Welcome to Advisorpedia's Week Ahead. Here's what's ahead.
Companies have issued $140bn in the US junk bond market over the past three months, outpacing Q2 2020 record dash for cash when companies raced for funding to survive the shock of coronavirus.
Investors have flocked to junk deals as low interest rates have pushed them to seek out higher returns in riskier markets, predicated on the US economic recovery taking root and helping to bolster low-rated companies' ability to repay their debts. And more .,,
Walmart, the usual poster child for extended jobless benefits and stimulus checks, has fallen 12.9%
Wednesday Intel announce massive plant expansion, opened up 6.0% and closed down 2.3% - a telltale sign that we have a ton of good news — and then some — priced in. And more ...
- Broke above 200dma for first time in XXX days - get data from DM. Up XXX since the start of the year?
- Rally snuffed out right at the 200-day trendline - keep watching
Gold has been firming despite the strengthening dollar.
What does a strengthening dollar mean?
Citi’s Economic Surprise Index for the U.S. has throttled back to June 2020 levels (9 month low) — a sign that economic momentum is increasingly waning. Typically a falling CESI also sees the 10-year yield decline
Atlanta Fed trimmed its Q1 real GDP to 4.7% from 5.4%. At the beginning of the month, that forecast was 10%!!
Tax hikes are coming. Yellen came right out recently and said, “Longer run, we do have to raise revenue to support permanent spending that we want to do.” and more ...
When we return from the weekend, we have three trading days left until we shut the books not only on the month of March but the first quarter of 2020. That also means that next week brings the usual start of the month economic data – ISM Manufacturing PMI, IHS Markit Manufacturing PMI, the ADP Employment Change Report and the monthly Employment Report.
As we crossover from March into April, companies will have entered the pre-March quarter earnings quiet period. This means once again we will be on the hunt for data points and other insights to inform what we are likely to hear in the coming weeks when that earnings season gets underway. As we gather those items, we’ll be sure to tweak our holdings as warranted.
Monday, March 29: Cal-Maine Foods (CALM).
Tuesday, March 30: McCormick & Co. (MKC); Blackberry (BB); lululemon athletica (LULU); PVH (PVH).
Wednesday, March 31: Acuity Brands (AYI), Walgreens Boots Alliance (WBA); Dave & Busters (PLAY); Micron(MU).
Thursday, April 1: CarMax (KMX); JinkoSolar Holding (JKS)
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Lenore Hawkins, Chris Versace
Chris Versace 00:05
this is the week ahead brought to you by Advisorpedia and powered by Tematica Reserch. I'm Chris Versace Tematica Chief Investment Officer and joining me once again, I think from Italy, I'm not sure, is Tematicas chief macro strategist Lenore Hawkins. . .
Lenore Hawkins 00:30
Yes well so last week was ireland today is actually back in italy today flew from dublin to amsterdam to milan and then drove to my home in como it says
Chris Versace 00:43
How and how was that because you know here in the us you know things are starting slowly but getting back to normal restaurants are opening you know we're seeing things being open more and more people are going back to work but the story that we've heard over the last you know week 10 days in europe is wildly different germany was flirting with renewed lockdowns we're hearing the eurozone is saying too bad uk no vaccine for you that sort of thing so what's it really like over there
Lenore Hawkins 01:17
The airports were shocking it really is a tale of two pandemics whereas in the us you go into an airport and it feels okay maybe it's a little bit late but it doesn't feel shockingly different dublin airport was almost completely empty that's a major international airport schiphol in amsterdam wasn't too bad milan was almost completely empty sorry
Chris Versace 01:37
i'm sorry well what was the name of that airport schiphol
Lenore Hawkins 01:42
Which is which is one of the busiest both schiphol and heathrow in london those are two of the busiest airports in europe and both of them are almost completely empty so it is it's pretty weird if it's it's not a whole lot of fun traveling it's very very different the amount of paperwork to just travel around the mount of Coronavirus to have done is unbelievable i
Chris Versace 02:04
I've known you for a long time and i know that you traveled back and forth quite a bit but you know i'm sure the folks who've been listening to the to our conversations over here in the week ahead are probably scratching their heads to some extent like i am you left the state of california that as of april 1 is going to open up the floodgates for vaccine to go into place that you're probably not going to get vaccinated until sometime in the summer
