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The Morning Call--Yikes!

Sep. 03, 2020 9:06 AM ETDCI
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Value, Growth At A Reasonable Price, Dividend Investing

Seeking Alpha Analyst Since 2010

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 46 years of investment experience includes institutional portfolio management at Scudder. Stevens and Clark and Bear Stearns, managing a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies. Through his involvement with Investing for Survival and Seeking Alpha, Steve hopes that his experience can help other investors build their wealth while avoiding tough lessons that he learned the hard way.

The Morning Call

9/3/20

The Market

Technical

The Averages (29100, 3580) had a gangbusters day on higher volume and even stronger breadth. Clearly supporting my assumption that the Market’s bias is to the upside long term. However, shorter term, a number of factors are at work that could lead to some price weakness: (1) yesterday, the indices gap up opened, adding yet another gap up open to the one that occurred last week and those two gap up opens made four weeks ago, (2) the VIX continues to reflect investor concern [yesterday, it was again up on a strong Market day], (3) the indices’ breadth remains in overbought territory while the rest of the Market weakens and (4) historically, September is the worst month of the year for Market performance.

This is a little wonky but it explains what is causing this Market melt up---and it is not simply more buyers than sellers.

An Epic Battle Is Raging Beneath The Market Surface

Gold sold off, finishing below the uptrend off its March/June lows (again); though it did so on a gap down open. Still, that move is a short term negative. The key is follow through. TLT rallied yet another 1%, ending back above the uptrend off its March/June low and right on its 100 DMA (now resistance). Clearly, a plus. The dollar rose, but its chart remains the ugliest of those indicators that I follow.

Wednesday in the charts.

S&P Reaches Critical Resistance, Valuation At Record High As Liquidity Crashes

Fundamental

Headlines

The Economy

US

Weekly jobless claims rose 881,000 versus consensus of 950,000.

A dose of reality about the labor market (must read):

A Dose Of Reality About The Labor Market

July factory orders rose 6.4% versus expectations of +6.0%; ex transportation, they were up 2.1% versus up 4.5%.

Q2 nonfarm productivity was up 10.1% versus estimates of +7.5%; unit labor costs were up 9.0% versus +12.1%

The Fed released its latest Beige Book which pointed to modestly improving economic conditions, a mixed labor market and upward pressure on prices.

Fed's Beige Book Finds Some Recovery In Economic Activity But "Well Below" Pre-Pandemic Levels

International

July EU retail sales declined 1.3% versus projections of +1.5%.

The August Japanese services PMI came in at 45, in line; the Chinese services PMI was 54 versus 53.7; the German services PMI was 52.5 versus 50.8; the EU services PMI was 50.5 versus 50.1 the UK services PMI was 58.8 versus 60.1.

The August Japanese composite PMI was 45.2 versus forecasts of 44.9; the Chinese composite PMI was 55.1 versus 54.0; the German composite PMI was 54.4 versus 53.7; the EU composite PMI was 51.9 versus 51.6; the UK composite PMI was 59.1 versus 60.3.

Other

An update from my favorite optimist, who isn’t so optimistic.

The virus, the elections, and the Fed

The ‘K’ recovery is alive and well and happening.

https://www.bloomberg.com/opinion/articles/2020-09-02/the-k-shaped-recovery-is-real-and-it-perfectly-captures-the-economy?sref=loFkkPMQ

Update on business cycle indicators.

Business Cycle Indicators, September 1st

August heavy duty truck sales down 26% YoY in August.

U.S. Heavy Truck Sales down 26% Year-over-year in August

The coronavirus

The coronavirus is no real threat to kids.

The numbers are clear: COVID is no real threat to kids

Why lockdowns are counterproductive.

A Framework for Thinking About Lockdowns and Why They Are Counter-Productive

Fiscal Policy

CBO projects US debt to hit record high.

CBO Projects US Debt Will Hit A Record 107% Of GDP In 2023... And Then Explode

Bottom line Yikes.

Yikes

Update on valuations.

The Q Ratio and Market Valuation: August Update

More---S&P hits all time high P/E.

The S&P500's Valuation Just Surpassed The Dot Com Bubble

News on Stocks in Our Portfolios

Donaldson (NYSE:DCI): Q4 GAAP EPS of $0.50 beats by $0.06.

Revenue of $617.4M (-15.1% Y/Y) beats by $6.74M.

What I am reading today

Studying the creativity and intelligence of the octopus.

Studying the creativity and intelligence of the octopus

Visit Investing for Survival’s website (Home | Investing for Survival | Investingforsurvival.com) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

Analyst's Disclosure: I am/we are long DCI.

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