There was something of a change in tone last week. There is more recognition of improving conditions. With a tailwind from improving earnings, more will be wondering:

What if you have missed the rally?

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Tilson: You know Market Has peaked & Ramp Up Shorts When I Buy GOOG & FB

Last Week Recap

Last week began with stories about revised targets for the market and ended with Fed speculation. The market took the international stories and news about President Trump in stride.

The Story in One Chart

I always start my personal review of the week by looking at a chart of market price moves. The Wednesday pre-market release of Chair Yellen’s Congressional testimony was the most notable feature. The market gained 1.4%, reaching a new all-time high.

The Rally

Personal Note

I am on vacation starting Friday and through the next week. This means that I will probably miss two installments of WTWA. Since readers requested and appreciate the “limited editions” we have produced when I have been away, we’ll do that again. We will include indicator updates, a few observations on news and worries, and perhaps some “timeless” advice that has special relevance right now.

Since I cannot ever get completely away, I’ll be in touch with events and my office. Is something important is happening, I’ll get involved. The last time I went to Toronto my vacation was spoiled by the debt limit crisis. I hope to avoid a repeat of that!

The News

Each week I break down events into good and bad. For our purposes, “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 tilting positive.

The Good

  • Industrial production for June was up 0.4%, slightly beating expectations and much better than last month’s 0.1%.
  • JOLTS showed a high quit rate. Those voluntarily leaving jobs represent a sign of strength. The analysis of overall labor market conditions (the Beveridge curve) is also important. Anyone focusing on “job openings” or “job growth” is not using the best data and is also on the wrong theme. Bespoke has it right.

  • Inflation remained low. I understand that many treat this as “bad news” because it is not hitting the Fed target. This makes no sense. If we could get good economic growth without inflation, that would be wonderful. We should not be cheering for more inflation unless it reflects an improving global economy.
  • Earnings reports are strong. It is still early in the season, but reports are beating expectations at a higher rate than in the past five years. Same for revenue, and the size of the beat. (FactSet has more details and charts). Avondale monitors conference calls, providing useful color. Their news is also encouraging. Check it out for yourself.
  • The first gene therapy was endorsed by an FDA advisory committee. We are still some distance from widespread use, but my guess is that ten years from now, this will be the most important news from this week. The Washington Post has a nice account.
  • Fed news satisfied the markets. That is one test, but it does not change the favorite sport of Fed-bashing.
    • Jason Cawley (who brings strong analytical skill and experience to the problem) takes a refreshing perspective in his article, Grading the Fed. He analyzes the Fed in terms of their own stated objectives – not those of critics. Those interested – and you should be – must read the entire article and the grades for each objective. Here is an example chart.

He concludes as follows:

I submit that most of those criticizing recent Fed policy from various points of view seldom apply their proposals with the rigor shown above, or explain why they believe their alternative proposed measures of Fed policy success would be superior to its published methods, or where and when their different proposed measures would grade recent Fed performance poorly. I invite them to do so in the comments section below, or in their own articles.

  • The NY Fed has a great explanation of how the balance sheet is adjusted. If you understand this, it provides an antidote to some of the daily misinformation. (Economicintersect.com highlighted this story, as it does with so many useful articles). There is a great chart sequence (clear, but too long to reproduce here) that shows the effect of Fed actions. If everyone spouting an opinion had to pass a short quiz on the basics, the world would be a quieter place!

The Bad

  • Rail traffic declined. Steven Hansen (GEI) analyzes the data with an important adjustment for coal and grain.

  • Small business optimism dropped from the recent peak. The NFIB attributes the decline to a stalled Trump agenda.

  • Michigan consumer sentiment declined from the final June reading (93.1 versus 95.1). While still high, this was a slight miss of expectations.
  • Retail sales disappointed, declining 0.2% instead of the expected 0.1% gain. This is an important series to monitor in the months ahead.
  • Lower leading indicators? New Deal Democrat, who unmasked some of the secret ECRI indicators, continues to follow some of their original choices. He notes that several of these indicators are turning South – another subject to monitor.

The Ugly Humorous

There is always some “ugly” news in the world. I was planning to go with this story about 44 million people needing side jobs. I instead choose to share a few good laughs with an important lesson – no one really knows what business ideas might work! Too make sure that my humor is on track, I consulted Mrs. OldProf, who approved this message!

http://fortune.com/2015/02/09/shark-tank-the-lost-pitches/

I hope you enjoy it as much as we did.

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.

The Calendar

It is a more normal economic calendar. As always, I am especially interested in the housing starts and building permits. While they are lower on my priority list, many are fans of the leading indicators and the Philly Fed.

The big stories will be about earnings. Senate action on the ObamaCare replacement bill is supposed to include a vote this week. Investors are interested not only in the specific health-care effects, but the implications for other items on the Trump agenda, most notably tax cuts.

Briefing.com has a good U.S. economic calendar for the week (and many other good features which I monitor each day). Here are the main U.S. releases.

Next Week's Theme

Despite the busier calendar, earnings stories will command attention. There is evidence of a changing mood. After months of focus on negative news, the move to new stock market highs is creating new

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