Lenore Hawkins 02:33
I am questioning my sanity at this point
Chris Versace 02:41
Hopefully that's not the jetlag talking so anyway anyway um you know when we step back and look at last week which we always do here in order to talk about you know the coming week you know we got a bunch of february economic data we had some other companies make some announcements in earnings but i you know from a big picture my sense on some of the economic data is yes month over month weaker existing home sales new home sales dribble orders but when we look on a year over year basis there's reasons to be optimistic because all of those numbers were positive on a year over year basis so how are you looking at all this
Lenore Hawkins 03:27
Well one of the things has me concerned definitely is the looking at the citibank economic surprise index because that's a really good metric it's back down to the june 2020 levels so that's at a nine month low that's assigning economic momentum is really slowing down and something else to keep in mind at the beginning of the month the atlanta fed estimate for first quarter gdp was 10% just revised it then they've been revising it so it's 10% at the beginning of the month then it got revised down a couple of times it was at 5.4 coming into this week and they just today revised it down to 4.7% from 10% less now so that tells me the data coming in not so fantastic
Chris Versace 04:17
So here's the thing with that right we we both know that the new york fed sorry the atlanta fed cannot be trusted their data is all over the map i prefer to look at the new york fed their now cast model but to your point at the end of february it was around 8.7% and as of today it was revised lower to 6.05% so i feel weird saying
Lenore Hawkins 04:43
We see the data coming in weaker
Chris Versace 04:46
But what bothers me more about that is what the new york fed model has for the second quarter which is all of 0.7% now compared to 3.9% just four weeks ago that to me Here's a little more worries,
Lenore Hawkins 05:01
You got to keep in mind how much of GDP is really dependent on the Fed or sorry, the the federal government sending out checks. We get these bumps in spending, and you look at spending this big bump up, and then …
Chris Versace 05:13
The crash. That's the thing, right. So we know the Biden relief checks only started to hit maybe, you know, mid to late March, which means that we should see a pickup in April spending. So it's even a little more disconcerting to me that that second quarter GDP number is only 0.7%. But I think we have to back off a little bit, though, and I say that because these models are not really, to some extent, their forecasted models, but they're not really as forward looking as some Wall Street economists might be in the sense that they're looking forward and in really forecasting out a number of different streams to work back to their GDP forecast.
Lenore Hawkins 05:56
Fair, but the either way, the data coming in is coming in here. So no doubt that the data is coming in. And we even we heard from Fed Chairman Jay Powell. On Thursday, he said that the feds not going to take the Punchbowl away until the a unit US economy is quote, all but fully recovered. And then Evans from the Chicago he also tends to be more of a centrist. He said that the inflation we're to see is, quote, transitory and that the Fed will end up quote, struggling to get inflation to 2%. And then it might be until 2024, before we actually raise our interest rate target. So the Fed and they get a lot of data, they're also not seeing a whole lot of reasons to think that this economy may be accelerating to the point where we have to be concerned with inflation.
Chris Versace 06:47
What did you make of the PC II price index that came out late last week, because when I was looking at it, the core index was up, I think, 1.4% in February, actually down a tick compared to January.
Lenore Hawkins 07:00
Yeah, across the board, we're seeing signs that inflation is really just not going to be a big, a big concern,
Chris Versace 07:07
except for shipping costs. But that's not inflation.
Lenore Hawkins 07:13
Prices go up. prices go up on something that is not inflation. Inflation is the the purchasing power of the dollar has gone down or whatever currency you're talking about has gone down. The fact that we're seeing shipping costs so high is because there's a massive demand and the ships are all in the wrong places, you've got this huge pile up. So you have a supply is down with demand up. So prices go up. It's not inflation, when all the orange trees in Florida don't produce oranges that summer. So that's a little different. That's not inflation. That's a supply demand problem.
