We have a modest economic calendar. Only two reports will provide any hint about the coronavirus economic impact. The punditry will not be hampered. Without meaningful data, speculation blossoms. There is one idea that could help both your interpretation of data and your investment decisions. We should be emphasizing:
The crucial importance of time frames.
I am going far beyond the common advice of buy-and-hold and ignore what is happening. I hope to show how the choice of time frame affects every aspect of an important time for investors.
Last Week Recap
My last installment of WTWA, I expected little attention to the economic news. Instead, I predicted discussion about the “message of the markets,” and plenty of variation in what that might be. That was an accurate forecast for the week, especially given the many twists and turns. This cartoon from Joel Pett in the Lexington Harold Leader gets the media confusion just right!
Some of the erroneous messages will form the background for our look at the week ahead.
The Story in One Chart
I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski’s version, an excellent combination of key variables.
The market gained 0.6% on the week, measuring from the February 28 (last Friday) closing price. There was a gap opening on several days, including Monday. The 0.6% gain would be over 30% for the year if it were the weekly average. For most observers it is lost in the large 8.1% trading range for the week. Tuesday trading was especially noteworthy. It included a spike higher after the surprise Fed rate cut, followed by a dramatic decline and a close near the lows of the day. Once again, we saw a solid and surprising Friday rebound. In times of worldwide risks, traders often are cautious in front of the weekend. You can monitor volatility, implied volatility, and historical comparisons in my weekly Indicator Snapshot in the Quant Corner below.
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!
New Deal Democrat’s high frequency indicators are a valuable part of my economic review. His approach divides indicators into three time frames. Currently, the long and short leading indicators are both positive. The nowcast is slightly positive. NDD warns that the coronavirus effects have not yet registered.
The only likely coronavirus impacts so far are intermodal rail loads and possibly the upward spike in new orders, which may represent manufacturers trying to lock in supplies. On the consumer side Redbook consumer spending and on the producer side shipping and rail look like the best and quickest proxies for the impact of a coronavirus panic or pandemic. To be clear, though, I expect the news to outrun even the high frequency indicators.
- Mortgage applications increased by 15.1% versus the prior week’s 1.5%. The continued fall in the ten-year note yield is helping affordability.
- Construction spending for January increased 1.8%, beating expectations of 0.7% and December’s 0.2%.
- ADP private employment for February grew 183K, beating expectations of 165K. January had a large downward revision – from 291K to 209K.
- ISM Non-Manufacturing for February was 57.3 handily topping expectations of 54.8 and January’s 55.5
- Initial jobless claims of 216K was an in-line report. I am scoring it as “good” because it covers the last week of February, two weeks later than the monthly employment report.
- Movie Box Office reports are also weekly. So far, so good reports Calculated Risk.
Employment Situation ReportThe February Jobs Report Was Fantastic. Why It Doesn’t Matter for the Market
- Non-farm jobs had a net increase of 273K, beating expectations of 160K. January was revised upward to 273K from 225K.
- Private payrolls grew by 228K versus expectations of 160K.
- Unemployment dropped to 3.5% without a reduction in labor force participation.