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Weighing the Week Ahead: How Much Has Economic Weakness Hurt Corporate Earnings?

6 days ago

The economic calendar is normal and includes several important reports. I am especially interested in the housing data and retail sales. More important than the economic data is the start of earnings season. With everyone convinced about economic deterioration, expect the pundits to be asking:

How much has the weak global economy affected corporate earnings?

In last week’s installment of WTWA, I asked who was really running the Fed. That was a good forecast for the week’s theme. CNBC led with similar stories at the start of the week, and the discussion continued through Thursday’s Powell testimony. Bloomberg and online financial publications also featured the issue of Fed independence. This was also a question during the hearings, as Powell was asked what he would do if the

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Weighing the Week Ahead: Who Really Runs the Fed?

13 days ago

The economic calendar is modest with a focus on monetary policy. Minutes from the last FOMC meeting, Congressional testimony by Fed Chair Powell, more inflation data, and continuing discussion of Friday’s employment report all put the Fed in focus. In addition, President Trump has identified interest rates and Fed policy the “most important problem” facing the nation. Pundits and financial media will follow that lead, raising the question:

Who is really running the Fed?

In last week’s installment of WTWA, I predicted that the improvement in the US/China trade debate would spark an initial rally, only to be met by objections. As the rally faded on Monday, you could check off each of the viewpoints I said we would hear. As the week progressed, the emphasis on spinning held true. The

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Payroll Employment Data: You Can’t Believe Your Eyes

15 days ago

The payroll employment report is regarded as the most important economic news of the month. It is also the most misunderstood.

To illustrate, please consider this chart. Does it represent a relatively straight line?

More about that below, but first we need some background.

Each month the Bureau of Labor Statistics makes an estimate of the entire number of payroll jobs in the U.S. By subtracting the estimated total for the prior month from that of the current month, they calculate a net change in payroll jobs. It is this change that is the center of attention for financial markets. It is often wrongly cited as the number of jobs created. No! It is the net effect of jobs created and jobs lost. Creation and destruction are each over 2 million per month, so the net effect is

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Weighing the Week Ahead: Chinese Fireworks?

20 days ago

The economic calendar is a big one, featuring the employment situation report on Friday. The rest of the data – ADP employment, auto sales, and the ISM surveys – will be released over 2 ½ days. The US Independence Day celebration on Thursday will provide one type of fireworks. And of course, we have Canada Day on Monday. The combination of events, data, and the calendar make the week ahead even murkier than usual. I expect an initial focus on the US/China trade truce, a shift to discussion of the implications for Fed policy, and a fast exit for the beach. The all-important employment report will be covered by the “B Team” with further reaction next week.
This leaves the remaining pundits to sort out the implications of the trade truce:
Will the market see fireworks from the trade policy

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Weighing the Week Ahead: Can US/China Trade Talks Save the Global Economy?

27 days ago

This week’s economic calendar is important, including reports on personal income and spending, consumer confidence, and the Fed’s favorite inflation indicators. Despite this, the punditry will be looking toward the week’s end and news from the G20 meetings. Naturally, we can expect some advance leaks. Everyone will be wondering:

Can a US/China trade truce boost the global economy?

In last week’s installment of WTWA, I questioned the ever-growing Fed mandate. While not phrased exactly in those terms, much of the last week’s financial commentary had a Fed focus. Somehow, most have come to believe that this is the fundamental force behind financial markets – whether driven by opinion, the President, or financial futures.

Whether you agree with this conclusion or not, it is important

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Weighing the Week Ahead: A De Facto Expansion of the Fed’s Mandate?

June 16, 2019

The economic calendar is normal, highlighting housing data, leading indicators, and the FOMC decision. The pundit conversation remains all about the Fed, but a new angle is getting more attention. The talking heads will not raise the question explicitly – sticking to personal ideas of what the Fed should be doing. The implication?
Are we witnessing a de facto expansion of the Fed’s dual mandate?