Chris Versace 07:46
No doubt, no doubt. But I think we are seeing shipping costs jumped dramatically higher as a result of the Suez Canal blockage that
Lenore Hawkins 07:57
We already had a global supply chain that was struggling. And now you've got this big old tankers that spread across the Suez Canal, which could really, really spike up prices even more was the last thing we needed to see.
Chris Versace 08:09
So limit. So let me let me ask you this, you know, if we've got stimulus checks going out, and the economy's reopening, there's reasons to think that certain service sector parts of the economy should continue to do a little better. But what we're hearing about the ramp down in automotive production, Chip shortage, you know, what you were just talking about in terms of supply chains, you know, rising shipping costs. There, there are some headwinds out there for the manufacturing economy that could kind of weigh on things when companies report their march quarter earnings, possibly, or at least God.
Lenore Hawkins 08:47
Yes. And I think we've already seen that an awful lot of positive news has already been priced in, for example, we're seeing Walmart shares have been hit more than 10% that down more than 10%. That's usually a poster child for extended jobless benefits. And those stimulus checks coming out and it's getting hit. When you see Intel announcing that it's going to expand its plans, it's, it's going to start with them. Like how the world this is what happens when you travel through a bunch of different countries.
Chris Versace 09:17
And so they that they announced that they're going to spend 20 billion on two fabs in Arizona, they're also going to announce a year. additional capacity, enhancements and improvements in the US Europe and other geographies. They also said, which was interesting to me that they're gonna enter the foundry space, which could be in my view, a way to placate Apple moving inside with their own app and silicon.
Lenore Hawkins 09:42
And when they announced that you would have thought that'd be a good thing. share price opened up 6% but then it closed down 2.3% for the day so yeah, but the markets got a lot of good stuff already priced in
Chris Versace 09:51
I hear you on that but all the semi cap suppliers Applied Materials lamb research, KLA, 10 core, all pot and i believe don't hold me to this i think like applied finished last week up 10% so there are some positive aspects you lost me you're tight
Lenore Hawkins 10:15
that that i'm talking about that happened this week not less than last week you're talking last week last week i didn't know what we were talking about
Chris Versace 10:23
but how about how about we talking about the week ahead
Lenore Hawkins 10:26
Yeah let's do that
Chris Versace 10:27
Okay let's do that what what economic data are you looking at and what are you expecting
Lenore Hawkins 10:35
Well, I'll be looking at the house price index because this past week we got some housing data that wasn't so great mortgage applications fell 2.5% they've never down three weeks in a row we've seen a lot of refinancing is not doing so great obviously that's happening with mortgage rates going up we said housing stock starts have dropped over 10% after a in february after 5% drop in january new home sales dropped as well now a lot of this has been attributed to the weather and yes some of that's true but we thought in all regions so we saw these these turret downturns in areas where the weather wasn't really hitting at all so i'll be looking to see what's going on with the fhfa house price index that comes out on tuesday also the case shiller home price index also looking to see consumer confidence right because our people feeling really good seeing things starting to open up right because we're seeing the savings rates have been going up and there's all this expectation that is people get vaccinated we can go out we can eat in restaurants and maybe even give each other a hug and that that's really boost consumer confidence i want to see if that's what's going on
Chris Versace 11:50
Right so you want to see if the rubber is likely to hit the road
Lenore Hawkins 11:54
Yeah and also gonna be looking at the manufacturing pmis so far what we've been seeing is that manufacturing has been much stronger than the service sector through much of the world which is kind of an obvious thing right it's tough to have the service sector going strong when you've got all these lock downs we'll be focusing on that more on asia with japan china also seeing what's happening in the eu because i know here in italy in germany you've got big big lock downs although well people aren't listening as much as they used to we've got draconian lockdowns but you do see more activity than you would expect
Chris Versace 12:32
