The Week Ahead: Data Deluge Signaling Economic Weakness?

Recent Expert Commentary on Recession Odds and Market Trends

Bob Dieli does a monthly update (subscription required) after the employment report and also a monthly overview analysis. He follows many concurrent indicators to supplement our featured “C Score.”

RecessionAlert : A variety of strong quantitative indicators for both economic and market analysis. While we feature the recession analysis, Dwaine also has a number of interesting market indicators.

Big Four summary of key indicators.

his BCI index , also showing very low recession changes.

Despite the facts, the average fund manager or trader views oil prices as a recession signal. (MarketWatch )

WSJ) .

This is a subject where many authors begin with a viewpoint….

It is a big week for economic data.

The “A List” includes the following:

• Employment report (F). Despite the revisions and large error band, this remains the focus of the economic debate.
• Initial jobless claims (Th). The best concurrent news on employment trends, with emphasis on job losses.
• ISM Index (M). Good concurrent read on manufacturing with some leading components.
• ADP employment report (W). Deserves credit as an independent measurement.
• Personal income and spending (M). December data, but especially important given last week’s GDP news.

The “B List” includes the following:

• ISM services index (M). Bigger sector than manufacturing, but still not as much significance.
• Trade balance (Th). December numbers will affect Q4 GDP revisions.
• Auto sales (T). Good read on consumers. Will the F150 indicator start to be relevant again?
• Crude oil inventories (W). Maintains recent interest and importance.
• Productivity and unit labor costs (Th). Indicator of the pressure (or lack thereof) on the Fed’s patience in raising rates.
• PCE prices (M). The Fed’s favorite inflation measure will become more important when the core approaches 2.5%
• Construction spending (M). December data makes it a bit less relevant, but still significant.

With the FOMC announcement out of the way, your favorite Fed speaker is back on the speech circuit!

Important corporate earnings continue. There is always the chance of breaking news from various hot spots, but this week seems to have more such potential than usual.

How to Use the Weekly Data Updates

In the WTWA series I try to share what I am thinking as I prepare for the coming week. I write each post as if I were speaking directly to one of my clients. Each client is different, so I have five different programs ranging from very conservative bond ladders to very aggressive trading programs. It is not a “one size fits all” approach.

To get the maximum benefit from my updates you need to have a self-assessment of your objectives. Are you most interested in preserving wealth? Or like most of us, do you still need to create wealth? How much risk is right for your temperament and circumstances?

My weekly insights often suggest a different course of action depending upon your objectives and time frames. They also accurately describe what I am doing in the programs I manage.

Insight for Traders

Felix continues a “neutral” posture for the three-week market forecast, but it continues to be a close call. The data have improved a bit, but are still marginally neutral. There is still plenty of uncertainty reflected by the high (but declining) percentage of sectors in the penalty box. Our current position is still fully invested in three leading sectors, but these still include some defensive themes. This helped us dodge most of last week’s decline. For more information, I have posted a further description — . You can sign up for Felix’s weekly ratings updates via email to etf at newarc dot com.

Another 8-Step guide for traders, this time from Steve Burns . Some advice will be familiar. I like “Hold your opinions loosely and your discipline tightly.”

As I have noted for four weeks, Felix continues to feature selected energy holdings. Felix is not just a momentum trader!

Insight for Investors

I review the themes here each week and refresh when needed. For investors, as we would expect, the key ideas may stay on the list longer than the updates for traders. Major market declines occur after business cycle peaks, sparked by severely declining earnings. Our methods are focused on limiting this risk. We have recently updated our current ideas for investors .

Other Advice

Here is our collection of great investor advice for this week:

Getting the Right Take on QE

Former Dallas Fed President, whom I admire from his writing and appearances, and like from our personal conversations, does not get enough credit. He is a pragmatic conservative and not a knee-jerk defender of the Fed. Anyone who really wants to understand the inner operations at the Fed would do well to read McTeer.

With the focus on worldwide QE, Bob asks, ? Here is a key quote:

The fact is that the Fed’s QE programs didn’t work as expected, and it took huge bond purchases to achieve modest to moderate results. Like the rider of a very low-geared bicycle, the Fed had to peddle furiously to keep the bike upright. But, at least, the expected harm was not done and some good was done.

When short-term interest rates reached effective zero and we found ourselves in a Keynesian liquidity trap where more money would not reduce interest rates farther, there was every reason to believe that significant bond purchases would stimulate the economy by increasing the “quantity” of money and credit. We learned in school, and from past experience, that asset purchases by the central bank would increase bank reserves and the money supply initially by the same amount and that the excess reserves created in the banking system would result in a further multiple expansion in the retail money supply. Banks would use their new reserves to create new money by lending their newly created excess reserves. With about a 10 percent reserve requirement, the money multiplier would be around 10.
That didn’t happen.

You could also check out my article collection on this topic, which has been quite accurate, beating down the nay-sayers since 2010.

Stock Ideas

Barron’s has the last segment of their annual roundtable. You can see plenty of divergent opinion for a small investment. I enjoy reading it with some for entertainment and others for ideas.

Beware of the reach for yield – the crowded trade that worked last year. Well it also worked in January, making me wrong so far in 2015!

Cheap Sectors

Energy and Consumer discretionary, via Alpha Architect . This is consistent with many other value sources, despite the current market love affair with utilities and bonds.

Caution in energy? That seems to be the standard take. Here is the CNBC advice , which is OK both for initiating and adding to positions.

Market Outlook

Financial media follows the theme of the moment. It was the week for the bears, back in vogue according to CNNMoney .

The bears build their case that a crisis is near on four factors: falling oil prices, stagnant wages, the “two-edged sword” of a strong US dollar and big trouble abroad.

David Rosenberg is not bearish, but highlights “ongoing investor fears is a work in progress. Topics and suggestions are welcome.

Scott Grannis has the contra viewpoint, seeing the “wall of worry” as typical.

Every time the market makes a slight decline, some investors panic. This comes from two sources:

1. Failing to separate the major market themes – recessions, financial crises, big earnings declines – from the routine noise;
2. Failure to understand the normal market drawdowns, which have actually been quite mild over the last few years. Doug Short has a great chart :

a good post for both traders and investors, and the right perspective for each. Should you be selling stocks now?

An investment perspective is much better for most. Sticking with fundamental factors, you accept the trading gyrations as opportunities to buy or to sell businesses based upon your own underlying valuations and price targets. If you have some stocks you are watching, you get exceptional buying opportunities when short-term traders are fearful. My new “Investor Fear ” page takes a look at the list of oft-repeated concerns.

There are no shortcuts to successful investing.

Unless you have some magic formula. Which team are investors supposed to be cheering for in the Super Bowl?

Written By: Jeff Miller