Your Weekly Update: A change in the narrative...

Don’t know that you’ll agree (as I seem to get push-back at times), but the U.S. is not in a recession, and the likelihood of one beginning in 2016 is remote—despite the rants from the competing presidential-wannabe podiums that we are somehow in deep despair and that the self-proclaimed white knights, or dame, will wield his/her populist, protectionist, or socialist sword, slay the dreaded whatever (big business, big government, small border) and save us from the impending apocalypse.

Not that we don’t have serious issues to tackle, like big government’s ability to change the playing field with too little effort (killing, for example, mergers that tradition, and laws, would’ve previously allowed), but when we succumb to the gloom proffered by self-serving/self-absorbed panderers, we abandon all faith in capitalism (in the undying spirit of the entrepreneur)!

While I’ve expressed my view that the very near-term looks a bit precarious, I suffer no delusion that the stuffs and services you and yours will be consuming and enjoying in your near and long-term futures won’t be unthinkably superior to those of today---thus making the thinkers/producers, their companies and their investors (you and me) far wealthier in the years to come, despite the executable whims (which’ll be few I suspect) of whosoever occupies the highest political office in the land from here on out.

While I’m tempted to offer up my slew of economic charts (maybe next week), I’m thinking I’ll present only three this week; the first tells a couple of stories.

Here’s weekly unemployment claims over the past 20 years (yellow line), the S&P 500 Stock Index (green line) and recessions (red shades):     click chart, then click again, to enlarge...



First story: The stock market tends to do well when the labor market strengthens.

Second story: The labor market tends to weaken heading into recessions.

Now, that said, we are indeed heading into a recession, that’s for sure! Yes, the labor market will weaken, stocks will react and the inevitable next recession will begin---it’s just highly unlikely (although anything can happen) that it’ll occur in the relatively near future. And while I’m not pessimistic on the market for 2016, the fact that recession risk is low does not mean that stocks will be for sure winners on the year, which---if you’re an investor (as opposed to a trader) in the stuffs and services that’ll make material life ever better in the years to come---is of no consequence to you.

As for the near-term, not that you care (cuz you’re a long-term investor), oil and stocks just don’t seem to be getting along (quite like they were) lately:



Thus, Wall Street has had to change its as-goes-oil-so-goes-the-market narrative. For the moment it appears to be as-goes-the-dollar-so-goes-the-market (in reverse):



And/or, as I wrote, and charted, last week, as-goes-the-dollar-so-goes-the-fed-and-so-goes-the-market.

Q1 earnings season gets underway next week. And while the headlines suggest that expectations are in the gutter, Bespoke Investment Group tells a different story:

When we last looked at trends in earnings revisions for the S&P 1500, it was right in the middle of the last quarterly earnings season, and sentiment was extremely negative as more than one third of companies had seen earnings estimates cut over the prior four weeks. Now, as we head into the start of Q1 earnings season on Monday, the picture has changed immensely. While we’ve heard a lot of chatter on the financial networks over the last couple of weeks suggesting that sentiment towards earnings season is extremely bearish, that’s not actually the case. Over the last four weeks, analysts have raised earnings per share forecasts for 443 companies in the S&P 1500 and lowered forecasts for 495. This works out to a net of –52, or –3.5% of the stocks in the index. That’s still negative, but it’s the least negative earnings revisions spread we have seen since June 2015. Analysts are now much less bearish on S&P 1500 earnings than they have been at any point over the last 10 months. If the recent trend keeps up, we could be seeing a positive overall earnings revisions spread for the first time since July 2014!

Now, I don’t know if that’s a good or a bad thing; if expectations are up, will earnings beats be down? Hmm… we’ll see. I have a sneaking suspicion, however, that forward outlooks may be looking up, particularly for those companies whose revenue comes largely from abroad---as a lower dollar is a lower barrier between them and their customers. I’ll keep you posted.

Of course there’s much more I can bore you with, but a lot of it I’ve been covering in the daily updates. If you haven’t been watching the videos, you might give them a shot; I get a little wonky at times, but if you take the few minutes each day they’ll begin to make sense, and you’ll have a deeper perspective---than the media offers---on what’s moving markets in the near-term. 

Have a wonderful weekend!

Marty