ETF Tracker StatSheet
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WEAK RETAIL SALES VS. STRONG EARNINGS
- Moving the markets
Yesterday’s better than expected PPI number pushed all markets solidly in the green, but today’s weak retail sales, in the face strong bank earnings, pulled all indexes lower with stocks, bonds, and precious metals participating in the slide.
On the positive, yesterday’s gains far outweighed today’s losses, so not much damage was done, and, for the week, the S&P 500 added some 2%.
Consumer spending, which contributes almost 70% to economic activity, fell twice as much as expected, as retail sales declined by 1% last month, which hugely exceeded forecasts of a 0.5% fall. Lower gas prices contributed, because consumers paid less for fuel, but that could reverse in a hurry.
Offsetting this reduction was a solid start with bank earnings, as powerhouse JP Morgan reported record revenue, which pushed its stock up some 7%. Even much beleaguered Wells Fargo reported growing profits, but its stock gave back the early advance. However, thanks to JPM, all major banks participated in today’s Lift-A-Thon.
Expectations for this earnings season are downbeat, with estimates forecasting a reduction of 5%. So, the bar will be set extremely low, and those companies which beat these much lower expectations will likely see their stock prices rise—at least that’s how the game is played.
Overall, economic news was mixed with 1-year inflation expectations soaring and industrial production coming in strong (twice expectations MoM).
Fed governor Waller again hawkishly chimed in, as have many other Fed gov’s before, that he favored “more monetary policy tightening to reduce persistently high inflation,” although he said he was prepared to adjust his stance if needed if credit tightens more than expected.
However, so far financial conditions are looser, so his view is correct, at least for the time being. Loose financial conditions are not what the Fed is looking for, which is why the odds of a 0.25% rate hike in May have now spiked from 70% to 85%, as this chart shows.
Bond yields rose today with the 2-year surging back above its 4% level, giving the US Dollar a reason to bounce back, but the greenback is still down for the 5th week in a row, as ZH pointed out.
Gold had a chest pounding week but pulled back as yields surged, yet the precious metal reversed during the last hour of trading to “save” its $2k level.
2. “Buy” Cycle Suggestions
For the current Buy cycle, which started on 12/1/2022, I suggested you reference my then current StatSheet for ETF selections. However, if you came on board later, you may want to look at the most recent version, which is published and posted every Thursday at 6:30 pm PST.
I also recommend you consider your risk tolerance when making your selections by dropping down more towards the middle of the M-Index rankings, should you tend to be more risk adverse. Likewise, a partial initial exposure to the markets, say 33% to start with, will reduce your risk in case of a sudden directional turnaround.
We are living in times of great uncertainty, with economic fundamentals steadily deteriorating, which will eventually affect earnings negatively and, by association, stock prices.
In my advisor’s practice, we are therefore looking for limited exposure in value, some growth and dividend ETFs. Of course, gold has been a core holding for a long time.
With all investments, I recommend the use of a trailing sell stop in the range of 8-12% to limit your downside risk.
3. Trend Tracking Indexes (TTIs)
Our TTIs pulled back but remain on the bullish side of their respective trendlines.
This is how we closed 04/14/2023:
Domestic TTI: +2.29% above its M/A (prior close +2.75%)—Buy signal effective 12/1/2022.
International TTI: +8.32% above its M/A (prior close +9.06%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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