The week that was…
Earnings season began in earnest but the obsession with the Federal Reserve remained this past week. Tuesday, Thursday, Friday provided some fireworks although Tuesday was the only day with a significant end of day % change. Thursday and Friday were a bit of polar opposites with a gap up (or down) offset by the opposite move during the remainder of the session. Federal Reserve minutes were released Wednesday meeting which described the decision around holding rates unchanged as a “close call,” and indicated that Fed officials saw sufficient reasons for a hike but wanted to see further evidence of economic improvement with doves pointing to slack in inflation measures:
In the minutes from its September meeting, the Fed said it held steady but acknowledging that a rate increase was in the cards “relatively soon.”
The minutes tended a bit toward the dovish side, said Karyn Cavanaugh, senior market strategist at Voya Financial. “They were a little wishy-washy, not a lot of substance, leaning toward the doves, and no specificity about [a] December [rate hike],” Cavanaugh said. “We’ve seen this before and the market is looking at it with a jaded eye.”
“There was a little more color in these minutes, but no explicit mention of November or December. We would’ve liked to have seen that—we think another 25 [basis point] increase would be good for the economy—but there’s still time for the Fed to get more explicit,” said Deron McCoy, chief investment officer at Signature Estate & Investment Advisors.
Federal -funds futures show that investors were pricing in a roughly 70% chance to a rate increase in December.
Friday, a Janet Yellen speech went full dove yet again! We’ll go back to Karyn for comments!
Janet Yellen said it might be wise to run a “high pressure” economy, one with a tight labor market, to reverse the negative effects of the Great Recession.
Yellen is affirming the dovish tilt seen in the recently released minutes of September’s Fed policy meeting, said Karyn Cavanaugh, senior market strategist at Voya Financial. “These low rates are kind of silly, but the Fed is between a rock and a hard place,” Cavanaugh said. “It seems that she is OK to let the economy run a little hot before raising rates.”
Economic data that moves market was sparse until Friday’s retail sales report.
Sales at U.S. retail stores rebounded in September, with auto dealers and gas stations racking up the biggest gains, in a sign consumers are still spending enough to keep the economy on a slow but steady growth path. Retail sales rose 0.6% last month to snap back from a small decline in August that was the first in five months. Economists had forecast a 0.7% increase. Excluding autos and gasoline, retail sales rose at more moderate 0.3% clip in September.
However on Thursday, China reported exports last month fell much more than expected, as global demand for goods from the world’s second-largest economy remained sluggish.
“Goods exports disappointed in September, breaking—at least for now—a trend of reasonable real export growth and underscoring that the trend towards somewhat stronger global demand growth is going to be gradual and susceptible to setbacks,” said Louis Kuijs, head of Asia economics at Oxford Economics, in a note.
Here is a 5 day “intraday” chart of the S&P 500 via Doug Short. One thing to note is the heavy selling volume bars on the close of each day – that looks a bit ominous?!
Crazy fact: While Samsung is not listed on a major U.S. exchange it fell 8% Tuesday after the company permanently halted the production and sale of its Galaxy Note 7 smartphone amid reports of the phones exploding and catching fire. That’s not the crazy part…this is!
According to business performance appraising agency CEO Score, Samsung represented 23% of the country’s GDP in 2012, and Hyundai Motor 12%.
Samsung Group had total revenue of over $300 billion. It ranks number 20 on the Forbes list of the world’s largest public companies. It owns Samsung Electronics, which makes smartphones and an army of other devices. Samsung Heavy Industries (SHI) is one of the largest ship builders in the world. The company has a huge Financial Services Division, which is in the bank, create card and commercial loan business. Samsung Group even has a business that makes medical devices.
The week ahead…
Earnings galore ahead!! Especially of the S&P 500 variety. Not particularly impressive earnings either.
Corporate earnings are expected to drop this quarter, making for a sixth straight quarter of declines, according to FactSet data. While sales are expected to rebound, breaking their own six-quarter streak of weakness.
Economic data will be a non starter. Let’s see if oil can hold up, and what the dollar and bond yields do.
Short term: The S&P 500 was stuck in a wedge of shorts and broke out of that to to the downside this past week. So that is bearish, along with the fact it has been stuck below the 50 day moving average a great portion of the past month. The index ended the week at May 2015 highs which were the prior all time highs before the break above in July. The NASDAQ *had* been looking stronger and still is in a relative sense but is showing some fatigue as well. It also is battling old highs and has now revisited levels below the 50 day moving average.
The Russell 2000 broke downward out of this channel and is sitting right above VERY key support at 1200.
The NYSE McClellan Oscillator went back to red last week which put us back in a cautionary stance after a tease above 0 for a short while. It ended the week very oversold but certainly nothing looks promising other than a short term oversold bounce here right now.
Long term: In the longer term charts we can see more clearly the trendlines we have noted on the short term charts and why we are at some important levels!
Charts of interest:
The 10 year bond surged past 1.7% and went directly to go at 1.8%. It is also now over the 200 day moving average. Certainly some interesting action.
Look at the U.S. dollar as well at levels not seen since late last winter. Maybe the market is believing one whole rate hike is indeed coming post election.
Crude oil broke out the prior week and this week held in quite strong. This is actually pretty impressive action. A break above this channel could lead to a new breakout. (which again are more difficult to trust in this commodity than with a typical stock)
On Monday, Saudi Arabia’s energy minister, Khalid al-Falih, said he was optimistic that major oil producers could agree to cut production before year-end. He also said it wasn’t “unthinkable” for crude to rise to $60 a barrel this year.
Alcoa (AA) kicked of this earnings season with a distinct thud Tuesday! It’s worst day in 5 years in fact.
Twitter (TWTR) sunk anew Monday after a weekend Bloomberg report suggested the social media company won’t attract any takeover bids.
Adding to what was already a very ugly chart – Bristol-Myers Squibb (BMY) dropped 10% after competitor Merck (MRK) announced positive results for a rival lung-cancer drug.
Have a great week and we’ll see you back here next Sunday!