To Trend, or Not to Trend…

We had a strong start to this week when stocks gapped higher as the correction that began in early March may have ended. We can confirm the end to the corrective price action once all the major indices align and make new all-time highs together. For now, only the NASDAQ accomplished this task last week so we will need the DOW and S&P 500 to join the party to confirm a new uptrend.

We are in the midst of earnings season and so far so good. We saw better than expected earnings for Amazon and Google so the market leaders may be hinting the economy is on decent footing. Some of the economic data is hinting at corporate investment which may be good as 2017 unfolds as I discuss in the next section. I do have reservations about the energy and retail sectors, however.

Changes to tax policies and and an activist Executive branch are trying to provide light on what is possible to pass through Congress. The market will wait and see on political issues for the time being in my opinion as we need more details to gauge the probability of implementation. Earnings and economic data are at the forefront of what’s important to stocks right now.

On tap for next week are non-farm payrolls (jobs) and the French election next weekend. The last reading on payrolls were a disappointment so a normalization from weather distortions may be the last piece of the puzzle the markets need to get a trend going again.


Economic & Central Banking Snippets

  • Homebuilding had a surprisingly strong report, providing another encouraging sign of sustained resumed growth in the sector after the weakness in mid-2016 amid persistent homebuilder complaints about “supply-side restraints.”
  • New home sales surged 5.8% in March to a 621,000 annualized units which is just below the July 2016 cycle high of 622,000 units. The gain in sales left months’ supply of unsold new homes at 5.2 v. 5.4 months for February (6 months is the long-run average). Also, inventories of existing single-family home inventories are far lower and near a record low 3.8 months for March. The supply shortage has been caused by a rising pace of household formation in the past couple years combined with a shift back to homeownership from renting. (MS)
  • The European Central Bank’s (ECB) governing council left its benchmark rate at zero and the deposit rate at minus 0.4% this week. The ECB will continue to buy €60B in government and corporate bonds under a quantitative easing program through the end of 2017. (FT)
  • Durable goods orders rose 0.7% in March, including a 7.0% gain in nondefense aircraft and parts, 12.4% rise in defense goods, and a 0.2% uptick in non-defense capital goods ex aircraft orders.
  • The Bank of Japan (BOJ) stuck to the markets’ script at its policy meeting with a “no-change” to its monetary policy and a raise to it’s forecast for 2017 domestic growth.
  • South Korea’s economic growth accelerated in Q1 with the manufacturing sector and exports expanding as it faced economic fallout from rising geopolitical tensions in the region. GDP expanded at 0.9% in Q1 after growing 0.5% in Q4.
  • UK economic growth slowed at the start of 2017 to its weakest pace in a year at a rate of 0.3% in Q1 (below economists’ forecasts).
  • France’s Q1 GDP came in at 0.3% down from 0.5% at the end of 2016 and below a median forecast predicting growth of 0.4%. GDP for Q4 was revised up from 0.4%, however.
  • Domestic GDP growth slowed in Q1 to 0.7% (economists predicted 1%). However, the underlying details were encouraging as temporary drags from delayed tax refunds, weather, and a brief jump in gasoline prices in January started to reverse. Weakness in Q1 growth was concentrated in a slowdown in consumption to 0.3% from 3.5% in Q4. Business investment jumped to a much better than expected 9.4% after falling 0.1% in 2016, one of the worst years ever outside of a recession. Structures investment surged 22.1% on a 449% gain in oil and gas drilling. Equipment investment, meanwhile, picked up to a very encouraging 9.1% gain after falling 3.8% in 2016. In addition, there is a continued positive trend in capital goods orders and positive guidance from machinery companies in Q1 which all point to further gains in Q2 GDP. (MS)


Politics! Politics! Politics!

