This Week's Message: Rough Market Currently

This week's message to clients is my weekly note to our staff and associates. If you like getting into the weeds, by all means take it all in, if you prefer to cut to the chase, feel free to skip to the summary.

Overall, a rough week last week.

While the S&P 500 only declined 0.53%, there was some technical damage done sector by sector.

A World of Opportunity!

The following will suggest different things to different people:

Oops! So Far Tariffs Are Accomplishing The Opposite of Their Intended Goal

International Trade in Goods
Released On 9/27/2018 8:30:00 AM For Aug, 2018 Prior Prior Revised Consensus Consensus Range Actual Balance $-72.2 B $-72.1 B $-70.8 B $-72.2 B to $-69.0 B $-75.8 B Exports % change -1.7 % -1.6 % -1.6 % Imports % change 0.9 % 0.7 %
Highlights Amid the unfolding of tariff effects, exports are moving in the wrong direction and look to be a big negative for third-quarter GDP. The nation's trade deficit in goods was a whopping $75.8 billion in August with exports down 1.6 percent for a second straight month.

Scratch Last Week's China-May-Be-Taking-The-High-Road Message

In a blog post last Thursday I quoted the following from a Bloomberg Economics article:

"China is planning to cut the average tariff rates on imports from the majority of its trading partners as soon as next month, two people familiar with the matter said, in a move that will lower costs for consumers as a trade war with the U.S. deepens."

The Fed Move, The Current Setup, and "THE" Risk Going Forward (video)

As the whole world expected, the Fed raised its benchmark rate by .25% today and signaled that there's another coming in December and 3 more next year. Their commentary was very upbeat and, to my surprise, stayed completely out of the political fray; making no mention of tariff risks.

Today's Log Entry: Tech Holding Up

Every now and again, when I feel it would be instructive (or at least interesting) for readers, I'll share a market log entry on the blog. Here's this morning's:

Quote of the Day: A "High Visibility" Selloff Would Help End the Trade War

Bloomberg's Economics Team shares our view that it may indeed be a notable rough patch for stocks that ultimately brings the trade war to a close.

Chart of the Day: Welcome To The Worst Week of the Year

Stock market seasonality is never an investment theme, and it can be a most difficult thing to trade.

With that out of the way, if this week turns out "bad" for stocks, know that that (last week of Sept. down) has consistently been the case (bigtime!) over the past 10 years. And of course the previous nine were not saddled with trade wars, etc.:

Take a look:   click to enlarge...

Bonus Message of the Week: Why We Remain Sanguine (for now)

Are you wondering why, amid our constant warnings of rough patches and ultimate trade war casualties, we remain relatively sanguine, and, thus, growthy in our equity allocation?

Quote of the Day: Always Govern Yourself by Conditions, Never By Fears!

If we're right, and a "rough patch" is on the near-term horizon (what an easy "prediction" to make! I mean, there's never not a forthcoming market rough patch; the question is when), the following is timely:

This Week's Message: I Repeat, Expect A Rough Patch!

In our September 10 message we said to "expect a rough patch". Here was our reasoning:

Leading Indicators Paint a Presently Nice Picture

The Conference Board's Index of Leading Economic Indicators is featured in our PWA [Macro] Index. Bloomberg explains why:

Now This is Interesting, And Encouraging!

The following speaks to possibly two things: One being tactical, the other being simply good economics:

CFOs Are Fretting Over Trade

So why do we continue to pound on the trade topic while stock traders seem to remain sanguine? Well, if you missed it, please view this week's video and you'll understand why we believe that focusing primarily on underlying conditions (which include underlying market technicals, as well as the macro environment) is the most prudent way to approach the business of investing.

Quote of the Day: There'll Be A Negotiated Solution, But How Much Pain in the Meantime -- and After?

G.W. Bush Administration Assistant Trade Representative (now Asia Society VP) Wendy Cutler perfectly states the present state of trade affairs:

Investing With A Conditions Orientation (video)

The PWA Index today consists of 84 economic, economic and market sentiment, credit and equity market data points.

Once playing, click the icon in the lower right corner for full screen. Focus should occur after a few seconds; if not, click the wheel to the left of the YouTube icon to adjust:

Quick thought on today's tariff and Apple news...

Commentators sound surprised by the fact that Apple traded lower today despite the rumor that some or all of its products may not be included in the tariffs that are reportedly to be announced any minute. Well, they shouldn't be...

