April went out with a whimper and left markets almost where they started the year. We suspect this will continue a bit longer as noted over the last few weeks. Lately, finding great news in the data as we muddle through this “passing of the baton” process has been tougher than finding a needle – in a stack of needles.
Seriously folks, the anti-depression guys must be doing a bang-up business these days. Throw in all the nasty politics and the global unrest and one can understand why the crowd seems like its in a funk.
That’s Good News Really
When the crowd sentiment is down – history shows we go shopping. And the latest data came in like just like clockwork:
And US Car sellers did just fine too:
Earnings continue to fall on the side of “that’s not as bad as we thought it was going to be” but as you might guess, could be better. S&P 500 forward earnings are beginning to recover and are just a couple percent away from the record highs we have been stalled at since the second half of 2014.
The latest manufacturing PMI data was down a bit to 50.8 during April which is unexciting but nonetheless, the second month in a row above 50 following five months of readings below that level. (More data on the PMI’s and Earnings Breakdowns are posted in your Member Area)
The Better View of GDP?
For several years now we have all had a front row seat to this seasonal oddity of a weak Q1 GDP report only to be followed by a relatively stronger rest of the year.
There is a simpler way to look at this actually. Just calculate the y/y growth rate in real GDP, right? If one does so, GDP was up 1.9% during Q1. As we cover in your notes, it has been fluctuating around 2% in a range between a low of 0.9% and a high of 3.1% since Q3-2010. Real final sales had a more positive tilt to the upside – they rose a solid 2.4% y/y during Q1.
What does it all tell us? Slow and steady wins the race.
Not very sexy at all but that has been the game for a solid 18 months now and as stated previously, we suspect we have another quarter or two of it ahead as we put a stake in the heart of the energy sector adjustments and move on to the next monster.
While it has been like walking in quicksand – I stand by the idea that the surprise remains to the upside.
A vast majority of the audience views it the opposite way which is why I feel confident we are continuing to witness a replay of the late 70’s / early 80’s time period (more below).
Demographics tell us that – and the good news is, they don’t shift every 90 days.
They unfold for decades….slow and steady.
Energy Yield and Equity Risk Updates
Thought we would close out today with a few snapshots of how we can tell massive benefits are still being confused for problems. Maybe we are causing that stack of needles?
We all know how confusing it has been to be told that much cheaper oil prices are terrible for us as a country. Indeed, they do cause serious harm to energy producers but they have been a massive benefit to consumers/users around the world.
Check the chart below and note that costs associated with energy have never been a smaller percentage of the overall consumer’s budget. While not a guarantee and surprises can always unfold, it’s extremely difficult to see a recession developing for us here in the US when energy is this cheap.
Be assured of one thing:
When and if we do get a bounce into the range we previously outlined, you will see headlines that tell you rising energy costs are bad for us too!
These last two charts (Thanks to Calafia for their charts as always) below tell us something important about the fear which still exists just under the surface, needing only a week or two of red ink to boil over again.
The first charts shows a graphic layout of the yields available on various assets with the high-yield market still spiking over energy default fear.
Note the S&P 500 is beaten only by high yield here in the states.
As a follow-on, the last chart shows us the equity risk premium – the difference between the earnings yield of the S&P 500 and the 10-year Treasury bond. Notice it sits today where it did in the late 70’s, when the DOW was 600.
Closing Thought for the Day
It is not a coincidence that this same “launch-pad” structure is forming in the market.
Think demographics – not economics
Count people first..money follows.
Patience and discipline – pray for a dip – and a summer swoon.