Weighing The Week Ahead: A Time For Investors To Act

The economic calendar is a light one in sharp contrast to last week’s. That was a good time to observe the market reaction to a wide range of news. Now is the time for investors to use the information.

What actionable investment ideas have become more attractive?


Last Week Recap

In my last installment of WTWA, I provided a framework for analyzing market expectations on a hectic week for news. The financial media was not so organized, taking the topics on the fly – as usual. They did express surprise at some of the market moves. If you had my matrix handy, you could check reactions against it. I appreciate the reader feedback on this approach – mostly quite positive. It was a perfect illustration of the significance of knowing what to watch for.

I was a bit surprised by the result, but it leads nicely into the coming week’s news and opportunities.

Personal Note

I am off to an investment conference next weekend, so I probably will not publish an installment of WTWA. If possible, I’ll update the indicators and take note of some highlights.


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 version which packs in plenty of information without sacrificing clarity.

The market gained 1.5%. The trading range was the same 1.5%, since Thursday’s low equaled last week’s close. You can monitor volatility, implied volatility, and historical comparisons in my weekly Indicator Snapshot in the Quant Corner below.


Noteworthy

Priceonomics analyzes The Most Solar Places in America. As solar owners, one of Mrs. Oldprof’s conditions for our new home, I am watching this even more closely. We have lived here a month, and the sun has shined every day. The economics make sense.


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. The results are now positive in all time frames. NDD concludes:

Thus, barring new and worsening public policy moves, the weak manufacturing side of the economy is simply not going to be enough to overcome the solid consumer and drag the economy into recession.

The Good

  • Pending home sales for September increased 1.5%, beating expectations of 0.7% and August’s (downwardly revised) 1.4%.
  • ADP private employment for October showed a net gain of 125K jobs. This beat estimates of 95K, but September was revised lower, from 135K to 93K.

  • GDP for Q319 (First Estimate) showed an annualized growth rate of 1.9%, beating estimates of 1.5% and close to Q2’s 2.0%. Dr. Robert Dieli issues a special report on the day of GDP releases. As usual, he provides detailed analysis, but also highlights the most important issues.

  • The FOMC cut interest rates by 25bps and changed the language. The combination pleased markets. Leading Fed expert Tim Duy explains the message, a likely end to the “mid-cycle adjustment.” It will take more than a “status quo economic outlook” to justify another cut.
  • Core PCE prices were unchanged in September lower than expectations for a gain of 0.1%. The Fed’s favorite price gauge leaves them plenty of room to act further should they decide it is necessary.
  • Employment for October showed a net gain of 128K jobs, beating expectations of 80K. The prior two months were also revised higher by 95K jobs. The effect of the GM strike was about 40K, less than the 75K that many feared. Unemployment ticked up, but that mostly reflected an increase in labor force participation.

David Templeton (of Horan Capital Advisors) concludes that there is little evidence for a near-term recession. He does a nice job of analyzing the changes in the labor force and the participation rate, including this chart.

The overall pace of net job gains has slowed to an average of 156K over the past six months from the three-year peak of 232K earlier this year. (James Picerno).

The Bad

  • Chicago PMI was only 43.2, missing expectations of 48.2 and September’s 47.1.
  • ISM Manufacturing for October registered 48.3, missing expectations of 48.7 but better than September’s 47.8. The market was untroubled by the close miss. As usual, many emphasized the slight contraction in manufacturing, a small and decreasing part of the economy. The ISM’s own research shows this reading as consistent with GDP growth of 1.6%, which seems about right. Trade war effects are frequently cited in the quoted responses.
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