POSITIONS: Long Consumer Staples (XLP), Long Term Treasury Bond (TLT), US Dollar (UUP), Short Industrials (XLI), and Euro ETF (FXE)
“Bad, Bad Leroy Brown” is the title of a song written by folk singer Jim Croce. The song was written in 1973 (before this analyst was born) and spent two weeks at the top of the Billboard Hot 100. According to Wikipedia:
“The song is about a man from the south side of Chicago who, due to his size and attitude, has a reputation as the "baddest man in the whole damn town." One day, in a bar, he makes a pass at a pretty, married woman, whose jealous husband proceeds to beat Leroy brutally in the ensuing brawl.”
It’s not clear who the baddest man or woman in the whole damn global economy is at the moment, but what is clear is that the economic data is turning bad in the U.S.
We had a slew of economic data out this morning and the data was not good. Certainly, government data is at best a coincident indicator and much of it is obviously a lagging indicator. Nonetheless, when taken in aggregate government data can provide us some insight into the state of the economy.
This morning we had the following releases:
Michigan consumer confidence – At 74.1%, this reading of consumer confidence came in at the lowest level since December 2011.
Empire State manufacturing – The Empire State manufacturing survey was negative across the board as future orders halved to 15.5, future shipments more than halved to 12.4 and future prices paid fell 24 points to 34.0. General business conditions were positive at +2.3, though down fifteen points sequentially.
Industrial production – While not a total disaster, industrial production did come in worse than expected at -0.1% versus +1.1% last month. Capacity utilization also ticked down to 79% from 79.2%.
In the three charts below, we show this data going back ten years. The key take away from this view is not that we are necessarily in another “Great Recession”, but rather that the economy is at best stumbling at low growth rates, if not decelerating.
Yesterday, the key driver of stock market action of course was the Reuters report that the world’s central bankers were ready and willing to providing liquidity as needed. In effect, the global equity put remained in place. Today’s U.S. market action, as a function of that report and the economic data above, is in word: confused. Specifically, yields on 10-year bonds are down 1.37% to 1.587 (so bond prices are up) and equities are also up with the SP500 up 0.74% to 1,338. Both the fear trade and the risk trade are in play today !
Our SP500 levels are refreshed below and support this idea of confusion. While the TAIL support line is holding at 1,309, the SP500 remains below TRADE resistance at 1,344 and TREND resistance at 1,365.
Daryl G. Jones
Director of Research