Probability of
Federal Reserve
increasing interest rates by 03/20-03/21 FOMC meeting

by 1/4%:  66%
by 1/2%:  17%

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-02/20/18 update--next update Monday 02/26/18-

    Last week, stock prices rebounded from the previous week's large sell-off.  Select U.S. index weekly point changes were:  +1028.48 Dow, +112.67 S&P500, and +364.98 for the Nasdaq.  The 10yr. treasury note rate rose +0.02 to 2.87%. 

    Recent expectations have grown regarding near-term stock market volatility, but present conditions do not indicate anything more than the past 10%-15% "routine" (occurring once a year on average) market correction level, which could be tested again during the next several weeks.

    We think the present level of concern over rising interest rates and inflation (sending future corporate profits and stock prices lower) are greater than current conditions warrant.  After all, interest rates and inflation have been so exceptionally low that any success in getting a gradual increase to "normal" levels can continue to be well tolerated by consumers and companies looking for continuing cost-effective debt financing.

    We will have more insight after Wednesday's release of the Federal Reserve's January meeting minutes.  Some analysts now believe there is a high level of certainty that interest rates will rise +0.25% at the Federal Reserve's next meeting in March.  Considering that the next policy meeting is now four weeks away, our current probability calculation for a March increase is not yet as certain, now standing 66%.  If, over this time, the latest economic data reports confirm continuing strength, passage of a +0.25% increase will become likely. 

    With 80% of Q4 earnings reports in for S&P500 companies, reported earnings growth improved further to a very strong +15.2% (beating the +11.0% forecast on December 31st).  Also, 75% have exceeded expectations and 78% have beaten their sales forecasts, with all industry sectors showing good earnings results.        

    During the week, we will see numerous Q4 earnings releases that will continue to influence short-term market action.

    A number of important economic data reports will influence this week's markets: [those with the most market moving potential are highlighted]  Monday- Presidents Day holiday; Tuesday- no reports; Wednesday- Purchasing Managers Index, Existing Home Sales, Federal Reserve Minutes; Thursday- Leading Indicators, Petroleum Reserves, Jobless Claims; Friday- Baker-Hughes Rig Count.

    Our technical system's score for the market's valuation fundamentals stands at +8 (range 0 to +10), which is in the "positive" range for the future.  Please note that this technical score does not incorporate any of our measures for positive/negative market psychology, which can be highly volatile.  Last week, it rose back into the "positive" range for the near-term.  (As always, the near-term direction of the market will be affected by the outlook for Federal Reserve action, the favorableness of economic data releases, earnings releases, analysts' forecast updates, and finally international events and governmental action.)

The "Portfolio Detail and Activity" section of our website is updated on the day after any trading activity.


Select Economic Data Releases:

 Gross Domestic Product

     The 1st estimate for Q4 GDP showed solid growth at +2.6%.  --The third estimate for Q3 GDP eased slightly to +3.2%, which is still strong.  The second estimate for Q3 GDP improved to +3.3%.  The first estimate of Q3 GDP rose +3.0% with strong spending.  The final estimate for Q2 GDP estimate improved to 3.1% confirming a strong quarter driven by improving 3.3% increase in consumer spending.  The second estimate for Q2 GDP improved to +3.0%.  The first estimate of Q2 GDP showed improvement to +2.6%.  The third estimate of Q1 GDP was raised to +1.4%.  The second estimate for Q1 release improved to +1.2%.  The first estimate for Q1 growth was much weaker than the consensus forecast at +0.7%.  The final updated Q4 growth rate beat expectations, rising to +2.1%.  The second estimate for Q4 GDP matched the first estimate of +1.9%.  The first estimate for Q4 at +1.9% came in below consensus forecasted to be +2.2%.--

