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When the market makes a top; sirens, bells and whistles don’t always go off. Although, the pending Constitutional Crises of U.S. Government Corruption may be enough. Radar mentioned a 2.25% Primary Fed Discount Rate makes me feel a season of high level concern. The Employment Situation came in at .3% labor based inflation month-over-month and 2.9% year-over-year. If you annualize .30% you get to 3.6% approximately on the labor inflation number. This is the beginning of higher alert (on the short to intermediate time frame,) for investors and traders. Inflation fear and crummy government trumped a Fed hesitation on hiking rates Jan. 31. Next meeting is about eight weeks out.
Radar will begin to look for shorting opportunities as we rally to Developing Value Low/VPOC’s/VWAPS VWAP deviations and Developing Value Highs coming down from above. As strong as earnings have come in, the attention to rates/inflation could begin to rain on the parade!
The Treasury market got crushed this week. Rising rates could overpower fully valued stock prices and earnings hopes. Radar is looking for a bounce at some point that should seek resistance areas from above. It will really depend on the strength of earnings and the skittishness of rates/inflation! Lower inflation could reignite the party. Remember, the markets look Six to Nine months ahead!
The above chart is from Yahoo Markets. Radar has highlighted the concepts that mean something to me.
You can see how rates have vaulted higher. The consideration to doom, is either a flat yield curve or inverted yield curve. Those tend to be very harsh on the stock market.
In regard to bubble bogies, M&A could boost things a bit and IPO’s could spell the beginning of flu season.
If the Fed totally blows it, the kiss of death could explode on stocks! If the Fed is scared to death, it could Fed Speak the market into higher highs! Like I said, “Sirens, Bells and Whistles do not need to go off to beat this market significantly lower.
“During the month of January, the CY 2018 bottom-up EPS estimate for the S&P 500 (which is an aggregation of the median 2018 EPS estimates for all of the companies in the index and can be used as a proxy for earnings) increased by 5.3% (to $155.09 from $147.23). This change represents the largest increase in the annual EPS estimate over the first month of the year since FactSet began tracking this data in 1996. The reduction of the corporate tax rate in 2018 due to the tax reform law was a significant contributor to this increase in earnings expectations for 2018.” FactSet.
“In addition to the comments on tax reform, President Trump also made comments regarding infrastructure spending in his speech. “I am asking both parties to come together to give us the safe, fast, reliable, and modern infrastructure our economy needs and our people deserve. Tonight, I am calling on the Congress to produce a bill that generates at least $1.5 trillion for the new infrastructure investment we need.” FactSet.
We are coming to another phase of “The Budget.” If Infrastructure Spending get’s approved, then further good news.
“Will Infrastructure Spending Bill Be The Next Boost to Earnings for the S&P 500? “And just as I promised the American people from this podium 11 months ago, we enacted the biggest tax cuts and reforms in American history…We slashed the business tax rate from 35 percent all the way down to 21 percent, so American companies can compete and win against anyone in the world.” –President Trump (January 30).” FactSet.
And last, but not least:
“Double-Digit Earnings Growth Expected to Continue in 2018 For the fourth quarter, companies are reporting earnings growth of 13.4% and revenue growth of 7.5%. Analysts currently expect earnings to grow at double-digit levels in 2018. However, they are also projecting lower year-overyear revenue growth in the second half of 2018. For Q1 2018, analysts are projecting earnings growth of 16.9% and revenue growth of 7.1%. For Q2 2018, analysts are projecting earnings growth of 18.3% and revenue growth of 7.5%. For Q3 2018, analysts are projecting earnings growth of 19.8% and revenue growth of 6.3%. For Q4 2018, analysts are projecting earnings growth of 14.2% and revenue growth of 4.8%. For all of 2018, analysts are projecting earnings growth of 16.8% and revenue growth of 6.4%.” FactSet.
The first three games of the World Series are Bears 2 and Bulls 1. The Bond Market took a real beating and Earnings have continued higher as well as estimates! Eventually, stocks follow bonds!
This information is Open Source and comes from FactSet Earnings Insight.
“Targets & Ratings: Analysts Project 8% Increase in Price Over Next 12 Months The bottom-up target price for the S&P 500 is 3060.75, which is 8.5% above the closing price of 2821.98. At the sector level, the Real Estate (+11.4%) sector has the largest upside difference between the bottom-up target price and the closing price, while the Telecom Services (+3.9%) sector has the smallest upside difference between the bottom-up target price and the closing price.” FactSet.
Areas to look for possible support and resistance:
Quarterly Value Areas:
I have written this article myself and it expresses my opinions. I am not receiving any compensation or gratuities for it. None! Radar follows news sources it believes are highly reliable.
Radar offers a free observation of things that show up. It cannot be all inclusive! The observations are done through a brief article that takes about five minutes to read each week. It offers ideas and actions that prudent people may want to consider after seeking advice from their Financial Adviser. Radar reads many articles and keeps a calendar to look forward. People make trades. Radar observes Value and Earnings from those trades. Approximately 11,000 analysts create the consensus view. Radar offers only an opinion and NO Financial Advice.
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Current Federal Reserve Discount Rate – https://www.frbdiscountwindow.org/en/Pages/Discount-Rates/Current-Discount-Rates.aspx