Friday, September 30, 2016

This Week's Message: Second half of September data/trend wrap up...

It's become my recent custom to use my current trends file to provide the weekly message twice each month. Two-weeks ago I shared the mid-September look, below, chronologically, is the balance of the month.

In a nutshell, the stock market setup -- for economically cyclical sectors in particular -- looks very decent for the fourth quarter (gotta expect election volatility, however). And the global economy is sending signals that do not nearly support the narratives of the doom-and-gloomers who continue to come out of the woodwork. Believe me, I'm not complaining, those doomsayers can keep pessimism alive, and that's generally a good thing in terms keeping a bull market alive.

Note: While the future looks bright enough, we are open to all possibilities (anything can happen!) and, therefore, remain diversified and keep allocations -- portfolio by portfolio -- consistent with each respective client's temperament and time horizon:

  • Japanese firms have created 440k jobs in Europe. Nearly half of Japan's foreign direct investment last year went to the UK. I don't know that Brexit-yes voters really thought it through.
  • London-based firms are looking for office space in Dublin. Hmm...
  • Emerging Markets look very good technically.
  • Utilities have bounced in Sept. I'm guessing in anticipation for no Fed hike this month. However, they're setting up for a classic negative technical pattern (head and shoulders) if they rollover soon.
  • Market breadth has weakened of late, but not to the point that would signal huge rollover.
  • China expected to keep up the fiscal stimulus throughout 2017.
  • Taiwan's iPhone suppliers stocks jump in anticipation of big iPhone 7 sales.
  • China selling treasuries to buoy the yuan.
  • China pumping money into public-private partnerships.
  • Rio Tinto positive on commodities outlook in China.
  • Bank of Japan shifts focus to yield curve, consensus says it's reached its limits in terms of other stimulus measures. I'm thinking it's simply waiting on the Fed for now.
  • Consumer credit up notably, but relatively slow last month in, specifically, revolving credit (good for consumer balance sheets, bad for retail).
  • AAII sentiment goes further bearish. Which is bullish!
  • Mutual fund managers remain historically cautious. Which is bullish!
  • S&P technicals, beyond the very short-term, look pretty decent right here.
  • The Fed's Sept meeting did not deliver the expected hawkish tone. All three of the dissenters will be off the voting team at year-end. Lower for longer looks assured. Doesn't mean that a quarter-point isn't on the docket for December.
  • Economic data, much of it, trending below expectations.
  • Homebuilder optimism blew away expectations, at 65, the highest level since July 2013.
  • Housing starts below expectations, mostly single-family and consistent with earlier permit data (but single-family permits decent in last report). Overall permits missed, but due to multi-family.
  • Weaker housing starts is all about lack of supply.
  • Jobless claims continue their record low streak. Bodes very well for stocks given the strong correlation since 2009. This was also the sample week for the Sept jobs#.
  • The LEI's (leading indicators) unexpected decline, and its relationship to CEI (coincident indicators), does not indicate greater recession risk at this juncture.
  • The overall Asian economy appears to be rebounding.
  • Crude inventories lowest since February, but still huge, historically speaking.
  • Gasoline demand unusually robust for this time of year.
  • Analysts and the companies themselves seem to feel better about the upcoming earnings season.
  • U.S. equity valuations high, but would need a catalyst to have them turn into a rout. Plus, on a forward basis they're not at nearly scary levels.
  • Low interest rates and the relative safety of U.S. stocks explains their presently high valuations.
  • Poor relative strength of consumer sectors doesn't bode well for the economy. Amazon largely explains the hit to brick and mortar, fear of higher interest rates have been a headwind for expensive staples of late.
  • Emerging Markets continue to look up.
  • While overall market action appears to favor a Clinton win, that's clearly not the case with biotech.
  • Betting odds heavily favor Clinton in November, ahead of the first debate.
  • Prior years that charted like 2016 had very strong gains from this point on.
  • The advance-decline line shows strong underlying breadth.
  • Tech led the way in terms of better Q2 earnings.
  • Q3 earnings are setting up to possibly show the first positive results since Q2 2015.
  • Global steel consumption positive year-on-year.
  • The Architecture Billing Index declined in August slightly into contraction mode (49.7). However, the new projects inquiry component spiked up to 61.8.
  • Infrastructure stocks poised to do well regardless of who wins the election.
  • Multinational stocks benefiting big time from weaker dollar in 2016.
  • Housing dynamics are positive.
  • Corporate earnings outlook improve even during what is traditionally a seasonally weak period.
  • German business confidence best reading in 2 years.
  • China consumer sentiment, and other data, picking up.
  • German consumer confidence misses slightly, Italian confidence beats slightly, and Swiss confidence rebounds notably.
  • Chinese currency bears have got to be very frustrated!
  • Pimco expects to have office in China by 2018.
  • BofA and Blackrock see China debt burden differently. BofA sees crisis likely, Blackrock says government has plenty of ammo to contain it. I say a boxer seldom gets knocked out by the punch he sees coming.
  • History says buy volatility in October.
  • Pimco sees global recession risk contained through 2017.
  • Pimco bullish on emerging markets. So am I!
  • Fiscal stimulus may be coming in most developing markets. I see it very likely, via infrastructure, in the U.S. post election.
  • South Korea PMI not good (14 mo. low), while China's shows better output, new orders and outstanding business (although employment fell sharply).
  • Deutsche Bank's woes do not legitimately warn of 2008 systemic problems, not even remotely.
  • Britain data mostly good. Denoting less post-Brexit recession risk.
  • Sentiment remains decidedly negative (that's bullish).
  • Call volume is picking up like it was leading into 2013 run up in stocks.
  • Equity valuations are high, but attractive relative to alternatives. That's setup for interest rate risk. Bad news for utilities and bonds.
  • Current projected earnings growth rate translates to 16.2 p-e in a year.
  • NAHB optimism points to higher housing starts going forward.
  • Emerging Markets relative performance technicals suggest continued outperformance.
  • Market breadth looks good for cyclicals in q4.
  • Technical setup looks good for cyclicals, tough for defensives going into q4.

Have a great weekend!

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