The economic calendar is among the biggest, but politics and personalities are playing a larger role in financial news. With the upcoming Democratic debate and increasing criticism about the economy, we have an unusual situation. Normally, the economic situation is taken as given and the politicians respond. This year we have a very different question:

Can the political debate change the course of current policy?

Last Week Recap

In last week’s installment of WTWA, I took a break from our travels to update the indicators and identify a few key issues. My general idea was that the reaction to the tweetstorm of ten days ago might give policy a nudge in a new direction. The reactions continued, but the policy effect, if any, is unclear. We did learn that the current environment does not lead inevitable to a falling stock market.

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 Investing.com’s version. The tags show news events which you can see by visiting the interactive site.

The market gained 2.8% for the week with a trading range of 3.3%. Positive statements from China on the trade issue provided the Thursday boost in stocks. My weekly Quant Corner translates each week’s data into a volatility calculation which you can compare both to VIX and to past readings.

Personal Note

Mrs. OldProf and I have returned from our trip. As promised, I am trying to update indicators and add a few observations. WTWA will return to normal next 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

The economic calendar is as big as it gets, and it is compressed into four days. The employment report is, as usual, the feature, but ISM manufacturing and services indices are also significant. Auto sales, construction spending, and factory orders round out the calendar.

But we can’t forget the Beige Book, from which many will find evidence about the likely Fed policy later this month.

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

Next Week’s Theme

Once again, I expect the punditry to react to events rather than economic news. The difference is that the political debate will be more about the economy. This will be especially true if the employment numbers are weak. Pundits will be asking:

Will Presidential election politics influence the economy?

This would be very unusual, of course. Normally political analysts take the economy as given and treat political positions as a reaction. I sense that more attention on economic risks may reverse the normal relationship.

I’ll add a few observations in today’s Final Thought.

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.

Short-term technicals remain bearish and have stablized at this level. Long-term technicals remain at neutral. Recession risk is still in the “watchful” area.

Considering all factors, my overall outlook for investors remains bullish. The opportunity is very high, but the risks are also rising.

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.

RecessionAlert: Strong quantitative indicators for both economic and market analysis

Doug Short and Jill Mislinski: Regular updating of an array of indicators. Great charts and analysis.

Georg Vrba: Business cycle indicator and market timing tools.

 

Final Thought

Market fundamentals have changed little and stock valuations remain attractive – especially if you shop from the many cheap sectors.

There are many interesting themes, including the following:

1. Stocks can rise, even in this uncertain environment.
2. The trade story remains the most important, since it lies behind the low world-wide interest rates.
3. The trade situation could be improved quickly and dramatically. At this point nearly everyone is a skeptic, but a surprise is possible.
4. A trade “victory” could be crucial to the Trump re-election campaign.
5. The VIX is not a leading indicator. The so-called “fear gauge” usually reflects current sentiment.
6. Technical analysis is driving many of the current moves in all markets.
7. The increase in volatility has been tough on traders but provides opportunities for the unemotional investor.

 

The analytical investor will not pile on to the crowded trades. Take what the market is giving you.

 

[If you don’t know which trades are crowded, it might be a signal for a checkup. s your portfolio making all-time highs? That is also a warning. Write for my free paper, Market Highs. You will get some ideas about replacing over-valued stocks with those showing great potential. We also have a few spots for portfolio consultations – complimentary and without obligation. Just send an email request to info at inclineia dot com].