The economic calendar is light until the Friday employment report. Most of the punditry are still digesting the more aggressive talk in the recent speeches from Fed participants. With many observers expecting a correction and looking for a catalyst, pundits will be asking:

Will a more aggressive Fed derail the rally in stocks?

Personal Notes

I have a vacation coming in a couple of weeks. I will not write WTWA next weekend, and possibly not the weekend after that. I will still be following the markets and email. I will join in if it seems needed. The Stock Exchange group is supposed to keep working.

Last Week

Last week the news was mostly positive, and stocks responded again.

Theme Recap

In my last WTWA I predicted a discussion about whether stock prices had lost touch with reality. That was a good guess. There was plenty of talk about market valuation. Those bearish also questioned the lack of specifics in the Presidential Address to Congress – which had a greater immediate effect that the annual Buffett letter.

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 yet another record close based on the week’s gain of 0.67%. We can also see the gap opening after the Presidential Address to Congress.

The rally story is even clearer in this chart, when begins before the election.

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, including the size and frequency of drawdowns.

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 mostly positive.

The Good

  • Durable goods orders increased 1.8% after last month’s decline. Most of the increase was from the volatile transportation sector, but it was still a welcome boost.
  • Earnings news was positive. Brian Gilmartin emphasizes the favorable trend in estimate revisions. FactSet reports that the earnings and revenue beat rates are slightly lower, but outlook is stronger. Here is an interesting chart of surprises by sector.

  • Investor sentiment turned more bearish. The AAII reports that sentiment is within historic ranges, but off recent highs. This is unusual given past behavior in a rising market. I score it as “good” since most regard it as a contrary indicator.
  • Mortgage delinquency rate falls below 1%, the lowest since June, 2008. (Calculated Risk).
  • ISM Non-Manufacturing rose to 57.6 (from 56.5). The employment index also moved higher. February was stronger than January.
  • ISM manufacturing increased to 57.7 beating expectations and showing a solid increase over last month’s 56.1. The Chicago regional survey was also very strong.
  • Rail traffic in February was 4.2% higher than a year ago. Steven Hansen takes the look at the data we have come to expect, including various moving averages and trends. Read the whole post, but this chart captures some key points, especially the improvement over the last two years.

  • Consumer confidence spiked to 114.8, a post-recession high. Briefing.com covers this series.

  • Initial jobless claims rose slightly on the week, but dropped to the lowest level since 1973 on the widely-followed four-week moving average. (Calculated Risk).
  • President Trump’s speech was very well-received. Most preview articles mistakenly emphasized the need for specifics. Commentators right after the speech did the same. My own preview did not provide advice on what to go out and trade right after the speech. Instead, I drew upon experience and the current policy environment to highlight the key element – the potential for compromise. This chart shows the dramatic shift in this Trump presentation, more like SOTU speeches than nearly anything else he has done. (The Upshot)

    • The Bad

  • Construction spending fell 1%.
  • Money supply is drifting to the neutral range – possibly even tilting negative. (New Deal Democrat). Despite complaints about Fed policy, this is a possible economic drag.
  • Pending home sales fell 2.8% and December was revised lower.
  • Debt Limit will be reached in mid-March. Even the extraordinary efforts will be exhausted in September or October. Will this play out any better with a GOP President and Congress? Douglas A. McIntyre has a good story on this issue.

    • The Ugly

    My concern about hacking and threats to the Internet’s weak spots continues. Rick Paulas’s article is not about events from last week, but is just as relevant. Perhaps even more so with the Barron’s cover story on robots.

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