After the heavy selling the week prior there was sure to be an oversold bounce and indeed last Tuesday brought much of that. It is always interesting to see what happens after that bounce – often in this bull market, once the indexes turn back up they move like a freight train. This time – thus far at least – the action has been less aggressive. Selling on Thursday took the S&P 500 right back down to the 200 day moving average and rally attempts Friday were fruitless. In whole the S&P 500 barely budged for the week.
Yields on the 10 year have thus far held their own “breakout” level:
The Chinese market had an interesting Friday with an “outside reversal” day to the upside – that is a day where the price went both below the low of the prior day, as well as the high. This happened the day after the index notched a new 4 year low. This week’s action in that country’s market will be a tad interesting to watch.
China’s GDP grew 6.5% between July and September from the same quarter a year earlier, down slightly from 6.7% growth in the previous quarter and falling short of analysts’ expectations of 6.6% growth. However, the disappointing results were shaken off after officials said they were focused on supporting the stock market.
Yet a new low in these home builder stocks – one wonders if they are telegraphing an end to the housing boom. Existing-home sales fell 3.4% in August, the lowest level since November 2015.
“Recent sluggishness seems increasingly driven by softer demand from would-be home buyers in the face of two emerging trends: falling rents and rising mortgage interest rates,” said Zillow Senior Economist Aaron Terrazas. “It all adds up to a situation in which supply-side factors are becoming less critical in driving home sales as they give way to softening demand. There’s still a lot of energy left in the housing market, but the rapid rise of the past few years has clearly begun to level off.”
For the week the S&P 500 rose fractionally while the NASDAQ fell 0.6%.
Retail sales rose just 0.1% for the second month in a row, the government said Monday. Wall Street had expected a 0.6% increase. After a string of strong sales, bars and restaurants saw a big dropoff. Sales sank 1.8% in September to mark the biggest decline since the end of 2016.
“The underlying strength and confidence of the consumer still appear to have legs, and consumer spending should remain robust in the coming quarters,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “As such, we expect retail sales should bounce back in the coming months.”
“The hurricane in the Carolinas may have been responsible for some of the headline weakness,” wrote economists at CIBC World Markets.
The minutes of the Fed’s September meeting, released Wednesday, showed that a majority of policy makers believe interest rates must continue to rise until policy becomes restrictive.
“The market is interpreting the Fed minutes as slightly hawkish,” said Lindsey Bell, investment strategist with CFRA. For a while the market didn’t believe the Fed was serious about raising rates four times this year and three times in 2019, she said. But that changed after hawkish comments from Fed Chairman Powell earlier this month.
Here is the 5 day weekly “intraday” chart of the S&P 500 … not via Jill Mislinski.
Remarkably there are countries out there where less than 5% of the population is connected to the internet.
The week ahead…
Earnings season will continue in earnest and we have some interesting charts to watch both here in the U.S. and China!
On the earnings front, 17% of companies in the S&P 500 have delivered third-quarter results so far. More companies are beating estimates than average, but the magnitude of the beats is smaller than average, said John Butters, senior earnings analyst at FactSet.
Short term: A lot of work to do to fix some of this damage in both charts.
This Russell 2000 is just in rough shape.
The NYSE McClellan Oscillator was at a very extreme level so we said watch for an oversold bounce last week. That happened. Now some of that selling pressure is relieved – but we are still in the red and hence it’s signaling caution.
Long term: So far both these support lines are holding – sure would be interesting to see what happens if they broke.
Charts of interest / Big Movers:
Netflix (NFLX) rose 5.8% Wednesday after it reported better-than-expected quarterly results. But you can see those gains evaporated in the weak action to close the week. Interesting to see how international the company has become.
International Business Machines (IBM) announced a revenue miss following the close on Tuesday. Shares fell 7.63% Wednesday.
Thursday, Endocyte (ECYT) soared 50% after Novartis said it would buy the cancer-drug maker for $2.1 billion.
Friday, PayPal (PYPL) surged 9.4% after the company boosted its outlook for the fourth quarter.
Ebay (EBAY) tumbled 8.9% Friday after analysts at Stifel Nicolaus downgraded the stock from buy to hold, citing PayPal’s earnings release, which suggested that the online retail would post disappointing gross merchandise volume when it reports on Oct. 30.
Procter & Gamble (PG) jumped 8.8% after reporting it’s best quarterly sales numbers in five years Thursday.
Have a great week and we’ll see you back here Sunday!