shares? No one has a mandate to own a certain number of shares.

BTW, isn't M2 on FRED?

Hi Jeff,

I always look forward to reading WTWA, as well as the reader comments.

I chuckled when I reached your statement "many approaches will not work well in stormy weather". Your wry reference to the persistent prevarications from the Tweeter in Chief and his minions, which climaxed with his newest lawyer Rudy Giuliani announcing that the Tweeter had lied about his 130k hush payment to Stormy, was rich indeed.

Keep up the excellent work!
Jeff Miller profile picture
Hi Glass1/2Full --

At our office it is a requirement to laugh at my lame jokes. Thanks for playing along. I try to keep it interesting:)

Ian Farbrother profile picture
Hi Jeff. I haven't got to all of the linked articles yet, but found two of them (plus a link from one of those) to be worthy of going into my "RE-READ EVERY YEAR !!!!!!!!" bookmark folder. Yes - I really do name it in all caps so I don't overlook it - and it doesn't have many entries! So - MANY thanks for that.

'Davidson' was the first. I always like him, but thought this was easily one of his best. Curiously, you seem to have omitted the link - I had to search for it. For the convenience of other readers, it is: http://bit.ly/2JYaLy6

The second was that 'Best of the Week' article. Not only was it exceptional in its own right, but this article (to which it linked) by Travis Fairchild was even better: http://bit.ly/2HTnw0C

It's longish (12 pages) and rather technical on accounting issues that affect valuation, but I found it to be truly eye-opening. Here is a key quote:

"Most of the understatement in intangible assets are directly tied to the decision of what constitutes an operating expense vs a capital expense. This distinction is not at all trivial and will affect the balance sheet in very different ways. Operating expenses are meant to provide benefits in only the current period and are therefore a onetime expense. Capital expenses create value over multiple periods and are capitalized, creating an asset that is depreciated until it no longer adds any value to the company.

This is a rational way to split up expenses because in theory it matches the cost to the period it contributes to operating profits. However, some expenses that do create value are required by GAAP to be treated as an operating cost which means this value doesn’t get recorded on the books as an asset. The two largest examples are R&D expenses and advertising expenses. The value that companies create through these investments in brands, patents, intellectual capital, technologies and processes is often held at $0 on the balance sheet. As an example, the $90 billion that Coca-Cola has spent on advertising in its history has no value that is shown on balance sheet. Similarly, Boeing has spent over $100 billion designing aircrafts and all that investment does not create an asset."

Btw - I totally agree with you about the issue of multiple tests of support. Tim Seymour (on Fast Money) has also been proposing that multiple tests make a breakdown more likely. I simply don't see that.

Worth noting that both QQQ and XLK broke out to the upside of their wedge on Friday. Hopefully that holds - and helps to lead the rest of the market higher. No other sectors (that I could find) exhibiting that kind of strength - although almost everything I own that dropped (irrationally?) after good earnings seems to have landed at logical support levels and (so far, at least) bounced up from there.

Once again, MANY thanks !!!

Cheers, Ian
Jeff Miller profile picture
Thanks, and we all appreciate the addition of the link. I hate it when I do that!

Peace Grunt USMC profile picture
A lot of us are watching and hoping in regards to the Q's.

This edition of WTWA (including the articles referred to) is an extraordinary avalanche of financial wisdom and sound counsel. I am going to read it all twice and then apply for a master's degree in investment savvy.
Jeff Miller profile picture
Thanks, Brad.

But part of the point is that I study it, so that you don't have to. Pick and choose the nuggets that seem interesting:)

$BRENT, 2Y, log is in a trading range, tilting up, since June 5th 2016(H).
It's hugging the top of chart for 3 weeks, the resistance line.
Full Sto weekly is oversold.
$BRENT will move to $57 - $60, or well bellow.
$WTIC in a similar story.
That's what the chart says.
The chart doesn't explain why.
ER that's really the ugly of the week. ERs are places where the American dream fades away... Go to urgent care offices or Vons for an ice pack.
Another ugly thing in my view is the report about trade negotiations with China. There is request from the US that the Chinese government must stop supporting their high tech industry or something to that effect. I don't know if it's simply a negotiation tactic but I can't imagine the Chinese government allowing the US's telling them what they can do. This kind of request, if they are at the core of the negotiations for the US, could freeze the whole process.
DWD Investing profile picture

Thanks for your work and thanks for making it available to everyone. You do a great service.
There is no mentioning that almost 50% of the new gov deficit of $1 Trillions,
is allocated to a build up of a huge war chest, by the end of Sept, the third Qt.
A Sept war chest, a cash deep in the US treasury pocket, just in case of a war against....
In my calendar Oct is one month before Nov.
Migdriver75 profile picture

Why do you think WTI is going to have a major correction soon? What is that based on? and what does soon mean to you? next week? 30 days from now, 3 months from now?

