Friday, August 5, 2016

Weekly Update

Every month I create a new file titled “current trends”. In that file I place economic reports, fundamental and technical analyses, and other data that I track regularly. In many of the titles I include my opinion in terms of what the content signifies. Below are the titles --- arranged chronologically --- in my "July Current Trends” file. As you read through them you’ll begin to get a feel for what inspires my sentiment when I report to you on the semi-weekly videos:
· BOE (Bank of England) steps up while businesses step back on Brexit worries · Bond yields harbinger of bad things to come or simply capital flows? · Euro credit markets and liquidity remain fairly sanguine post Brexit · Online job postings in UK plunge after Brexit · Bull market now second longest and fourth strongest · Intraday action (U.S.) bullish for an upside breakout · Employment driven by full-time, not part-time, jobs · Average hourly earnings trending better · Employment cost index down vs year ago · Federal tax receipts up · NFIB Survey (small business) showing strength · Japan’s demographics worse than ever · Japan credit agency lowers Japan to AAA Negative (yen lower) · Japan aggressively buying U.S. treasuries · All sectors overbought, look for short-term pullback, but longer-term support looks very good · Short-term and very long-term charts look bullish for stocks · Sentiment improving but not yet dangerous · Breadth remains strong · Smallcap breadth improving · High historic valuations are a concern for stocks · Commodity bear market has been supply, not demand, driven · Fund manager risk appetite low · Fund manager hedging high · U.S. manufacturing showing real improvement · Breadth, in terms of new highs, strong, just okay on a by-sector basis · NAHB (homebuilders) sentiment mixed but on balance still optimistic · Housing looks good in terms of single family; multi-family contracting after huge runup · Multi-family decline due to tax credit expiration in NY, which caused spike up last year, which makes for tough comps this year · Housing starts data bodes well for the housing market and homebuilder stocks · Post Brexit PMIs showing UK weakness · Earnings revisions very negative except for energy and healthcare · Negative earnings revision is bullish for stocks · Negative earnings revision is bullish for stocks, even by sector · Analyst’s ratings by sector; utilities the highest bearish shift, financials the highest bullish · Sentiment continues to improve · International capital flows have seen huge selling of U.S. equities amid a flat market, imagine if buying begins! · S&P tends to do better when earnings are weak. I.e., it looks forward to earnings improving… then, when they do, it tends to do poorly · Strong breadth, per the A/D line, bodes well for returns going forward · Oil is suspect going forward · The Dollar’s poised to rally, gasoline is problematic here as well · China interested in Brazil’s infrastructure · Optimism for Brazil’s recovery · Housing starts very strong and says very good things about present state of the economy · EM (emerging mkt) flows very strong in July · Institutional Investors not confident in July · Tech leading, defensives losing, since Brexit bottom · August has been historically a tough month for stocks · August seasonality ugly · Brexit gets lots of earnings call attention · Earnings guidance spread slightly negative so far this reporting season · Under the surface of the weak Q2 GDP number tells a very different (positive) story · Healthcare has been holding down PCE inflation · Fixed investment likely to accelerate and push up gdp going forward · Private sector R&D exploding, which will lead to productivity gains going forward · Inventory to sales ratio dropping dramatically · Wage growth picking up · Household formations, low vacancies and high rents, and lack of inventory, support higher home prices going forward · Durable goods report mixed
The above suggests that the U.S. consumer is on firm footing, U.S. manufacturing is showing signs of life, the overall U.S. economy --- while not going gangbusters (although June’s and July’s jobs numbers were very strong!) --- is signaling extremely low recession risk, U.S. stocks are technically (presently) in a good place, valuations in the U.S. look a bit stretched (but presumably not dangerously so), emerging market stocks are at last getting some attention, Brexit is impacting (but not killing) Europe’s economy, U.S. interest rates are helped lower by international buyers of treasuries, and Japan’s strict immigration laws are showing up in extremely bad demographics (and, make no mistake, that’s not good for its economy). Essentially --- in terms of the U.S. --- the above supports the view I’ve expressed of late that the second half of this year will see economic results that will surpass most economists’ expectations. Which is precisely the story told by Citi’s U.S. Economic Surprise Index (tracks actual economic results versus economists’ predictions): Citi US Surprise Index Have a great weekend! Marty

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