Weighing The Week Ahead: Don’t Get Framed!

The market remains in a narrow trading range, near the record highs. There have been some relatively minor leadership changes. This reflects not investor complacency, but intense disagreement about how to interpret data and events. Each viewpoint has a history, a philosophy, and problem something to sell!

The power to set the agenda and to frame the issues is more important than most understand. The punditry will not be explaining this in the week ahead, but they will be practicing it. By watching for it (or simply ignoring financial news) you can avoid the biggest current investment danger: Don’t Get Framed!

Last Week Recap

In my last edition of WTWA I asked what might disrupt the delicate balance of news. That was a good question. Despite plenty of discussion it remained unanswered during my vacation. Earnings are strong as are economic reports. The only changing elements are the subjects of tweets and assorted corporate issues.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. I especially like the version updated each week by Jill Mislinski. She includes a lot of valuable information in a single visual. The full post has even more charts and analysis, including commentary on volume. Check it out.

The market was headed for a nice weekly gain until Friday’s trading. The late-day rebound held the week’s loss to 25 bps. Despite the swingy chart the range for the week was only 1.3%. I summarize actual and implied volatility each week in our Indicator Snapshot section below. Volatility remains well below the long-term range.

In the same post Jill includes an update on drawdowns. This helps us see the nature of this rally – occasional declines even in the context of a major stock rally.

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too.

When relevant, I include expectations (E) and the prior reading (P).

New Deal Democrat’s regular weekly review of high-frequency indicators remains positive overall but has slipped to neutral for those in the long-term forecast. A small change could send this forecast into negative territory.

The Good

  • The JOLTs report reflects continuing structural strength in the labor market. The Washington Center for Equitable Growth has the best chart pack on JOLTs. The quit rate remains at historically high levels (positive, since this implies worker confidence in the job market). The Beveridge curve shows that conditions are at pre-recession levels. With the tighter labor market, job openings are now yielding fewer hires.

Larry Williams (Daily Speculations) provides anecdotal support with a sign he is seeing everywhere on his travels. He notes that some include bonuses for immediate applications.

  • Business owners remain highly optimistic. David Templeton (HORAN) reports the data from Gallup. He notes that finding qualified workers remains the biggest challenge for small-business owners.

  • PPI remains tame with a headline increase of 0.0% and 0.1% on the core. E= 0.3 and 0.2. P= 0.3% on both.
  • Initial jobless claims remain at record lows, this week only 213K.
  • Companies remain optimistic. Avondale Asset Management reviews transcripts from earnings calls and presentations. Their full report is loaded with excellent examples. Their overall summary?

    Optimism abounds as the boom times in the economy persist. As a result, companies have lots of positive commentary and reasons to be excited. Despite this, talk of trade war hangs over the markets.Few people talk about risk, but history dictates that markets are cyclical. 

The Bad

  • Real wages have declined on a YoY basis, despite the increase in aggregate payrolls. New Deal Democrat highlights the 2.9% CPI increase and compares it to the gain of 2.7% of non-managerial workers. He explains why the reported aggregate wage growth does not tell the whole story. Eddy Elfenbein observes that most of the increase came from more than six months ago. The July report registered a gain of 0.17%. He notes, “That’s still tame.”

  • Rail traffic was higher YoY, but Steven Hansen (GEI) notes that the rate is decreasing. Read his full post for deeper analysis, several sources, and plenty of charts.

Even the bad news this week was mostly neutral. Feel free to add items I missed in the comments.

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