Daily Research Updates
Morning Briefings
Expert market analysis delivered every morning. Stay informed with comprehensive research and data-driven insights.
Revisiting the Phillips Curve
(1) Commercial break. (2) Yellen was a fan of Phillips Curve Model while she was Fed chair. Powell not so much. (3) When is a flat curve not a curve? (4) Phillips curve not totally dead, but with jobless rate at 3.9%, wage inflation should be closer to 4.0% than to 2.5%. (5) Wage inflation showing more lift in goods than in services. (6) Price inflation showing more lift in services than in goods. (7) Rent inflation boosting services inflation. (8) Low price inflation (resulting from disinflationary structural forces) may be driving, and keeping a lid on wage inflation.
What Are They Smoking?
(1) High on life, revenues, and earnings. (2) Revenues are strongest among cyclical sectors. (3) As latest earnings season unfolds, Q1 beat expectations, yet remaining quarters remain unchanged. (4) Analysts now predicting earnings will grow 21% this year and 10% next year. (5) Profit margins at record highs. (6) Margins could get squeezed by more outlays on labor and capital. (7) Our earnings estimates are upbeat, but not as much as analysts’ consensus. (8) Alternative earnings scenarios are mostly bullish for stock prices.
AlterEgo
(1) S&P 500 unfazed by 3% bond yield. (2) No sign of tightening credit in junk bond yield spread. (3) Forward P/E has much more noise and less signal than does forward earnings. (4) Our Boom-Bust Barometer is at a record high. (5) Consumer Discretionary R&R companies reporting solid results at their various resorts. (6) Tech companies continue to mess with our heads. (7) AI may soon help you find the keys you lost.
Cautiously Optimistic Central Bankers
(1) More caution than optimism. (2) Fed’s Williams and Dudley wouldn’t mind a brief inflation overshoot. (3) Fed’s 2% inflation target is viewed as a tight range around this mean. (4) Fed officials conceding Phillips curve is flat-lining. (5) Draghi dragging his feet, saying “patience, persistence and prudence” will drive monetary policy. (6) Eurozone’s economy is debatable at the ECB. (7) Eurozone’s flash CPI not very bright. (8) ECB sticking with its asset-buying program for now. (9) Kuroda will tell you where inflation is going, but won’t say when it will get there.
Worldly Matters
(1) Slowdown chatter picking up. (2) Diffusion indexes are cyclical and trendless. (3) Global PMI remains on solid ground. (4) CRB index, especially its metals component, confirming global strength. (5) Oil price remarkably strong despite lots of oil supplies, suggesting global demand is strong. (6) All Country World MSCI forward revenues setting records. (7) Phillips curve is flat on its back. (8) Price disinflation keeping a lid on wage inflation. (9) Wage gains continue to outpace price increases. So real wages are at a record high.
Zigzagging Markets
(1) Insane volatility. (2) Stocks fall on some better-than-expected earnings, but rise on other positive surprises. (3) No recession out there unless trade wars break out. (4) Investors aren’t sure whether rate hikes and yield curve flattening are bearish or not. (5) If the Fed is ahead of inflation, then expansion can continue for a long while. (6) Deregulation is bullish, while regulation is bearish. But what if they happen at the same time? (7) The Trump reality show: We are all in it together, like it or not. (8) The dollar’s recent strength may be signaling weaker global economy, or reflecting divergence in central bank policies. (9) Firm commodity prices suggest global economy growth remains firm.
Winds of Change
(1) Turbulent stock market has brought P/Es back to reasonable levels. (2) S&P 500 forward P/E now stands at 20-year historical average. (3) Certain sectors look particularly attractive. (4) Telecom faces volatile business environment, disrupted by consumer choice. (5) Telcos’ response: M&A. (6) Disruptor extraordinaire Jeff Bezos casts his sights beyond Earth.
Peak Earnings Sense & Nonsense
(1) Has the market discounted “peak earnings?” (2) An important distinction between growth and level of earnings. (3) Forward earnings continue to make record highs. (4) Earnings giveth, while P/Es taketh away. (5) The earnings trend is our friend. (6) 2019 earnings at $166 per share a solid bet ... now go figure year-end 2018 P/E to get S&P 500 price target. (7) Comparing dividend yield and interest rates to time recessions and bear markets doesn’t work very well. (8) The second-longest expansion could be the longest next July. (9) Watching out for the next financial crisis and recession.
Fed on Course
(1) Victory dance at the Fed as inflation approaches 2.0% target. (2) Three more rate hikes this year, in June, September, and December. (3) Federal funds rate hasn’t exceeded core PCED inflation since March 2008. (4) No inverted yield curve in our outlook. (5) Mounting cost pressures more likely to come out of record profit margins than to push prices higher. (6) Regional surveys of “prices paid” reflecting higher commodity costs. (7) Employment Cost Index showing more of an upward trend in wage inflation than average hourly earnings. (8) Fed was right to expect reversal in transient factors that depressed inflation last year. (9) Rent inflation might have peaked, as the number of owner-occupied households has been increasing while renting ones decline.
