"You only mature when you face problems you can't deal with." -- Ralph Waite
Voila! We're back. By the way, today is tax day. If you are one of those procrastinators with whom I usually run, today is your deadline. The major equity indices took one day to climb back to levels enjoyed last Tuesday and Wednesday, prior to the three-day weekend that realistically forced a late day risk-off move on Thursday. Are we "OK now"? Of course not. Investors are still wary of any chance to get that pro-growth, pro-business agenda favored by the Trump administration rolling. The geopolitical threats have gone nowhere, and traders are starting to discount the possibility of a partial government shutdown on April 28 (Next Friday).
The Secretary of the Treasury did help markets along yesterday, when he spoke to the Financial Times. It's true that Steve Mnuchin admitted that tax reform would be delayed by the failure of healthcare reform to get through the House of Representatives quickly. We know this, and that was fully priced in. Two issues were not priced in. First, Mnuchin is surprisingly optimistic regarding his expectation that tax reform would still take place in 2017. Secondly, the secretary seemed very confident that any tax plan could remain deficit neutral with or without any border adjustment. Any such ability would be reliant upon economic growth, which was not lost on the marketplace.
Now, equity markets can resume their longer, slower sideways to lower momentum. On the geopolitical front, fears over the French election tend to be exaggerated, in my opinion. No poll shows Marine Le Pen winning in the second round, which is the one that counts. And even if she somehow did, have we learned anything from the past year? Markets do not always behave as consensus opinion expects. Both Brexit and the election of Donald Trump were tremendous buying opportunities, and anyone who sold out long positions in response to those events probably looked pretty foolish, as well as having their financial faces ripped off. As for the possibility of something stupid happening on the Korean peninsula, you'll need to have a percentage of your portfolio in gold (I try to tell folks that a 7.5% allocation is good), and paper gold may not going cut it.
I was contacted over the weekend by a currently serving soldier who felt he had nowhere else to turn. This individual had a problem. He had suddenly come into a small sum (maybe $10 grand), which was likely more money than he had ever even imagined before. Incredibly, I hear from folks in this position more often than you would think. This individual has a child to take care of, and the mom is no longer in the picture. He has no idea what to do with this money, but he doesn't want to "screw up", and he doesn't trust anyone. What an honor, and what a responsibility to receive a call like that. What the heck do I tell him? When folks like this come into what for them is a small fortune, usually somebody has died, and the source is not renewable.
The answer may seem a little harsh. I will not call the regular guy or gal the "little people". They are not little, that is demeaning. They are simply normal, and they have not experienced the economic recovery that dominate the headlines. These are the people I care about. Let the pros take care of themselves. If they can't, then they shouldn't be pros. These are the folks that need our help, and our focus.
This particular individual wants to play the market. He does not yet understand that at this level, capital preservation is number one, especially with a child and no other earner. I had to explain to him that he is in no position to do so. He has to put something, even if only $1000 in an UTMA, or UGMA account for his child, as opposed to a 529 account. This way the money won't necessarily be earmarked for education and can be used in any eventuality. Flexibility may be more important later on than tax favorability. Of the rest, he'll need to have something in a savings account, even though it will not earn. I would say at least half of this sum. The rest will have to go into some kind of an account that offers slightly higher interest, but almost no market risk.
A sum this size is not enough to get aggressive, unfortunately. I usually recommend a 20% allocation to cash for home-gamers, and the first $10,000 of investable income go toward a broad index fund, thus defending yourself from your own, or someone else's human error. This individual, and many other folks out there, are a long way from there. They also trust no one, not even their local bankers. That is a problem.
It would appear that weakness in the oil space will dominate early trade today, despite a weakening US dollar. WTI crude rolled off a table this morning, giving up a rough $0.50 a barrel in only a few minutes. S&P futures have surrendered a rough six point over the same time frame. There is early talk that the API inventory numbers might not be crude friendly tonight, and there has now been a technical failure at the $53 level. Potentially this could be a problem, as there is possible support between $50.50 and $50.75, but much better support is visible below $48 a barrel, so there is plenty of room for price erosion should there not be further weakness in that dollar.
On top of that, today is your first truly heavy day of quarterly earnings releases for the season, maybe not in sheer numbers, but certainly in profile. This morning you'll hear from the financial sector, as well as some headline level consumer type names. Then, after tonight's closing bell, the focus will be squarely on the information technology sector. Bottom line, you'll know a lot more about broad first-quarter corporate earnings in 10 hours than you do right now. Today will set that table.
08:30 - Housing Starts (March): Expecting 1.256 million, February 1.288 million SAAR.
08:30 - Building Permits (March): Expecting 1.25 million, February 1.213 million SAAR. Though housing starts really hit their stride last October, the series has been skirting closely to the top end of the range in each of the last three months. Permits have also been running high, but below starts, which could eventually cause problems. Granted, starts are the far more important of the two, because shovels hit dirt, people get hired, and materials end up being purchased. That said, you can't have starts without permits, and not every permit turns into a start.
08:55 - Redbook (Weekly): Last Week 1.6% y/y. This series posted its best year-over-year number in almost four months last week. In fact, the month-over-month number even showed growth, which has been an oddity in 2017. It appears that y/y growth of 1% is just not going to cut it anymore. Remember it was just 2014 where the yearly print was coming in at 3% to 4% every week.
09:00 - Fed Speaker: Kansas City Fed Pres. Esther George will speak this morning from Annandale on the Hudson, NY. George is not a voting member of the FOMC this year, but is well known as a hard charging hawk from her time as the leader of that movement at the Fed last year. George has spoken more recently on regulation than she has on policy.
09:15 - Industrial Production (March): Expecting 0.4%, February 0.0% m/m.
09:15 - Capacity Utilization (March): Expecting 76.1%, February 75.9%. Some mild improvement is expected in this space despite obvious weakness visible across the economy for the month of March. The consensus for month-over-month growth in production would be the second best for that series in eight months, and the expectation for utilization is extremely encouraging. The 76.1% expectation would be the highest level seen since last March, and I have seen some economists as high as 76.3% on this.
Sarge's Trading Levels
These are my levels to watch today for where I think that the S&P 500, and the Russell 2000 might either pause or turn.
SPX: 2370, 2363, 2352, 2344, 2337, 2327
RUT: 1374, 1367, 1361, 1351, 1341, 1335
Tuesday's Earnings Highlights (Consensus EPS Expectations)