Rebel Yell Morning Market Report

Your Daily Financial Market Briefing - Giving You An Investing Edge Before Each Trading Day Begins

The Day Ahead For July 20th Looks At Citi Economic Surprise Index


Chart of Interest

Yesterday I updated the returns across stocks, bonds, commodities, currencies, foreign markets and U.S. sectors. What was a surprise is that for July only China was lower in the major foreign markets.

The best return is Brazil which through Wednesday was up 7.30%. Next up was India that was up 2.40%. So we need to look at the chart of EEM which is the  iShares MSCI Emerging Index Fund ETF.

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Macro

My favorite economic indicator is the Citi Economic Surprise Index. They also do other countries and regions. So instead of being uber focused on each economic release one can use this indicator to take a big picture approach to how the economy is faring.

When reviewing this indicator it becomes more effective if you overlay the Erlanger EC Spread to determine improvement or deterioration. Currently, the indicator is positive but is slowing. 

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Bond guru Jeff Gundlach notes that the economy is slowing and this may be one of the indicators that he follows. 

Geopolitical

Markets are volatile after the release of the interview with President Trump on CNBC. We have learned it is more important to pay attention to how stocks react to the news rather than the news itself. If you have followed this approach, then you are making money in the Trump era. However, if you do not like the policies, then your returns are probably lower.

This is a very hard thing to do but it is proven to work. You can leave your thoughts about what a particular policy means for the economy in the back of your mind and simply see if the market agrees.

Daily Playbook

On Fridays in the summertime, we do not produce our Daily Playbook. However, we do offer some comments. First, futures are lower on the Trump interview.  

The U.S. Dollar is a bit lower and commodities are no longer lower. Overseas markets are weak. U.S. Treasuries are up in price and lower in yield. 

Earnings continue to be awesome. With 75 of the  S&P 500 reporting this week, the average increase over a year ago the same quarter is 20%. That is very impressive.

Stocks

Microsoft (MSFT) put up big numbers after the close and is up 3% pre market. The price is closing in on $110. Even General Electric (GE), beat numbers today with earnings of $0.19 versus estimates of $0.18. Not a bad name to look at as a "bottom fisher" with a tight stop of $13.

Considerations

Do you allocate money to options? Most asset allocation models allocate to stocks, bonds and international. We would argue that 2-3% of assets should be allocated to this asset class. Why?

If done effectively like we do in Gold & Energy Options Trader and Options Index Trader, then your 2-3% should be able to return 2-3% on the total value of the portfolio with the potential of 4-6%.

This enables one to get a positive return when stocks are flat.

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