Monthly Archives: September 2019

Market Insights 9/30/2019

U.S. stocks were higher in the final session of the quarter, with some positive Chinese economic data appearing to offset continued signs of slowing domestic manufacturing activity.

Treasury yields were little changed and the U.S. dollar was higher, while gold and crude oil prices declined.

The Markets….

The Dow Jones Industrial Average rose 97 points (0.4%) to 26,917

The S&P 500 Index gained 15 points (0.5%) to 2,977

The Nasdaq Composite increased 60 points (0.8%) to 7,999

In moderate volume, 882 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil moved $1.84 lower to $54.07 per barrel and wholesale gasoline lost $0.04 to $1.57 per gallon

The Bloomberg gold spot price declined $22.86 to $1,474.31 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 99.38

Regional manufacturing activity slows

The Chicago PMI Index fell back to a level depicting contraction (a reading below 50), declining to 47.1 in September from August’s 50.4 level and compared to the Bloomberg expectation of a dip to 50.0. The index posted the third month of contraction in four as new orders, order backlog and employment all declined.

Treasuries were little unchanged, as the yields on the 2-year and 10-year notes, along with the 30-year bond, were flat at 1.62%, 1.67% and 2.12%, respectively.

Europe mostly higher amid data, Asia mixed

European equities finished mostly to the upside, with the markets focusing some relatively upbeat economic data out of China and the region, while digesting late last week’s report that the U.S. is mulling restricting investment in China. Better-than-expected Chinese manufacturing data was met with reports showing German retail sales rebounded and the nation’s unemployment change declined, while the Eurozone unemployment rate unexpectedly dipped. The euro lost ground versus the U.S. dollar and the British pound nudged higher, as U.K. Brexit uncertainty continued to fester.

Stocks in Asia finished mixed, with the global markets digesting some relatively positive economic data out of China, which came ahead of this week’s extended holiday break for the Chinese markets beginning tomorrow.

Stocks in mainland China declined, while those traded in Hong Kong rose. Japanese equities traded lower even as the yen gave up an early gain and finished lower. South Korean securities rose, though Australian and Indian listings both declined, ahead of this week’s monetary policy decisions from the two nations.

Stocks are Not Expected to Repeat Last Year’s Q4 Drubbing

I’m often asked if I see a chance of last years 4th quarter swoon that took an otherwise strong year and drove it into negative territory by 12/31. I’m not usually in the business of tgrying to see into the future or make predictions but there are a few stark differences that I think the odds of a repeat are a long-shot.

#1 would be the Fed is on our side with its “mini” easing campaign while last year it was a tightening mission and the equity markets hate higher interest rates.

#2, corporate earnings are projected to be better in the first half of 2020 and as I have said many times earnings are the “mothers milk” of the equity markets.

Quarter to date 7/1/2019 through 9/27/19, the S&P 1500 eked out a 0.5% advance, and witnessed price declines for two of its three underlying benchmarks, as the S&P 500 rose 0.7%, while the SmallCap 600 fell 0.7% and the MidCap 400 dropped 1.2%.

In addition, only six of 11 sectors recorded price gains and just 50% of the S&P 1500’s 146 sub-industries rose in price since June 30. Yet if history repeats itself (and there’s no guarantee it will) investors should not be surprised to see this Q3 cloud of disappointment lift from investor sentiment, as the focus typically shifts to the projections for the year ahead, rather than just on the upcoming quarter.

This expanded time horizon may help propel share prices in the final quarter of the year. Indeed, since WWII, while the S&P 500 recorded its worst quarterly price and volatility performances in Q3, it posted its best average price gain and frequency of advance in Q4.

What’s more, since 1990, the S&P 500 saw all 11 of its sectors record Q4 price increases, on average, with its cyclical sectors representing the bulk of those rising 5% or more, while frequencies of advance for all 11 groups ranged from 62% to 83%. We see 2020 forecasts for low interest rates, solid economic expansions, tame inflation and favorable EPS growth going a long way in keeping this bull market alive.

Weekly Summary – Week Ending 09/27/2019

S&P 500 Posts 1.0% Weekly Drop, Led by Health Care, Energy; Index Up 1.2% for September

The Standard & Poor’s 500 index fell 1.0% this week as the health-care and energy sectors led a broad decline that only utilities and consumer staples, which are often treated as safety sectors, escaped.

