As the churn of August ends its first week only down a bit, it is important to note that markets have not yet traded back below their most recent breakout levels. While I am surely hopeful we get that trade back to skim off any early bullish feelings, it may not be in August as noted earlier in the week. I have a hunch it could be some hiccup as we get closer to the election which brings about a “late summer swoon.”

That noted, jobs knocked the lights out for the second month in a row after a stutter-step earlier in the year. Back when we got the very ugly May number, we stated here, “Ignore it – if there really were a jobs slowdown, it would have shown up in the unemployment claims which remain at near all-time record lows.” That is still the case:

~Jobless claims are at record lows
~Revisions are upside
~Recent months hint at renewed business investment cycle
~Jobs are widespread – importantly highlighting the Barbell Economy sectors
~**Job openings remain at record highs**

That last point is the highlight to me. We are reaching an employment picture which implies a need for increased talent capacity – as the jobs will continue to be open but unfilled. Once again – a clear sign of fiscal policies in DC being the problem – and not the economic structure of our country.

Earnings Curving Up

The data continue to improve on the earnings front – hinting at the end-game of the headwind from energy felt over the last 6 quarters. We stand by the idea that we have one more to go under our belt – and then improvements becomes the stance going forward.

Keep in mind, during this 18 month process of retrenchment, companies have become far more efficient. Steps have been taken to make sure businesses continue to search for the leading-edge of productivity. This suggests that as we get into 2017 numbers – which are shockingly just around the corner – surprises are set to remain to the upside.

Some data:

Yes, earnings growth YOY remains negative but that level is fast approaching a plus sign level. The declines are less than the previous quarter – as suggested for many quarters now. It is vital to keep this fact in mind:

Excluding energy, earnings for the rest of the market are down LESS than 1% – while revenues are up 2.3%. The profits recession is energy-based – with a bit of a trickle-down effect into industrial. Once we get past these comps – numbers will begin rising.

It’s just math guys.

So a Quick End of Week Summary

As we head into the weekend, let’s take a snapshot of more interesting stats. A few pictures are included which is always fun:

So the top data point above shows us a rebound is in the cards on the Q3 GDP report in early stages. Expect that to move back and forth and recall that revisions are still on the way from the Q2 GDP.

The next chart above shows that no matter what type of data we receive on the economic front, fear remains deeply-seeded. Demand for cash remains at increasing higher record highs. This risk aversion (as highlighted by the demand to hoard cash and cash substitutes) continues to be a significant factor holding back the economy.

Cash in bank accounts is less cash in circulation – building and expanding. It’s all fear. Little else. When fear leaves – the economy will explode. The demand is coming. We continue to believe the surprises ahead will be shocking to most.

Again – it’s all math.

Remember here: An economy is not like an airplane, which runs the risk of crashing if it slows down too much. Slow economic growth can persist for many years (as it already has, of course). The worst thing about the past seven years of disappointingly slow growth is all the wealth and prosperity and jobs that have gone missing – based on such a simple factor as fear of the future. We have created our own “worst recovery on record.”

Worst? Politicians, regulators, and bureaucrats have been the chief beneficiaries of our slow-growth malaise. More power to the public sector necessarily follows from less freedom for the private sector.

Slowly, one begins to understand what Rahm really meant back in 2008 when he stated under Obama, “never let a good panic go to waste….” They didn’t – and we are all paying for it oddly enough.

And the Final Item this week….

Sentiment continues to be exactly what a long-term bullish investor would prefer to see. In this case, a picture is worth billions of words:

Seeing the bulls exit again – even as the markets have not dipped back into the “breakout zone just yet – it simply a wonderful sign.

Keep in mind, while the news has remained choppy and head-spinning, the markets themselves have been in a very tight trade range: trading sideways for the last two weeks now. Meanwhile, just going nowhere is killing off bullish feelings again – which is spectacular.

The chart shows you that bullish sentiment has once again dropped back down below 30%! It doesn’t even take a market decline to make individual investors more nervous.

AAII tells us that bullish sentiment dropped from 31.25% down to 29.79%, for the third straight weekly decline. This now the 40th straight week where bullish sentiment has been below 40. Get this: the last time we saw bullish sentiment above 50% was during the first week of 2015!

Pray for a summer swoon – (or) even a late summer swoon.

Enjoy your weekend. That feeling of watching paint dry is real: it always is in August. One month left in summer. Soon we will be told to fret and worry about an entirely new set of monsters so enjoy the boredom.

In Summary…we remain in the same camp:

Stay focused – major (surprising) waves of demand are building.

Be patient – look for the swoon and don’t fear it. Now or later is just fine.

The Barbell Economy remains the focus – and it is working just fine – and getting better.

More later – working on an end of summer video review for you now.

Until we see you again, may your journey be grand and your legacy significant.