April 21, 2019

What happened this past week? The major U.S. indices and Asia Pacific exchanges didn’t move too dramatically this past week (the Dow, S&P, Nasdaq, were up/down less than 50bp but the Russell 2k slumped 1.2%), while the main Eurozone bourses gained around 1% in reaction to ever-increasing negative interest rates. Your BSD Global Tech Hedge Fund’s P&L was flat on the week. The BSD Team still believes this market is over bought, based on fundamentals, technicals and capital flows. The main focus was on earnings as the Q1 season kicked off in earnest (of the ~77 S&P500 companies to have reported thus far, ~80% beat on EPS by an average of ~4.2%). The reports were dominated by financials and (so far) results are coming in better-than-expected/feared (the industrial/transport reports were especially comforting given their sensitivity to underlying economic growth while banks for the most part were solid). Economic momentum continues to improve in China although markets are somewhat inured to this narrative (as China has been sprouting green shoots for a couple of months by now) while Eurozone growth trends remain soft (the flash PMIs Friday morning didn’t cause anyone to slash Eurozone GDP estimates further but the numbers were disappointing nonetheless). The U.S. economic data this week was mixed; the early April data points weren’t great (the flash PMIs and Philadelphia Fed indices both fell short) although March retail sales came in a bit better. Nothing particularly dramatic occurred on the monetary policy front although the ECB deposit tiering is looking less likely while the TLTRO terms will probably be more generous than initially assumed (the June 6 ECB meeting should bring decisions on both fronts). Fed officials continue to express consternation with disinflationary pressures in the U.S. although it’s unclear what policy actions specifically will be implemented to address the problem (the June 4-5 conference in Chicago could shed some additional light on this although it seems like any response will be a gradual multi-quarter process). The U.S. and China remain engaged in trade talks and media reports this week suggest a final agreement may be in place by May (the markets have been assuming a trade pact for weeks and the wildcard at this point is the status of existing tariffs – they would need to be removed immediately to surprise equities on the upside). Trump faces a big decision on auto tariffs coming up and this is probably the single largest macro unknown right now (investors don’t think these are actually implemented but an overhang will remain until a formal announcement is made). The key development in U.S. politics over the last couple of weeks has been the market’s growing appreciation of Bernie Sander’s momentum (in terms of fundraising and polling) and that, coupled with Biden’s ongoing absence from the race, crushed healthcare stocks in the last few days. The Mueller Report unveiling was pretty uneventful; as has been the case with his myriad ostensible obstacles, Trump more than survived this overhang and is firmly entrenched within the GOP ahead of 2020.

There really aren’t any major macro events scheduled this week with the exception of the U.S. Q1 GDP report Friday morning, April 26. Otherwise, the focus will be on earnings and the major reports include HAL and KMB (Monday morning), KO, LMT, PG, STT, UTX, and VZ (Tuesday morning), CP, EBAY, and TXN (Tuesday night), BA, BIIB, CAT, Credit Suisse, GD, NOC, NSC, STM, and T (Wednesday morning), FB, LRCX, MSFT, NOW, TSLA, V, and XLNX (Wednesday night), ABBV, Barclays, BAX, BMU, CMCSA, FCX, IP, ITW, MMC, MMM, RTN, UBS, and UPS (Thursday morning), AMZN, AVT, COF, DFS, F, INTC, JNPR, SBUX, and SIVB (Thursday night), and CL, CVX, Deutsche Bank, and XOM (Friday morning). The lack of market movement this past week is ominous, and considering this coming week is Passover, lower market participation often leads to greater market volatility.