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The Fear and Greed Trader

By Jeff Miller. Originally published at ValueWalk.

A holiday-interrupted week is loaded with important economic data. Since many market participants will skip Monday to stretch their weekend, the action will focus on Friday’s employment situation report. People will be asking:Venture Capital Investing Process Improvement Through “Machine Learning”

Consumer Price Index (CPI): Comprehensive In-Depth Analysis

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Just how strong is the labor market?

Last Week Recap

The big economic news last week was the (slight) increase in volatility. Tuesday’s decline was attributed to the ACA repeal/replace delay and what it implied for the Trump agenda. That was forgotten by Wednesday. Thursday saw technology selling right at the opening. Art Cashin attributed the rotational decline to dueling programs. That had little carry over to Friday.

Our question from two weeks ago – a possible change in market leadership – got some real attention. Financial stocks did well in the wake of the bank stress test results.

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. You can see the day-to-day shifts, as well as the small overall effect, less than 0.5% for the week.

Labor Market

Doug has a special knack for pulling together all the relevant information. His charts save more than a thousand words! Read the entire post for several more charts providing long-term perspective, including the size and frequency of drawdowns.

Note to Readers

Thanks to Investopedia for including us among the top 100 most influential advisors. Some of these lists only go for the huge firms. Others emphasize those with great fame, and fame alone. We have a nice team at NewArc, but we are all busy and wear many hats. I am delighted to have the chance to write as much as I do, since we emphasize communication and accessibility. For me it is all after-hours.

Congratulations to Josh Brown for his well-deserved #1 ranking and Michael Kitces at #2.

The News

Each week I break down events into good and bad. For our purposes, “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!

The economic news last week was good.

The Good

  • Chicago PMI recorded a three-year high of 65.7 This is often a good hint about the national ISM direction. (ISM Chicago)
  • Consumer confidence was solid in both the Conference Board and Michigan versions. Doug Short’s great chart, updated by Jill Mislinski draws together many themes – economic strength, recessions, and overall trend as well as the recent result. Here is the Conference Board version. Read the full post to see several other interesting comparisons.

  • Q117 GDP revised higher to 1.4%. This is backward looking, with Q2 now over, but it is more encouraging as the base for the start of the quarter.
  • High frequency indicators remain mildly positive. New Deal Democrat does his valuable weekly update, separating leading, long-leading and coincident indicators. The current picture is mixed to positive.
  • Personal income rose 0.4%, a touch better than expectations. Spending was up only 0.1%, in line. Steven Hansen (GEI) reports on both, including this interesting table:

The Bad

  • Durable goods orders declined down 1.1% on the headline and down 0.1% ex-transportation.
  • Jobless claims increased to 244K.
  • Pending home sales unexpectedly declined 0.8% over the prior month and 1.7% year-over-year. Most sources attributed the decline to limited supply. (Investing.com)

The Ugly

Illinois once again grabs the spotlight. With no action in Friday’s session, the state enters a third year without a budget. The longer it takes, the more difficult a solution becomes. As of today, a court ordered the completion of certain Medicaid payments, but that just shifts the problem. Bond agencies are poised to reduce state debt to junk status – a first for any state. The head of the Illinois House Speaker Michael Madigan is asking the agencies for more time.

It is easy to blame “the politicians,” and that is what everyone is doing. It is a good illustration of what happens when two sides each represent a viewpoint with no ability to compromise. Each side’s constituents are supportive. No one is held accountable.

Gil Weinreich’s recent commentary is still on target.

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.

The Calendar

It is a busy calendar, especially for a short week. Employment data, ISM manufacturing and services, and auto sales are all important.

There is also plenty of FedSpeak, and the release of minutes from the last meeting.

Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.

Next Week’s Theme

In sharp contrast with recent weeks, there will be plenty of economic candidates to discuss. Despite the competition from the Fed news, the crucial role of employment will provide a focus. People will be asking:

How tight is the labor market?

Here is a range of opinion.

  • The employment numbers are all fake data.
  • 93 million adults do not have jobs. Brookings has a nice piece on those 25-64 who are out of work, including the size of the group (about 79 million), 4 million unemployed, and 16 million who are not looking for work (varied reasons).
  • The BLS birth/death adjustment accounts for most of the reported job growth.
  • Labor participation is very low because people have given up looking.
  • Increasing the minimum wage will destroy more low-income jobs. FiveThirtyEight has a reasonably balanced look at prior research as well as the Seattle increases.
  • Robots and self-driving cars will destroy jobs. (Fortune – not a binary question). Value Walk on Goldman’s take, also some balance. Dean Baker – contra.
  • Wage growth has not matched jobs growth.
  • Fed forecasts are not consistent. (Tim Duy).
  • Many workers have been forced to accept part-time work, rather than full-time.
  • Some full-time workers are really working multiple part-time jobs. (Time on the disappearing summer jobs).

As usual, I’ll have more in my Final Thought.

Quant Corner

We follow some regular featured sources and the best other quant news from the week.

Risk Analysis

I have a rule for my investment clients. Think first about your risk. Only then should you consider possible rewards. I monitor many quantitative reports and highlight the best methods in this weekly update.

The Indicator Snapshot



The Featured Sources:

Bob Dieli: Business cycle analysis via the “C Score.

RecessionAlert: Strong quantitative indicators for both economic and market analysis.

Georg Vrba: Business cycle indicator and market timing tools.

Brian Gilmartin: All things earnings, for the overall market as well as many individual companies.

Doug Short: Regular updating of an array of indicators. Great charts and analysis. With last week’s data, it is time for a fresh look at this excellent update from Jill Mislinski.

Scott Grannis writes that real yields on tips are a “must-watch” indicator. I agree, which is why we recently added it to our weekly

The post The Fear and Greed Trader appeared first on ValueWalk.

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Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!