Trade Talk
(1) China’s IDAR approach is major source of trade tensions. (2) Protectionism is mostly talk for now. (3) China and US have plenty of time to negotiate trade deal. (4) Keeping a timeline on trade developments. (5) China offering some concessions already, but they don’t add up to much. (6) Often it helps to have a Chinese partner in China. (7) Mexico’s production stalls at record high awaiting NAFTA outcome and mounting political risk from a leftist presidential candidate called "AMLO." (8) Other than NAFTA talks, Canadians face challenges, with an inflated housing market and uncertainty about commodity prices and currency value. (9) Movie review: “A Quiet Place” (- -).
CAT on a Hot Tin Roof
(1) CAT’s CFO learns that loose lips sink stocks. (2) CAT’s CEO walking back on peaking talk. (3) CAT’s major customers are running hot or at least hotter. (4) Mixed bag of earnings for Industrials. (5) Electric cars are coming. (6) Tesla misses production targets and plans to open plant in China (without Chinese partner!). (7) Volkswagen paying the price for diesel scandal by installing electric-car charging stations in US. (8) Clock is ticking for fast NAFTA deal.
Earnings: New Highs
(1) Impact of TCJA on earnings is a work in progress. (2) Back to old normal growth for earnings next year. (3) Analysts expecting S&P 500 profit margin to rise from 10.5% in 2017 to 11.8% this year and 12.4% next year. (4) S&P 500/400/600 forward revenues and earnings still making record highs. (5) Boom-Bust Barometer and Fundamental Stock Market Indicator remain in record-high territory. (6) So far, corporate managements not as giddy about earnings as they were during previous earnings season. (7) A few examples of DJIA companies talking about the impact of TCJA on earnings.
The Longest Expansion
(1) A short review of the supply-side religion. (2) The central dogma: Tax cuts pay for themselves. (3) Fact-based vs faith-based economics. (4) Some of the supply-side stimulus leaks out through the widening trade deficit. (5) Supply-side stimulus in a fully employed economy can increase net interest cost for the government. (6) Fed officials thinking out loud about fiscal policy stimulus. (7) Index of Coincident Economic Indicators shows economy still growing around 2.0%. (8) Yield curve is just one of 10 components of Index of Leading Economic Indicators. (9) No boom, no bust. (10) This expansion has a shot at the record books.
Lots of Commotion
(1) What’s worse: a flattening yield curve or rising bond yields? (2) By raising federal funds rate, Fed is signaling confidence in economy and storing up ammo to fight next recession. (3) The Fed is on top of the curve, neither behind nor ahead of it. (4) Bond yield target for rest of year: 3.00-3.50%. (5) Inflationary expectations rising along with oil and other commodity prices. (6) Despite flat US yield curve, no recession in global economy according to commodity prices. (7) No recession in credit quality spread or LEI. (8) German and Japanese bond yields remain near zero as ECB and BOJ balance sheets continue to swell. (9) Peak oil demand vs peak oil supply. (10) Remarkable strength in oil prices given soaring US and Canadian oil output. (11) Movie Review: “The Death of Stalin” (+ +).
Behavior Modification Empires
(1) Tech and Consumer Discretionary lead the pack ytd. (2) Latest relief rally includes interest-rate-sensitive sectors. (3) Flattening yield curve flattens Financials. (4) Zuckerberg has been in our Facebooks. (5) Loyalty prediction AI tools know who they can and cannot trust. (6) Self-breeding AI. (7) AI will be in the hands of the good, the bad, and the ugly soon. (8) Tech guru says that Google (motto: “Do no evil”) and Facebook (Like or not) have become mind-control vampires. (9) Time to require pay-to-play, instead of sell-my-privacy model. (10) Modern Monetary Theory says federal government budget deficits don’t matter until they do matter (when inflation makes a comeback).
Lots of Debt
(1) China’s engine running on bank loans. (2) No credit crunch for China as long as inflation remains subdued. (3) Chinese bank loans funded by Chinese depositors. (4) Less and less bang per yuan? (5) CBO projecting $1.2 trillion per year, on average, in federal budget deficit through 2028. (6) Public debt set to double again over next 10 years. (7) CBO not drinking supply-side Kool-Aid. (8) Interest paid by federal government set to triple over next 10 years. (9) Will tax cuts lift potential GDP’s growth rate? (10) Budget deficit may or may not matter when inflation is low, but will definitely matter if inflation rises.
