The Morning Call
The S&P continues its relentless advance. Technically, everything is coming up roses supported by a criminally easy monetary policy (endorsed not once but twice last week by Powell) and an equally irresponsible fiscal policy. While valuations continue to reach historical extremes, I can’t see an end to this uptrend as long as the money keeps flowing with abundance and in the absence of any major negative exogenous event.
TLT made a new eleven month low on Friday. The next visible support is the green line which is another seven points down and represents only weak support. Worse the long bond can decline much further before serious technical damage will be done. So, the $64,000 question is, how much of that can take place before the equity guys freak (i.e., would it become the major negative exogenous event)?
Last week, GLD filled those two gap down opens from the previous week but failed to successfully challenge its 200 DMA (now resistance) and remained within the downtrend off last August’s high. Technically speaking, that removes any reason to hope for a break in its current downtrend; and as I noted last week, gold’s next visible support is the lower boundary of its very short term uptrend and that is almost 20 points lower.
The dollar fell back last week but managed to remain above its former downtrend’s upper boundary, suggesting that the worst may be over at least short term. Even on the assumption that UUP had made a bottom, it has a struggle ahead to affect any follow through to the upside.
Friday in the charts.
Bottom line. Money talks.
Review of the Week
There was a paucity of data last week both here and abroad. In the US, the stats were slightly weighed to the negative with no primary indicators reported. But I am going to count this a neutral with no implications regarding trend.
Overseas, the stats were also slightly negative. But again, I see nothing that is directionally important.
For the moment, our base economic scenario remains intact---the US and global economies are improving but not at the velocity of the initial sharp rebound off the bottom. In other words, a diminishing probability of a ‘V’ shaped recovery which would lessen any potential inflationary pressures and leave the Fed free to continue QEInfinity.
Longer term, my belief is that the economy will grow at a historically subpar secular rate due to the twin burdens of egregiously irresponsible fiscal and monetary policies---which continue to become even more egregiously irresponsible as a result of measures being taken by the government and the Fed in dealing with the current crisis.
The February NY Fed manufacturing index came in at 12.1 versus estimates of 6.0.
Preliminary Q4 Japanese GDP growth was +3.0% versus forecasts of +2.3%; capital expenditures were up 4.5% versus +2.6%; private consumption was up 2.2% versus +1.8%; December industrial production fell 1.0% versus -1.6%.
Preliminary Q4 EU GDP growth was -0.6% versus expectations of -0.7%;
the December trade balance was +E29.2 billion versus expectations of +E25.3 billion; December industrial production declined 1.6% versus -1.0%; February economic sentiment was 69.6 versus 57.0.
February German economic sentiment was 71.2 versus consensus of 59.6.
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News on Stocks in Our Portfolios
Illinois Tool Works (NYSE:ITW) declares $1.14/share quarterly dividend, in line with previous.
FedEx (NYSE:FDX) declares $0.65/share quarterly dividend, in line with previous.
Genuine Parts (NYSE:GPC) declares $0.815/share quarterly dividend,3.2% increase from prior dividend of $0.790.
CVS Health (NYSE:CVS): Q4 Non-GAAP EPS of $1.30 beats by $0.06; GAAP EPS of $0.75 misses by $0.11.
Revenue of $69.55B (+4.0% Y/Y) beats by $800M.
What I am reading today
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Analyst's Disclosure: I am/we are long cvs, fdx, gpc, itw.
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