We have a normal data calendar. Central to stock market prospects is the resolution of several key policy issues. The possible outcomes have a wide range of market impacts, from fear to a major boost in corporate earnings. The debt limit/Harvey aid deal between President Trump and Democrats was a surprise to most. Still digesting the implications, the punditry will be wondering:

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Have the odds improved for a market-friendly policy agenda?

Last Week Recap

My expectation that of a focus on what might go wrong was partly correct. Then the hurricane news and political reactions became the lead stories. There was little market-moving data.

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. The most notable feature is the narrow range. The supposed “delayed reaction” to the N. Korean H-bomb story was responsible for the Tuesday dip.

Doug has a special knack for pulling together all the relevant information. His charts save more than a thousand words! Read the entire post for several more charts providing long-term perspective, including the size and frequency of drawdowns.


The Silver Bullet

As I indicated recently I am moving the Silver Bullet award to a standalone feature, rather than an item in WTWA. I hope that readers and past winners, listed here, will help me in giving special recognition to those who help to keep data honest. As always, nominations are welcome!

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!

There was little economic news, but it was generally positive. The negatives were not very significant.

The Good

  • Wholesale inventories increased 0.6% more than the expected gain of 0.4%. This is a positive for GDP, assuming that inventory restocking is needed.
  • China economic growth looks better, if one believes in Dr. Copper.
  • Non-farm productivity increased 1.5% compared to 0.9% last month.
  • Debt ceiling deal avoids a government shutdown, so it is basically market-friendly. The full story is more complicated.
  • ISM non-manufacturing recorded 55.3, up from 53.9 in July, and in line with most expectations. (Bespoke)

  • Job gains better than thought. The preliminary benchmark revision shows that the net job gains for the year ending in March was 95,000 more than expected. This report is important as a check on the aggressive spinning done on every “employment Friday.” (BLS)
  • Overall global growth continues. Dr. Ed Yardeni has a good analysis with some interesting charts and explanations. Here is a key quote and a chart example.

    The global economy is running on all six cylinders. It may not be a global synchronized boom, but it is the most synchronized expansion of economic activity that the global economy has had since the recovery from the 2008/2009 recession.

The Bad

  • Harvey could imply more mortgage delinquencies. There could be as many as 300K new delinquencies and 160K more that are past due. (Calculated Risk)
  • Factory orders declined 3.3% versus last month’s gain of 3.0%. A decline of 3.2% was expected.
  • Jobless claims spiked. This was the expected Harvey effect. Jill Mislinski’s chart shows the effect clearly.


The Ugly

Irma. Not just another hurricane. The entire state of Florida in the path. Modern modeling and forecasting has helped in evacuating seven million people. One way of measuring the magnitude is the accumulated cyclone energy (ACE), the total wind energy of the tropical system. USA Today has these amazing comparisons:

Irma generated the most ACE (44.2 units) by a tropical cyclone on record in the tropical Atlantic and also the most in a 24-hour period on record, breaking the old record set by Allen (1980).

It also generated more ACE than the first eight named storms of this Atlantic hurricane season (Arlene-Harvey) combined.

Harvey. FiveThirtyEight puts the extent of the damage in perspective.

Equifax. Not only was the confidential information of 143 million people exposed, but the notification was not made for more than a month. Meanwhile, three top executives sold stock before the announcement. Here is a discussion of what might happen and what you can do. There oughta be a law…..but there really isn’t.


America’s most important trading partners.


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

We have a normal economic calendar. Most important is retail sales (August). The only July data of real interest is the JOLTS report, which the Fed uses to analyze tightness in the labor market.

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

Only three weeks ago we were wondering whether a market-friendly policy agenda was in peril. Things can change quickly in the current political climate. The deal between President Trump and the Democrats came late in the week. Avoiding a US credit downgrade is a big threat. A government shutdown would also be a market negative. By contrast, tax reform could provide a major boost, perhaps as much as 8% in expected S&P 500 earnings.

Most of what you see or read on this story will be highly political, perhaps with a soap opera quality. That is not our purpose! Buried beneath the popular discussions is a serious question for investors:

Have the odds improved for a market-friendly policy agenda?

It is early in the discussion, but here are the key viewpoints:

  1. This was an impulsive decision – a reaction to lack of GOP help on his agenda. (The Hill)
  2. The decision has no implications for future bipartisanship. The House vote was 316-90, but all of the Nay votes were Republicans.
  3. The decision just postpones the key issues. Nothing has been solved.
  4. While the circumstances were unusual, it does show that bipartisan action is possible when needed.

As usual, I’ll have more in my Final Thought, emphasizing my own conclusions.

Quant Corner

We follow some regular featured sources and the best other quant news from the week.

Risk Analysis

I have a rule for my investment clients. 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


Notes on changes:

We have added a distinction between the technical appeal of the market on a short-term (two months or so) and a long-term basis. The mildly bearish interpretation does not imply a full exit from trading. It is a warning that conditions are not as attractive.

The nine-month recession probabilty from the C-Score has moved from <10% to <15%.

The Featured Sources:


Bob Dieli: Business cycle analysis via the “C Score.

RecessionAlert: Strong quantitative indicators for both economic and market analysis.

Brian Gilmartin: All things earnings, for the overall market as well as many individual companies.

Georg Vrba: Business cycle indicator and market timing tools. It is a good time to show the chart with the business cycle indicator.