Well everybody's got you know fatigue you know from that but but i you know i think you're spot on with the market economic manufacturing pmi is that we'll get as whenever we look at this data you know that there's a bevy of items to kind of chew through i think given the renewed lockdowns it'll be very interesting to see what the new order data is because of course that's going to set up what's likely to happen in the month of april so just really watching that inflection point as well as of course the inflationary data that is contained within there those would be the big things but friday when the market is closed because of the easter holiday so there's a nice three day weekend coming for everybody which newsflash means we'll be coming at you i guess the same time even those three even though there's a three day weekend right next week i think so yeah anyway anyway enough of that but the employment report will be out on friday when the markets closed which probably means there'll be a lot more chatter about that on the that monday which i think is the if i'm doing this right in my head 234 the fifth april 5 so that but that'll be something to watch and and again looking to see how the reopening is happening and what types of jobs are coming i think last month lenore there was a big jump was it was at restaurants and retails if i remember correctly
Lenore Hawkins 13:57
We thought big boom
Chris Versace 13:58
Yep yeah so again that that'll be worth watching to gauge the degree to which the reopening is continuing to expand and and strengthen and yes
Lenore Hawkins 14:10
to what we're looking at those things another one to be keeping an eye on is what's going on with both bond yields and with the dollar because the dollar this past week it managed to break up the dx y index broke through its 200 day moving average right when it looked like it was gonna actually start really moving up it fell back down so it hit that 200 day and got stuck now if the dollar does strengthen that's not so great for procyclical stocks that's going to be kind of tough for emerging markets and emerging market stocks have seen record inflows so that'll make the recent month so that'll be really painful for those new guys that have come in also be keeping an eye on that
Chris Versace 14:51
okay so that's that's the economic outlook on the earnings front look we're crossing from march into april it means that a lot of companies are going into the i'm using air quotes for those who can't see this quiet period where companies don't really say too much will be on will want to be on the lookout for earnings pronouncements both positive and negative and the suggestion i would have for subscribers and it's something that i'm going to do is really listen to the companies that are starting to read that will report this coming week in the following week leading up to the real meat of the march quarter earnings season beginning listen to those companies assemble the data points assemble the insights so you're prepared what is likely to happen and with that in mind we've got a handful of companies that are really worth paying attention to this week one of my favorite companies mccormick and co you know you i challenge any listener not to find something in terms of one of their products in your household we've also got blackberry which again coming off of the solar winds hack and several other high profile attacks including the microsoft exchange outlook hack it'll be very interesting to hear what they have to say lenore lululemon athletica what do you think yoga pants
Lenore Hawkins 16:09
i actually i want to hear about their sales of mirror because that's going to be what is their outlook on that are people going to start going back to the gym or are people going to continue to think this whole working out from home is really where they want to go are those sales going to continue to rise as they look forward
Chris Versace 16:27
that's a great point we we also got walgreens boots and you know while people sift through the usual front of store back of store data that they provide i think the real question is going to be what are they seeing on the pace of vaccines how are they deploying vaccinations across their footprint and you know how does that look not only recently but what are they projecting into the quarter and then the other big tech company to watch is going to be memory company micron you know one we know that memory prices have been moving higher but what is their outlook for devices whether it's pc smartphones and the like that'll be interesting in setting up the march quarter earnings season
Lenore Hawkins 17:12
and with what we've been hearing about all of the mess in the auto sector given what's going on with tips carmax on thursday
Chris Versace 17:20
i think that's right by the way did you hear that renaissance had a fire in one of its clean rooms and just just by way of background
Lenore Hawkins 17:27
because that's what we needed problems with chips so renaissance has a fire and problems with global shipping so we have a boat across the suez canal i mean if somebody's having fun here or what like a cologne.
Chris Versace 17:39
hey y'all just remember that old joke how do you know that god has a sense of humor because he invented the platypus always remember that anyway with that said Lenore, I think that's pretty much the week ahead.
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