The market benchmark ended the week at 2,961.79, down from last week’s closing level of 2,992.06. Still, the measure appears all but set to end September with a monthly gain, as it is now up 1.2% for September with just one session remaining to the month.

The stock market’s moves in recent weeks have swayed with investors’ impressions of the trade war between the US and China. Investors spent the earlier part of September growing hopeful for a trade agreement to be reached after worries about the trade spat sent the S&P 500 down 1.8% in August. However, the hopes have dimmed in the past two weeks, hence the recent declines.

Friday, reports that the White House is considering ways to limit US investors’ portfolio flows into China added to investors’ concerns as they were also digesting economic data that showed consumers have been pulling back their spending recently while businesses have cut back on investments.

The health-care and energy sectors had the largest percentage drops of the week, down 3.0% and 2.6%, respectively.

Most other sectors followed with weekly declines except utilities, which rose 1.2% on the week, and consumer staples, up 1.2%. Both utilities and consumer staples are typically considered safety sectors as their services and products are usually expected to continue receiving demand regardless of economic state.

Market Insights 9/26/2019

U.S. equities finished in negative territory, but well off their lows in a bumpy session, as investors weighed an improvement in trade optimism, ramped-up political noise in Washington and global growth uncertainties.

In economic news, Q2 GDP growth was unrevised, as expected, at a 2.0% pace, jobless claims ticked higher and pending home sales rose more than expected.

Treasury yields were lower and the U.S. dollar ticked higher, while gold gained modest ground and crude oil prices were little changed.

The Markets..

The Dow Jones Industrial Average fell 80 points (0.3%) to 26,891

The S&P 500 Index decreased 7 points (0.2%) to 2,978

The Nasdaq Composite declined 47 points (0.6%) to 8,031

In moderate volume, 754 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil fell $0.08 to $56.41 per barrel and wholesale gasoline added $0.02 to $1.62 per gallon

The Bloomberg gold spot price inched $0.24 higher to $1,504.29 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 0.2% to 99.21

Q2 GDP unrevised, jobless claims nudge higher

The final look (of three) at Q2 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 2.0%, unrevised from the first revision to match the Bloomberg forecast. Q1 GDP grew by an unrevised 3.1% rate. Personal consumption was revised to a 4.6% increase, from the second estimate of a 4.7% gain, where it was expected to remain, and compared to the unrevised 1.1% rise seen in Q1.

Weekly initial jobless claims rose by 3,000 to 213,000, versus estimates of 212,000, with the prior week’s figure being revised higher by 2,000 to 210,000. The four-week moving average dipped by 750 to 212,000, while continuing claims fell by 15,000 to 1,650,000, south of estimates of 1,666,000.

Pending home sales rose 1.6% m/m in August, versus projections of a 1.0% gain, and following the unrevised 2.5% drop registered in July. Sales were 1.1% higher y/y, compared to the expected 1.3% rise. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales.

Treasuries were higher, as the yields on the 2-year and 10-year notes declined 3 basis points to 1.66% and 1.70%, respectively, while the 30-year bond rate decreased 4 bps to 2.14%.

The week’s economic calendar will round out tomorrow with personal income and spending, forecasted to show respective m/m increases of 0.1% and 0.6% for August, as well as the final reads on durable goods orders and the University of Michigan’s Consumer Sentiment Index.

Europe higher on data and modestly improved trade optimism, Asia mixed

European equities were broadly higher, with relatively improved trade optimism, as the U.S. and Japan reached an initial agreement and U.S. President Donald Trump suggesting a deal with China could come sooner than anticipated, appearing to have buoyed sentiment. Moreover, an unexpected increase in German consumer confidence may have added to the upward moves. However, increased U.S. political uncertainty and festering global growth concerns could have kept conviction contained, along with lingering U.K. Brexit uncertainty.

The euro and the British pound were modestly lower than the U.S. dollar, while bond yields in the region were mixed.