Isn't it just as likely to go higher if the dollar weakens, supply dips below the five year average, Venezuela production continues to decrease, global demand continues to increase, OPEC remains disciplined for another year, sanctions get imposed on Iran, Chinese demand strengthens, or any number of other factors?

Can you discuss why you believe it is going to head lower?

Thank you !!
Here's a couple questions:

1) . Is the qtr-over-qtr, and yr-over-yr rate of dollars into buybacks increasing, stable, or decreasing?

2) . Do changes in the rate of buybacks correlate with changes in market level? . Either concurrently, or as a leading indicator?
Jeff Miller profile picture
FTFirst -- The buyback discussion has morphed into yet another way for bearish pundits to complain about earnings. Buybacks compete with internal investments and dividends. If I am a stockholder, a buyback gives me a capital gain instead of a cash payment. It is taxed differently, and at a time of my choosing.

Buying back stock results, of course, in a payment to the sellers. That cash does not just disappear. When you and I sell a stock, it is probably because there is something else that we find more attractive. I don't see the level as a useful indicator.

Individual companies seem to make some dubious decisions in timing the buybacks, but that is another story.

Good question. I hope my answer is helpful.

Total Return Investor profile picture
Re "ugly" medical billings: One of my guilty pleasures is tracking the difference between what providers bill and what insurance (especially Medicare, since that is where I am) pays. The gap is huge, with each side doing everything in its power to "game" the other. The entire scenario is a well choreographed charade, roughly equivalent to the assistant DA who threatens a shoplifter with 20 years in the pen and the defense attorney who in turn threatens to sue for false arrest. When the dust finally settles, both the criminal punishment and the medical reimbursement generally end up within the realm of reason.

I guess it is ugly that the game is played this way, but seldom ugly in the eventual resolution.
Yes indeed Total Return, I’ve made this same observation in my Medicare statements, hospitals and doctors net about one third of what they bill the patient. This topic was discussed on the Tom Sullivan radio show, a few years back, when Tom had a hospital administrator on the show, discussing the high cost of medical care. This administrator admitted that a hospital would sometimes accept a low of 29% of the bill, but that 33% was the norm, if paid in cash. He added that they never really expect to receive the amount billed. Something to keep in mind for younger folks without insurance.
"Huge ER bills for little or no treatment? $5,000 for an ice pack and a firm statement refusing further care?"

I notice this bill was from a Hoboken, NJ hospital, an area that would be subject to low income patients and illegal alien patients. These hospitals make up their free care treatment and their slim Medicare and Medicaid reimbursements by jacking up the prices for those unlucky in having the proper insurance. I would imagine that most of the other hospitals that VOX included in their study also were in larger cities, with much of the same demographic problems.
richjoy403 profile picture
Agreed, hospitals pad our bills...which has been their practice for at least the last 50 years, and we've been discussing it for almost as long as the problem has grown.

Is the better issue...how can hospitals keep the doors open (within the constraint of regs and laws), as someone must pay the cost of care?
TonyValdez profile picture
Thank you Jeff. Another good articles and links for absorbing information on the market and investing. Wishing you and everyone the best!
if you stay in cash all the time , you never need to worry about the stock market.
TonyValdez profile picture
Terry - Only inflation. http://bit.ly/2JZaJGl
Anyone coming to SA to learn about stocks, bonds, etc is unlikely coming here to stay perpetually in cash.
Dale Roberts, King dollar.
Canadian stocks perform well, because oil at $70, Canadian oil generate a lot of USD,
while their expenses in a falling currency.
WTI will be going through a major correction, soon.
Canadian oil entry, is not a good time now.
So, perhaps, on the next leg down.
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