The Morning Call
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.
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
Brown-Forman (NYSE:BF.B): Q3 EPS of $0.44 beats by $0.03.
Revenue of $878M (+8.7% Y/Y) beats by $7.85M.
Brown-Forman (NYSE:BF.B) declares $1.00/share special dividend.
This Week’s Data
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.
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.
China’s household debt problem (medium):
What I am reading today
Social security shouldn’t be your main source of retirement income (medium):
The risk and cost of inaction (medium):
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Disclosure: I am/we are long BF.B.