Trade The Journey

Trade The Journey

Observations

Top of the Morning! I hope everyone is enjoying their weekend. I’m a big sports fan, so I’m looking forward to the upcoming boxing matchups and Nba playoffs. Last night’s UFC event didn’t meet expectations except for the Gilbert Burns and Khamzat Chimaev fight. One particular moment during the event was discomforting, which was hearing the crowd chant for the Russian fighter, especially as the conflict between Ukraine and Russia continues.

One of my favorite boxers, Errol Spence, will be fighting this week, so I am excited to see him fight a formidable opponent in Yordenis Ugas.

Economic Review:

Factory Orders decreased for February, breaking the cycle of consecutive increases. New orders were down for durable goods for the month, led by transportation equipment, while orders for nondurable goods increased. Food products, petroleum, and coal products led shipments for nondurables. Shipments remained stable for durables, led by computer and electronic products.  Overall, consumer nondurable goods led shipments. Unfilled orders decreased for durable goods; Transportation equipment led the increase in unfilled orders. Unfilled orders for capital nondefense goods increased. Total Inventories also rose, led by machinery and consumer nondurable goods & nondefense capital goods.

Materials and Supplies increased for all manufacturing industries. Work in process, and finished goods rose slightly for the value of manufacturing inventories. The inventories to shipments and unfilled orders ratio remained the same as the previous month at 1.45.

The Non-manufacturing (services) ISM reported growth for the 22nd month in a row.

The 17 services industries reporting growth in March Рlisted in order Рare Educational Services; Arts, Entertainment & Recreation; Utilities; Construction; Wholesale Trade; Accommodation & Food Services; Other Services; Real Estate, Rental & Leasing; Information; Transportation & Warehousing; Public Administration; Retail Trade; Management of Companies & Support Services; Finance & Insurance; Professional, Scientific & Technical Services; Mining; and Health Care & Social Assistance. 

The only industry reporting a decrease in March is Agriculture, Forestry, Fishing & Hunting.

New orders, Business Activity, Inventories, Prices, a backlog of orders, and new export orders grew faster than the previous month. The largest increases were in new orders, employment, and new export orders. Imports and inventory sentiment contracted the most from the previous month. Inventory sentiment decreased a little over 15%. Employment in the services sector was led by accommodation & food services, entertainment & recreation, construction, and transportation & warehousing. Supplier deliveries were down for retail trade, educational services, information, transportation & warehousing, and construction. Prices paid for materials and services have risen for the 58th consecutive month and are at some of the highest levels recorded. Inventory sentiments showed that respondents felt that inventory levels were too low, registering a reading high near December 2021 levels.

Some of the things respondents mentioned in the report:

Employment pressures are easing, as are the covid restrictions. Labor and inflation are pushing prices to near-term highs. Also mentioned were long lead times, increased energy costs, transportation delays, global supply chain issues, and the Ukraine/Russia conflict.

Commodities in short supply:

Labor: 8 months. Chips, computers, and peripherals: 3 months. Construction materials.

Wholesale Inventories and sales increased in February. Wholesale sales decreased for durable goods while increasing for nondurable goods. For durable sales, automotive, electricals and hardware led the decrease. For nondurable goods, petroleum, groceries, and drugs led the increase.

Durable goods inventories increased across the board, led by metals, lumber, and machinery. Nondurable goods inventories also increased across the industries led by petroleum, apparel, groceries, and petroleum products.

Mortgage applications decreased close to 7% from the previous months, as mortgage rates topped 5%. The refinance and purchase index also decreased. Inventory still remains low despite the availability of interested buyers. The loan size also indicated that first-time buyers are being priced out with the average contract size being listed at close to $700,000.

With Biden pledging to release oil from the strategic reserve, gasoline prices came down a little. Refineries operated at 92.5% capacity. Crude futures prices finally slowed down, closing the week below the $100 mark.

Consumer credit increased by close to $40 billion and revolving credit increased at a rate of 20.7%, and nonrevolving credit increased by 8.4%. Consumers are borrowing more while the personal savings rate continues to decrease. As time goes by and higher prices continue to bite a large chunk of discretionary spending, credit repayment could become a problem.

Initial claims came in under consensus while continuing claims increased for the previous week. Job openings continue to remain plentiful, increasing the competition for hiring, forcing companies to offer higher wages and more incentives to attract workers. As wages increase, so do the inflationary pressures the economy is facing.

The Fed minutes reflect the inflationary pressures that continue to build in the economy. Most if not all voting members are in favor of increasing rates with a fifty basis point increase on the table for the next meeting. They also indicated that the balance sheet runoff will occur faster than originally thought, at close to $95 billion a month. $60 billion in treasury securities and $35 in mortgage-backed securities per month is the slated reduction Fed officials have in mind beginning in May. With mortgage rates rising, will the Fed overplay its hand?

As inflation remains stickier than originally expected, will the Fed be able to engineer a soft landing is on a lot of people’s minds? Its also clear that the markets are no longer at the forefront of the Feds’ concern.


Indices:

Russell 2000

The Russel remains in a sideways trend, ending the week below its 50 SMA. The Russell spent the whole week in a perpetual decline and ended on its low. It looks like the Russell remains in this sideways trend for the foreseeable future.

S&P 500

The S&P closed just above the 4480-reference level and slightly below its 200 SMA. It gapped down during the middle of the week but was able to hold above the 4480 level slightly. It looks like it could make another test upwards towards a pivot high during this upcoming week. Earnings season begins this week, so it’ll be interesting to see how the S&P moves.

Dow Jones

 

The Dow is in a two-week sideways trend but was able to close above its 50 SMA after testing the average and successfully closing above it during the week. The 200 SMA is an immediate test, and it looks like the Dow could test it this coming week. Although the Dow has remained in a sideways trend for almost a year, it looks to be still stable.

Nasdaq

The Nasdaq closed below its 50 SMA after gapping down during the week. The Nasdaq looks weak and is highly volatile, as you can see from the pattern. The increase in rates isn’t helping the Nasdaq, and it looks like the Nasdaq may venture further downward.

Bonds:

The thirty-year yield and the five-year yield closed the week at their highs. The thirty-year bond closed on its low. Although the five-year yield inverted in relation to the thirty-year yield briefly during the week, the thirty-year yield was able to steepen enough to prevent the inversion from remaining. Analysts are still fearful that the curve inversion is indicative of an oncoming recession in the next year or the year after. With rising prices and slowing growth forecasted in the future, the probability of increasing rates to help usher in a recession grows stronger.

Sectors:

The healthcare, utilities, and consumer staples sectors all closed on their highs, indicating that the flight to value/safety is taking hold. Consumer discretionary, industrials, financials, and technology showed continued weakness. Energy, materials, and real estate maintained their strength, buoyed by higher prices for commodities, crude, and home prices.


Cash Flow in Review:

Cash flow continues to remain a challenge for me. Everywhere I look, I’m paying higher prices for goods and services. Gas is my highest expense more than double than in the previous months. Canceling some of my monthly memberships for entertainment has helped me. This next week, I have another round of large expenses, so this coming week will be a major free cash flow challenge.

Grade: D+

Reason: I can do better managing my expenses.

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