EC Weighing The Week Ahead: All Eyes On Earnings

The economic calendar is one of the lightest we will see in 2020, and we have a holiday-shortened week. Economic data will not be the main story. The news will be filled with Impeachment updates, but that is not a focal point for investors. For us there are 144 earnings reports from S&P 500 stocks. It will be a case of:

All Eyes on Earnings

Last Week Recap

In my last installment of WTWA, I asked whether it was yet time to worry about inflation. It has been so tame that most do not see the risk. I said that I was probably still early in this worry, and so it was. I also failed to reach much of my audience. Despite my rationale that understanding the Fed helps your investing more than railing against the government’s inflation numbers, many remain unconvinced. At least I tried!

Personal Note

Mrs. OldProf asked me how this picture of my box of cords got in the WSJ. She believes that I could have done more weeding before our recent move. (I’m not allowed to talk about her “mystery” stuff). She doesn’t know that I have three boxes like this (I think – might be more).

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’s weekly update, which combines several key features in an easy-to-read picture.

The market gained 2.0% for the week. The trading range was 1.9%, on an intra-week basis. You can monitor volatility, implied volatility, and historical comparisons in my weekly Indicator Snapshot in the Quant Corner below.


Statista shares the most read Wikipedia Articles of 2019. I’m sure there is a lesson in this.

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 the indications are positive in all three time frames. NDD has been watching for signs that manufacturing weakness might have spread to consumers. His conclusion is a bit more upbeat:

As of this week, there is little sign that the weakness in the producer sector has spread out to affect consumers. The conclusion that this remains a passing slowdown vs. a recession remains most likely.

Fans of technical analysis might compare this with the improvement in market health in the Quant Corner (below).

NDD’s conclusion has some support from Bloomberg’s read on consumers.

The Good

  • Mortgage applications were very strong. The start is even better than last year’s excellent performance.

  • Core CPI increased only 0.1% in December versus expectations of 0.2%. As I explained in the last WTWA, low core inflation allows the Fed to remain on the sidelines. There are better indicators of economic growth.
  • Core PPI increased only 0.1% in December versus expectations of 0.2%.

  • Retail sales for December increased 0.3%, in line with expectations, but November was revised from 0.2% to 0.3%. The ex-auto report showed a gain of 0.7% versus an expected 0.5%. (MarketWatch).
  • Initial jobless claims surprised by recording only 204K last week. This beat expectations of 217K and the prior week’s 214K.
  • The JOLTS report for November confirms the expansionary labor market. The quits rate, an indication of employee confidence, was 2.3%. The ratio of unemployed workers to job openings declined slightly but remained at historically low levels under 1.0. The Beveridge Curve remains stronger than at the start of the expansion in the 2000’s. (Washington Center for Equitable Growth). The superficial treatments of this report just mention the number of job openings. The real purpose in value is the insight into labor market structure. Calculated Risk also pushes back on the common superficial interpretations.

    So, for the twenty-first consecutive month, there were more job openings than people unemployed. Also note that the number of job openings has exceeded the number of hires since January 2015 (almost 5 years).

  • Housing starts for December were 1608K (SAAR), far surpassing the expected 1380K and November’s (upwardly revised) 1375K. Calculated Risk provides the analysis and a possible explanation. (Emphasis in the original).

    These were blow out numbers! This was the highest level for starts since December 2006 (end of the bubble). However, the weather was very nice in December, and the weather probably had a significant impact on the seasonally adjusted housing starts number. The winter months of December and January have the largest seasonal factors, so nice weather can really have an impact. Note that Permits were more inline with expectations (still solid).

    Single family starts were up 29.6% year-over-year, and multi-family starts were up 74.6% YoY.

The Bad

  • NFIB small business optimism for December registered 102.7, down from the prior 104.7. It remains in a historically high range. David Templeton (of HORAN Capital Advisors) notes that it is one of the highest readings in the 46-year history of the index. There is also a decline in the number of respondents describing the “Cost of Labor” as the single most important problem. Diana Olick notes that the optimism slipped slightly but is still high.
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