Last week I suggested that the market might be ready for some real news—corporate earnings. That is still a key topic, but attention is focused on world events. Pundits will be asking:
How Should Investors Respond to Geopolitical Risks?
Last week the economic news was good, but mostly ignored.
In my last WTWA I predicted that attention would shift to corporate earnings reports. Little did I know that a passenger dragged from a United Airlines flight would dominate the news cycle for the week. Just as that was losing interest, the Trump military actions grabbed the spotlight. So much for my expectation (and hope) of returning to news focused on financial markets.
The Story in One Chart
I always start my personal review of the week by looking at this great chart from Doug Short via Jill Mislinski. She notes the small daily moves and the 1.13% loss for the week.
Doug has a special knack for pulling together all the relevant information. His charts save more than a thousand words! Read his entire post for several more charts providing long-term perspective, including the size and frequency of drawdowns.
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!
There was not much economic news last week, but it was pretty good.
- Port Traffic showed strength in March. Steven Hansen (GEI) helps us sort through a very noisy data series.
- Foreclosures are down, now below pre-recession levels. (MarketWatch).
- Mortgage delinquencies are at a 10-year low. (24/7).
- Small business optimism registered a strong 104.8.
- Inflation tame. PPI and CPI both declined. Some see this as negative news since it is not hitting the Fed’s target. That makes little sense. If the Fed can continue stimulative policy without increasing inflation, so much the better.
- Weekly jobless claims remained low at 234K. This half of the picture remains solid. We also need new hires.
- Michigan sentiment remained strong at 98. The best chart of this indicator is the Doug Short design, now updated by Jill Mislinski. It shows the indicator, recession periods, and GDP. You can easily see the current level versus past records. If only everyone was so clear!
- Retail spending declined 0.2%. (Calculated Risk reports). Steven Hansen has a different take, with multiple historical charts and comparisons. Retail sales are an important sector, so this is worth watching closely.
Fraudulent LIBOR trading went far beyond those on the front line. This story should have gotten more attention because so many swaps and variable interest rates (perhaps your own mortgage?) were linked to this rate. Perhaps that is not a good idea.
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. No award this week, but nominations are always welcome. There are many bogus claims and charts out there!
I am disappointed that so many of my blogging colleagues agree with this concept – on a theoretical basis – but do not join me in highlighting these posts. While I do not compete for my own award, I had a post this week that illustrates what I am looking for. There are plenty of “mystery charts” that are unclear, poorly sourced, or cannot be replicated. Sadly, these optical illusions fool many readers.
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.
We have a normal week for economic data.
The “A” List
- Housing starts and building permits (M). An advance look at an important sector.
- Leading indicators (Th). Last month won’t be matched but overall strength expected.
- Existing home sales (F). Less important for immediate economic effects, but a good market read.
- Beige book (W). Anecdotal data, but the punditry hungers for any Fed-related news.
- Initial jobless claims (Th). Is the series edging up from record low levels?
The “B” List
- Industrial production (T). March data, but an important sector.
- Philly Fed (Th). Earliest read on April is expected to be strong, but can’t match last month.
Crude inventories (W). Recently showing even more impact on oil prices. Rightly or wrongly, that spills over to stocks.
The schedule is back to normal on FedSpeak, with something every day. Earnings season ramps up. World events may well grab attention. Friday is options expiration, which can have the effect of exacerbating big moves.
I would say “fasten your seat belts,” but enough of that already!
Next Week’s Theme
In a normal week, the Q1 earnings season would be the theme. The geopolitical stories are more dramatic, better both for TV clips and online posts. That is certainly an important story, but at WTWA we focus on financial markets. At least some of the punditry will be doing the same. The key question?
How Should Investors Respond to Geopolitical Risks?
There is not a lot of complexity in this week’s theme.
Fear is back in the market.
Credit Suisse updates their fear gauge.
CNN shows an even more dramatic result.
- The fear team advises exiting the market, if you have not already done so based upon prior advice.
- The passive investing team thinks you should “stay the course.” Scott Grannis has a good chart pack and remains “cautiously optimistic.”
- Some see a buying opportunity. (Davidson, via Todd Sullivan).
Earnings expert Brian Gilmartin notes that whatever is bothering the market, it is not earnings!
FactSet’s John Butters agrees.
Those conclusions are important. The data helps us to isolate the market concern: geopolitics, not earnings.
Can investors do better than these three alternatives? As usual, I’ll have a few ideas of my own in today’s “Final Thought”.
We follow some regular featured sources and the best other quant news from the week.
Whether you are a trader or an investor, you need to understand risk. Think first about your risk. Only then should you consider possible rewards. I monitor many quantitative reports and highlight the best methods in this weekly update.
The Indicator Snapshot
The Featured Sources:
Bob Dieli: The “C Score” which is a weekly estimate of his Enhanced Aggregate Spread (the most accurate real-time recession forecasting method over the last few decades). His subscribers get Monthly reports including both an economic overview of the economy and employment. (see below).
Holmes: Our cautious and clever watchdog, who sniffs out opportunity like a great detective, but emphasizes guarding assets.
RecessionAlert: Many strong quantitative indicators for both economic and market analysis. While we feature his recession analysis, Dwaine also has several interesting approaches to asset allocation. Try out his new public Twitter Feed.