This Week's Message: Staying the Course, But With a Watchful Eye

Despite a moderate pickup in the Financial Markets subindex, our PWA [Macro] Index declined 2.38 points to 42.36 (this year's lowest score) this week -- as the Economic subindex gave up a notable 6 points, with commercial and industrial loans seeing a large decline and rail traffic threatening to roll over. 

Bonus Quote of the Day: Target's targeting a strong holiday season!

Target says it's hiring more seasonal help this year than any traditional retailer ever has. And, of course, more folks receiving a paycheck just improves the prospects for strong Q4 consumer spending:

Quote of the Day: Echoes from the Consumer

The following from Bloomberg's commentary on today's stellar consumer confidence report echoes our assessment of present conditions:

Chart of the Day: This Week's Rebound

No additional commentary needed:  click to enlarge...

Dealing With the Timing and Type of the Next Recession -- And -- Is There a Game Changer On the Horizon?

Hedge fund legend Ray Dalio has been making the rounds this week promoting his latest book Big Debt Crises (already can't put it down!).

Wow! What A Labor Market!

We can talk all day (sometimes I do) about how important the flow (through borders) of goods, capital and, yes, labor (people) is -- or we can simply look at the data:

This Week's Message: Expect a Rough Patch

This week's message is brief and to the point.

Taken from the summary of my weekly internal commentary after scoring our PWA index and assessing short and long-term technical market factors:

Still Bullish On Financials, Less So On Tech

Clients know we continue to like financials right here. Despite their thus far lackluster 2018 results, the macro environment (save for one huge elephant [trade war] in the room) -- as well as the sector's own fundamentals -- screams in their favor. 

Near-Term Conditions

My parting note to a client this morning pretty much sums up all that needs to be said today about the near-term state of the market:

Again, Like We Said

Tuesday we highlighted for you the ISM Manufacturing Survey; pointing out the resoundingly good present situation, and the ongoing concerns around the trade issue. 

This morning's release of the ISM Non-Manufacturing (services) Survey also echoes the sentiment we expressed in this week's message. 

Why America Is Great and So Many Other Countries, Well, Aren't (Yet)!

I've made the case multiple times herein, and ad nauseam in client review meetings, that the miracle that a country housing merely 4% of the world's population commands far and away the world's largest economy has to do largely with its openness to foreign markets, to foreign consumers and to foreign investors. Of course I'm talking about the U.S.A..

The opposite of this phenomenon -- how a country that houses a massive 20% (nearly) of the world's population can remain mired in far too-much poverty, weak infrastructure and a general dearth of personal freedoms and opportunity -- has to do largely with its isolationist tendencies. Here I'm referring to India.

Today's Log Entry: On Tech and Emerging Markets

Thought I'd share today's entry to our internal market log:

9/5/18 (Wednesday)

Tech is selling off markedly this morning, which makes perfect sense if we’re indeed entering a seasonal rough patch. Tech has had a huge year, leaving our higher conviction 2018 picks (financials, industrials and materials) in the dust -- relatively speaking.

Tech’s momentum of late has come from very good earnings (although our top picks have posted exceptional earnings results as well) and a political backdrop that, for now, has spared finished consumer tech products from the trade skirmishes. This sets up a virtual no-chance scenario for tech to continue to dominate for much longer from here, for two reasons: 

Chart of the Day: F-Series Sales Say Good Things About the Economy

While the trend in overall auto sales the past few months has been nothing to write home about (now subtracting a point from our PWA macro score), Ford's F-Series truck sales have been nothing short of stellar.

While not itself a data point we score, we do acknowledge that -- being the preferred vehicle of U.S. small businesses (the employers of 2/3rds of American workers) -- F-Series truck sales results are in a real sense an economic indicator worth tracking.

Like We Said

This morning's release of the Institute for Supply Management's Manufacturing Survey echoes the sentiment we expressed in this week's message. 

The Truth Will (well, should) Set Trade Free!

In talking with some old friends (clients of roughly 20 years) yesterday about how technology, about how our ability to capture and assimilate data, and, thus, about how our systems, processes and approach to the markets have evolved over the years, I stressed how important it is that I be able and willing to transcend my moods, my fears, my whims, and, most importantly, my personal biases as I assess the facts and make investment decisions on behalf of our clients.

This Week's Message: Our Present Thesis

In last Thursday's blog post we pointed out how without the tech sector the S&P would have quite a ways yet to go to reach its January 26 all time high.

Drilling further down, we can see that without Apple and, to a lesser degree, Microsoft, even the tech sector itself would offer little to write home about: