Kenny’s Commentary in Barron’s…Oscillation

Make Up Your Mind, Already: Inside the Stock Market’s Indecisive Week: “When in doubt, trade away.” By Ben Levisohn Oct. 16, 2020

By all appearances, investors can’t decide what they want to buy and what they want to sell.

Normally, this kind of indecisiveness would portend an unhappy ending—it did for Hamlet, at least. But for the stock market, it might actually be good news. That’s because investors aren’t selling stocks wholesale to reduce risk in the face of the mixed data, and uncertain outcomes. Instead, they seem to be trying to puzzle out the correct positioning, whether it’s a Donald Trump or a Joe Biden win, a spike in Covid cases or a successful treatment, or a slowdown in the economy versus an acceleration.

All that changes day by day, so the result is market oscillation, says Peter Kenny, an independent equity strategist at Kenny & Co. “Investors aren’t reducing risk by selling the market,” he explains. “Cautious investors are saying, ‘I love the market,’ and going where there’s greater perceived value.” Click for full article

US equities held onto the previous week’s gains last week but only just barely. All three major indices added less than 1% on the week, as a result, managed to close out the week above their respective 50 DMA. The Russell 2K lost 0.23% on the week.

Over the past 30 days, the Utility sector (+7.13%) has been the best performing sector of the market. Information Technology (+6.01%) and Consumer Discretionary (+4.56%) sectors round out the top three. Real Estate (-3.08%), Communication Services (-4.41%), and Energy (-9.38%) round out the poorest performing sectors. That rotation at the top speaks to a theme that we have focused on in recent weeks. And that was discussed in this past Friday’s Barron’s.

US Presidential elections are likely to keep investors on their toes for the next two weeks. As a result, expect more caution to influence trading.

Last Week’s Economic Calendar Highlights:

The Consumer Price Index (CPI) for September, released Tuesday morning, largely conformed to Econoday consensus expectations. Given the COVID-19 pandemics impact on our domestic economy as well as the global economy over the past nine months, I find it utterly amazing that we continue to see CPI, both with and without Food & Energy, standing at 1.4% and 1.7% respectively at the end of September. Honestly, with all the concern over COVID-19 induced economic contraction, it is welcome news for certain but seemingly hard to believe.

CPI – M/M consensus 0.2%, actual 0.2%
CPI – Y/Y consensus 1.4%, actual 1.4%
Ex-Food & Energy M/M consensus 0.2%, actual 0.2%
Ex-Food & Energy Y/Y consensus 1.8%, actual 1.7%

The Producer Price Index – Final Demand (PPI-FD), released Wednesday, also provided for better results both on a monthly basis as well as a yearly basis.

PPI-FD M/M – consensus 0.2%, actual 0.4%
PPI-FD Y/Y – consensus 0.2%, actual 0.4%
Ex-Food & Energy – M/M consensus 0.2%, actual 0.4%
Ex-Food & Energy – Y/Y consensus 0.8%, actual 1.2%
Ex-Food, Energy & Trade Services – M/M Consensus 0.2%, actual 0.4%
Ex-Food, Energy & Trade Services – Y/Y  0.7% (no consensus estimate)

Weekly Jobless Claims for the week ending 10/10, released Thursday morning, were a disappointment. The prior week’s reading was revised up 5K to 845K. Econoday consensus was expecting a tick lower to 825K last week but instead got 898K. This data is clearly reflecting the bifurcated nature of our economic re-engagement. The Philadelphia Fed Manufacturing Index for October came in significantly stronger than expected: 32.2 versus 14.5.

Retail Sales data for September was released on Friday. The results reflected strong consumer demand across all verticals.

Retail Sales M/M – consensus 0.7%, actual 1.9%
Ex-Vehicles M/M – consensus 0.3%, actual 1.5%
Ex-Vehicles & Gas M/M – consensus 0.4%, actual 1.5%
Control Group M/M consensus -0.4%, actual

Finally, on Friday, September’s Industrial Production data was released. It was a mixed bag, not unlike much of the data we have received recently.

Industrial Production – M/M consensus 0.6%, actual -0.6%
Manufacturing output – M/M consensus 0.8%%, actual -0.3%
Capacity Utilization – M/M consensus 71.9%, actual 71.5%

This Week’s Economic Calendar Highlights

Housing Starts and Permits data for September is released Tuesday morning. This a sector of the economy that has continued to beat expectations. Starts – Annual Rate consensus is 1,451 M up from the prior reading of 1,416 M. Permits are also expected to tick higher. Econoday consensus is 1,500 M.

Weekly jobless claims for the week ending 10/17 are expected to come in at 868 K. The four-week moving average stands at 866.25 K. The Purchasing Managers Index (PMI) Flash for October is out Friday morning. Econoday consensus is unchanged from last month’s reading, 54.2.

Photo: Peter Kenny. Two roads diverged in a wood, and I – I took the one less traveled by, and that has made all the difference. Robert Frost

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