INVESTOR’S first read.com – Daily edge before the open
S&P 500: 2,939
Monday, April 29, 2019 9:07 a.m.
NOTE: Investors first read will not be published Wednesday through Friday
MarketWatch’s Rex Nutting was quick to warn readers today that the 3.2% GDP number reported last week was misleading, that growth in the private-sector was the weakest in six years, more like at a plus 1.3% annual rate. Consumer Spending rose only 1.2% in Q1 after a +2.5% rate in Q4, Durable Goods dropped5.3%, the worst since 2009, he notes. Business investment slowed to 2.7% from 5.4%, investments in factories, offices, stores and oil wells fell for the third straight quarter, investments in computers, airplanes and machinery barely grew, rising 0.2%, Nutting explains.
This will be a big week for economic reports, highlighted by Consumer Confidence and Pending Home Sales on Tuesday, the ADP Employment report, PMI Manufacturing, ISM Manufacturing, and Construction Spending on Wednesday, Jobless Claims and Factory Orders Thursday, and the Employment Situation, PMI Services and ISM Non-Manufacturing reports on Friday.
On a brighter note, Q1’s earnings for the S&P 500 may not be a bad as the expected minus 2.5% rate, and may even end up a smidge positive, though a number of major companies have yet to report, including GM, Apple, Alphabet, GE, McDonald’s and Under Armour.
The FOMC meets this week followed by a press conference by Fed Chief Jerome Powell at 2:30 Wednesday. The Fed did an abrupt about face on policy January switching to a “no action” policy of raising rates from one a steady rate increases. The Street will be parsing comments by Powell for clues to whether the Fed will lower rates in coming months to prevent a recession in a presidential election year.
I continue to urge caution and a healthy cash reserve in line with one’s tolerance for risk. Odds favor a correction after the sharp 25.2% rebound in the S&P 500 since late December.
Additionally, I think we are in the early stages of a recession, though the Fed will do everything in its power to head it off. Companies continue to buy back stock, a major contributor to the bull market’s buoyancy – so much for the 40% tax
rate cut !!
News of progress on U.S./China trade talks my hit this week, though most of that is already priced in current levels.
TECHNICAL: (No change from Thursday)
Minor Support: DJIA:26,507;S&P 500:2,937; Nasdaq Comp.:8,140
Minor Resistance: DJIA:26,621; S&P 500:3,112 ; Nasdaq Comp.:8,594
A break beyond support or resistance increases the odds that the market will move further in that direction.
The risk of a flash crash will exist for at least 6 weeks. ………………………………………………….
Friday (Apr. 26, 2019)
The first estimate for Q1 GDP came in today well above projections at a plus 3.2% (annual rate), but futures trading indicates a mixed open for stock prices.
Give the Street a chance to digest this surprise announcement before concluding the BIG money is selling into the news.
At this point, we don’t know how effective the Fed’s January flip-flop in policy from raising rates to a hold will be.
Retail sales have picked up but individual, consumer, business and government debt is uncomfortably high, indicating spending power going forward is suspect.
The stock market has recouped all of its Q4, 20% loss since the Fed reversed fields. Economists do not expect a cut in interest rates this year, I do, if the economy begins to tank. I expect the Fed to do everything in its power to head off a recession in an election year. Their problem will be if the economy heats up. Do they raise rates ?
This is a late-stage, overvalued bull market with a lot more downside risk than upside potential. At some point here, the BIG money will exit, after which the plug will be pulled and the market will plunge a buyers vanish and selling increases. Beware ! A VERY DANGEROUS MARKET.
Thursday (Apr. 25, 2019)
We are in the late stages of a bull market where money can be made quickly, because traders and investors are quick to jump on anything moving up. Tops feature a euphoric mania that masks overvaluation and looming risks.
That is why market tops are hard to read. There is an overriding mentality among investors that drive them to score one more time.
Bad news and warnings are ignored, bears are despised for raining on the parade.
It’s all obvious several months after the market crashes and reality sets in, investors wonder why they didn’t see the warning signs that were so clear.
This pattern of human behavior is consistent at tops, as is overriding fear at bottoms that prevent investors from buying in at bear market bottoms.
I can only urge readers to have a cash reserve, selling out entirely is out of the question. Anyone who is on margin at this point is at HUGE RISK.
The Fed sees a greenstick fracture in the economy and is trying to head off a recession in an election year, which would devastate the Republican party. Nine of the last 10 recessions have occurred with a Republican in the White House.
Wednesday (Apr. 24, 2019)
The S&P 500 and Nasdaq Comp. should hit new all-time highs today, but the DJIA has a ways to go to beat 26,951.81.
The S&P 500 has only to top 2,941.91, the Nasdaq Comp. 8,133.29.
What does this mean ?
A lot of press and White House hype, and possibly a flurry of buying.
What should investors do ?
Raise some cash if they haven’t already.