In last week’s installment of WTWA, I guessed that, despite the economic data, the punditry would be focused Fed policy and how it might affect stock prices. That was indeed the headline for both news articles and TV segments. The speculation continued all week, and will no doubt continue this week as well.

I always start my personal review of the week by looking at a great chart. This week

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Weighing the Week Ahead: Should Investors Bank on the Fed?

June 9, 2019

The economic calendar is important, featuring inflation data, two elements of the NBER “big four,” consumer confidence, and the JOLTS report. Those needing a fix of FedSpeak are out of luck since it is the quiet period for them. The data all point to an intersection between economic strength and the Fed. The question for stock investors will be:
Should equity investors rely on the Fed to support stock prices?

In last week’s installment of WTWA, I expected a search for meaning in the conflicting market messages. I also predicted that developments on the imminent tariffs on Mexican trade would be our biggest “tell.” Markets certainly found a direction, but there is no consensus on meaning. No one really knows what to expect next.

I always start my personal review of the week by

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Can the Market Rally Without FAANG?

June 7, 2019

The market rally has occurred without much help from FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google). Financial media, with the typical hunger for a story, asks, “Can the market rally without Apple (AAPL).” The entire FAANG group is frequently suggested as an alternative proposition.
The question rests on the hoary market concept of “leadership.” In order to simplify the daily news, financial pundits create armies of bulls and bears. These require stocks that are leaders and bellwethers. This makes for interesting news, but it has little basis in fact.
My research shows significant over-valuation at the top of the S&P 500. This has been exacerbated by market-weighted ETF trading. As the over-valued leaders are replaced, sometimes involving a dramatic fall, the underpriced

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Weighing the Week Ahead: Is there Any Sense in the Conflicting Market Messages?

June 2, 2019

The economic calendar is a big one, including the major employment reports and the ISM indexes. In normal times, this would be the theme. But these are not normal times. Fed Speakers will be on the trail with every casual utterance parsed by algorithms and traders. The debate over the most recent tariff announcement will grab headlines. And who knows what the next tweet might be?
The punditry will operate with advocacy in mind. Instead, we should all be asking:
Can investors make any sense out of the conflicting market messages?

In last week’s installment of WTWA, I said that a “sputtering economic engine” would be a big theme during the holiday-shortened week. That was pretty accurate, as was my comment that “any tweet or Pres. Trump’s visit to Japan might spark a trading move.”

I

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Weighing the Week Ahead: What Should We Make of a Sputtering Economic Engine?

May 26, 2019

The economic calendar is normal but we have a holiday-shortened week. We can also expect a slow return from the weekend marking the unofficial start of summer. Despite the interesting calendar, the biggest economic news will come in two weeks. While any tweet or Pres. Trump’s visit to Japan might spark a trading move, the key question is one of analyzing recent trends. We should all be asking:
Do current trends imply a sputtering economic engine?

In last week’s installment of WTWA, I described a very light calendar with few planned events. This suggested a “quiet” week ahead. So much for that conclusion! The trade war give-and-take was not a surprise, but the gap opening on Monday came from information known the week before. Theresa May’s resignation was probably in the cards, but

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Weighing the Week Ahead: What Determines the Agenda for Investment News?

May 19, 2019

The economic calendar is one of the lightest, and a long holiday weekend impends. How will this news vacuum be filled? Probably with celebrity news, following the latest tweets, analyzing any new Democrats running for President, and interviews with B-level guests. Rather than guessing which of these will dominate – an exercise in futility – I will take the suggestion of a wise reader. He encouraged me to choose what I thought was most important. That was good advice. We should all be asking:
What determines the agenda for investment news?

In last week’s installment of WTWA, I noted the big economic calendar and the abundance of news. My surprising conclusion was that there was a stalemate on all fronts. The tweeting and news-driven market moves continued, but there was little real

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Weighing the Week Ahead: Stalemate?

