Has US business cycle peaked ? Has the bull market ended
Has US business cycle peaked ? Has the bull market ended

In the latest week, the busiest for first-quarter reports, several companies warned about or cited higher costs. Shares of all three companies declined even though their quarterly earnings were mostly strong. Investors will be alert for more signs of rising costs next week, which brings results from several big consumer names like Kellogg and market-cap leader Apple. Also on tap will be a Federal Reserve meeting, the April jobs report and data on wages and inflation. In the face of it, the earnings for the first quarter of this year that companies have been announcing are superb and far ahead of the most optimistic expectations. The S&P 500 companies in the US are on course for an almost unfathomably good year-on-year increase of 24.6 per cent, according to Thomson Reuters. A month ago, brokers were braced for an increase of 18.5 per cent. The first quarter was the first reporting period since U.S. President Donald Trump in March imposed a duty on imports of steel and aluminum. Prices for those and other commodities have risen sharply, with U.S. crude oil up 7.5 percent in the first quarter.

However the earnings are in complete contrarion to actual economy as we see below. The US debt has stayed at high levels while the latest GDP numbers is weak in its details. Lets prepare our selves for a buzy trading week.

US Debt: High!

The Debt to GDP ratio has stayed high at 105.4%. This is one of the most historically high debt that US has carried for such a long period of time. It severely restricts the US ability to dig out of a hole if the economy craters again. It is a vey delicate situation.

US GDP: Weak in details

The GDP came in at an annualized 2.3 percent on quarter in the first quarter of 2018, below 2.9 percent in the previous period but beating market expectations of 2 percent. Personal consumption expenditure (PCE) contributed 0.73 percentage points to growth (2.75 percentage points in the previous period) and rose 1.1 percent (4 percent in the previous period). Services (2.1 percent compared to 2.3 percent in the previous period) and nondurables (0.1 percent compared to 4.8 percent) slowed and spending on durable goods shrank 3.3 percent, following a 13.7 percent rise in the previous quarter. Fixed investment added 0.76 percentage points to growth (1.31 percentage points in the previous period) and increased 4.6 percent (8.2 percent in the previous period). Investment slowed for equipment (4.7 percent compared to 11.6 percent) and stalled for residential (12.8 percent in the previous period). On the other hand, it rose faster for structures (12.3 percent compared to 6.3 percent) and intellectual property products (3.6 percent compared to 0.8 percent). Private inventories added 0.43 percentage points to growth after subtracting 0.53 percent in the previous period. Meanwhile, both exports (4.8 percent compared to 7 percent) and imports (2.6 percent compared to 14.1 percent) eased. As a result, the impact from trade was 0.2 percent, better than -1.16 percent in the previous period. Government spending and investment added 0.2 percentage points to growth (0.51 percentage points in the previous period). It increased 1.2 percent, compared to 3 percent.

Passenger car registration: 10 year lows

Passenger car registrations is often a keenly watched indicator because it gives the pulse of the economy. The trend shows the clear weakness in consumption across the US. While the last reading was a sligCar Registrations in the United States increased to 431.32 Thousand in February from 413.33 Thousand in January of 2018. Car Registrations in the United States averaged 698.18 Thousand from 1975 until 2018,
reaching an all time high of 1149 Thousand in September of 1986 and a record low of 331.50 Thousand in January of 2009.

Spread: Recession indicator

The 10y - 2 y yield spread has fallen this month to under 0.5. The trend has been down for the last years. If ever there has been a clear trend, it is this. The yield curve is continuously flattening and only a matter of time before it flips. Bill Gross has already said that the swaop curve has inverted which preceeds the yield curve. Why is this important ? Because if the near term yield is higher than the longer term bond, capital is flowing out of the economy into short term bond which are giving risk free returns which are higher than what they get if they invest into the economy. It is one of the surest indicator which has predicted 100% of recessions in the US from 1930. This indicator saying that US is about to enter into a protraceted era of downward spirally economy. The great bull rush is over.

Dollar Index

Dollar Index rallied in April from 89.2 to 91.8. That is a massive rally for a index that is in a monthly downtrend. However it ended really bearish as it painted a bearish hammer. These things follow up. We see a break of 89 in May.

Earnings: Beating forecasts again!

While the key economic indicators are worsening, the earnings reported the by the companies are doing better than ever. Bloomberg says they have beaten estimates at its fastest ever. The average report has beaten its forecast by 7.95 percent, the highest value since at least 2016 according to data compiled by Bloomberg. We feel this good news will be used by investors to rotate out of the markets. This is twhy the stocks have not reacted to good news.

SPX: large cap index is weakening

The monthly SPX chart shows the down volume is outstripping the up volumes. Market is really selling into strength.
SPX: Stock market bull run dead?

SPX has briken the 200 DMA and the bounce has been slow and tepid. The damage is done and therefore we see the index now falling under 2500

Summary: The economy is now worryingly cratering toward a recession. We watch for the numbers and bring you the details as we prepare our clients for what is to come

LiveMarkets.live is a investment firm specialising in indepth research, analysis and trading. We manage a superlative automated trading system which makes returns for our clients. The system has made returns every month since coming starting in early 2008. It has seen the recession of 2008 and still managed positive returns. If you want to enquire of joining our investment program, please email us at investment@livemarkets.live

Martin C

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