Uncategorized, Weekly Update

Economic Data Weakening Here and There


Published June 7, 2019


After struggling for the month of May, this week the Nasdaq 100 (QQQ) accelerated its momentum downward and took a decidedly bearish turn. The stock market trades on perceptions for the future health of the economy and corporate earnings. Those perceptions have been skewed negative by the battles in trade. However, the stock market is beginning to get more and more data suggesting that weakness ahead is more than just a result of a change in perception. There’s an increasing amount of hard data behind the caution in the markets. From Blaine Rollins’ always excellent report, we take some excerpts below highlighting where economic concerns are showing up.

Semiconductor sales sag.

Semiconductor sales sag

Orders for durable goods have stopped growing.

US Durable Goods Excluding Transportation YoY

Pushing a measure of economic health – the Purchasing Managers Index – close to a negative sign.

The Purchasing Managers Index, close to a negative sign

While production of containerboard, the beneficiary of all those online sales, goes substantially negative for the first time in a decade.

Production of containerboard goes substantially negative

While home values in the U.S. fall for the first time in years.

Home values in the U.S. fall for the first time in years

Economic data is notoriously volatile – up one minute, down the next. However, the data above, taken with other factors such as the cautious behavior of interest rates, lends fundamental credence to the sharp selloff in semiconductor shares and other leading cyclical sectors.

We close this week’s blog with the note that restaurant sales have overcome grocery store sales for the first time in history. A combination of many factors has brought us to this point. But notice that restaurant sales barely declined at all during the Great Recession of 2008. They have accelerated ever since.

Restaurants vs. Grocery Stores

Market Update

Stocks bounced back with a vengeance this week reversing much of the prior four weeks worth of losses as investors largely took a break from trade concerns. Before the rebound, however, Monday delivered a pretty sour day with the Nasdaq falling -1.6%. Concerns rose that some of the largest companies in the Nasdaq – e.g. Amazon, Facebook, and Google/Alphabet – might come under regulatory pressure due to antitrust worries. Tuesday saw a more than complete reversal of Monday’s down day, however, as Fed Chair Powell offered words that appeared to confirm the market’s desires for a near-term interest rate cut. Stocks surged over +2% in a widespread rebound. Wednesday saw a continuation of the Fed-induced rally with another +0.8% gain, coming after a morning dip on global economic fears. Thursday tossed another +0.6% on the move upward. This time, a potential delay in the imposition of tariffs on goods from Mexico kept the market party going. Friday delivered a notably weak monthly jobs report. While the report initially dampened stock market futures, once trade began it was off to the races. Investors appeared to read the weak report as further incentive for the Fed to cut interest rates. It was a return to the market of a few years ago when apparent bad news was read as good news for stocks. We remind readers that it was also a compliant Fed that brought a halt to the fall 2018 market selloff.

Stocks ripped higher on the week, proving once again that there’s nothing like an accomodative Fed to unleash the market. The S&P 500 (SPY) vaulted +4.50% while the Nasdaq 100 (QQQ) added +4.08%. Small cap stocks (IWM) lifted +3.43% but remained below their 200-day moving average.

Warm wishes and until next week.