More Ups Than Downs
(1) Retail sales is one of the three components of business sales. (2) Monthly business sales is a good leading indicator of S&P 500 revenues. (3) The revenues growth cycle may be peaking. (4) The Energy-led growth recession and recovery may have run their courses. (5) After exuberant upward revisions, analysts may be starting to curb their enthusiasm about revenues. (6) US PMIs remain upbeat on S&P 500 revenues growth. (7) GDPNow down to 1.9%. (8) Three explanations for why retail sales were so weak during Q1. (9) Online retail sales now at record 31.0% of GAFO sales.
Inflating Inflation
(1) The “fret level.” (2) Trade War Watch: Xi concedes a little, while Trump has second thoughts about TPP. (3) Trump channeling Reagan rather than Hoover on trade. (4) Our fearless leader is impetuous on trade as on other matters. (5) Next fret: Back to worrying about inflation? (6) Rising PPI costs likely to pinch profit margins fattened by tax cuts rather than getting pushed up into CPI. (7) Rising costs mostly attributable to rising commodity prices, particularly oil prices. (8) The Fed sends a memo about inflation to investors: Don’t fret. (9) Overshooting inflation target might not change Fed’s gradual pace of normalization. (10) “Beirut” (+).
Earnings, Genes & Brazil
(1) What do earnings, genes, and Brazil have in common? They’re all remarkable. (2) Get ready for a great Q1 reporting season. (3) Q1 earnings growth in high teens expected; analysts see roughly 20% growth in 2Q, 3Q, and 4Q. (4) Analysts have been upping earnings sights dramatically, for Q1 and 2018, across nearly all sectors. (5) Novartis pays up to beef up its gene-editing capabilities with acquisition of AveXis. (6) Brazil’s MSCI Index has stumbled in April as presidential contender Lula heads off to the clinker. (7) A lulu of a buying opportunity?
Trade War Over Already?
(1) Trade war and peace. (2) The Chinese President’s speech. (3) A perfectly reasonable emperor for life. (4) Xi has turned into one of globalization’s biggest defenders. (5) Trump’s bilateral approach to making free trade fairer may be working. (6) Is Panic Attack #60 over yet? If so: Here comes another relief rally. (7) The best late-cycle earnings season ever. (8) Shortage of truck drivers hasn’t stopped ATA Truck Tonnage Index from making new highs. (9) Record-high tonnage per truck driver: productivity or overtime?
Meet John Williams
(1) A big promotion at the Fed. (2) A voter for all seasons. (3) Williams is a gradualist. His dots are in the middle of the pack. (4) Fed aiming for 3.50% by 2020. (5) Fed study says new normal for real GDP growth is 1.6%. (6) Williams agrees that’s the trend, which is counter to the projections of Trump’s supply-siders. (7) Demography is determining weak labor force growth. (8) Waiting for technology to boost productivity growth. (9) Why aren’t wages up 3%-4% by now? (10) Baby Boomers aren’t retiring and aren’t getting paid more.
One-Man Plunge-Protection Committee
(1) Chronology of recent trade war of words (TWW). (2) China and US playing tit for tat. (3) It takes two to tango. (4) Kudlow playing role of good cop on trade. (5) Kudlow hopes he can beat the Mooch. (6) Never a dull moment in the Trump House. (7) Noise vs signal and signal vs signal. (8) Corrections are followed by rebounds or they turn into bear markets. (9) Counting on better-than-expected earnings to offset TWW. (10) Fundamental Stock Market Indicator remains fundamentally strong. (11) “Chappaquiddick” (+ + +) is a remarkable movie reminding us that the Kennedy clan’s Camelot was anything but.
Margin Pressures
(1) Is the market-cap weight of the Tech sector too high? (2) Tech earnings justify high market-cap share, but not if the sector’s profit margins are at risk. (3) Why is Walmart eyeing Humana? (4) While overall inflation remains subdued, there are a few signs of mounting inflationary pressures. (5) Striking teachers and shortage of truck-driving Teamsters. (6) USTR report says China doesn’t play fair.
Trump’s Bumps, Slumps, and Thumps
(1) Still looks like a solid global synchronized boom. (2) The world’s economies are too interdependent for protectionism to prevail. (3) Good growth in global trade stats. (4) Lots of upbeat M-PMIs in March around the world. (5) Forward revenues of All Country World MSCI rising rapidly in record-high territory, led by the US. (6) Net Revenues Revisions Indexes remain positive, with lots of the upward revisions in the US. (7) Is Trump bullish or bearish for the stock market?
Record Corporate Cash Flow
(1) April is a big month for dividend payouts. (2) That might explain “Go away in May.” (3) TCJA likely to provide one-time boost to level of dividends. (4) Repatriated earnings likely to boost buybacks more than dividends. (5) February outflows from equity funds surprisingly small given the selloff in stocks that month. (6) US-based ETFs still seeing large net inflows, especially to global ones. (7) Foreign investors warmed up to US stocks last year. (8) Solid gains in NIPA profits from current production last year. (9) Plenty of corporate cash available from internal funds and bond issuance to fund lots of share buybacks and capital spending.