Weighing The Week Ahead: Time To Raise Price Targets?

With President Trump taking vacation at the same time as Congress and a light data calendar, what will the pundits feast upon? Corporate earnings results and new stock market records mean that the price targets at the start of the year are now obsolete. For many, the question will be:

Is it time to raise price targets?

Last Week Recap

Last week featured earnings news and generally positive economic data.

The Story in One Chart

I always start my personal review of the week by looking at a chart of market price moves.

The key feature is the lack of volatility. Prices moved only about 0.6% from top to bottom.

The Silver Bullet

As I indicated recently I am moving the Silver Bullet award to a standalone feature, rather than an item in WTWA. Last week’s deserving winner was Ben Carlson (his second award). We also posted the list of all past winners. I have a great candidate for the coming week as well. I hope that readers and past winners will help me in giving special recognition to those who help to keep data honest. As always, nominations are welcome!

The News

Each week I break down events into good and bad. For our purposes, “good” has two components. The news must be market friendly and better than expectations. I avoid using my personal preferences in evaluating news – and you should, too.

The economic news last week was generally positive. 

The Good

• ISM manufacturing improved and beat expectations, registering 56.3. Here is Scott Grannis’s chart of this index versus the economy. He calls it one of his enduring favorites.

• Scott Grannis’s chart of this index versus the economy. He calls it one of his enduring favorites.

  • Factset notes that a record percentage of companies are beating expectations on both earnings and sales. John also notes that references to the Trump Administration effect on earnings have declined dramatically. (Contra – Avondale’s conference call monitoring notes some weakness).

• Brian Gilmartin reports the strength in forward earnings estimates:

  Tracking the year-over-year growth in the forward estimate;

  8/4/17: +9.75%

  7/7/17: +9.58%

  6/9/17: +9.35%

  5/5/17: +9.80%

  4/7/17: +8.30%

  The “forward 4-quarter EPS” has still not cracked 10% y/y growth, and it may not, since the earnings compare’s get tougher with the 3rd and 4th quarters since crude oil prices were less of a drag in the back half of 2016, but you also have Financial’s possibly to starting to enter a period where revenue and EPS growth could accelerate.

  The forward estimate trends remain positive. For SP 500, it’s one of the best leading indicators we have.

• Pending home sales increased 1.5%
• GDP estimates are higher. The Atlanta Fed’s GDP now forecast is showing strength. Will it hold up this quarter?

• Long-leading indicators remain positive. New Deal Democrat has plenty of important data you probably do not see elsewhere.

• Employment showed solid increases

  • ADP rose to 178K, slightly beating expectations for private employment. This is a good independent measure of private employment changes.
  • Initial jobless claims declined slightly to 240K. Jill Mislinski and Doug Short illustrate how dramatic this level really is.

• Payroll employment showed a solid (if unspectacular) gain.

  • Unemployment declined
  • Hourly wages improved
  • More of the unemployed are longer term. Bob Dieli is an expert tracker of all things employment. He is concerned about the early shift in this ratio, and is monitoring the change.