PDF Weighing the Week Ahead: What is Working, and Will It Persist?

Weighing the Week Ahead: What is Working, and Will It Persist?

June 20, 2018 by Jeff Miller of NewArc Investments, Inc.

The economic calendar is modest. Volatility is lower even with plenty of news. The summer doldrums have arrived! It provides time for introspection to fill those empty timeslots and pages. Pundits might be (and should be) asking: What is working? Will it keep working? Last Week Recap In my last edition of WTWA speculated that the first part of the week would be all about international issues and the Fed, but the summer doldrums might hit by week's end. That was more accurate than I expected. Who would have expected so little volatility from a week loaded with potentially marketmoving events? I suggested a pivot to more talk about identifying important continuing issues. We did see some of that, and I expect there will be much more. The Story in One Chart I always start my personal review of the week by looking at a great chart. I especially like the version updated each week by Jill Mislinski. She includes a lot of valuable information in a single visual. The full post has even more charts and analysis, including commentary on volume. Check it out.

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The market was unchanged with the smallest trading range in months -- about 1%. I summarize actual and implied volatility each week in our Indicator Snapshot section below. Volatility is back into the long-term range.

Noteworthy ? Analysis of Debt

Readers have frequently commented or inquired about debt. My response has been that it is not a concern at the household and corporate levels, and not an immediate investment concern for government. The stories about debt have great popular appeal, especially when they do not include any comparisons. I have been including this "Noteworthy" section to permit analysis of important topics that do not necessarily relate to "the week ahead."

Urban Carmel has an excellent, comprehensive analysis. It takes note of decades of similar arguments. You can also consider evidence about comparisons to past debt levels and ability to pay. Those interested in this topic will appreciate the analysis and charts. There are so many good ones that it is difficult to choose. Just as an example, "Debt should be looked at on a net cash basis; this is material as cash levels have risen dramatically. Debt to GDP ratios [Jeff ? a popular chart comparison] ignore cash (chart from JPM)".

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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 positive economic trends continue. New Deal Democrat's useful update of high-frequency indicators shows continuing strength in the current and short-term leading indicators, and improvement in the long-term group.

The Good

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Port traffic increased again in May on a year-over-year basis. Calculated Risk uses a rolling twelve-month analysis because of the strong seasonal component in the data.

The FOMC rate decision was well-received. The rate hike was expected, and the accompanying press conference raised no fresh worries. Fed expert Tim Duy has a complete account and analysis of what is to come. Scott Grannis, with his usual chart pack, explains the market expectation: The pace of increases has been necessary just for monetary policy to stay "neutral." Michigan sentiment rose slightly and remained at recent high levels. Jill Mislinksi has the story and a chart that pulls it all together.

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Consumer inflation remains tame. The core and headline CPI both increased the expected 0.2%. Initial jobless claims were only 218K, beating expectations (223K) and the prior week (222K). The NFIB business optimism index posted the second-highest level in history. David Templeton (HORAN) has good coverage, and an interesting chart comparison with the S&P 500.

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