Stocks in Asia finished mixed, with trade optimism nudging higher after the U.S. announced that it has reached an initial deal with Japan and U.S. President Donald Trump noting that an agreement with China could come sooner than expected. However, Chinese stocks traded mixed ahead of next week’s break for National Day celebrations, while U.S. political uncertainty on the heels of this week’s launch of a formal impeachment inquiry by the House likely added another wrinkle to the outlook for a U.S.-China trade deal.

Economic growth concerns lingered ahead of some Hong Kong trade data as the markets closed, which showed exports and imports continued to fall in August. Stocks in mainland China declined, while those traded in Hong Kong increased. Japanese equities ticked higher, with the yen softening, while South Korean securities also nudged to the upside. Australian listings declined, though shares in India advanced, buoyed by the recent unexpected corporate tax rate cut.

Market Insights 9/25/2019

U.S. equities finished higher, as upbeat domestic economic data, as well as President Trump’s announcement that the U.S. and Japan have reached a preliminary trade agreement and that a deal with China may be closer than originally thought.

Treasury yields and the U.S. dollar gained ground after new home sales jumped and topped estimates, while gold and crude oil prices fell.

The Markets…

The Dow Jones Industrial Average rose 163 points (0.6%) to 26,971

The S&P 500 Index increased 18 points (0.6%) to 2,985

The Nasdaq Composite advanced 84 points (1.1%) to 8,077

In moderate volume, 835 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil fell $0.80 to $56.49 per barrel and wholesale gasoline lost $0.03 to $1.60 per gallon

The Bloomberg gold spot price plunged $27.28 to $1,504.59 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—rallied 0.7% to 99.00

New home sales jump, mortgage applications fall

New home sales rose 7.1% month-over-month in August to an annual rate of 713,000 units, versus the Bloomberg forecast calling for 658,000 units and above July’s upwardly-revised 666,000 unit pace. The median home price was up 2.2% y/y at $328,400. New home inventory declined to 5.5 months of supply at the current sales pace from 5.9 in July. Sales jumped m/m in the West and were solidly higher in the South, but fell in the Midwest and Northeast. New home sales are based on contract signings instead of closings.

The MBA Mortgage Application Index fell 10.1% last week, following the prior week’s 0.1% dip. The decline came as a 15.2% tumble in the Refinance Index was met with a 3.1% drop for the Purchase Index. The average 30-year mortgage rate ticked 1 basis point higher to 4.02%.

Treasuries declined, as the yield on the 2-year note rose 7 bps to 1.68%, the yield on the 10-year note was up 9 bps to 1.73%, and the 30-year bond rate gained 8 bps to 2.17%.

Tomorrow’s economic calendar will hold weekly initial jobless claims, forecasted to rise 3,000 to 211,000, as well as the advance goods trade balance, expected to show the deficit widened to $73.5 billion during August from $72.3 billion the month prior.

The final revision to Q2 GDP is also slated for release, with no change expected to the 2.0% q/q annualized growth registered in the second reading, and pending home sales will round out the docket, with economists projecting the pipeline of existing home sales to have gained 1.0% m/m in August.

Europe and Asia lower as political uncertainty on both sides of the pond fester

European equities finished lower, as the global markets reacted to flared-up U.S. political uncertainty after the House announced a formal inquiry regarding the impeachment of President Donald Trump. Moreover, U.K. Brexit uncertainty also continued to fester in the wake of this week’s court ruling that Prime Minister Boris Johnson’s recent suspension of Parliament is unlawful.

The euro and British pound fell versus the U.S. dollar and bond yields in the region were mixed.

Stocks in Asia finished lower, on the heels of the decline in the U.S. yesterday as the announcement that the House would launch an impeachment inquiry of President Donald Trump which exacerbated political uncertainty, while recent data has kept global economic growth concerns elevated.

The increased U.S. political uncertainty comes as the U.S. and China are set to hold high-level discussions early next month and is likely adding another wrinkle to an elusive trade deal. Japanese equities declined, with the yen paring some of yesterday’s gain that had come courtesy of resurfacing global market uneasiness.

Stocks in mainland China and Hong Kong dropped, as did those traded in Australia and South Korea. Shares in India finished lower, giving back some of a recent rally that had come on the heels of late last week’s surprising corporate tax-rate cut.

