Weighing The Week Ahead: Do Individual Investors Face A Pivotal Decision?

The economic calendar is loaded and there is plenty of non-economic news as well. The punditry will focus on the Trump-Kim summit at the start of the week and then turn to inflation data and the Fed. Who knows what the first might bring, but the market is unlikely to be surprised by the Fed. By week’s end the summer doldrums will provide time for some deeper analysis. I might be wrong about that, but I am trying to write about issues that I see as most important. The pundits might be (and should be) asking: Is this a pivotal decision point for the individual investor?

Last Week Recap

In my last edition of WTWA I asked whether it was time to worry about a trade war. That was a good guess about the topic, since the continuing news about tariffs and retaliation kept the subject on the front burner. This continued through week’s end as the President spoke before the G7 summit. The market reaction suggests that most agree with my assessment: It is a problem, but not an immediate problem.

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 rose 1.6%, and that was also the trading range for the week. I summarize actual and implied volatility each week in our Indicator Snapshot section below. Volatility is back into the long-term range.

After two years of calm and higher markets, some investors are concerned about this year’s drawdowns. One of Jill’s regular charts shows the history of drawdowns since the pre-recession closing high. As you can readily see, the pullbacks are quite normal, even in a rising market. I would add that the “explanations” for the declines often make little sense.

Noteworthy – Household Leverage and Social Security

Oftentimes stories about debt look at only one side of the balance sheet. A balanced approach also considers assets and the ability to repay. Scott Grannis provides a series of charts illustrating the deleveraging process since 2009. Leverage is now at a 30-year low. One problem, which he acknowledges, is that aggregate data may fail to represent the situation of average people. Most would be surprised, for example, to learn that “the average person is the U.S. today is worth about $308K.””

There was also plenty of buzz about the problems with government debt and Social Security. As I always have, I recognize these issues. Vote for those who are willing to compromise, since that is the path to a real solution. Meanwhile, you should not expect Social Security to disappear. (Morningstar). There are a range of solutions including relaxing immigration (immigrants pay SS taxes) and extending the age requirements for benefits. More at 5 Dangerous Myths about Social Security.

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.

The positive economic trends continue. New Deal Democrat’s useful update of high-frequency indicators shows strength in the current and short-term leading indicators, but neutral readings for the long-term group.

The Good

  • The trade balance for April was -$46.2B, beating expectations of -48.8 and the prior -47.2B.
  • Truck tonnage and trucking employment shows an economy that is “pedal to the metal,” reports Dr. Ed Yardeni. He also questions the recent contentions about a shortage of truckers.

  • Hotel occupancy continues the record pace. (Calculated Risk).
  • The ISM Services index registered 58.6, rebounding from a three-month losing streak. Bespoke has this story and a chart combining manufacturing and non-manufacturing.

  • The JOLTS report showed a continuing solid trend and some new milestones. JOLTS expert and aficionado Nick Bunker notes that job openings now exceed the number of unemployed workers. He also reports that the Beveridge Curve is back to pre-recession territory.

The Bad

  • Factory orders declined 0.8%, worse than the expected -0.4% and much worse than the March’s gain of 1.7%. This is another volatile series, even after seasonal adjustments. (US Census data)

  • Trade war retaliation from Mexico — $3 billion in tariffs. Mexico is the second largest market for US exports. (CNN Money)
  • Auto sales are on a declining pace. Calculated Risk’s Bill McBride expects continued sales at near-record levels but concludes that “the economic boost from increasing auto sales is over).

The Ugly

Suicides. The rate is rising across the country according to the Centers for Disease Control and Prevention (CDC). This week’s report was coincidentally at the time of some high-profile stories. Suicide is the tenth leading cause of death overall, and the second-leading cause for those aged 15-24. There are 25 attempts for each death by suicide. (Western Michigan). The CDC link provides suggestions for pubic policy as well as what each of us can do to help those close to us.

The Silver Target

Thanks to everyone who commented on last week’s chart. I recognized readers and posted my own views here. As a group, WTWA readers covered the key points. I am considering this as an occasional feature, so more suggestions are welcome.

The Calendar

We have a big economic calendar, featuring inflation data and the FOMC rate decision. Later in the week we will see key economic reports on retail sales and industrial production. Expectations are positive for all, and the market is prepared for another interest rate increase. The result? We may not get much volatility from the economic news.

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