The holiday-shortened week ahead features many economic reports, including the most important. The biggest news is at week’s end, so both market participants and pundits will have time to settle in after the long weekend. When they get around to the calendar, I expect many to be asking:

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Will we finally see some volatility?

Last Week

Last week the economic news was mixed, but the market showed strength anyway.

Theme Recap

In my last WTWA I predicted a quiet week for data with plenty of talk about the Fed. That was a reasonable guess, but there was not really a dominant theme. There was some discussion about the Fed balance sheet and policy changes, but it was competing with plenty of other news.

 

The Story in One Chart

I always start my personal review of the week by looking at a chart of market performance.

While there were not many big swings, the 1.4% gain for the week also took markets to intra-day highs.

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!

The economic news last week was mixed, but the market reaction was positive.

The Good

  • Q1 GDP revised higher to 1.2%. This is backward looking, of course, but a small positive.
  • Indicators in all time frames show continuing strength. New Deal Democrat’s summary is a great source. This week’s conclusion:

    The nowcast for the economy remains positive, as does the near term view, with both stocks and jobless claims leading the way.  The longer term forecast remains neutral to positive, shading a little closer to neutral based on the tightening yield curve, less robust growth in real money supply, and the miss in corporate profits.

  • The Philly Fed index improved again. Steven Hansen (GEI) has the analysis.

  • Q1 Earnings show continued strength. This includes not only earnings and revenue, but profit margins. FactSet explains. Also see earnings guru Brian Gilmartin the in the quant section (below).

 

  • Initial jobless claims beat expectations and registered a decline in the widely-followed four-week moving average. For a full analysis see Steven Hansen (GEI).

The Bad

  • New home sales declined 11%. Most sources cited a normal decline from the gains in March as well as weather. The Capital Spectator has a solid and typical explanation. That said, this was a disappointment and deserves careful attention next month. Calculated Risk opines that it was a reasonable report, noting that sales are up 11.3% compared to the same four-month period last year. It is always difficult to interpret highly volatile reports.
  • Durable goods orders dropped 0.7%, the first decline in five months. (MarketWatch).
  • Existing home sales dropped 2.3%. Calculated Risk notes the effect of lower inventory on this report. Bill sees this as the key market factor.

The Ugly

Terrorism in London (UK home to 23,000 jihadists?) and Egypt lead the week’s “ugly” news. This is another “headline” event that is important, but not currently deemed to be a “market” story.

Noteworthy

Did you know that 40% of millennials use Facebook’s feed as their sole source of news? Decades ago Walter Cronkite warned that the public relied too much on TV news. Things change.

 

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 (once again) to Josh Brown. He is often a candidate and one of the most frequent recipients. This week he describes a Fast Money guest who “came on to discuss the Plunge Protection Team urban legend as a bonafide explanation for why the market has been acting the way it has”. He goes on to write:

Now obviously, the existence of a Plunge Protection Team (or PPT), is demonstrably ridiculous. Especially when you consider the fact that we’ve seen the market cut in half twice during the last 17 years, with dozens of instances of 10 and 15 percent corrections all along the way over the last 29 years since the end of Reagan’s term. The idea that there could be some clandestine, bipartisan shadow organization, with enough money to prop up a global stock market, and the solemnity required to faithfully do so across a half-dozen Presidential administrations and all manner of Congressional configurations, is akin to believing in the Area 51 myths or the moon landing hoax.

Readers will certainly note the relevance to this week’s theme. Read the entire post for more background and some great comparisons.

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 the biggest week of the year for economic reports – and it is jammed into a holiday-shortened week.

The “A” List

  • Employment report (F). Job market tightening? Implication for wage costs?
  • ISM index (Th). Good concurrent read on economic changes with some leading qualities as well.
  • Consumer confidence (T). Conference Board version has been very strong. A slight decline is expected.
  • ADP private employment data (Th). Non-government source is a good alternative to the official report, and often changes expectations.
  • Auto sales (Th). Even greater interest in recent months as the “peak auto” debate continues.
  • Personal income and spending (T). Continuing growth expected. Consumer spending remains crucial to economic growth.
  • Initial jobless claims (Th). Continues with record low levels. Not part of the Friday data sample.

The “B” List

  • Pending home sales (W). While not directly tied to construction spending, it is a good read on the housing market.
  • Fed Beige Book (W). Anecdotal evidence from each Fed district will be in front of FOMC members at the June meeting.
  • Construction spending (Th). April data. Rebound from the March decline is expected.
  • Trade balance (F). Deficit is expected to increase by 1 or 2%. More interest in this topic because of current debate over trade policy.
  • Chicago PMI (W). A hint for the ISM report, this index has been very strong.
  • Crude inventories (Th). Recently showing even more impact on oil prices. Rightly or wrongly, that spills over to stocks.

     

There is daily FedSpeak on the schedule.

Next Week’s Theme

In a sharp change from the last few weeks, we have a big calendar for economic reports. These include the most important. They come in a holiday-shortened week, with a relatively slow start. Last week I noted that the A Teams would head for the beach on Friday. It was indeed a very quiet day. It might be Wednesday before action is back to normal!

If this combination can’t generate some action, what will? Pundits will be asking:

Is it finally time for some volatility?

As always, there are several viewpoints.

  • The lack of volatility is a bad omen. Just as night follows day, we should expect the worst. (Citations omitted to protect the guilty!)
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