May 12, 2019

The economic calendar has plenty of important data. Fed speakers will be on the circuit. There is plenty of political and geopolitical news. On all of these fronts we see a stalemate.

(Learn more about stalemate tricks from Grandmaster and PhD mathematician Karsten Müller)
The financial punditry will ask:
What does political stalemate mean for financial markets?

The President “marveled” at how one of his tweets seemed to move the stock market! (Business Insider).
Paul Schatz (Heritage Capital) writes:
After 30 years in the business, I keep saying that few things surprise me anymore, but I have to say that watching traders and market participants glued to Twitter for any sign of tariff walk back by the president is certainly a first for me. I can’t imagine what the great investors of

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Weighing the Week Ahead: Should Investors Fear A Market Top?

May 5, 2019

The calendar is modest, with the big reports all hitting last week. Investors will never have more current information on the economy, the Fed, corporate earnings, and various risks than they do right now. It is difficult to guess what the punditry will do when given an open slate. We should be asking:
Should we fear a market top?

In last week’s installment of WTWA, I took note of the avalanche of relevant data, suggesting that it was time for some synthesis and analysis. I didn’t expect any help from the pundits, who analyzed piecemeal as expected. I hope that readers did better by using my suggested framework. More about that below.

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski, who packs a lot of relevant information

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Weighing the Week Ahead: How to Watch the Information Avalanche

April 28, 2019

The calendar is massive, and it comes at a crucial time. I have never seen so much fresh information in a single week: the biggest economic reports, the heart of earnings season, and an FOMC meeting. And that is without any Washington surprises.
It is a week where we should be paying special attention. Even though the pundits will report story-by-story, astute investors should wonder:
What can we learn from this avalanche of new evidence?

In last week’s installment of WTWA, I asked why the market was so quiet, reviewing several possibilities. This was indeed a topic of significant discussion during another quiet week. Also, as I predicted, some jumped on the idea of a lull before the storm. As I wrote on Twitter, if you seek omens, you will find them!
One example was some research

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Weighing the Week Ahead: Why is the Market so Quiet?

April 20, 2019

The economic calendar is light so attention will again focus on Q1 earnings reports. Non-financial news will, no doubt, take center stage. The biggest market story seems to be the lack of action, as shown in our updates below. That might be fine for you and for me, but not for the punditry. They are all scratching their heads in wonderment, asking:
Why is it so quiet?

In last week’s installment of WTWA, I suggested that the general focus would be on Q1 earnings and possible confirmation of recent economic data. There was a lot of competition from important non-financial news, but the earnings stories got plenty of play.

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski, who packs a lot of relevant information into the

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Weighing the Week Ahead: What Will Q1 Earnings Reveal About Economic Strength?

April 14, 2019

The economic calendar is normal and includes some important reports. Despite this, the data will be overshadowed by Q1 earnings reports. With opinion sharply divided on future economic prospects, many will want to know how companies are doing and what their leaders think. They will be asking:
What will Q1 earnings tell us about the strength and prospects for the economy?

In last week’s installment of WTWA, took note of the persistent discussion about the end of the economic cycle. Despite some of the typical crowding out from political stories, that topic got continued attention. On Friday, the story took a new turn as a touch of positive economic news from China was enough to tilt opinion. I agree with Eric Basmajian that we need to look beyond the PMI reports for real evidence. He

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Weighing the Week Ahead: Are We Near the End of the Economic Cycle?

April 7, 2019

The economic calendar is normal with an emphasis on inflation and sentiment data. None of the big reports is on the calendar, leaving pundits free to take up the biggest current issue. They will be asking:
Are we near the end of the economic cycle?

In my last full installment of WTWA I asked whether the Fed would hint at a new course. Impressions from the meeting were mixed. It has remained a prime topic of conversation fueled by Presidential tweets, comments, and potential Fed appointees.
In my “vacation edition” I summarized the most important aspect of the Fed meeting as well as the unusual reaction of the markets. I promised that I would write something if an important issue arose. The questionable analyses of the yield curve fit the bill.
I followed up with Making Sense of the Fed

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Weighing the Week Ahead: An Avalanche of Housing Data

March 24, 2019

It is a big economic calendar with almost every report on housing released in a single week. This is the result of the shutdown delay. Now we can get more clarity on this important sector. Pundits will be asking:

Are lower mortgage rates helping home sales?

