The economic calendar is normal, with an emphasis on inflation data. The week will begin with analysis of the annual Berkshire Hathaway meeting, the wisdom of Buffett and Munger, and a multi-hour CNBC program including Warren Buffett, Charlie Munger, and Bill Gates. While the questions will range widely, the punditry will soon turn to the mystery of the moment:

Why are stocks stuck in neutral?

Last Week Recap

In my last edition of WTWA I asked whether the avalanche of economic data would send interest rates higher. That was part of the discussion, particularly around the FOMC announcement. At the end of the week, Elon Musk stole the headlines. Friday’s trading seemed to leave pundits bewildered. The reports on the economy were fine, but not super-strong. Inflation expectations and interest rates did not change.

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, so check it out.

While the market was unchanged for the week, once again there was action along the way. The trading range was about 3.2%. I summarize actual and implied volatility each week in our Indicator Snapshot section below. As you can see, volatility has been moving lower.

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!

Feel free to add items that I have missed. Please keep in mind that we are looking for current news, especially from the last week or so. WTWA is not about long-term concerns like debt. These are important, of course, but not our weekly subject unless there has been some major change.

The Good

  • Corporate earnings continue to exceed expectations. This is especially interesting because of the unusual pattern this quarter. Expectations were not reduced significantly before the reports. These are true surprises. FactSet calls it the highest beat rate since they began compiling data in 2008.
  • Investor sentiment is “less bullish” reports David Templeton (HORAN). He provides a nice summary of several sentiment indicators. Here is a chart of one you seldom see, the net exposure of active investment managers. It has declined from a high of 120 (leveraged long by 20%) to 52.6 (nearly neutral). Some managers are 100% short.

  • Employment
    • Layoffs have also been lower – 40% in April. (Challenger Gray and Christmas via GEI).
    • Bespoke

    • Unemployment falls to 3.9% but wage growth remains weak (Dean Baker).