The Street is excited about earnings reports to-date coming in better than expected. Generally, the Street low-balls projections for this reason, i.e. easier to beat.
United Tech (UTX) was up 2.3% and Coca Cola (KO) up 1.7% on earnings beats. Verizon (VZ) beat projections, but was down 2.1%
The Street was heartened by a 3.3% jump in New Home Sales Tuesday, but ignored a 5.4% drop in Existing Home Sales Monday.
In late stage bull markets investors tend to focus only on good news, not wanting to consider the party will soon end.
Tuesday (Apr. 23, 2019)
We are still locked in a cruise control market where algorithms make the decisions and execute the orders, resulting in a market that automatically notches up without regard for over-valuation or the potential for bad news.
One of the first things I learned when trading the market was to RESPECT it, because it can suddenly turn ugly.
What we are seeing here is a combination of late-stage bull market arrogance and greed. Amazing that Q 4’s 20% crunch wasn’t a wake up call. Give the Fed credit for converting a technical rally into a full recovery of all that was lost, as it abruptly changed its policy from rate increases to no rate increases.
I don’t see respect here, what I see is an investment community that thinks every correction will be followed immediately by a rebound. That is a good way to get blindsided and buried with losses.
Investors simply do not want to heed warnings in late-stage bull markets; they believe they can stay for just one more score before it’s over.
They never sell…..……… until the losses become unbearable, which is often the time they should be buying. Humans being humans.
No one wants to liquidate their entire portfolio, but why not establish a healthy cash reserve just in case the BIG money walks away and the Street tweaks its algos to lock in gains and cut back its buying.
Monday (Apr. 22, 2019
Q1 earnings are posting, but it is too early to determine if the Street is looking beyond an expected poor showing this year to 2020 when it expects more robust growth. In recent weeks, the Street has been ratcheting down its projections for Q1 and Q2. If that spills over to 2020, it would be bad news for the bulls.
The Fed’s reversal of policy from steady increases in its benchmark interest rte (fed funds) to one of ease has forced mortgage rates down to levels more attractive to home buyers.
Existing Home Sales for April will be reported at 10 o’clock today and New Home Sales reported tomorrow at 10 o’clock, which may give us a read on whether the industry is bouncing back.
We are on a recession watch, and housing is a key indicator. The Fed will try to prevent a recession, which is why I expect a rate decrease this year.
Either way, the market is historically overvalued with the Shiller price/earnings ratio more overvalued than at any time in the last 100 years, except during the dot-com bubble (1999-2000), which precipitated an ugly bear market taking the S&P 500 down 50% and Nasdaq Comp. down 78%.
EARNINGS: For 2019, FactSet expects a gain of 3.7%. Currently, it tracks 2019 earnings gains/losses at Q1: -4.3%, Q2: -0.4%, Q3: +1.4%, and Q4: +8.3%. For the year, FactSet expects earnings growth to be +3.4%
A Morgan Stanley study shows a downturn in S&P 500 earnings growth has consistently triggered a plunge in stock prices. Analysts have been slashing 2019 earnings projections, however he Street is betting on a rebound in 2020. If they start slashing projections for 2020, we have the next leg of the bear market.
What No One on Wall Street Wants to Hear
>We are in the late innings of an economic expansion, so a recession is a good bet. The current expansion started in June 2009, has lasted 116 months, the second longest on record and twice as long as the average length of 11 cycles since 1945.
> Of the 10 recessions since 1950, the average time between the low point in the unemployment rate and the start of a recession was just 3.8 months. The unemployment rate hit a low of 3.7 percent in November, jumped to 3.9 percent in December and to 4.0 percent in January. Now, averages include months below and above 3.8. What’s more, we won’t know when the current recession if we have one begins because that conclusion is reached by the Nat’l Bureau of Economic Research (NBER) long after the fact.
>Bear markets lead the beginning of recessions by 3 to 12 months. The current bull market at 119 months is four times the average of the last 15 bulls going back to 1957
>Nine out of the last 10 recessions have occurred with a Republican in the White House.
>The current economic expansion has lasted 123 months. That’s 65 months (2.1x) longer than the average expansion (58.4 months) going back to 1945.
>Of the 10 recessions since 1950,the average time between the low point in the unemployment rate and the start of a recession was 3.8 Months.
> Of the 10 recessions since 1950, the average time between the low point in the unemployment rate and the start of a recession was just 3.8 months.
Investor’s first read.com
A Game-On Analysis, LLC publication
Investor’s first read, is a Game-On Analysis, LLC publication for which George Brooks is sole owner, manager and writer. Neither Game-On Analysis, LLC, nor George Brooks is registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. References to specific securities should not be construed as particularized or as investment advice as recommendations that you or any investors purchase or sell these securities on their own account. Readers are expected to assume full responsibility for conducting their own research pursuant to investment in keeping with their tolerance for risk.