Weighing The Week Ahead: A Test Of Investing Acumen

We have a huge economic calendar, a Fed meeting, and the biggest week of earnings season. And don’t forget the geopolitical and domestic political issues. Can there really be a single theme for the week ahead?

Perhaps not, but it does provide a unique opportunity. The information caters to several different investment approaches. Which will come to the fore? Pundits may not find the right question, but astute investors should be using this week as…

A test of their investing acumen.

We should consider the important data, but that is not enough. Data analysis requires context and a strong method.

Last Week Recap

In my last (bonus) edition of WTWA I interrupted my mini-vacation to review the recent developments. I noted that the average investor (who didn’t take Econ 101 or doesn’t remember it) was getting a real-time lesson in economics. That captured the week’s stories as well as anything. We are gradually seeing evidence of impulsive policies.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski. She includes a lot of relevant information in a single picture – worth more than a thousand words. Read the full post for more great charts and background analysis.

Stocks declined 0.22% with plenty of daily movement. The trading range was 2.1%, calmer than in recent weeks. You can see the volatility results and comparisons in our indicator snapshot (below).

To put the post-Christmas period in perspective, let’s look at a longer-term chart from Jill.

Whether the trend seems bullish or bearish depends mostly upon your time frame. A key question is what has changed in the last month?

Noteworthy

The U.S. Energy Information Administration has published its annual energy outlook, featuring some projections to 2050! The forecasts make and describe certain key assumptions. This is great reading for anyone interested in energy trends. Here are the key takeaways from the report.

• The United States becomes a net energy exporter in 2020 and remains so throughout the projection period as a result of large increases in crude oil, natural gas, and natural gas plant liquids (NGPL) production coupled with slow growth in U.S. energy consumption.

• Of the fossil fuels, natural gas and NGPLs have the highest production growth, and NGPLs account for almost one-third of cumulative U.S. liquids production during the projection period.

• Natural gas prices remain comparatively low during the projection period compared with historical prices, leading to increased use of this fuel across end-use sectors and increased liquefied natural gas exports.

• The power sector experiences a notable shift in fuels used to generate electricity, driven in part by historically low natural gas prices. Increased natural gas-fired electricity generation; larger shares of intermittent renewables; and additional retirements of less economic existing coal and nuclear plants occur during the projection period.

• Increasing energy efficiency across end-use sectors keeps U.S. energy consumption relatively flat, even as the U.S. economy continues to expand.

There are plenty of interesting charts. Here is a sample.

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!

New Deal Democrat’s high frequency indicators are an important part of our regular research. This week’s update shows a continuing decline in the short-leaning indicators, which remain negative. The long-leading forecast continues its recent rebound.

Earnings

We must take note of the earnings results for the week, but I won’t call them either good or bad. The beat rate was good, but the size of the earnings beats (3%) was below the five-year average. Revenue beats were also below that measure. (FactSet).

So far, the earnings reports seem consistent with the economic data – growing, but at a slower pace.

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

The Good

  • The shutdown ends at least for now. The myriad personal and economic effects will end.
  • Initial jobless claims declined to 199K. Bespoke notes that this is the lowest level since 1969. [Jeff – investors should realize that this will not continue forever. Slightly higher levels do not presage an imminent disaster.]

The Bad

  • Leading economic indicators declined 0.1% in line with expectations, but down from November’s gain of 0.2%. Some of the elements were estimated because of the shutdown.
  • Existing home sales for December were at a 4.99 M annual rate, missing expectations of 5.25M and a prior of 5.33M. Calculated Risk observes that single-family housing starts are the most important housing series for the economy. The government shutdown delayed that data. Bill sees existing home sales as “reasonable.”
  • The Chemical activity barometer (measured via a three-month moving average) declined 0.3% in January. While this is still an increase of 0.8% year-over-year, it is a sharp decline from the last few months. Calculated Risk sees this as a leading indicator for industrial production, as shown by the chart below.
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