A week featuring the Fed Chair’s semi-annual Congressional testimony, and daily speeches by most of her Fed colleagues, would normally represent a commanding first choice for the upcoming theme. This time is different. (Yes, I know that you are never supposed to say that). The first weeks of the Trump Administration have generated daily news on a wide range of topics, each of which draws attention.
The combination of the two will provide an irresistible topic for the punditry. It will be:
Trump v. Yellen, round one.
Last Week
Last week the light economic calendar provided mixed news, but there was still a rally in stocks.
Theme Recap
In my last WTWA I predicted a discussion about whether the current market optimism was justified. Despite some breaking news during the week, especially about earnings, that theme got plenty of attention.
The Story in One Chart
I always start my personal review of the week by looking at this great chart from Doug Short via Jill Mislinski. She notes the new high and the overall gain of 0.81% for the week.
Doug has a special knack for pulling together all the relevant information. His charts save more than a thousand words! Read his entire post for several more charts providing long-term perspective.
The News
Each week I break down events into good and bad. Often there is an “ugly” and on rare occasion something very positive. My working definition of “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!
This week’s news was again mixed, with a tilt to the positive side.
The Good
Framing lumber prices strengthen. Bill McBride explains why this is important. Jobless claims are so low they are in uncharted waters.Scott Grannis discusses the implications, with a chart-packed review of policy proposals and the labor force.Corporate earnings. I am scoring this as a slight positive. I want to discuss it, so I put it somewhere. The results are mixed. Earnings are below expectations, revenues are higher, and outlook (always negative) is not as bad as the long-term average. There is a year-over-year gain for a second consecutive quarter, not seen for two years. (Factset). Brian Gilmartin also highlights the leading sectors. He also has something you will not find anywhere else – an analysis of the impact on earnings from a border tax. Great work!
The Bad
High frequency indicators are a touch more negative. New Deal Democrat does an excellent weekly update. I always read it and any serious investor should join me.When asked to describe any recent news that they had heard about the economy, 30% spontaneously mentioned some favorable aspect of Trump’s policies, and 29% unfavorably referred to Trump’s economic policies. Thus a total of nearly six-in-ten consumers made a positive or negative mention of government policies. In the long history of the surveys, this total had never reached even half that amount, except for five surveys in 2013 and 2014 that were solely dominated by negative references to the debt and fiscal cliff crises. Moreover, never before have these spontaneous references to economic policies had such a large impact on the Sentiment Index: a difference of 37 Index points between those that referred to favorable and unfavorable policies. These differences are troublesome: the Democrat’s Expectations Index is close to its historic low (indicating recession) and the Republican’s Expectations Index is near its historic high (indicating expansion). While currently distorted by partisanship, the best bet is that the gap will narrow to match a more moderate pace of growth. Nonetheless, it has been long known that negative rather than positive expectations are more influential in determining spending, so forecasts of consumer expenditures must take into account a higher likelihood of asymmetric downside risks.
The Ugly
Scamming 9/11 heroes and NFL concussion victims? Pretty low, if true. Some will go to any lengths to make a buck. (CBS news).
The Silver Bullet
I occasionally give the Silver Bullet award to someone who takes up an unpopular or thankless cause, doing the real work to demonstrate the facts. No award this week. Nominations are welcome! For inspiration, you might test yourself on the misleading visualization techniques described by Nathan Yau. I see these daily, and so do you. The most common in financial posts is this one:
The Week Ahead
We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead. You can make your own predictions in the comments.
The Calendar
We have a normal week for economic data.
The “A” List
Housing starts and building permits (Th). Little change expected in these important leading indicators. Leading indicators (F). Popular economic gauge expected to remain strong. Retail sales (W). Little is expected from the January data. Initial jobless claims (Th). How long can the amazing strength continue?The “B” List
Industrial production (W). A small gain is expected in the volatile series. Philly Fed (Th). Popular report is the first look at February data. PPI (T). Starting to run a bit hotter. That will attract more attention if it continues. CPI (W). See PPI above. Business inventories (W). December data affecting Q4 GDP. Favorite spin target: Voluntary or involuntary build up?
Chair Yellen give s her semi-annual Congressional testimony on Tuesday (Senate) and Wednesday (House). The presentations are the same and the order alternates. If you don’t know why, then you missed that class in Congressional Government! There are also appearances by a host of
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