Jeff Miller | Jul 05, 2020 05:23AM ET
The economic calendar is modest, and many market participants will probably extend their long weekends. The ISM Non-Manufacturing Index and jobless claims data will be the most important.
Credit for today’s theme goes to Satchel Paige, one of the greatest pitchers of all time.
Don’t look back; something might be gaining on you.
h2 Last Week Recap/h2In my last installment of WTWAInvesting.com’s version. This is just the static chart, but a visit to the post will enable you to explore the news callouts and much more.
The market ignored record numbers of new COVID-19 cases to post a strong week. The market gained 4.0% with a trading range of 5.5%. My weekly indicator snapshot monitors the actual volatility as well as the VIX (see below).
h3 Noteworthy/h3Statista tracks the current stall in state reopenings.
In my new home state of Arizona, we face possible new restrictions from Sonora. Health officials there want to restrict border crossings from our COVID hot spot into Mexico.
h3 The News/h3Each 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!
Calculated Risk ).
COVID-19 Pandemic Could Slash 2020-21 State Revenues By $200 Billion . Many states have not set budgets since revenue forecasts depend on income tax payments, now due on July 15th. Twenty-seven states have updated revenue projections and the picture is ugly.
Most states are constitutionally prevented from running budget deficits.
h2 The Week Ahead/h2We 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.
h3 The Calendar/h3We have a very light economic calendar with many, no doubt, extending vacations. Jobless claims continue to be important. The ISM Non-Manufacturing Index will get attention as will the JOLTS report. Neither can really provide any fresh information. PPI is similarly uninteresting.
There is no calendar for COVID-19 news, but it will compete for attention with the economic data every day.
Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.
The economic news, once again, got better, and pandemic news, once again, got worse. The market rose nicely, reassuring many investors. Instead of looking at the modest economic rebound, investors should be paying attention to Satchel Paige:
Don’t look back; something might be gaining on you.
For many reasons, our attention is currently focused on the “now” and the recent past. How can investors best look forward?
h3 Underlying Factors/h3There are several important forces creating a challenge for those who do an objective analysis.
Questionable Data. In normal times I depend upon economic data and earnings reports to provide a grounding for investment choices. These sources are not very helpful since none of the economic indicators mean much. Those based upon the diffusion method, including the ISM indexes, PMIs, and the various Fed indexes, tell us about the direction of change, but not the size. Survey data is good for a current snapshot but tells us little about prospects. Most other reports are distorted by extreme events related to the pandemic. The agencies creating the reports are doing an honest and unbiased job. Their tools are not geared to the extreme situations we are now seeing. I have studied both the indicators and the methodology for many years, and I do not trust the current results.
Government Intervention. Government actions have changed nearly every indicator. The Fed is active on more of the yield curve. People have income without jobs while others have jobs but low income. Special purpose loans are helping particular recipients and sectors. This is not a judgment on the wisdom of the policies. It is a factual statement emphasizing the impact on data.
Psychological Traits. Many of the most powerful are currently in evidence, creating a witch’s brew for trouble.
These factors interact. Why would I help someone else avoid disease if experts say it is not that dangerous? Why should I make sacrifices to fight an exaggerated public threat? Since there are significant measurement problems in identifying cases and effects, why should I believe any reported data? And why would I ever believe a model?
These effects have been fueled by a populist wave that disparages expertise of all types. We are apparently destined to learn in real time whether this particular group of experts was right.
h3 The Result?/h3Stock values, the knowledge desired by many, are at the top of a pyramid. The foundation layer is expected earnings. The foundation for earnings is the economy.
Now there is a new element to the foundation – the fight against COVID-19. The economic effects will be severe if the virus spreads aggressively but can be significant even if it does not. Governments are already slowing reopening plans.
Even when businesses reopen, some customers will choose not to go.
Those dismissing the pandemic effects as unimportant are underestimating these key relationships.
As usual, I will have a little more in today’s Final Thought.
Ideas for Investors
I have decided to switch the investor section to a separate post. I hope to run it nearly every week, calling it Investing for the Long Term. In the latest edition , I expanded my matrix approach for finding long-term value drawn from our most recent Wisdom of Crowds survey. As usual I linked to several of my favorite sources for investment ideas. In each case, I added a comment about how I might use the idea and also related it to our Great Reset results. I hope readers will find this valuable and that my colleagues will consider the Great Reset Matrix as part of their selection process.
One of my personal 2020 resolutions was even more emphasis on investor education – not just recommending stocks but learning how to find suitable choices. I have created a resource page where you can join my Great Reset group. You will get updates about what is being studied and can join in the process. There is no charge and no obligation, but I hope you will join in my Wisdom of Crowds surveys. I need more wise participants! The latest survey results are part of my most recent report. The results of our team effort will be published on a regular basis, so you will be joining me in contributing to a greater good.
Quant Corner and 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, featuring the Indicator Snapshot.
For a description of these sources, check here .
The C-Score remains at levels never before seen. It is combining the sharp economic rebound with pandemic effects. When we are able to separate the two, a current mission of Dr. Dieli, it will provide more guidance on the timing and extent of the recovery. I continue my rating of “Bearish” in the overall outlook for long-term investors. We should also keep watch an inflation antcipation. As this increases it affects government policy and our portfolio construction needs.
Bob Dieli : Business cycle analysis via the “C Score”.
improvement in corporate credit spreads .
David Moenning : Developer and “keeper” of the Indicator Wall.
Big Four .
Georg Vrba : Business cycle indicator and market timing tools.
Final Thought
One important issue is whether the public is emphasizing health concerns over the economy. This basic concept will be part of my next Great Reset survey.
Regardless of current attitudes, opinion on this topic will shift as we see more data.
I am concerned – for family, friends, and my readers. It is so easy to become too carefree, and we all want to get out and have fun.
I urge you to stay safe in your socializing and to be sure that your portfolio is safe as well.
I’m more worried about
I’m less worried about
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