This past week was saw another positive move up by bulls – especially in the Dow and S&P 500; the NASDAQ was not quite as enthusiastic. Wednesday’s rally was on the legs of an election that was seen as market friendly or at least not as bad as it could have been. Essentially – paying people a lot of money to get nothing done the next 2 years – woo hoo!
The market is interpreting Wedneday’s result as insuring that “no big things will get done,” in Washington between now and 2020, Craig Birk, chief investment officer at Personal Capital told MarketWatch. “The market appreciates the relative certainty of the slow legislative agenda.” he said.
“As President Trump plans his 2020 reelection campaign, a gridlocked Congress is unlikely to deliver any notable wins to help expand his agenda. Therefore, Trump will likely focus on his broad executive powers to affect trade and national security,” wrote Dec Mullarkey, managing director, investment strategy, Sun Life Investment Management, in a research note.
We are still seeing quite a bout of volatility – usually rallies that will last will settle into some sort of “calm” so we are not there yet. In fact the move to the upside got so extreme mid week that the NYSE McClellan Oscillator actually went to overbought levels for the first time since spring (more on that below).
Nothing of note from the Federal Reserve Thursday – exactly as expected:
In a statement that was largely intact from its September meeting, the Fed said, “The Committee expects further gradual increases in the target range for the federal funds rate.” It also said the risks to the economic outlook “appear roughly balanced” and noted that inflation remains near its 2% target.
The absence of any major changes to its commentary suggests that the central bank plans to raise interest rates in December and plans three hikes next year, in line with market expectations.
Massive drop in oil the past few weeks! Some contrasting thoughts on the implication of this selling can be found here.
U.S. crude oil prices settled in bear-market territory on Thursday, defined as a drop of at least 20% from a recent peak, and that decline may invite questions about the health of demand and the vitality of economies around the globe. Along with other key commodities, oil has often been used as a gauge of world wide vitality.
Willie Delwiche, investment strategist at R.W. Baird, said in an interview with MarketWatch that the oil’s bear market could be spooking investors. “Oil being down could be a sign that the global economy is in a tough spot,” he said.
For the week the S&P 500 gained 2.1% while the NASDAQ added 0.7%.
In economic news, the ISM services index slipped to 60.3 in October, down from 61.6 in September, but beating the 58.6 average estimate. Still a very strong reading – anything over 50 marks expansion.
We don’t normally mention this one but Friday the producer-price index for October rose 0.6%, versus the consensus estimate of 0.2%. Excluding volatile food and energy prices, producer prices increased by 0.5%. That’s a very “hot” number and one the Fed would be interested in.
Here is the 5 day weekly “intraday” chart of the S&P 500 …not via Jill Mislinski.
This is a great infographic from Statista about those representatives we just elected. The number of committee hearings about you know…actual policy… has fallen off a cliff vs 25 years ago.
Over time the legislative process has been breaking down, with less legislation getting into committees. According to Pro Publica, the count of committee hearings dealing directly with legislation has dropped significantly between the 101st Congress, governing between 1989-1990, and the 114th Congress, governing between 2015-2016. The number of Senate committee hearings dealing with legislation has fallen by about 85 percent over this period… the 114th Congress conducted about 72 percent fewer committee hearings dealing with legislation than the 101st Congress did.
The week ahead…
Earnings season is coming to an end and we are in a bit of an impactful economic news drought here aside from retail sales hitting Thursday. Technical traders should be watching how these recent rally acts – can markets go sideways for a while before a new leg up. Or was that rally the oversold bounce and can bears – for the first time in eons – impart their will over a sustained period of time.
Short term: The S&P 500 obviously had the better week – both indexes crossed over their 200 day moving averages but only the S&P 500 held it by end of week. So the question of the week of course is “is this the beginning of the rally or was THAT the oversold bounce?” These next few weeks will be very interesting as a bullish take can be we have an “inverse head and shoulders” forming (if the market can go sideways for a bit) while a bearish take would require another bout of selling – and then creating a new low below the one seen at end of October. No one knows today but those are some of the things to watch!
This Russell 2000 continues to act poorly – this long trend line connecting lows of August 2017 and February 2018 served as resistance this week – the index rallied to it and was rejected. The 200 day moving average is about to get crossed by the 50 day moving average which is seen as a negative in technical terms as well. This chart reflects the smaller and mid sized public companies in the country – which are far less multi national – so it’s interesting to observe how much weaker it has been this past year. Especially if you believe markets forecast the future ….
The NYSE McClellan Oscillator is in the black – not only that it hit its first overBOUGHT level since Spring Wednesday. It’s difficult to quite trust this with the technical damage done on the charts but usually it does signal a positive sign when it’s positive.
Long term: The S&P 500 looks to be in decent shape here but the NASDAQ continues to trail at the bottom end of this long term channel so it’s the one to keep an eye on the next month. Any reversal back down that sustains would mark a big change in character.
Charts of interest / Big Movers:
CVS (CVS) rose 5.7% Tuesday after the drugstore and health care company announced 6.7% same-store-sales growth for the third-quarter.
E.l.f. Beauty (ELF) rallied 19.2% Tuesday, after its Monday-evening earnings report showed the cosmetics company producing third-quarter projections for revenue and profits that were better than expected. The firm also raised its full-year guidance for 2018. Now we eagerly await results from Hobbit Beauty….
Generic drug maker Mylan (MYL) rose 16.1%, after the pharmaceutical company announced Monday evening that its profits more than doubled in the third quarter from the year previous.
Michael Kors (KORS) tumbled 14.6%, after the fashion luxury group missed revenue expectations in a Wednesday morning earnings release.
Office Depot (ODP) popped 24% after the company announced revenue and sales figures Wednesday morning that beat analysts’ third-quarter estimates. The office-goods retailer also raised its full year guidance for 2018.
Wynn Resorts (WYNN) sank 13% Thursday after an earnings call late Wednesday during which CEO Matthew Maddox said he anticipates a “soft” market in the fourth quarter for its Macau business line. Been a rough 6 months for this stock!
TripAdvisor (TRIP) surged 15% Thursday after it released better-than-expected earnings.
Yelp (YELP) tumbled 26.6% Friday, after the companymissed Wall Street sales targets and lowered fourth-quarter guidance, in a Thursday evening release.
Have a great week and we’ll see you back here Sunday!