There has been a slew of earnings and economic data this week that has been ‘mixed’, to give it the benefit of doubt (and probably, on balance, actually pretty negative). This has made things a little more challenging for our Checklist process this week, although there have still been some profitable trades to be had. In today’s blog, I thought I would provide a roundup of the action with some charts, ahead of our new Monthly Checklist Report being updated for our Trading Club members next week.
First of all, this tweet from Monday captured highlighted we are in the US business cycle, and the ever more likely probability of a recession. With the ISM, semiconductor sales and industrial production (not shown) all negative Year-over-Year, it looks as though the Leading Economic Indicators (LEI) Index will be the next to cross negative, and all but confirm where the economy is heading.
Elsewhere in Europe, Germany’s outlook worsened with employment deteriorating for the first time in over 5 years, and the manufacturing PMI for the Euro-Area sank even further, coming in below estimates at 45.7 (aka recession territory).
The ‘synchronised economic slowdown’ is there for everyone to see, but amidst the macro gloom, there were still some positives for high-quality companies in growing industries. We featured Microsoft for these reasons in our Trading Club videos earlier this year, and this week the tech titan reported earnings and revenue that surprised to the upside, driven by growth in it’s Office 365 and Azure cloud business.
Despite this beat by the tech bellwether, there have been a number of disappointing reports from other companies this week, including a shocker from Texas Instruments who’s earnings missed even the lowest analyst estimate. Weighing this against the slivers of hope in the numbers from the likes of Microsoft, things seem on balance pretty negative right now. Combined with the negative score for our US Equity Checklist, conditions seem primed for a downside move in stocks.
Lo-and-behold, the S&P still trades within reach of an all-time high, despite this negative signal. Could this prove to be a great time to sell?
Only time will tell how this plays out, but looking to safe havens such as gold, we might well see buyers return in the coming weeks.
For the time being, the yellow metal has been treading water around $1500, but the consolidation could soon be resolved by an upside breakout to see new highs above $1550, and presumably a test of $1600...
It’s clear that things are becoming far more complicated in markets, and it has never been more important to trade with the odds on your side with a proven process. We provide our Checklists for a range of markets at the Trading Club and update them for our members on a monthly basis with video updates each week tracking the evolution in markets.
If you would like to join us for our full analysis including new insights each week or learn from the ground up with online tuition from Lex in our Million Dollar Traders online course, then head to the Academy and take your financial knowledge to the next level right away!
Have a great weekend,
James Helliwell | Chief Investment Strategist