In last week’s installment of WTWA I suggested that we watch the Fed for hints of a new course. That was an accurate prediction, since there is now a clear signal of a pause on interest rate hikes. More than that, the Fed seems to have recognized a problem with their model of low unemployment implying incipient inflation. Fed expert Tim Duy explains the significance of this change.

It is hard to understate the importance of this shift. The Fed’s models haven’t worked this way in the past. In previous iterations of the

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Weighing the Week Ahead: Will the Fed Hint at a New Course?

March 17, 2019

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?

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

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Weighing the Week Ahead: Will Slowing Chinese Growth Spark a Global Recession?

March 10, 2019

We have a big economic calendar with some reporting still catching up from the government shutdown. Inflation data, small business and consumer confidence, and retail sales lead the list. In addition to the U.S. economic data, there is increasing concern about China. Pundits are wondering:
Will weakening Chinese growth drag the world into a recession?

In last week’s installment of WTWA I suggested renewed attention to what was “baked into” current market prices. While the topic attracted frequent mention, the daily market declines and political news attracted more attention.

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

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Weighing the Week Ahead: What is “Baked Into” Current Market Prices?

March 3, 2019

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?

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

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Weighing the Week Ahead: Is there a New Message from the Markets?

February 17, 2019

We have a light economic calendar and a short week. We’ll get earnings reports from another 10% of S&P 500 companies. With plenty of time and little fresh information, I expect plenty of pure speculation about the state of the market. This commentary will have a broad theme, with pundits asking:
Is there a new message from the markets?

In my last edition of WTWA I took note of the growing emphasis on technical indicators, even for long-term investors, asking whether the 200-day moving average should be considered. As often happens these days the stories focused on political developments and the surprise Amazon (AMZN) decision not to build a second headquarters in New York. The S&P climbed above the 200-day MA on Friday without much fanfare. Next problem, please?
The Story in One

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Weighing the Week Ahead: Should Investors Worry about the 200-day Moving Average?

February 10, 2019

We have a normal economic calendar, and 1/3 of S&P 500 companies have not yet reported Q418 earnings. Corporate earnings are not confirming those who thought the market was signaling a recession. Both the economy and earnings remain in the background. Daily market moves, even small ones, and the often-erroneous explanations dominate the financial news. The market story has become the battle of the 200-day moving average.
I consulted Mrs. OldProf about today’s theme. I asked which was most interesting: The Super Bowl offensive show, the State of the Union and commentary, or whether we broke the 200-day moving average? Her response was not helpful.
Since I have a lot of good material this week, I wish I could attract more readers with a great title. I wish I could include Virginia

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Weighing the Week Ahead: Looking Beyond the Obvious

February 3, 2019

We have a small economic calendar, but another big week for earnings. Corporate earnings are not confirming those who thought the market was signaling a recession. Starved for something new to worry about, the punditry has turned to reductions in earnings estimates. This newfound interest in forward earnings provides another dimension for the gloomy set. Instead, I suggest that astute investors should consider the data while…
….looking beyond the obvious.
The obvious elements include some economic weakness in Q119 for a variety of well-known reasons. We should expect some earnings impact as a result.

In my last edition of WTWA I highlighted not only the abundance of data, but also the diversity of analytical methods to consider. Investors could review the “message” of the market,

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Stock Exchange: Knowing When to Walk Away

January 31, 2019

You’ve got to know when to hold ’emKnow when to fold ’emKnow when to walk awayAnd know when to runYou never count your moneyWhen you’re sittin’ at the tableThere’ll be time enough for countin’When the dealin’s done

The Gambler, popularized by Kenny Rogers, 1978

The Stock Exchange is all about trading. Each week we do the following:

discuss an important issue for traders;highlight several technical trading methods, including current ideas;feature advice from top traders and writers; andprovide a few (minority) reactions from fundamental analysts.We also have some fun. We welcome comments, links, and ideas to help us improve this resource for traders. If you have some ideas, please join in!

