Weighing The Week Ahead: What Is “Baked Into” Current Market Prices?

We have an important calendar with employment and housing news. Some important market worries have been avoided, at least for a time. What is behind the rebound in stocks. Trying to explain the reasons for changed market perceptions is a wonderful topic for pundits. Anyone can play since no credentials or expertise are required. Everyone can have an opinion. There is no way to determine who is right. I expect many to be asking: What assumptions are baked into current market prices?

Last Week Recap

In my last edition of WTWA (two weeks ago) I questioned whether those who had inferred economic disaster from December’s stock decline now had a different viewpoint. That was a good guess. The daily commentary, while still featuring recession stories, has taken note of the new market mood. On to the next worry.

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.

There was a lot of news last week, but stocks gained only 0.4% and the trading range was only 1.4%. You can see volatility comparisons in our Quant Corner (below).

Noteworthy

Generation Z is entering the workforce. Visual Capitalist has its customary comprehensive infographic, which you can only appreciate by seeing it in its entirety. Here is a very small part.

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 high frequency indicators are an important part of our regular research. This week’s update notes that short-term indicators remain negative while long-term and coincident indicators remain neutral. It will take another week before all effects upon data from the government shutdown are gone.

The Good

  • Powell Testimony did not provide much fresh news but seemed to satisfy the markets. Tim Duy analyzes the data preceding the testimony concluding that Fed patience is justified.
  • Q419 GDP registered 2.6% beating expectations of 2.3%. Eddy Elfenbein looks at growth trends for past decades, with results that would surprise many. See Scott Grannis, who emphasizes that the economy is barely at the overall trend rate of growth.

  • Building permits were 1326K (SAAR) beating expectations of 1285K.
  • Consumer confidence from the Conference Board clocked in at 131.4 beating expectations of 125.0 and P 121.7.
  • Personal income grew 1.0% in December, beating estimates and the prior reading, both 0.3%. Jill Mislinski looks at the real disposable income per capita, arguably a more meaningful measure.

  • Core PCE of 0.2% was higher than the expected 0.1%, but remains in the Fed’s desired range.

The Bad

  • Initial jobless claims rose to 225K, slightly worse than expectations of 221K and the prior of 217K. New Deal Democrat has some warning levels for claims which have not yet been triggered.

  • Personal spending declined 0.5%, worse than expectations for a 0.2% decline and much worse than November’s 0.6% gain.
  • ISM manufacturing was 54.2 missing expectations of 56.0 and below January’s 56.6. Get details and color from the ISM site. Their research concludes that this reading, if annualized, corresponds to real GDP growth of 3.3%. Put another way, it is slightly above the long-term trend.
  • University of Michigan sentiment declined to 93.8 below expectations of 95.6.
  • Rail traffic remains in contraction for the economically intuitive sectors. (Steven Hansen, GEI).
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Disclosure: [If you need help analyzing the economic effects of trade policy and the best stocks for a rebound, send us an email to main at newarc dot com. We can also discuss your personal ...

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