The monthly Long Term update was posted on Wed., so if you missed it just scroll down past the bottom of today’s post.
Updating each Saturday. The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month. You can always scroll down a few weeks and find the latest “Long Term” update.
The CPI rose 0.3 percent in December to lift the year-on-year rate by 4 tenths to 2.1 percent. In a solid signal of strength for the January employment report, initial jobless claims fell a very sharp 15,000 to a much lower-than-expected level of 234,000.
It was a light week for statistics. The Fed has wanted to get inflation up to their target of 2% prior to hiking rates, and we are hitting the 2% year over year mark. This should give the Fed a green light for at least 2 rate hikes this year, or 3 if they think they are behind the curve.
China is planning how to retaliate against Trump tariffs, to hurt the US and not hurt China:
“Boeing aircraft and U.S. soybeans may be among U.S. goods targeted by China if bilateral trade tensions escalate and Beijing retaliates against U.S. tariffs threatened by president-elect Donald Trump’s administration.
Capital goods – including aircraft manufactured by Boeing, turbines for power generation and transportation equipment – are an ‘obvious candidate’ for retaliation, wrote Eurasia Group analysts Evan Madeiros and Michael Hirson in a report on January 18.
“Beijing will target sectors it believes will resonate politically with the Trump team, including sectors that touch Trump’s political base,” the analysts wrote.
Beijing would approach alternative suppliers in Latin America for agricultural goods and in Europe for commercial aircraft should trade relations with the U.S. sour, former U.S. ambassador to China Gary Locke told CNBC on Friday.
“Chinese airlines do not have to buy Boeing planes, they can buy Airbus,” Locke said. “The list goes on and on, and that will cost American jobs, good paying jobs.”
Trump may be used to negotiating where he is the only billionaire in the room, and he is offering something of value (a hotel or casino, and the tax revenue and jobs that it brings) to a city that will get NOTHING if they don’t get the hotel, or to a business that could double its sales if they get the deal. It is different in dealing as head of a nation, because when dealing with China, they have comparable strength. The USA, China, and the European Union are the three largest economic spheres in the world, and their GDP’s are all comparable in size. The US can hurt China with tariffs, but China has the power to hurt the US back by taking their purchasing elsewhere. The playing field is much more even than a city or another business negotiating with Trump.
The market is just treading water here. There was a nice Trump rally looking forward to a trillion dollar infrastructure stimulus, and his other proposals. Trump is a good marketer and likes good publicity, and he has promised to sign executive orders to reduce regulations, so we will see some low hanging fruit, good news actions in the coming week. Eventually reality will hit; not everything will be easy. That is when we will be vulnerable to a correction. Politics, and investor psychology are a bigger factor in the market now than they usually are, which is normal for a presidential change in power.
We are early in earnings season, with about 10% of companies reporting so far. Earnings so far look good, particularly at the banks who report early.
Technically (the chart), the market rallied to the top of its current channel, then started trading sideways. RSI is the upper graph and on the right we see it is at 58 and trending down, in neutral territory. MACD is the lower graphic and it is trending down showing slow momentum of the market.
Market vulnerabilities: I’m watching earnings reports to see if anyone mentions the dollar rally as depressing revenue and earnings, but so far it has not been mentioned. I don’t expect a fight between Trump and congressional republicans early on, but it could happen.
I did my first day trade in 10 years, buying and selling VXX in expectation of volatility picking up, and I had to get out before the inauguration when I expected a good day. Made a little and had some fun. I also sold my FB and AMZN, they had run up to overbought since I bought them. I’m light on stock now, waiting on a correction to provide a better entry point. I’d like to see a pullback to at least the 50 day moving average (“MA(50)” on the chart legend on the upper left), which is not that far away.
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Rich Comeau, Rich Investing