Here’s the news of the week – and how we see it here at McAlvany Wealth Management:
Contraction > 3.0% < Expansion?
Stocks finished on shaky ground this week, unable to capitalize on a few standout earnings reports from the FANGs and other tech giants like Texas Instruments. Instead, it’s become more common to see failed attempts by the market to spike higher after the usual earnings hype by companies successful at “beat the number.” The most notable such instances were Caterpillar and Lockheed Martin, both of which released results early Tuesday morning. Despite several articles about the success at both companies, their shares plummeted when management couldn’t reaffirm sales forecasts. Of course, each company might have a rationale for this outcome. Lockheed could cite the newfound peace with North Korea as taking the wind out of its sails. But since the forward guidance issue is becoming so influential among firms, I believe that the effect higher interest rates will have on future results is having a bigger impact than anything else. At any rate, despite overachievers like Facebook and Amazon, the major indices lost between a tenth of a percent and a full percent – as was the case in the Transports on shares of truckers and airlines.
Away from stocks, Treasuries and global fixed income traded a bit higher – over what I believe was a line of defense drawn at the 3.0% mark for the 10-year Treasury. Somewhere along the line, someone got it into their head that anything above a yield of 3.0% would equate to destitution, and anything below that mark would equate to prosperity for the economy. This concept is ridiculous for several reasons, not least of which is that the 3.0% mark was breached this week and nothing happened. But it is what it is, and I suppose there may have been some active defending of the 10-year at that level – just to stave off a psychological disaster.
Commodities, including the metals, were weaker in the face of a stronger dollar that has now broken above its moving averages and gained a little momentum to the upside. Of course, now that the dollar has entered no man’s land on the charts, between its 100-day (90.65) and its 200-day (95.75) moving averages, gains will largely be calculated by the fundamentals. Again, as rates rise (in general), it shouldn’t be long before the US economy starts to mirror overseas economies in terms of performance. As that takes effect, relative gains in the dollar will be harder to come by, and we should see some long-awaited stability/strength in the metals.
Best Regards,
David Burgess
VP Investment Management
MWM LLC
