Weighing The Week Ahead: Will The Fed Hint At A New Course?

With a light economic calendar including a lot of old data and an FOMC meeting, the choice of focus for pundits is obvious. Investors might well wonder what new information about the Fed might be available, but that won’t stop the speculation. Pundits will be asking: Will the Fed hint at a new course?
 

Last Week Recap

In last week’s installment of WTWA I took on a very ambitious question: Would a slowing Chinese economy lead to global recession. Since you could write a book or two on this topic, I acknowledged that it was much too big for a WTWA theme. So why bring it up? I am dedicated to highlight an important issue each week. It was the facile explanation in a declining market but got less attention during a week of rallying. The punditry seemed confused about market strength in the face of their perception of weak global data.

The financial news once again focused on the sensational stories.


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 Investing.com. In addition to several choices of index, they include versions for both cash and futures. The interactive charts are very flexible and highlight key news events.

Stocks gained 2.9% on the week, only slightly smaller than the 3% trading range in a week that was mostly straight up. You can see volatility comparisons in our Quant Corner.


Personal Note

I plan to take a week off, but it will probably include both of the next two weekends. Mrs. OldProf is not going, but she has approved and encouraged this. I’ll pipe up if something important happens, and I’ll try to do an indicator update as well.


Noteworthy

An important aspect of investing – perhaps the most important – is a forward-thinking approach. Too many are focused on history and obvious current problems. This prevents them from finding the best long-term investments. Starting by identifying and understanding fundamental changes helps us find future winners. Artificial intelligence is such a theme. Consider the following facts from techjury:

  • By 2025, the global AI market is expected to be almost $60 billion; in 2016 it was $1.4 billion
  • Global GDP will grow by $15.7 trillion by 2030 thanks to AI
  • AI can increase business producitivity by 40%
  • AI startups grew 14 times over the last two decades
  • Investment in AI startups grew 6 times since 2000
  • Already 77% of the devices we use feature one form of AI or another
  • Cyborg technology will help us overcme physical and cognitive impairments
  • Google analysts believe that next year, 2020, robots will be smart enough to mimic complex human behavior like jokes and flirting

Techjury’s research on artificial intelligence is summarized in this post. It is packed full of data, including a wonderful (and huge) infographic. Read the entire article to see which companies and countries are leading in AI development along with many other interesting facts. Here is a small section of the infographic.


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. Long-term indicators are now neutral and the nowcast is slightly positive. He expects further deceleration this year.


The Good

  • Retail sales for January increased 0.2% beating expectations of a -0.1% decline and December’s prior of -1.6% (downwardly revised from -1.2%). The ex-auto result was even stronger, a gain of 0.9%. We are still behind on this series, so February data normally available by now will be released on 4/1. The March data will be delayed only by two days and is now scheduled for 4/18. Everyone is still pondering the December decline that did not correspond to other retail reports.
  • Michigan Consumer Sentiment registered 97.8, beating expectations of 94.9 and P of 93.8. Jill Mislinski’s great chart puts the result into perspective.

  • Inflation reports remained mild. CPI increased only 0.2%, as expected and only 0.1% on the core. PPI headline was up 0.1%, beating expectations of 0.2%. The prior (Feb) was revised from +0.1% to -0.1%. This affects subsequent months.
  • Durable goods orders for January increased 0.4% beating expectations of a -0.6% decline. The December result was a gain of 1.2%. February data will be released about a week late on 4/2. The March data is on schedule.
  • Construction spending for January increased 1.3% beating expectations of 0.3% and much better than December’s decline of -0.8%. February data will be released on 4/1, back on schedule.
  • Small business optimism increased in February. (Calculated Risk). As the chart indicates, this sentiment is down from recent highs but still at historically strong levels.

  • The JOLTS report for January continued strength in the openings to unemployed ratio as well as the Beveridge curve. David Templeton (HORAN) has analysis including this chart.


The Bad

  • New home sales for January were 607K (SAAR), missing expectations of 623K and December’s 652K (upwardly revised from 621K). February data will be a few days late, now scheduled to be released on 3/29. Calculated Risk notes the prior month revisions and concludes:

    With these revisions, sales increased 2.3% in 2018 compared to 2017. I expect sales to be around the same level in 2019 as in 2018 (not fall off a cliff), and my guess is we haven’t seen the peak of this cycle yet.

  • Industrial production increased 0.1% in February, much better than January’s (upwardly revised) decline of -0.4% but missing expectations of a 0.4% increase.
  • Brexit votes reject all current plans, producing confusion. The conventional wisdom is that markets hate uncertainty. Avi Gilburt provides some insight, explaining the dangers of interpreting daily news as if it were Newtonian physics.
  • Gasoline prices rose 4.7% last week, adding to the prior week’s 3.1%. The average price in the US was $2.55, which is still thirteen cents better than one year ago. (EIA via GEI)
  • Rail traffic falls further reports Steven Hansen (GEI), focusing on the rolling average of the “economically intuitive sectors.” He notes that the American Association of Railroads traffic data shows no year-over-year change. This report includes several interesting ways to look more deeply into the data.
  • LA area port traffic declined in February on a year-over-year basis. (Calculated Risk). It was also lower on a rolling 12-month basis, comparing February to January.
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Susan Miller 4 weeks ago Member's comment

Always enjoy reading your posts each week, Jeff. Thank you for taking the time to put it together.