Get ready for a week of renewed focus on the Fed. No one expects a policy change, but there is plenty of room for disappointment.
In the new era of Fed communications there will be plenty to analyze, including the following:
- The FOMC statement, which can be carefully parsed for small wording changes and evidence of disagreement or dissent;
- The updated economic outlook;
- Updated projections from each FOMC member, with a report showing ranges and central tendencies;
- A press conference where Bernanke will try to explain it all.
Most of this transparency is pretty new, and it is still controversial. One reason is obvious.
In the old days, when no one expected a policy change, there would be no reason for fixation on the Fed. There is now much more to analyze.
I'll offer my ideas on what to expect in the conclusion. First, let us do our regular review of last week's news and data.
Background on "Weighing the Week Ahead"
There are many good sources for a comprehensive weekly review. I single out what will be most important in the coming week. My theme is an expert guess about what we will be watching on TV and reading in the mainstream media. It is a focus on what I think is important for my trading and client portfolios.
Unlike my other articles at "A Dash" I am not trying to develop a focused, logical argument with supporting data on a single theme. I am sharing conclusions. Sometimes these are topics that I have already written about, and others are on my agenda. I am trying to put the news in context.
Readers often disagree with my conclusions. Do not be bashful. Join in and comment about what we should expect in the days ahead. This weekly piece emphasizes my opinions about what is really important and how to put the news in context. I have had great success with my approach, but feel free to disagree. That is what makes a market!
Last Week's Data
Each week I break down events into good and bad. Often there is "ugly" and on rare occasion something really good. My working definition of "good" has two components:
- The news is market-friendly. Our personal policy preferences are not relevant for this test. And especially -- no politics.
- It is better than expectations.
The Good
The general economic data continues to be a little soft, while earnings have been very good.
- Building permits show solid growth. In my experience this is the best leading indicator. Steven Hansen does a nice job on this indicator, which the ECRI should probably consider including instead of housing measures obfuscated by foreclosures.
- Earnings reports are very good so far, via Bespoke Investment Group. As you look at this, please keep in mind that many claimed that earnings estimates were too high and should be moved lower.
- Earnings and revenues. One of my pet peeves is a general lack of accountability on earnings expectations. Remember when the earnings rebound started? Here is Dr. Ed Yardeni's account:
"When the bull market first started in 2009, the bears growled that the rebound in earnings was all attributable to cost cutting. So it wasn't sustainable, in their opinion. They didn't believe, and couldn't imagine, that revenues might actually have a normal recovery too.