Market Brief – Monday 4/29/19

Stock prices continue to favor the risk takers who remain happy as long as corporate executives are willing to lie to them about a second-half rebound. Corporate earnings projections show a resumption of double-digit earnings growth, even though there is no evidence in the economic data to suggest there is even the slightest hint of optimism for a big second half.

Economic data aside, stock prices continued to grind higher in early trading. Treasury yields were up slightly but remain in a downward trend which is an indication of tightening financial conditions. Stock prices and Treasury yields are at odds with each other and only one can be right in the end.

The talk over the weekend was mostly directed at the allegedly faked first-quarter GDP report which showed an unexpectedly strong first quarter. Even the most optimistic predictions didn’t come close, as those who track the economic data don’t see how it is possible for GDP growth to be that high.

As experts dug through the report, they found large inventory builds and a change from the standard GDP deflator to a more favorable number which helped boost the headline number. Either the first-quarter GDP number will be revised lower or the first-quarter economic data will be revised substantially higher.

Not even the recent earnings data is justifying the current euphoria over stocks, but 77% of companies have beaten their earnings estimates. Analysts were quick to revise their estimates down as the year-over-year earnings growth has been negative and 84% of companies who do provide forward guidance, are expecting next quarter to show negative year-over-year earnings growth.

To add to the complacency of this market, speculative short volatility futures are now at their all-time lows. The last time volatility was this low, there was a massive short squeeze which leads to a spike in volatility and a big drop in stock prices. Everyone is once again on the same side of the market, but based on their volatility positioning, investors who are betting on higher stock prices don’t see a need to hedge their positions.

Personal Spending jumped +0.9% MoM in March with income growth up to a scant +0.1% MoM. This jump in spending was on the back of a reduction in savings, as the Personal Savings Rate fell from +7.3% to +6.5% on an annualized basis. The big increase in spending was due to a big decrease in savings.

Stocks closed a smidge higher as the S&P 500 made a new all-time closing high without much fanfare. Despite the corporate share buyback blackout slowly ending, trading volumes remain very subdued. Treasury yields were up slightly.