Weekly Message: August So Far

You’re receiving this week’s message way early. There’s market research I need to perform that will take me away from the office for a few days. It seems that there may be some correlation between the feeding habits of the rainbow trout that inhabit Alaska’s Kenai river and volatility in the U.S. stock market. I know, it’ll be an exhausting study, but somebody’s got to do it! Don’t laugh --- can’t be any crazier than the popular Super Bowl Indicator:

An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in the stock market for the coming year, and a win for a team from the old NFL (NFC division) means the stock market will be up for the year.

Yep, that indicator’s been right 80% of the time! And if you think for a minute that it is indeed tradable (or investable), I think you are indeed crazy! As for the Kenai trout indicator, on the other hand, there may be something to it. I’ll let you know…

As for this week’s message, I thought I’d share some of the month-to-date titles of the content pages I’ve placed in my August Current Trends file. I title many of these with my interpretation of what they signify:

·         Most world markets overbought, better dividends abroad, realized volatility low in U.S.

·         The evolution of S&P sector weights shows how services dominate the U.S. economy.

·         Bank of England rate cut, and ECB’s bond buying bullish for U.S. corporate bonds.

·         High yield spreads paint a sanguine picture.

·         Iron ore and steel rallying steadily, largely on China stimulus.

·         Crude inventories up, gasoline’s down, gasoline demand off the charts. Slow seasonality coming.

·         Crude technicals better than the fundamentals; shouldn’t inspire too much bullishness (for oil) for now.

·         1^st week of August data shows mixed economic signals, with slightly upward bias.

·         Really good July jobs report! Upward June revision. Wages/hours up, labor force participation up slightly, more full-time jobs.

·        Confidence among 35 year-olds much higher than 54+ year-olds. Change in employment for 24-24 year-olds is 2^nd highest in over 30 years.

·         Jobless claims below 300k for 74^th straight week. Ties for longest streak since 1973.

·         ISM Manufacturing components all above 50. Services ISM shows job growth not keeping up with demand --- could bode well for coming jobs reports.

·         Manufacturing ISM new orders and inventories rolling over a bit, something to keep an eye on!

·         Truck tonnage down slightly sequentially but remains near all-time high. Port traffic soft.

·         Huge issues of Japanese long-term corporate bonds suggests belief that rates will finally start rising.

·         China foreign reserves holding steady. PBOC doing good job managing foreign exchange regime.

·         Capital expenditure weakness partly, if not largely, about low oil and high dollar --- that set up is, therefore, for an increase going forward.

·         Ford and GM missed July estimates, but seasonally adjusted and year over year comps good. Other makers had very good results.

·         U.S. auto sales may not be peaking just yet, per consumer survey.

·         Tech and industrials lead on beats as earnings season winds down. Utilities in last place; that’s a positive growth sign going forward.

·         Some (few) are making a bullish case for the pound; I’m somewhat the contrarian here as well!

·         This headline should scare those who worry about Turkey’s Erdogan’s dictatorial tendencies!

·         Wholesale trade data paints an upbeat picture for the economy.

·         Iran looking to allow iPhones; Apple looking to tap that market once sanctions are eased.

·         Japan and emerging mkts best performers since Brexit, in US dollar terms.

·         UK stocks on a post-Brexit tear, but not so much in dollar terms.

·         China sentiment sanguine despite potential red flags.

·         Q2 earnings and revenue beats best in years, with one week left in earnings season.

·         Financial sector technicals improving.

·         Small business optimism improving, but definitely not ebullient!

·         The JOLTS (job openings and labor turnover) report shows openings below the high set in April, quits are stubbornly low, but layoff and discharge rates are extremely low.

·         Brick and mortar retail softened in July, but online remained very strong.

·         Online sales are taking a larger and larger share of total retail sales.

·         Online taking share from electronics, clothing and general merchandise, but building materials holding strong.

·         Stocks are no longer tracking oil prices.

·         Even high yield spreads are no longer tracking oil.

·         High yield spreads at yearly lows is bullish for stocks.

·         Market breadth still good, but new 52 week highs have been contracting of late; something to watch!

·         Energy breadth (52-week highs) showing a bullish divergence. However, industrials, tech and discretionary showing bearish divergences by same measure.

·         Intraday and intraweek price action tells a compelling bull market story.

·         Global CDS spreads denote healthy credit markets.

·         Import and export prices, ex-energy, denote steady global demand.

·         Bloomberg consumer comfort index declined sharply the first week of August.

·         PPI lower, not confirming the positive signal from import-export data.

·         Business inventory to sales ratio looks good coming into q3.

·         University of Michigan consumer sentiment survey up fractionally, with expectations jumping, but current conditions sentiment falling.

·         Oil rig counts rising of late, bearish indicator in terms of price.

The above suggests that stocks are currently on the pricey side; while there’s the potential for improved earnings going forward to fix it (it’ll ultimately be better earnings or lower stock prices). The services side of the U.S. economy continues to expand (that’s most of the economy btw). Commodities are hanging in there. The economy overall is okay. Market technicals are still decent, but have deteriorated a bit for some sectors --- although financials are finally looking up. Amazon is killing it! Stocks are no longer tethered to oil. Apple continues to expand its reach. Global credit spreads are sending no economic red flags. Consumer sentiment’s a little iffy. Brexit hasn’t hurt global investors in the least, at least so far. Short-term price action in stocks says the bull market is still alive (but, please, expect corrections [some big] as time goes on).

Let’s just say that the overall picture remains mixed, maybe a little muddled, but with a positive bias. I’m expecting that my Alaska trout study will help us put all the pieces together. :)

Have a great week!

Marty