Employment Data

     January's employment data showed a strong gain above consensus at 220,000.  Consensus had called for 170,000 new hires.  Year-over-year earnings growth measured +2.9%.  --December's employment report came in below consensus at 148,000 new hires, but still remains at a healthy level.  --November employment data showed good growth well above consensus with 228,000 new hires.  October employment growth of 261K rebounded from September with the Unemployment Rate falling to 4.1%.  September employment reflected the effects of hurricanes Harvey and Irma pushing employment down -33K, which was well below expectations for a weak report.  The Unemployment Rate fell to 4.2%.  August employment data came in below consensus, but at 156,000 is still good and showed a surge in manufacturing hires.  July employment came in above consensus at +209,000, with the Unemployment Rate ticking down to 4.3%.  June employment data handily beat consensus with 220,000 new hires and the Unemployment Rate ticking down to 4.4%.  May employment data was weaker than had been forecasted, with 138,000 new jobs being created.  The consensus had been for 200,000 new hires.  April employment data showed a strong rebound that was well above consensus.  March employment data came in much lower than projected at 98,000 new hires.  the Unemployment rate fell to 4.5%.  February employment data beat economists' forecast with 235,000 job hires.  The Unemployment Rate ticked down to 4.7%.  January's 227,000 employment report surged well above analysts' expectations as more of the unemployed looked for work pushing the Unemployment Rate up to 4.8%.--

Retail Data

     Last week, Retail Sales for January fell -0.3%, which was well below consensus expectations for post-holiday consumer spending.  --Retail Sales for December rose +0.3% finishing a good holiday shopping season for 2017.  November Retail Sales up +0.8% were strong to start off the holiday shopping season.  October Retail Sales data that showed a small +0.2% increase was near consensus.  September Retail Sales will be reported.  August Retail Sales down -0.2% were negatively impacted by the hurricane weather.  Past months were also revised lower.  July Retail Sales gain at +0.6% exceeded expectations.  June Retail Sales revised up to +0.3% from -0.2%. May Retail Sales data came in below consensus at -0.3%.  The +0.4% April Retail Sales report came in below expectations.  March Retail Sales disappoints coming in below consensus at -0.2%.  February Retail Sales was revised to -0.3%.  January Retail Sales gain at +0.4% beat expectations.--

Housing Data

     Last week, January Housing Starts at 1.326M remained seasonally strong.  --December Existing Home Sales were 5.57M and New Home Sales at 625K continue at a solid pace.  December Housing Starts for December were below consensus at 1.192M, but New Permits remained very strong at 1.302M.  November housing data showed Housing Starts at 1.297M, Existing Home Sales at 5.810M, and New Home Sales at 773K, which were all strong and well over consensus.  October's strong New Home Sales at 684K was well above consensus.  October Existing Home Sales report also came in above consensus at 5.39M.  October Housing Starts showed a strong above consensus increase to 1.29M.  September New Home Sales at 667K beat consensus rising to the highest level since 2007.  September Housing Starts at 2.127M was below consensus, but New Permits at 1.215M showed a good increase for single family homes.  September Existing Home Sales at 5.39M beat consensus.  September New Home Sales will be released this Wednesday.  August New Home Sales at 560K came in a little below consensus.  August Housing Starts at 1.18M and Building Permits at 1.3M were solidly above consensus and August Existing Home Sales at 5.35M were lower due to weakness caused in hurricane affected markets.  July New Home Sales at 571K and Existing Home Sales at 5.44M came in below consensus forecasts.  July Housing Starts at 1155K and Building Permits at 1223K were below expectations.  During June, 610K New Home and 5.52M Existing Home Sales were reported.  Both were near consensus.  Earlier reports for June Housing Starts of 1215K and Building Permits of 1254K beat consensus.  May Existing Home Sales of 5.62M and New Home Sales of 610K were both above consensus.  May Housing Starts at 1092K and Building Permits at 1168K were lower than had been forecasted.  New Home Sales for April fell -1.8% and April Existing Home Sales fell -2.3% due mostly to tight and falling inventories in parts of the country.  Both were below consensus.  April Housing Starts came in below consensus at 1172K, with Building Permits also below consensus at 1229K.  March New Home Sales of 621K beat consensus.  March Housing Starts at 1215K and Existing Home Sales at 5.71M both beat consensus.  There were 1260K March Building Permits issued.  February Existing Home Sales at 5.48M came in below consensus, while New Home Sales at 592K was above consensus.  February Housing Starts were 1288K, which was above consensus, but New Permits were below consensus at 1213K.  January New and Existing Home Sales saw respective sales rise to 555,000 and 5.69 million.  January Housing Starts of 1.246M and New Permits of 1.285M beat consensus.  New and Existing Home Sales during December came in under consensus at 536K and 5.49M respectively.  Housing Starts during December came in above consensus at 1226K and Building Permits were close to expectations at 1210K.--  

