It is (ahem) a very big week for new data. The A-teams are back from their mini-vacations, ready to take a fresh look at the new world. While some will continue to work the Trump Administration/stock theme, it remains mostly guesswork. There is a new theme, which markets and pundits will get around to, perhaps as soon as this week. With a tone change on the economy and deficits, I expect the punditry to be asking:
Can the market embrace some good news?
Once again, last week’s light calendar of economic news was nearly all good, but not the focus of discussion.
In my last WTWA, I predicted special attention to the Trump stimulus plan and how it might be financed. Must of the week’s discussion was about possible cabinet appointments and the policy implications, but spending and taxation got plenty of attention. It was a s good a guess as any.
The Story in One Chart
I always start my personal review of the week by looking at this great chart from Doug Short. He captures the continuing rally and the move to new highs.
Doug has a special knack for pulling together all the relevant information. His charts save more than a thousand words! Read his entire post where he adds analysis grounded in data and several more charts providing long-term perspective.
I am taking a few days off, so there will be no WTWA next week. I hope that the Stock Exchange group does not play hooky.
Each week I break down events into good and bad. Often there is an “ugly” and on rare occasion something very positive. My working definition of “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!
This week’s news was quite good. If I missed something for the “bad” list, please feel free to suggest it in the comments.
- Rail traffic is improving reports Steven Hansen at GEI. The story is even better if you remove coal and grain.
Technical indicators are strong. Our own technical models remain strongly bullish. Noted technician John Murphy (via Charles Kirk) has this comment:
“There is little doubt that the market’s trend is still higher. The fact that it’s being led higher by economically-sensitive stock groups like energy, materials, industrials, small caps, and transports is a sign of strength. The fact that tech stocks are starting to strengthen is also a positive sign.”
- Chemical activity shows continuing strength. Calculated Risk monitors this indicator, which seems to lead industrial production.
- Durable goods rebounded nicely to an increase of 4.8%.
- Existing home sales were strong at 5.6M SAAR, beating expectations. Calculated Risk cautiously notes that the results do not reflect the recent higher mortgage rates.
- Michigan sentiment beat expectations moving to 93.8. Doug Short has a comprehensive review.
- New home sales fell on an annualized basis. The decline included both multi and single-family residences. Calculated Risk offers perspective. Please compare the measured response here and above on existing home sales.
- Mortgage rates moved above 4%. (MarketWatch).
- Trucking is still declining, but the rate seems lower. Steven Hansen at GEI reviews the mixed picture.
The Ugly Beautiful
At some point, I need to do an update on last week’s “Fake News” ugly award. There is a good cyberspace discussion, but that can wait.
As I occasionally do, I want to focus on the positive for a change. Bill McBride of Calculated Risk had an encouraging Thanksgiving post, Five Economic Reasons to be Thankful. Read the whole post, but here is one that might surprise you – household debt levels.
The Silver Bullet
I occasionally give the Silver Bullet award to someone who takes up an unpopular or thankless cause, doing the real work to demonstrate the facts. This week’s award goes to Jon Krinsky of MKM Partners, with a big assist from Josh Brown. There is a consensus that countries are racing to debase currencies in “beggar thy neighbor” policies. The stronger dollar certainly reduces earnings for some companies, especially if they do not do any currency hedging. The flip-side gets no attention. Josh writes, There is zero evidence of a long-term correlation between stocks and the dollar. Take a look.
We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead. You can make your own predictions in the comments.
- Employment report (F). Expectations are a little lower for the data markets see as most important.
- Consumer confidence (T). A good concurrent read on spending and employment.
- ISM index (Th). Still modest growth in this widely-followed measure?
- Auto sales (Th). Important sector, private data, and not a survey. What more could you want?
- ADP private employment (W). Deserves more respect as an alternative to the “official” data.
- Personal income and spending (W). Important economic growth indicator. Will strength continue?
- Beige book (W). Provides descriptive color for FOMC participants, and occasionally some policy insight.
- Initial claims (Th). The best concurrent indicator for employment trends.
- Construction spending (Th). Rebound expected in this important sector.
- GDP second estimate (T). Somewhat “old news” but still the base for the ultimate measure of economic growth.
- Chicago PMI (W). Most important of the regional surveys, with some predictive power for ISM.
- Pending home sales (W). Less direct impact than new construction, but a good read on the housing market.
Crude inventories (W). Recently showing even more impact on oil prices. Rightly or wrongly, that spills over to stocks.
This will be a big week for news, and it might also be for stocks and bonds. For a long time, the market reaction has been entirely Fed-focused. If the economy looked better, the Fed would start raising rates. If it looked worse, the Fed was expected to help. Whatever the reason, the tone has now changed. Economic data have been better, and there is more optimism. There is growing acceptance of higher interest rates. The market seems untroubled (so far) by the rate move and the strength in the dollar.