  • Centrist Emmanuel Macron and far-right politician Marine Le Pen won the first round of voting in France’s presidential election as voters redrew the political map, placing the European Union at the center of a new divide. The vote marks a stunning rebuke of France’s mainstream political forces as for more than four decades, a duopoly of conservative and socialist presidents has alternated in France’s leadership.
  • US Commerce Secretary Wilbur Ross is reopening the door to EU trade talks but there’s a catch: the bloc would be in competition with China and Japan. In an interview with the Financial Times, Wilbur Ross said the need to reduce the US’s $146B transatlantic trade deficit in goods was one of his priorities. (FT)

America's finances


  • The U.S. military has started moving key parts of its controversial THAAD anti-missile defense system to a deployment site in South Korea. The move, which has angered North Korea, China and Russia, prompted protests by hundreds of local residents and was denounced by the frontrunner in South Korea’s presidential election. (Stratfor)
  • The Trump administration said it was no longer considering pulling out of the North American Free Trade Agreement, following a day of intense lobbying from business leaders and lawmakers who rallied to quash internal White House discussion of the prospect
  • Taxes! The White House proposed a series of broad cuts on Wednesday that included a 15% tax rate for all businesses, lower individual rates, a bigger standard deduction to benefit middle-income households and the repeal of the estate and alternative minimum taxes.


Chart Time!

S&P 500 (SPY)
S&P 500 (SPY)


Dow Jones (DIA)
Dow Jones (DIA)




Russell 2000 - Small Caps (IWM ETF)
Russell 2000 – Small Caps (IWM ETF)


10 Year Treasury Yields - TNX
10 Year Treasury Yields – TNX


Market Snippets

  • The fashion brand and shoe company Jimmy Choo has put itself up for sale as part of a “strategic review of the company”. The group said in a statement that “it has decided to conduct a review of the various strategic options open to the company to maximize value for its shareholders and it is seeking offers for the company”. I see this as another sign of lower margins at the retail level.
  • Uber is looking to the skies with plans for a flying taxi venture after being brought to earth by a series of management problems. The ride-hailing service says it will demonstrate flying vehicles by 2020 in Dubai and the Dallas-Fort Worth area, with full-scale operations by 2023. (FT) Hello, top of the market!
  • When disaster strikes, Airbnb makes it easy for hosts around the world to offer free accommodation for people in need. Its program has been activated in nearly 60 disasters and is now widening with the aim of providing short-term housing for the displaced.
  • United Airlines (UAL) said on Thursday it would offer passengers who volunteer to forfeit their seats on overbooked flights up to $10,000 as part of the carrier’s efforts to repair the damage from the rough removal of a passenger.
  • Qualcomm warned investors on Friday that it could face a multibilliondollar shortfall in sales and profits over the coming years if it is unable to resolve its legal fight with Apple, after the iPhone maker choked the ability of its own suppliers to pay royalties to the chip designer. In a drastic deterioration in the legal battle with one of its largest customers, Qualcomm slashed its revenue guidance for the current quarter by about $500mm. Apple’s move fulfills what one Wall Street analyst had previously described as a “doomsday scenario” for the world’s biggest wireless chip company.


International Snippets

  • China’s soaring appetite for avocados, driven by demand from its burgeoning health-conscious middle-class, has made the “butter fruit” — unheard of a few years ago — the country’s star performer in the imported fruit market. Exports from Latin American nations such as Mexico and Chile are growing by about 250% a year, leaping from just 154 tonnes in 2012 to more than 25,000 tonnes in 2016. “More people are paying attention to healthy lifestyles and avocados meet that need,” said Zhang Hui, a sales manager at Fruitday, an online food delivery company.
  • Greek Prime Minister, Alexis Tsipras, insisted in a television interview that Greece planned to legislate additional tax and pension reforms demanded by bailout creditors but would not implement them unless a deal on debt relief was in place. “These measures aren’t going to be implemented if the issue of the debt isn’t resolved,” Mr Tsipras told ANT1 television. His warning came as bailout monitors resumed negotiations in Athens on final details of a reform package designed to ensure the IMF would join the country’s €86B current rescue package as a financial partner.
  • Saudi Arabia, the world’s biggest crude exporter, is losing market share to Iraq and Iran as a result of OPEC’s agreement to curb supplies to bolster prices, according to the head of research at Abu Dhabi Investment Authority.

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.