Leading Indicators

    This week on Thursday, January Leading Indicators will be released.  December Leading Indicators rose +0.6% signaling further economic growth ahead.  --The November Leading Indicators release shows a reasonably healthy +0.4% rise.  October Leading Indicators, up +1.2% showed a strong above consensus increase.  September Leading Indicators report showing a -0.2% decline was impacted by recent hurricane related job losses.  August Leading Indicators rose a solid +0.4%.  July Leading Indicators were in-line with expectations at +0.3%.  June Leading Indicators measure came in slightly above consensus at +0.6%.  May Leading Indicators up +0.3% matched the consensus forecast.  The April Leading Indicators report showed a +0.3% rise, which was close to the consensus forecast.  March Leading Indicators beat consensus at +0.4%.  February Leading Indicators beat consensus rising +0.6%.  January Leading Indicators at +0.6% beat analysts' consensus forecast.  December Leading Indicators at +0.5% matched the consensus forecast.--       


    Last week, January Consumer prices showed a 0.5% increase with core price up +2.3%.  Year-over-year it rose 2.2%.  Producer Prices headline number rose +0.4%, with core prices also up +0.4%.  --December inflation data showed December Producer Prices both headline and core declining -0.1% for a net year-over-year +2.6% change.  December Consumer Prices headline number rose +0.1% with core prices up +0.3%.  The year-over-year change was +2.1%.  --November inflation data showed higher Producer Prices inflation up +0.4% with core prices rising +0.3%.  November Consumer Prices up +0.4% was offset by core prices showing a slight +0.1% gain.  October inflation data releases showed Producer Prices rising +0.4% at both the total and "core" levels and Consumer Prices rising +0.1% +0.2% for "core" prices.  This brings the Producer prices annual rate of increase up to the 2% level targeted by the Federal Reserve.  The annual rate of increase for Consumer Prices is now +1.8%.  September inflation data showed Producer Prices rising +0.4 and Consumer Prices rising +0.5 reflecting a spike caused by food and energy price rises due to the hurricanes.  September core prices still show little inflation rising +0.2 at the producer level and +0.1 at the consumer level.  August inflation data releases showed Producer Prices up +0.2% (core +0.1%) and Consumer Prices up +0.4% (core +0.2%).  July Producer Prices were reported to have fallen -0.1%, which was below consensus and July Consumer prices rose +0.1% matching consensus.  June Producer Prices at +0.1% (core +0.1%) and Consumer Prices with no change (core +0.1) showed as absence of inflation.  May Personal Consumption Expenses at -0.1% (core +0.1%) showed inflation remaining tame.  May inflation data remained low, with Consumer Prices falling -0.1% (core +0.1%) and Producer Prices up +0.3% (core 0.0%).  April Consumer Prices Rose +0.2% and Producer Prices rose +0.5%.  March Consumer Prices fell -0.3% (core -0.1%) and Producer Prices (core 0.0%)  were down -0.1%.  Personal Consumption Prices inflation were reported to have increased +0.1% with core prices up 0.2% during February.  February Producer rose +0.3% and Consumer Prices were up +0.1%.  Respective "core" prices were +0.3% above consensus  and +0.2% matching consensus.  January Producer up +0.6% and Consumer Prices also up +0.6% were well above forecasts.  Respective "core" prices also were above consensus at +0.4% and +0.3%.--

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