I update 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.
Economy:
Jobless claims are very low consistent with uninterrupted strength in the labor market. Initial jobless claims came in at 244,000 which is near consensus and which pulls the 4-week average lower for a 3rd week in row, down a sizable 4,250 to 243,000. March’s softness in the labor market wasn’t enough after all to hold back the index of leading economic indicators which came in at a March gain of 0.4 percent to beat Econoday’s high forecast. Crude oil inventories fell 1.0 million barrels in the April 14 week to 532.3 million, but they are up 4.9 percent from last year at this time. The resale market, after a period of steady sales, is now accelerating to new expansion highs. Existing home sales rose a very sharp 4.4 percent to a higher-than-expected annualized rate of 5.710 million. This is the best rate since February 2007. A weather-related surge in utility output masks what is otherwise a weak industrial production report for March. Total production rose 0.5 percent on a record 8.6 percent increase at utilities. But manufacturing production, where a small gain was expected, fell 0.4 percent in what likely reflects Category 3 storm Stella which hit the Northeast at mid-month.
These are good numbers, with the exception of industrial production (which we give a pass this month on account of the storm). Existing home sales are very strong; I think seasonally it is a strong time of the year and people may be buying if they can, before interest rates go higher.
Geo-Political:
The focus is still on the situation with N. Korea, and that will keep a damper on the market for a while. I would have given a lot to hear the “deal” go down between Trump and Chinese president Xi Jinping. Oh, you want us to control N. Korea? You should agree that you will not charge us as currency manipulators, and you should not place an import tariff on our goods coming into the US. Tension with Syria and their Russian supporters seems to have eased to the back burner. The election in France tomorrow will likely result in a runoff between nationalist Marine Le Pen and more centrist Emmanuel Macron. The runoff will happen in only two weeks, May 7, and that is when the fireworks will happen. Le Pen wants to pull France out of the EU, and with Britain and France both pulling out, that would likely kill the EU.
Technical Analysis:
Earnings for Q1 are pretty strong, projected to rise 9% vs last year. The stock market is mired in a minor correction. Something is wrong.
What’s wrong?
- Geo-political concerns, primarily N. Korea, followed by Iraq/Syria and ISIS, and relations with Russia.
- Trump administration competency. Following their failure on healthcare, and disarray in the republican congress, the 9% rise in stocks since the election comes into question. Instead of tax reform, might we just get a small tax cut?
- The stock market is overvalued, and it gets hard to push stock prices higher, especially given the backdrop of #1 and #2 above. A 9% jump in earnings for Q1 would certainly help the valuation if stock prices don’t rise from here.
Technically speaking, in the shortrun we are still in a correction. It is up to the market to breakout decisively above or below the purple channel. Both RSI (top of chart) and MACD (bottom of chart) are in neutral territory, and the market price action is in the center of the down channel. The market moved up a little last week, so can good earnings provide the boost to climb over the top of the down channel and get us back to rally mode, or will geo-political fears win the day and keep us in correction mode? I don’t know the answer, so I await more information from the market. I bought a little SPY two weeks ago, and I sold a few Put options this week on stocks I’d like to own if the price dropped on them.
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Rich Comeau, Rich Investing
Rich Investing 