Weighing the Week Ahead: Are We There Yet?

The economic calendar is a big one, featuring several employment reports, including the official version from the BLS. The ISM manufacturing and non-manufacturing surveys provide an early look at economic changes. Despite the significance of the data, most are regarding it as old news. There is widespread willingness to look beyond the chasm of this recession and ask what it will be like on the other side. You can almost hear the chorus of voices asking,

Are we there yet?

Or might there still be a few detours on the road to Walley World?

Last Week Recap

In my last installment of WTWA, I described the need for balance between economic and health concerns. There was some discussion of this specific topic and lots of talk emphasizing both sides. I expect this to be a continuing question for all – investors or not.

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 the most important information.

The Tuesday rally was attributed to optimism about an early vaccine discovery. Friday’s early decline reflected concern about possible retaliatory measures against China. Pres. Trump’s news conference did not emphasize economic sanctions and the market recovered. Stocks rose 3% on the week with a trading range of only 3.3%. You can monitor market volatility, including historical comparisons. in my weekly Indicator Snapshot (below).

What worked? Readers seem to like this helpful depiction of what’s hot and what’s not. You can see the path of sector performance showing both leads and lags along with strengthening and weakening.

Personal Note

I am mostly taking some time off, which means I read and plan but do less formal writing. I am providing this update to provide the regular indicators and to highlight a very important article I found this week.

The Week Ahead

We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react.

The Calendar

We have a big economic calendar. The ISM manufacturing and non-manufacturing indexes provide one of the earliest looks at economic trends, but employment news is the big focus. Initial and continuing claims, ADP private employment, and the official employment situation report will reflect the latest available information on the plunge in jobs.

This is a lot of news, but the attention of most will be on the Grand Reopening and the spreading protests about the death of George Floyd.

Briefing.com has a good U.S. economic calendar for the week. Here are the main U.S. releases.

Next Week’s Theme

The Great Reopening has just begun, but stocks trade as if the finish line were near. Those of us who have taken a family road trip will recognize the refrain:

Are we there yet?

We are all eager to resume normal life. We all need an economic rebound before we hit the limits (perceived or real) to what government can do.

Source of the Week

If I had to recommend a single source this week, it would be What Happens Next?
In just a few minutes with this source you will learn most of what you need to know about policy responses to a pandemic. It is carefully scientific, showing the impact of changing each variable before combining them into possible solutions.

  • You will learn about a possible “second wave” including how and when it can happen.
  • You will be able to evaluate continuing intermittent lockdowns. Or a longer lockdown period.
  • You will see solutions that combine various policies to get control of the epidemic.
  • And importantly, you will see how this can be done in way that helps the economy and protects privacy.

Here are a few quotations from important segments just to provide a taste. Reading the full post will make you more of an expert than nearly anyone and also surprise you in many ways.

 

Why do Simulations?

 


Key Lessons

There are many interesting lessons, but here is the author’s choice for #1.


Privacy

We all share a desire to protect our privacy while increasing safety. Here is an entertaining explanation of how it can be done.

 


 

The presentation is both educational and fun. As is the case with any good model or simulator, you can try a range of assumptions to see what difference it makes. Enjoy!

 

Quant Corner and Risk Analysis

I have a rule for my investment clients. Think first about your risk. Only then should you consider possible rewards. I monitor many quantitative reports and highlight the best methods in this weekly update, featuring the Indicator Snapshot.

For a description of these sources, check here.

The technical picture has improved significantly as we would expect after the recent market rebound. I include this as an indication of the trading environment. I continue my “Bearish” rating of the overall outlook for long-term investors. I did little last week beyond adding some covered call positions.

The C-Score seems to have leveled off. It reflects is a dramatic change in underlying factors which normally provide important indications. This level is an extreme outlier that cannot readily be interpreted. Georg Vrba has paused the BCIp signal because of the extreme readings. It has done its job for now.

The Featured Sources:

Bob Dieli: Business cycle analysis via the “C Score”.

Brian Gilmartin: All things earnings, for the overall market as well as many individual companies.

Georg Vrba: Business cycle indicator and market timing tools.

David Moenning: Developer and “keeper” of the Indicator Wall.

Doug Short and Jill Mislinski: Regular updating of an array of indicators, including the very helpful Big Four.

 

Final Thought

I expect more bumps on the road to our destination. It is an interesting and important challenge: Find the best investments for the “other side.” I have seen many other investment articles this week that are trying to look ahead in this way. They are focused on what is working right now or what will work a month from now. This is a flawed approach in the absence of more information about the pandemic and the economy.

Here is a table from my last report to fellow Great Reset participants. They are all helping to collect data and ideas that we will help the entire investment community. Try your own ideas, asking where they might fit in the matrix below. For example, avoid A1 and embrace C1.


 

A Personal Request

One of my personal 2020 resolutions was even more emphasis on investor education – not just recommending stocks but learning how to find suitable choices. I have created a resource page where you can join my Great Reset group. You will get updates about what is being studied and can join in the process. There is no charge and no obligation, but I hope you will join in my Wisdom of Crowds surveys. I need more wise participants!

The results of our team effort will be published on a regular basis, so you will be joining me in contributing to a greater good.

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6 comments

  • James May 31, 2020  

    Thanks for the link to “What Happens Next”. I passed it on.

    • oldprof June 1, 2020  

      Thanks, James!

  • wkevinw May 31, 2020  

    Yes, the “What Happens Next” page has about the most thorough, reasoned and well communicated summary of the variables- such as I understand them.

    There are still a few items that most of the experts are missing.
    1. Testing- i. their accuracy is still and issue and is impacting the quality of the models (this could be modeled, but I have not seen that), ii. I may have missed it, but there needs to be some kind of modeling of percentage of population tested vs. benefit. There should be some threshold where you get to the point of seriously diminishing returns. That’s kind of hard to model, obviously.
    2. Masks- there are various studies. I have seen ones where they have indeed tested viruses and bacteria for various materials/mask types. One good thing is this author does understand that even a “poor” mask still offers significant benefit. Pathologists’ knowledge about exposure concentration (also called inoculum strength) is a key variable, and will be impacted by masks. This is a key variable in pathology studies. Often (usually?) there is some threshold of this below which the infected organism will not get the “full disease”. This may also be a benefit of the masks: obtain herd immunity by exposing lots of people to small amounts of the virus- where they are only mildly infected.
    3. Second order impacts of the lockdowns- increased cancer, heart disease, etc. deaths. Many of these MD specialists are concerned that their patient load during the lockdowns has been down many dozens of percent. This is going to show up months and years down the road as increased deaths. Not taking account of this is a very serious oversight by the “experts”. They did mention mental health effects, so at least they got that right.

    Note that one of the well-known “causes of premature death” in social science work is poverty. A lot of people get visited by poverty during lockdowns.

    Thanks again for the work.

    • oldprof June 1, 2020  

      knm — all valid points, and thanks for contributing. As you know, it is easy to point out countervailing factors, but difficult to quantify. It is even tougher when effects cannot be observed and measured quickly.

      Jeff