Deteriorating Economic Data

What’s in Today’s Report:

  • Economic Breaker Panel – Deterioration in June

S&P futures are down roughly 10 points as the recent melt-up rally continues to be digested ahead of key inflation data in the U.S. while trade headlines were negative overnight.

Trade sentiment deteriorated over the last 12 hours as expectations of a G20 deal are fading while protests in Hong Kong over an extradition bill pressured the Hang Seng to fall nearly 2%.

Economically, Chinese CPI and PPI met estimates overnight while Japanese Machine Orders rose 5.2% vs. (E) 0.5% helping the Nikkei outperform with a loss of just 0.35%.

Today’s focus will be on inflation data due out ahead of the bell: CPI (E: 0.1%). There are no other notable reports due to be released and no Fed officials are scheduled to speak today.

The digestive tone will likely continue as the blistering rally of the last week was overdone however the “pain trade” remains higher and if the CPI print is soft, we could see another run back to and potentially through 2900 in the S&P today.

Tom Essaye Quoted in Business Insider on June 4, 2019

“The unpredictability of the administration regarding tariffs/trade combined with a late cycle economy and a Fed seemingly on hold makes a 16x multiple…” says Tom Tom Essaye. Click here to read the full article.

Jobs Report Preview

What’s in Today’s Report:

  • Jobs Report Preview
  • Is the AAPL Decline an Opportunity for Value Stocks?

Futures are down more than 1% as AAPL sharply cut Q4 revenue guidance.

AAPL cut Q4 revenue guidance to $84 bln from the previous $89-$93 bln range, citing slowing Chinese demand as the main negative influence.

Economically UK Construction PMI and Euro Zone Money supply both slightly missed expectations.

The entire tech sector will be in focus today to see how well it can hold up in the face of the AAPL news, which wasn’t a shock as analysts and suppliers have been cutting IPhone numbers for months.  If stocks can set the lows early in the day and rally back, that would be an anecdotal sign near term selling pressure may be exhausted.

Away from AAPL, we get a lot of economic data today including (in order of importance): ISM Manufacturing Index (E: 57.9), ADP Employment Report (E: 175K), Jobless Claims (E: 217K) and Motor Vehicle Sales (E: 17.3M).  Data today could be important because if the data is firm, it should decrease the AAPL fallout.  However, if the data is weak, then it’s going to be another ugly day as the news will reinforce worries about corporate earnings and economic growth.

More Growth Fears

What’s in Today’s Report:

  • The Aussie-Yen Points to Further Growth Fears

S&P futures are tracking international shares lower to start the year this morning as another set of soft economic data stoked fears of slowing global growth.

The Chinese Caixin Manufacturing PMI Index fell 0.5% to 49.7 in December suggesting the world’s second largest economy is slipping into contraction.

Meanwhile, the Eurozone PMI Manufacturing Index met expectations but dipped to a near two year low of 51.4.

In the U.S. today, there is one economic report to watch: PMI Manufacturing Index (E: 53.9) and there are no Fed officials scheduled to speak.

Was that the Bottom? (Technical Update)

What’s in Today’s Report:

  • Technical Update: Was that the Bottom?

Futures are lower and giving back about 1/3 of yesterday’s massive rally on digestion and potentially negative U.S./China headlines.  There was no notable economic data overnight.

The Trump administration is considering an executive order banning U.S. companies from using Huawei and ZTE products (both Chinese firms).  This represents a potential escalation in ongoing U.S,/China tech/trade conflict, although so far China has viewed the trade and tech issues separately, and that needs to continue otherwise this market will face additional headwinds.

Today markets will try and digest yesterday’s massive rally with the best case scenario being a continued rally that sees the Dow and S&P 500 close above near resistance levels.  Economically, we do get multiple reports including  Jobless Claims (E: 217K), FHFA House Price Index (E: 0.2%), New Home Sales (E: 560K) and Consumer Confidence (E: 134.0) although none of those should move markets materially.

More Unforced Errors

What’s in Today’s Edition:

  • More Unforced Errors

Stock futures are bouncing modestly this morning after the worst Christmas Eve selloff in history took place on Monday which saw all of the major indexes fall well over 2%.

News flows were mostly quiet over the last 48 hours however President Trump did make supportive comments regarding Secretary Mnuchin after he spooked markets Monday and continued to blame the Fed for the recent selloff.

There were no economic reports overnight.

There is not a lot on the calendar today as there are no Fed officials scheduled to speak and there is just one economic report to watch: S&P Corelogic Case-Shiller HPI (E: 0.4%).

As a result, investor focus will remain on U.S. politics and global growth as they have been the main reasons for the most recent stock declines.

Bounce Coming?

What’s in Today’s Report:

  • Why We Could Be Close to a Bounce

Futures are modestly lower following the surprise resignation of Defense Secretary Mattis.

Mattis was seen as a stabilizing force in the administration, so his resignation is an incremental negative on general sentiment and that’s pressuring stocks this morning.

Economically, Q3 British GDP met expectations at 0.6%.

Today there is a lot of important economic data including (in order of importance):  Durable Goods (E: 1.4%), Core PCE Price Index (E: 0.2%), Final Q3 GDP (E: 3.5%) and Consumer Sentiment (E: 97.5).  The key numbers will be the Core PCE Price Index (it needs to stay around 2.00%) and Durable Goods (they need to be stable) as they can give us a stock positive “Goldilocks” outcome.