Random Thoughts on Impeachment Implications

The equity markets are again reacting to the possibility that President Trump will be impeached, and investors are looking warily for historical precedent.

Unfortunately, presidential impeachments and market implosions offer little in the way of meaningful market-action guidance. There have only been two in the past 150 years, and both occurred in the midst of deep corrections or bear markets.

President Nixon resigned on August 9, 1974, in advance of a near-certain impeachment. Yet the U.S. stock market was already in a bear market, triggered by the OPEC oil embargo. In 1998, during the Clinton administration, the S&P 500 fell 19.4% from 7/17 through 8/31, the blame for which market historians give to the global debt crisis and the near collapse of the Long Term Capital Management hedge fund.

Today, while the current crisis will add to equity market instability, we don’t think it will lead to recession or a new bear market.

Market Insights 9/24/2019

U.S. equities finished near their lows of the day, as some disappointing domestic economic data joined already-heightened concerns over global growth, as well as increased political noise coming out of Washington.

The downward moves came despite some relatively positive trade optimism, as the U.S. confirmed that it and China will resume high level talks early next month after last week’s discussions were cut short.

Treasury yields were lower, as were crude oil prices and the U.S. dollar, while gold finished higher.

The Market…

The Dow Jones Industrial Average fell 142 points (0.5%) to 26,808

The S&P 500 Index declined 25 points (0.8%) to 2,967

The Nasdaq Composite decreased 119 points (1.5%) to 7,994

In heavy volume, 917 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.35 to $57.29 per barrel and wholesale gasoline lost $0.03 to $1.63 per gallon

The Bloomberg gold spot price rose $9.85 to $1,532.09 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.3% at 98.33

Consumer Confidence, regional manufacturing and home prices miss expectations

The Consumer Confidence Index fell to 125.1 in September, from August’s downwardly-revised 134.2 level, well below the Bloomberg estimate of 133.0. The index hit the lowest level since June as both the Present Situation Index and the Expectations Index of business conditions for the next six months deteriorated.

The Richmond Fed Manufacturing Activity Index for September unexpectedly fell to a level depicting contraction (a reading below zero) for the second month out of three, dropping to -9 versus forecasts calling for the figure to remain at August’s unrevised level of 1.

Treasuries were higher, as the yield on the 2-year note decreased 5 basis points to 1.62%, while the yield on the 10-year note was down 7 bps at 1.64%, and the 30-year bond rate declined 6 bps to 2.09%.

The domestic economic calendar for tomorrow will focus on housing, with the early morning release of MBA Mortgage Applications being followed by new home sales, with economists projecting a 3.5% m/m increase for August to an annual rate of 657,000 units.

Europe mixed, Asia ticks higher amid trade, economic and Brexit focus

European equities were mixed, with the energy sector seeing some pressure as crude oil prices are declining, while materials were also lower on global growth concerns following a host of mixed economic data as of late. U.K. Brexit uncertainty continued to fester as a court ruled that Prime Minister Boris Johnson’s recent suspension of Parliament is unlawful.

The euro and British pound were higher versus the U.S. dollar, while bond yields in the region were mostly lower.

Stocks in Asia finished tilted to the upside, with the global markets focusing on the upcoming U.S.-China trade talks in early October. With the trade front exacerbating global growth concerns and garnering heightened scrutiny in the currency and interest rate markets.

Mainland Chinese equities and those traded in Hong Kong rose, while shares in South Korea also advanced. However markets in Australia finished little changed, along with India, which paused from a recent surge that has come from late last week’s surprising corporate tax-rate cut.

Market Insights 9/23/2019

U.S. equities finished mixed and very nearly unchanged as U.S.-China trade uncertainty was also in focus after talks were cut short last week.

Treasury yields fell and the U.S. dollar was slightly higher, while gold rose and crude oil prices nudged higher.

