Opening missive: It’s sexy, it’s hot. A well coiffed man is on the top of the home page. Two less well coiffed men sporting the only shirts they own WITH collars are well below the fold (nevermind them).
Please check out our sister site’s new redesign – StockBrokers.com. If you don’t, a thousand locusts MAY invade your home. May.
The week that was…
Four mild down days following an up Monday – however Friday had been looking up with a nice gap up at the open due to a solid 3rd quarter Gross Domestic Product (GDP) reading but those gains were wiped out by the news of a new FBI probe into Hillary Clinton emails. Again, the market likes certainty and Clinton provides more of that than Trump. As for GDP the market tends to react in knee jerk reaction to a data point that is (a) backwards looking and (b) often revised materially in the months to come. However here is the preliminary data. Soybeans baby!
The economy grew in the third quarter at the fastest pace in two years, aided by a spike in soybean and other U.S. exports and a rebound in the size of inventories companies keep on hand for sale. he government said gross domestic product, the official scorecard for the economy, expanded at a 2.9% annual clip from July through September. That’s a marked improvement from the first half of the year when the U.S. grew just barely over 1%. Economists surveyed had predicted a 2.9% advance.
Consumers increased spending by a moderate 2.1%, exports posted the biggest increase in almost three years and businesses restocked warehouse shelves after a rare decline in inventories in the spring. Yet higher imports, a second straight decline in how much builders spent to construct new housing and less investment in business equipment tempered results. “Bottom line, the U.S. economic expansion remains resilient, yet unremarkable,” said Sam Bullard, senior economist at Wells Fargo Securities.
This is the amazing part:
The driving force behind the improved third-quarter performance was a 10% spike in exports, helped by a temporary boom in U.S. soybean shipments after a poor harvest in South America. Soybeans may have accounted for one-third of GDP growth in the fall.
I wouldn’t even know what a soybean looked like if it hit me in the face. #BlainLovesSoybeans
GDP was the major economic data point of the week along with durable goods orders, as most of the focus was on earnings ala Apple, Alphabet, Amazon, Tesla among a slew of others.
Orders for long-lasting goods made in the U.S. fell slightly in September, a weak performance owing largely to lower demand for military hardware and computers. The decline in September, the first in three months, stemmed from a 45% plunge in bookings for large military goods such as fighter jets. Excluding defense spending, durable-goods orders rose 0.7%. Customers ordered more heavy machinery, new autos and commercial planes, the Commerce Department said Thursday. Stripping out transportation, orders rose 0.2%.
On to the weekly over focus on the possibility that the Federal Reserve could raise rates by an astounding 0.25%!
The probability of a Fed hike in November is low at only 8.3%, according to the CME Group’s Fed Watch tool, which measures pricing in the Fed funds futures market. However, for December the tool is pointing to an 83% chance of a rate increase.
One of the massive (and under reported) drivers of this long bull market has been the insatiable appetite of companies to buy back their own stock with ultra cheap money. That has slowed down significantly. And in October we saw insider buying dry up as well. This doesn’t mean we are at a major inflection point but certainly this must be heeded.
Corporate insiders aren’t eating their own cooking this month when it comes to the stock market. Insiders bought just $110 million worth of shares in their own firms in the month through Oct. 21, according to TrimTabs Investment Research, the slowest pace for October in the past five years. According to TrimTabs, the October slump isn’t merely a seasonal phenomenon. Over the first 15 days of October trading, insiders bought $390 million of shares in 2012, $360 million in 2013, $540 million in 2014, and $260 million in 2015.
“It’s not a good sign because those are the people that tend to know most about what’s going on in their companies,” said David Santschi, chief executive offer at TrimTabs, in a phone interview. Insider activity is viewed as a reliable barometer of shifts in market sentiment, particularly when it comes to stock purchases. Investors who track insider activity often quote investing legend Peter Lynch, who observed that insiders “might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.”
The slump in insider purchases coincides with a decline in corporate buybacks, which have been cooling for the past two years after a boom. Buyback announcements declines to a nine-quarter low of $115 billion in the third quarter, TrimTabs said
Here is a 5 day “intraday” chart of the S&P 500 via Doug Short. Talk about a downtrend most of the week!
The week ahead…
Earnings continue at a heavy pace, although many S&P 500 companies now are in the bag; another big bag (134) will report this week.
Slightly more than half of S&P 500 companies having announced earnings, with 76% beating estimates by an average of 12%, while 58% are turning in better-than-expected sales by an average of 3%, Fundstrat data show.
To date, third-quarter blended earnings growth for the S&P 500 is 1.6%, which puts the index on track to record the first year-over-year earnings growth since the first quarter of 2015.
Eyes will turn to the election – any drama that doesn’t point to a Clinton victory, which the market is “pricing in” could lead to some consternation. Again, we are apolitical – we are just reporting the outcome that provides the most certainty – which the market likes in the end.
The Federal Open Market Committee will meet Tuesday and Wednesday. Nothing is going to happen days before the election.
Economic data will hit later in the week with ISM data (Tue – 51.2 expected for manufacturing/Thu – 55.7 expected for non manufacturing) and the employment report Friday (195,000 jobs and a 4.9% unemployment rate). Should be some fireworks.
Short term: The S&P 500 is below this line in blue we have marked – this is a trendline that connects lows of Sept and early Oct. That has now formed a ceiling in latter October. Please note the change in shape of the 50 day moving average – quite a few technicians not only look if a stock/entity is above or below its 50 day moving average but the slope of that line. It hasn’t been downward sloped since February. The NASDAQ continues to look relatively better but this 5177 level is being tested again!
The Russell 2000 broke downward out of a channel the prior week and this week broke the key 1200 level. That is not a positive.
Long term: Clear near term downtrend in the S&P 500 ; if the NASDAQ breaks 5177 it will get interesting.
Charts of interest:
The U.S. dollar surged the prior week, and Treasury yields this week (again). The market seems to finally be buying the idea of a rate hike coming soon! (post election)
While last weekend news of Time Warner (TWX) being purchased caught the eyes of investors, that stock actually opened down Monday. More fun was B/E Aerospace (BEAV) which jumped 16% after Rockwell Collins last Sunday announced a $6.4 billion deal to unite the two aerospace suppliers.
Apple (AAPL) was not a big mover this week but needs to be talked about it because it is Apple. The company posted quarterly earnings that slightly beat expectations and revenue that was just shy of forecasts. Investors also may have been disappointed that the tech giant’s projections for the current quarter weren’t more bullish. “The quarter wasn’t bad to me, but if you’re going to report a quarter after a [share] rise of this much in this short of time, then it has to be a powerful one. Instead, this was just lukewarm,” said Michael Binger, senior portfolio manager at Gradient Investments LLC, which counts Apple as a holding.
Interesting to note iPhone revenue is starting to stagnate year over year if not shrink. This was also Apple’s first annual revenue decline in 15 years!
Whirpool (WHR) dropped 11% Tuesday after the appliance maker reported third-quarter profit and sales that missed expectations, and issued a downbeat outlook.
Under Armour (UA) plunged 13% Tuesday after the company issued a profit warning. The decline came even as the athletic gear maker reported a 28% rise in third-quarter profit and an expansion of its market share, but those results were overshadowed by its warning.
Chipotle Mexican Grill (CMG) still can’t get out of its own way as skidded 9.3% Wednesday after reporting a 95% slump in third-quarter profit.
Amgen (AMGN) crumbled 9.6% Friday after the biotechnology company late Thursday beat third-quarter earnings expectations and raised its profit outlook, but kept its sales outlook virtually unchanged.
Have a great Halloween and we’ll see you back here next Sunday!