Review: Bear Momentum?

Our previous Stock Exchange asked the question: Are you

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Weighing the Week Ahead: A Test of Investing Acumen

January 27, 2019

We have a huge economic calendar, a Fed meeting, and the biggest week of earnings season. And don’t forget the geopolitical and domestic political issues. Can there really be a single theme for the week ahead?
Perhaps not, but it does provide a unique opportunity. The information caters to several different investment approaches. Which will come to the fore? Pundits may not find the right question, but astute investors should be using this week as…
A test of their investing acumen.
We should consider the important data, but that is not enough. Data analysis requires context and a strong method.

In my last (bonus) edition of WTWA I interrupted my mini-vacation to review the recent developments. I noted that the average investor (who didn’t take Econ 101 or doesn’t remember it) was getting

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Weighing the Week Ahead: The Real-Time Economic Lesson Continues

January 22, 2019

It is a light economic calendar in a holiday-shortened week. Political headlines and the government shutdown will dominate financial news. Earnings reports are more important for investors, so we should focus there. I also recommend several key themes. We should all be watching closely as….
The Real-Time Economic Lesson Continues.
I hope we can analyze stocks instead of political controversies in the week ahead.

In my last edition of WTWA I asked whether earnings reports would change the gloomy “message” of the markets. That was the right question, and earnings seem generally in line with continuing modest economic growth.
John Butters (FactSet) reports on the earnings season so far, with 11% of the S&P 500 reporting. The earnings “beat rate” is 76% and the revenue beat rate is 56%.

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Weighing the Week Ahead: Will Corporate Earnings Results Change the Message of the Markets?

January 13, 2019

It is a light economic calendar without any of the most important reports. The government shutdown will command increasing attention as long as it continues. Finally, there is some real competition in financial news – the start of earnings season. For weeks it has been a battle between economic data and stock prices, between economists and traders, between those investing on fundamentals and those trying to time the market. Expect the punditry to be asking:
Will corporate earnings results change the message of the markets?
I hope we can analyze stocks instead of political controversies in the week ahead.

In my last edition of WTWA I took a deeper look at indicators that were “rolling over.” While that did not slow down the exaggerated use of the term, perhaps a few people were

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Weighing the Week Ahead: Should We Worry about Indicators that Decline from a Peak?

January 6, 2019

We are back to a normal economic calendar, with Congress in session and plenty of FedSpeak. Until the government shutdown ends, I expect that to get maximum news coverage, followed by the President’s latest legal troubles. Since these are not the most important market stories, I want to examine more closely the debate about economic indicators rolling over. Some of the punditry will join me in wondering,
How worried should we be about economic indicators declining from a peak?
Some see this as a relatively normal decline from an overly exuberant pace of growth. Others see it as the first signal of imminent disaster. Let’s take a closer look.

In my last edition of WTWA I asked readers to treat the new year as a blank slate. Rather than focus on recent events, I encouraged some

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Weighing the Week Ahead: A Blank Slate for the New Year?

December 30, 2018

We have another short week, a government shutdown as partisan lines are redrawn, and also some important new data. Many will plan to take the week off, but some will be making last-minute position adjustments on Monday. I expect many market participants to happily turn the calendar page, enjoying a blank slate for the New Year.

In my last edition of WTWA I made some suggestions about planning for uncharted waters. That was more important than I could have known. Few have charts for the market moves we saw. Even the punditry struggled to find anything substantive beyond murmuring “oversold” and “short-covering.”
My thoughts? The moves continued to involve all sectors and stocks. It was definitely not a time for short-term stock pickers. This was true on the downside in recent weeks and

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