The Markets…

The Dow Jones Industrial Average rose 15 points (0.1%) to 26,950

The S&P 500 Index was nearly unchanged at 2,992

The Nasdaq Composite declined 5 points (0.1%) to 8,112

In moderate volume, 793 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil moved $0.55 higher to $58.09 per barrel and wholesale gasoline gained $0.01 to $1.66 per gallon

The Bloomberg gold spot price rose $7.60 to $1,524.50 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.1% at 98.60

Business activity continues to show growth, kicking off the economic week

The preliminary Markit U.S. Manufacturing PMI Index for September rose to 51.0 from August’s unrevised 50.3 figure, and versus the Bloomberg expectation of a slight increase to 50.4. The preliminary Markit U.S. Services PMI Index showed growth modestly accelerated for the key U.S. sector this month, ticking higher to 50.9 from August’s 50.7 figure, and versus forecasts of a rise to 51.4. A reading of 50 for both indexes is the demarcation point between expansion and contraction.

Treasuries were higher, as the yields on the 2-year and 10-year notes, along with the 30-year bond, declined 4 basis points to 1.66%, 1.71% and 2.16%, respectively.

Tomorrow’s economic calendar will begin with the S&P CoreLogic Case-Shiller Home Price Index, expected to show that prices in the 20-city composite rose 2.1% y/y during July, and 0.1% m/m on a seasonally-adjusted basis. After the opening bell, the September Richmond Fed Manufacturing Index will be released, anticipated to remain at August’s level of 1, with a reading above zero denoting expansion in activity, and the Conference Board’s Consumer Confidence Index will follow, forecasted to tick lower during September to 133.0 from August’s 135.1.

Europe lower as growth concerns continue, Asia mixed

European equities finished lower, with economic growth concerns festering as the Markit’s Eurozone Manufacturing PMI Index showed September output contracted at a faster pace than expected, with the contraction in German activity unexpectedly accelerating. The euro and British pound lost ground versus the U.S. dollar, and bond yields in the region came under pressure.

Stocks in Asia finished mixed, though volume was lighter than usual with Japanese markets closed for a holiday. The global markets eyed the flared-up trade uncertainty as China cut its visit to the U.S. short last week, ahead of high-level talks set to kick off early next month, but China noted that its shortened stay was not due to how low-level talks progressed last week.

Stocks in mainland China and those traded in Hong Kong decreased. Australian equities rose, even as the nation’s manufacturing output fell into contraction territory in September, while shares in India continued to rally on the heels of Friday’s surge that came as the nation announced a surprise corporate tax cut.

Random Thoughts

The global equity markets have held up quite well in the face of potential disruptions, including a drone attack on a Saudi refinery that knocked out 50% of the country’s refining capacity, elevated tensions between Iran and the U.S., Brexit bickering that has been brought to the boiling point and the possibility that the Fed may already be done with its rate-cutting program.

Yet the S&P 500 remains within striking distance of a new all-time high. In response, investors have rotated toward under-performers, such as the value-side of the ledger as well as smaller capitalized stocks, possibly due to value stocks’ extreme relative price underperformance and their deeply discounted relative P/E.

It will be interesting to watch in the coming months.

U.S. Market Weekly Summary – Week Ending 09/20/2019

S&P 500 Posts 0.5% Weekly Decline as Consumer Discretionary, Industrials Weigh, Trade Hopes Dim

The Standard & Poor’s 500 index posted a 0.5% weekly decline, marking its first weekly decline in a month, as investors’ hopes for a trade deal between the US and China dimmed amid reports that a Chinese trade delegation was headed back to China earlier than expected.

The market benchmark ended the week at 2,992.07, down from last week’s closing level of 3,007.39. This marks the measure’s first weekly decline since the week ended Aug. 23.

The drop came as a China delegation canceled a visit to farms in Montana to head back to China earlier than planned. Investors interpreted this development as a sign the countries are unlikely to be close to a trade deal.

The consumer-discretionary sector had the largest percentage drop of the week, down 2.2%, followed by industrials, off 1.5%. The utilities sector led the measure’s gainers this week, up 2.2%, followed by real estate, up 2.1%.

In the industrial sector, shares of FedEx (FDX) tumbled 15% as the package-shipping company reported fiscal Q1 earnings below analysts’ expectations late Tuesday and cut its fiscal-year guidance. Many analysts reduced their price targets on the stock following the report.

Meanwhile, the real-estate sector’s gainers included Equinix (EQIX), whose shares rose 5.5% this week as Morgan Stanley raised its price target on the stock to $510 from $435. The firm maintained an equal-weight investment rating on the shares.