Weighing The Week Ahead: Why Is The Market So Quiet?

  • Housing starts for March were 1139K (SAAR) with 1247K expected. February was revised downward from 1162K to 1142K. Building permits were a bit better than starts, but also slightly missed expectations. Calculated Risk comments on the results, suggesting that starts for 2019 will be down slightly from 2018, but nothing like the comparisons so far. New Deal Democrat observes that the starts do not reflect the rise in purchase mortgage applications.

The Ugly

The Notre Dame Cathedral fire. And the controversy of the aftermath.

North Korean saber-rattling is a distant second place.

The Calendar

We have a light economic calendar with a focus on housing data and sentiment. The 1st Quarter GDP advance estimate will focus attention on the overall economy, but it is “old news” and will be revised twice. The important stories for investors will come from corporate earnings. Fed speakers are in the quiet period. I expect plenty of Mueller report discussion, of course, but this is not a financial story.

Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.

Next Week’s Theme

The light calendar puts the daily focus on earnings reports, but the market story may well be different. In the absence of significant market moves, the pundits and TV producers are scratching their heads, askingWhy is it so quiet?

Background

For those of us who follow markets closely, one good method is to monitor reports from people like Bob Pisani and Art Cashin. Trader attitudes govern the first reactions to events. You need not agree with them, but it is useful to know.

Another source is the excellent subscription service from Briefing.com. Here is part of a report from Friday morning, identified as one of the four key catalysts driving trading:

Lethargy

  • The market has acted tired of late, unable to sustain rallies on good news.This is feeding a sense that the market is ripe for a consolidation phase, which translates into a lack of conviction among buyers and sellers alike.
  • At its high yesterday, the S&P 500 was up 24.1% from its December 24 low and up 16.4% year-to-date.

Do you find it surprising that quiet trading needs explanation? Here are some oft-suggested reasons:

  1. Everyone is on vacation.
  2. Markets are uncertain, lacking any ideas for direction.
  3. Investors are too complacent, satisfied to hold positions in spite of the many obvious risks.
  4. The market is cautious – unwilling to take advantage of opportunities.
  5. And most frequently, quiet times are ominous – a lull before the storm.

The trader perception, as usual, becomes the news. Do you favor one or another of these reasons?

I’ll offer my own conclusions in today’s Final Thought.

Quant Corner and Risk Analysis

I have a rule for my investment clients. Think first about your risk. Only then should you consider possible rewards. I monitor many quantitative reports and highlight the best methods in this weekly update, featuring the Indicator Snapshot.

Short-term and long-term technical conditions continue at the most favorable level. Our fundamental indicators have remained bullish throughout the December decline and rebound. The C-Score reflects the increase in headline inflation, despite slight steeping in the yield curve. I am watching this closely, including analyzing signs of possible confirmation of higher recession odds. We remain well within the warning period.

The Featured Sources:

Bob Dieli: Business cycle analysis via the “C Score.

Brian Gilmartin: All things earnings, for the overall market as well as many individual companies.

RecessionAlert: Strong quantitative indicators for both economic and market analysis.

Georg Vrba: Business cycle indicator and market timing tools. The most recent update of Georg’s business cycle index does not signal recession.

Doug Short and Jill Mislinski: Regular updating of an array of indicators. Great charts and analysis. With updates on industrial production and retail sales, it is time for an update of their extremely useful chart of the Big Four. These are the key indicators used by the NBER in generating official recession dates.

Since a recession requires a significant pullback in these indicators, the picture looks pretty good – although not as much as late last year. We will watch for the delayed update on income and spending with great interest.

Guest Commentary

B of A (via Bloomberg) notes, Inverted Yield Curve Is Waning as a Recession Gauge. While yield curve inversion is a part of our recession warning toolkit, I provided a heads-up about the market over-reaction. Many “newbies” to recession analysis read an article or two and went on TV. One of the biggest challenges for the individual investor is to distinguish between apparently expert commentary from big-name, confident sources, and actual research results. Here is the current update from BofA:

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Disclosure: Do you need to adjust your allocations? How about more dependable investment income? Send an email to main at newarc dot com. We’ll provide some helpful free information, and ...

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