Additionally, Fed Governor Williams will by on CNBC at 10:00 a.m., and if he’s dovish that might help stocks rally.

Finally, today is quadruple witching options expiration.

Technical Update: Ugly Breaks

What’s in Today’s Report:

  • Technical Update: Ugly Breaks

S&P futures are bouncing this morning but only modestly so relative to yesterday’s sizeable declines in U.S. markets which weighed broadly on global shares overnight (although the losses were not as bad as feared).

Growth concerns remain the primary driver of the recent risk-off money flows and the German Ifo Survey released o/n did not help as the headline missed estimates and Business Expectations hit a four year low.

Oil is notably down almost 3% as concerns have shifted from the supply side to demand side in recent weeks and if that continues, expect further pressure on energy shares today.

Looking into today’s session, there is only one economic report to watch: Housing Starts (E: 1.22M) but if it is a “whiff” like yesterday’s Housing Market Index was, which hit a multi-year low, it could keep growth concerns elevated and prevent a material relief rally.

Aside from the one economic report, the Fed meeting begins today and investor focus is likely to turn ahead to tomorrow’s FOMC Announcement, Forecasts, and Press Conference which is one of the last major catalysts of the year.

S&P 500 At 3000? (Not So Fast)

What’s in Today’s Report:

  • One of Two S&P 500 3000 Conditions Met
  • Why the Dollar and Bond Yields Have Decoupled

Futures are little changed following a night of no new trade news and slightly underwhelming economic data.

Global markets all rallied on momentum from the Thursday gains in the U.S., but nothing new occurred on trade overnight.

Economic data was slightly disappointing as EU Composite PMI (54.2 vs. (E) 54.3) slightly missed estimates while EU Manufacturing PMI (53.3 vs. (E) 54.2) badly missed.

Today focus will be on the U.S. September PMI Composite Flash (E: 55.1), and as always we’ll be looking for stability in the economic data to imply this strong economy isn’t losing momentum.  Additionally,  today is quadruple witching options expiration, so don’t be surprised by big volumes and an uptick in volatility into the close.

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Six Charts That Explain This Market from the Sevens Report

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Below you’ll find six charts, spanning asset classes and economic data.

The charts are divided up into two groups.

Group 1 is comprised of four charts that explain why stocks have rallied so nicely in 2017, and why, in the near term, the trend in markets is still higher.

Group 2 is comprised of two charts that look into the future, and show that despite a bullish set up right now, there are real, serious reasons to be worried about how long this rally can last. Point being, these indicators are telling you not to be complacent!

Group 1: Why Stocks Have Rallied

Chart 1:  Economic Data 

Chart 2:  Earnings Growth  

Earnings and Economic Data – The Unsung Heroes of 2017

We have said since the early summer that an acceleration in economic data and earnings growth have been the unsung heroes of the 2017 rally.

And, as long as both of these factors continue to trend higher, that will underpin a continued rise in U.S. stocks, regardless of noise from Washington, North Korea, Russia, etc.

Chart 3:  S&P 500 

The Trend Is Your Friend

The trend in stocks has been relentlessly higher since early in 2016, and the S&P 500 has held that trend line through multiple tests.

Bottom line, the technical outlook on this market remains powerfully positive.

Chart 4:  Commodities (Oil & Copper)

There are few better indicators of global economic growth than industrial commodities, and two or the most important (oil and copper) have been telling us for months that global growth is accelerating.

And, as long as oil and copper are grinding to new highs, that will be a tailwind not just on U.S. stocks, but on global stocks as well.

Group 2:  Risks to This Rally

While the four charts above explain why stocks have rallied and why the outlook remains, broadly, positive, there are still risks to this rally and this market.

Don’t be fooled into being complacent with risk management, because while trends in U.S. and economic growth, earnings and the stock market are all still higher, there are warning signs looming on the horizon.

Chart 5:  Inflation (Warning Sign #1)

Non-Confirmation: Why Isn’t Inflation Rising?

Inflation remains inexplicably low, considering that we’re near full employment and global economic growth is accelerating.

And, accelerating inflation remains the missing piece of a true “Reflation Rally” that can carry stocks 10%, 15% or even 20% higher over the coming quarters and years.

But, it’s not just about missed opportunity.

The lack of inflation is a big “non-confirmation” signal on this whole 2017 rally, and if we do not see inflation start to rise, and soon, that will be a major warning sign for stocks, because…

Chart 6: The Yield Curve – Will It Invert?

Yield Curve: Sending a Warning Signal? 

If the outlook for stocks is so positive, then why did the yield curve (represented here by the 10’s – 2’s Treasury yield spread) equal 2017 lows on Wednesday?

Simply put, if we’re seeing accelerating economic growth, rising earnings, potential tax cuts and all these other positive market events, the yield curve should be steepening, not flattening.

So, if this 10’s – 2’s spread continues to decline, and turns negative (inverts) then that will be a sign that investors need to begin to exit the stock market, because a serious recession is looming, and the Fed won’t have much ammunition to fight it.

If I was stuck on a desert island (with an internet connection and access to my trading accounts of course) and could only have one indicator to watch to tell me when to reduce exposure in the markets, this 10’s – 2’s spread would be it – and it’s not sending positive signals for 2018!