Weighing the Week Ahead: Time to Rebuild the Wall of Worry?

As some market worries have been put to rest, there is a growing appetite for new ones. Pundits who say that things look OK are not very exciting. Last week we saw a shift in attention. Despite healthy earnings and good economic data, I expect pundits to be asking:

What should investors be worried about?

Last Week

Last week the economic news was good, but mostly ignored.

Theme Recap

In my last WTWA I predicted a week focused on geopolitical risks. Despite some attention to earnings, economic data, and the latest Trump Administration pronouncements, that proved to be a reasonable guess.

The Story in One Chart

I always start my personal review of the week by looking at a chart of market performance for the week. There was little change for the week. The Thursday rebound was attributed to comments suggesting quicker movement on a tax reform package. If we measure the gain from the prior week’s close it is about 0.80%.

Whatever the news, the net market effect was (once again) very small.

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!

Once again, the economic news last week was good. The market got a little boost.

The Good

  • Trucking data is improving despite the mixed headline data. Steven Hansen (GEI) explains.
  • Mortgage delinquencies declined to an 11-year low. (Calculated Risk).
  • Industrial production rose 0.5%. Eddy Elfenbein notes the weakness in factories and the strength in utilities.
    Tim Duy also takes a closer look, noting the weakness in autos and the strength in utilities. He also cites the American interest in larger cars.

  • Q1 Earnings.
    FactSet notes that reports are beating the historical metrics. Brian Gilmartin calls attention to the lag in energy stocks. Here is the key quote from John Butters:

    To date, 6% of the companies in the S&P 500 have reported actual results for Q1 2017. In terms of earnings, more companies (76%) are reporting actual EPS above estimates compared to the 5-year average. In aggregate, companies are reporting earnings that are 6.7% above the estimates, which is also above the 5-year average. In terms of sales, more companies (59%) are reporting actual sales above estimates compared to the 5-year average. In aggregate, companies are reporting sales that are 0.2% above estimates, which is also above the 5-year average.

And fewer companies are citing President Trump as a factor. It is a small sample so far, but interesting to watch.

  • Philly Fed remained strong with a reading of 22. This is especially good for a diffusion index, which measures month-over month changes. We cannot expect the pace of increases to be maintained. Few understand this and fewer mention it.
  • Initial jobless claims rose to 244K, which some may see as bad. Most follow this noisy series via the four-week moving average, which moved lower.
  • Existing home sales were up 4.4%. Calculated Risk notes that warmer weather was a factor. Bill also expects increasing inventory, which will help future sales.
  • Chinese economic growth was 6.9%, beating expectations. (FT)