2017 begins with plenty of economic data crammed into a short week. While most expected at least a touch of Dow 20K last week, it did not happen. The conversation quickly shifted to why the rally stalled out. In the coming week, the punditry will be asking:

Should we expect a weak start to 2017?

Last Week

Last week there was some soft economic news, but this week showed strength. There was little apparent market effect.

Theme Recap

In my last WTWA, two weeks ago, I predicted a shift from the Dow 20K obsession to developing a new list of market worries. That was a good guess, although as late as Wednesday some TV experts were debating whether 20K would be achieved by the end of the week. That represented another 55 points or so. Sheesh!

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 trend for the week and the narrow range.

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. This additional choice captures the pre-election period, the Trump Rally, and last week’s selling.

The News

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—almost all positive. I make objective calls, which means not stretching to achieve a false balance. If I missed something for the “bad” list, please feel free to suggest it in the comments.

The Good

  • Rail traffic ended the year on a strong note. Steven Hansen at GEI reports the data, while also noting the year-over-year calendar effects. We will know a little more next week.
  • Mortgage rates declined in the last week of the year.Calculated Risk notes that this modest improvement comes in the context of the worst five weeks in history in the post-election period.
  • Earnings growth for Q4 is looking good. FactSet sees a second straight quarter of year-over-year increases, with strength in other metrics as well.
  • Commercial real estate is booming. (Scott Grannis)

  • Homebuilder sentiment reached an 11-year high. (MarketWatch).
  • Initial jobless claims dipped to 265K, maintaining the recent low level.
  • Consumer confidence reached 113.7. Doug Short’s chart (via Jill Mislinski) puts this strong reading in perspective – best since before 9/11.

 

 

The Bad

  • Pending home sales declined by 2.5%.
  • Chicago Purchasing Index declined to 54.6 and missed expectations of 56. (GEI).
  • China abandons the 6.5% growth target. Rupert Hargreaves (ValueWalk) analyzes a change which many already expected.

The Ugly

Russian malware found on a Vermont utility laptop. (Slate). The article notes that utilities in Western Ukraine were past targets and describes the possible consequences.

 

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 Robert Huebscher, founder and CEO of Advisor Perspectives, for his article, As Seen on TV: Financial Products You Should Avoid – Lear Capital.

His opening theme is excellent: Good financial products are bought, not sold.

He carefully avoids a discussion of the specific sales techniques, focusing on the facts of the offer. He writes:

But I caution anyone against buying precious metals from Lear Capital. It is not an SEC-registered investment advisor and its web site states that there is no fiduciary relationship between it and its customers.

And also…

For example, Lear will sell you a $10 circulated Liberty gold coin (1/2 ounce) for $753.00 (plus $24 shipping). I did a quick search on eBay and found a circulated Liberty coin selling for as low as $666 (with free shipping).

Buying silver is no different. Lear will sell you a pre-1921 circulated Morgan silver dollar for $30 (plus $10 shipping). On eBay, I quickly found one of these for $22.00 (plus $2.62 shipping).

Mr. Huebscher notes that other dealers are similar to Lear. I can confirm this, since I have checked out several such offers. I have seen many poor investments touted on TV and radio, but I cannot recall a single good one. It is just not that easy.
The Week Ahead

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.

The Calendar

We have a big week for data and only four days of trading. It may start slowly, but expect seatbelts to be fastened before Friday’s employment report.

The “A” List

  • Employment report (F). Still the most-watched number, with continuing strength expected.
  • ISM Index (T). The first data for 2017 is expected to show continuing modest expansion.
  • FOMC minutes (W). While we should not expect much from the report of a unanimous vote, pundits will find something.
  • Auto sales (W). Has “peak auto” arrived?
  • Initial claims (Th). The best concurrent indicator for employment trends. Not a part of this Friday’s report.

The “B” List

  • ISM services (Th). Continuing rebound expected in the large service sector.
  • ADP private employment (Th). Different methodology from the “official” report, but just as accurate.
  • Trade balance (F). Important for GDP. Growing interest with possible changes in trade policy.
  • Construction spending (T). November data for an important sector.
  • Crude inventories (Th). Recently showing even more impact on oil prices. Rightly or wrongly, that spills over to stocks.

     

There is not much FedSpeak on the calendar, but Congress is returning to work on Tuesday.

Next Week’s Theme

 

Last week attention started with more Dow 20K hype. This was true even though it is a rather meaningless round number in a flawed index. It shows the power of symbolism to attract attention. When the rally fizzled out, the story swiftly turned. Everyone questions rapid, short-term moves, so it is a natural for the punditry.

I expect this theme to carry over into 2017, despite an abundance of fresh news. Any sign of weakness will raise the questions:

Will 2017 have a weak start? Just like last year? And what will it mean?

Pundits were already hard at work last week:

  • Trump rally mistaken, overdone, and a setup for selling.
  • Regular “Santa” rally pulled forward, reversing normal seasonal effects.
  • Selling for gains postponed in the hope of lower tax rates. Those waiting to sell strength are ready to move.
  • Reflation trade was already starting; it would have happened anyway. The Trump story was merely a catalyst.

What should investors conclude from these sharply conflicting ideas? Your opinions are quite welcome! As usual, I’ll have a few ideas of my own in today’s “Final Thoughts”.

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