Market Brief – Tuesday 4/16/19

Stocks jumped in overnight trading ahead of further earnings announcements as investors are already ignoring the first-quarter earnings weakness as they look forward to the latter half of the year. This optimism is coming out of China, who is dumping currency into their economy, which global investors are hoping will boost the global economy like it did in 2016. Back in 2016, China had a large U.S. dollar currency reserve fund to spend, but this time they don’t.

Treasury yields have been rising on the same news as global investors look to China to drag the global economy out of its slump. Unlike 2016 where the stock market had no less than four bottoms, this time investors are betting the December 2018 lows were the bottom.

Overall the banks have not posted as strong of earnings as hoped, but this has not deterred investors. Bank of America repurchased $6.3 billion worth of its own shares to make sure their Earnings-Per Share numbers met analyst expectations. Investors should be concerned about what will happen when corporations run out of money to prop up their earnings reports.

Despite a booming economy, Bank of America has raised its loan-loss reserves to just over $1 billion as the bank clearly sees a rough time ahead for its borrowers. This was the highest loan-loss reserve since the second-quarter 2013.

President Trump tweeted today that investors are getting rich in the stock market, but only those who sell end up realizing their gains. This week’s corporate insider transaction report showed another week of heavy selling by corporate insiders. If the stock market was destined to go higher, corporate executives must not be as smart as retail investors, since they continue to sell large blocks of shares week after week.

Investors dumped agricultural commodities in overnight trading as another storm is pounding the farming region. Deep-pocketed buyers continue to pick up agricultural commodities as they know when the damage report hits, crop prices will rise significantly.

Automobile production fell in March by -2.5% on a monthly basis and -6.9% on a quarterly basis, which keeps Manufacturing Production flat for the month. Industrial Production fell slightly to -0.1% MoM. Capacity Utilization fell to 78.8% in March from 79%, which is disinflationary and should cause Treasury yields to fall, not rise. This is further evidence that investors are betting against the economic data.

Physical gold was hammered in early trading as $1.5 billion of gold was dumped onto the market. Physical gold broke through its short-term resistance level at $1,285/oz and continued to trade lower. Look for gold to bottom in the mid to low $1,200’s/oz.

Stocks closed slightly higher on the day on very low trading volume. With nearly 80% of S&P 500 companies in a blackout, trading volumes show there is little demand for stocks outside corporations repurchasing their own shares.

Despite last week’s strong Treasury auctions, investors continue to sell and short Treasury bonds as they believe inflation is going to take off. From a technical perspective, 10-year Treasury yields were rejected at the bottom side of their 50-day moving average, which potentially confirms yields are headed lower.

Physical gold closed at $1,279/oz and the associated mining stocks were also down today. This move down in gold, which may accelerate, will likely be another opportunity to buy ahead of the next Bull market in gold. After all, global central banks have exhausted all of their monetary bullets, which will leave one last solution – to print currency. Gold likes deflation and high rates of inflation. The opportunity will be here soon.

The American Petroleum Institute reported crude oil inventories as Crude -3.096mm (+2.3mm expected), Cushing -1.561mm, Gasoline -3.561mm (9th week of gasoline draws), and Distillates +2.3mm. A crude oil draw was inevitable after nine straight weeks of gasoline draws. Crude oil traded higher following the report.