February 7, 2020

Subjective Relevance

To succeed, jump as quickly at opportunities as you do at conclusions
-Benjamin Franklin

It’s cumbersome, if not impossible, to weed through all of the data available for analysis, but that’s where the concept of quantitative analysis comes in. Each piece of data is given a variable percentage weight, that if carefully adopted avoids the challenge of an emotionally driven conclusion. For example, today's employment data was released and it showed very good employment, participation and income growth while at the same time the Bureau of Labor announced its resetting of seasonal data points to smooth out the results of the last ten years in preparation of the upcoming census. Well, there were positive adjustments and negative adjustments, but as there is no shortage of experienced pundit’s cherry picking data points to suggest a weaker economy then there might actually be, my response is usually ambivalent. The reason is simple, these days many people take in the cataclysmic news reports and seem to be preparing for the worst. Now that’s not necessarily a bad idea, but neither has it been a long term successful option when it comes to investing. But this takes us to the other experts who promise that calming down will assure that everything will be okay. Also, not particularly useful advice when one is concerned. That’s where stepping back and deciding for oneself is a constructive use of one’s time, because the outcome is often relevance, without the subjective perspective.

This week the markets exhibited sharp resilience to the nearly 2% drop from the Friday before. The ending saw another drop this time less extreme. In part that can be attributed to a week of well received earning reports most notable Uber (UBER) and AbbVie (ABBV) the former nearing profitability sooner than previously anticipated and the latter showing a strong pipeline and recent highlighted contributions to the search for coronavirus remedies. With regard to the virus a number of other companies including Yum (YUM) whose management included in its guidance, the challenges faced in China. Although similar to other companies operating in Asia, Apple (AAPL) and Starbucks (SBUX) face similar issues but spoke with more optimistic responses to analyst questions of factory and shop closings. Other companies except Tesla which continued its surge another 24% this week before dropping half of it during a wave of negative press and concerns brewing in China that the company appears to be receiving a pass for this time around.

Time will tell of the impact from a standpoint of earnings as well as GDP in China. Without the benefit of credible data, it’s going to be hard to weigh in results relative to other countries. But in addition to today’s constructive employment data, this week US GDP was confirmed to have returned 2.1% in the fourth quarter of last year. The week also saw the continued expansion of the ISM Non-manufacturing Index to 55.5 (above 50 signals expansion) and especially welcome was the ISM Manufacturing Index which jumped from 48.5 to 50.9 signaling the first move to expansion since July 2019. Next week inflation data and retail sales data will be released. Overall the economy is stable although growing at a rate that is neither strong nor weak.

External Events

Impeachment is over, or is it? Election season is on, or is it? The coronavirus is expanding, or is it? Anyway, regardless as one chooses to look at either political proceedings nor economic data reports neither seem to matter much to investors, which makes sense as both results were mixed. Therefore, concerns for the virus should probably remain a concern, and the ongoing dalliances in DC should not. Likely resulting in some increase in volatility and a continuation of the recent softening of the overbought technical condition of the broad indexes. A good reason to keep an eye on opportunities, as well as a good reason to be patient.