Why Investors Should Be Peeved

Definition of Symmetry from Merriam-Webster:

1: balanced proportions; also: beauty of form arising from balanced proportions

Just when you thought Fed-speak couldn’t get more complicated, the FOMC statement unveiled a new term: ‘symmetric inflation.’

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace in the medium term and labor market conditions will remain strong. Inflation on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal.

The term opened the floodgates of interpretations, which was hinted at in a prior FOMC statement, but it seemed to have caught most Fed-watchers off guard.  Is there some kind of special yin yang relationship going on that suggest we are entering a period of good inflation?

The Fed recognizes “strong” gains in jobs, business investments and fourth quarter consumer spending, concluding that headline and core inflation are close to the 2% target.  If the term was designed to create clarity and calm, maybe it worked, or maybe investors were too confused to act either way, and the market drifted lower into the close.

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Market bias remains decidedly unbalanced to afternoon sell programs.

Blue Collar Bonuses

There are lots of articles lately about the phenomenon of blue collar workers receiving signing bonuses, including Burlington Northern offering up to $25,000 for hourly electricians, boilermakers and pipefitter.  Sadly, a lot of Wall Street-types are pointing to this news as rationale for the Fed to hike rates and curb economic growth.

Forget the $13.0 billion banks made from below market rate loans from the Fed that were not even reported to Congress in 2008.

Forget the fact the Fed saw its balance sheet swell from $905 billion in September 2008 to $4.5 trillion by January 2015, all in the name of buying toxic debt from banks.

Now, economist and rich traders want the Fed to remove the so-called accommodation.  That’s a damn shame.  Prosperity needs to flow from the coasts of America into its heartland.

Jobs in the heartland

Breaking News:  ADP Jobs Report Beats Consensus & Promised 'Dirty Fingernails' Jobs Roaring Back

President Trump promised jobs in the heartland to those forgotten men and women.

Goods Producing Jobs in April

• Mining +7,000
• Construction +27,000
• Manufacturing +10,000

Dollar Woes

It’s bad enough that the narrative that’s emerged this earnings season is this is as good as it gets, but now the surging U.S. dollar is putting additional pressure on blue chip multinational stocks. 

The Dollar Index (DXY) crossed over its 200-day moving average for the first time since May 12, 2017, the 252-day stretch is one of the longest ever and first since 2011.

This isn’t great news, but it’s not earth-shattering.  Yet, it’s another reason for bears to push their evolving narrative of woe.  The irony is this woe is based on things humming along greatly.

Earnings Woes

According to Bespoke Research, with 1,000 companies reporting earnings this period, the numbers are truly impressive.

• 72.1% beat the street on revenue (first back to back quarters of 70%+ beats since 4Q13/1Q14)
• 71.6% beat on earnings (strongest since 3Q 2006)

After the close, an assortment of names in a variety of industries posted financial results that largely saw beats on revenue and earnings greeted with knee-jerk selling.

As Good As It Gets?

The better the sectors earnings have been, the harsher the reaction of Wall Street.

Industrials have delivered the best results this earnings period against consensus, and yet, these names keep getting slammed, even as 79.5% have beaten on earnings.   I believe it’s a major mistake for long-term investors to get sucked into this game of guessing, and emotional swings, especially with their industrial holdings.

Great Computer Arms Race

Yesterday, one of the biggest winners in the market was Cray Computers, which makes supercomputers used mostly by governments around the world.  These unique supercomputers have become an arms race of their own in recent years and will play a role on overall global positioning and dominance from military to economic.

In 2000, China didn’t have a single entrant on the top 500 supercomputer list, today it has the two fastest.  Plans are on the drawing board however to take this race to a level that would be the equivalent of the United States putting a man on the moon after the Soviet Union was first to put a man into orbit.

The next China supercomputer would allow it to crack our most secret encrypted military codes and allow submarines to operate in stealth mode for months.

The Chinese government is building the world’s largest quantum computing research complex in the eastern province of Anhui at a cost of $12.0 billion.  It’s not just the Chinese government, but several individual businesses are getting into the race including Baidu, Alibaba and Tencent.

Note: All U.S. computers on the list are operated by the Department of Energy, which has budgeted $1.2 billion for the next generation supercomputers.

Exa, Exa, hear all about it!

• The next supercomputers will run at exa flop speeds rather than current peta-flop speeds
• Peta -calculation made in one second would take an individual 31.7 million years to match
• Exa -calculations made in one second would take an individual 31.7 billion years to match

Today’s Session

Yesterday’s session illustrates increased panic when an individual stock moves lower.  There was an almost equal amount of advancing and declining issues on the NYSE, and even slightly more names hit 52-week highs versus 52-week lows; yet, declining volume was 35% greater than advancing.

This morning, the trend of selling when in doubt continues despite another round of mostly great earnings results. 

Considering the harsh greeting to great news, it might not be long before all CEOs start going off on analysts during conference calls like Elon Musk did last night.  Tesla actually beat the street, but the word is the stock will be punished for the temerity of its CEO to dismiss questions posed during the call.

At this point, investors should be peeved as their portfolios are getting pushed around by the maddening daily hunt for reasons to sell.