Familiar faces. Markets closed mixed with a slightly positive sentiment on Friday as traders juggled with mixed, but very familiar signals from Administration officials, tech companies, and the Fed. As if to provide analysts with talking points for their year-end reviews, some of this years top themes were front and center on Friday as once-high flying video card chipmaker Nvidia plunged and fallen utility PG&E rose from the ashes. Nvidia’s core business is the production of chips that are responsible for graphics processing on computers. You may have noticed that computer graphics have been getting better recently which is largely due to powerful graphics processing technology found in chips made by companies like Nvidia. In fact, the processing power of their chips is so good that they have found another, more profitable use in cryptocurrency mining (how is that for foreshadowing). Well as you might guess, based on the difficult bust year for cryptocurrency, Nvidia has begun to feel the pinch and that fact was brought into sharp focus in their earnings call on Friday and the stock sank -18.8% in the session. The conservative sleepy utilities sector has been a top performer over the past several months as investors shift their assets into more defensive places (see chart 2 in my attached daily chartbook). PG&E, California’s public utility took a major hit in the past week as the company reported that some of its equipment may have played a roll in stoking the deadly fires in Northern California. The company further reported that it would not be able to stay solvent if, in fact, their involvement was proven. By Thursday’s close the stock had fallen nearly -63% from its close before the announcement. A fall of that magnitude is not common for utility stocks. On Friday, a lifeline in the form of a statement by a state official that California would not want to see a public utility go bankrupt reversed the stock’s plunge causing it to trade up +37.5% on Friday.
Two stocks, two different stories both supporting the recent theme of volatility. Now on to some even more familiar themes, the Fed and the Administration. In the days after FOMC meetings, Fed officials typically go on a speaking binge to carry the Fed message to the public (and to secure future private sector jobs). In their speeches, they typically color the narrative with their own personal views in a subtle, but noticeable way. Fed watchers are constantly on the lookout for these subtle clues in the speeches and last week was chock-full of conflicting “subtle” messages culminating in a Friday speech which was more dove-ish than the prior ones. “Dove-ish” means that the official is not keen on tightening credit in contrast to their “hawk-ish” colleagues. Lots of opinions means more volatility, especially when rates are concerned as they are currently perceived to be in a very tender position right around neutral. Finally, we have the Chinese trade conflict. What would a day be without several sourceless bits of information regarding the current conflict with China? Friday’s first message was a positive one in which the President wasn’t sure if further tariffs would be necessary… positive. The next one was: don’t read into any statements regarding headway with China as being positive… negative. All of the aforementioned could have probably been described in one sentence which would be: lots of unknowns still exist regarding macro headwinds for both the economy and individual companies which is causing a great deal of volatility in capital markets. The statement alone would have been obvious and boring so I decided to provide you with a bit of color.
Friday’s markets closed mixed with the S&P posting gains on the day. The index needs to continue to consolidate and get some closes above its key resistance at 2714 as well as its 200 day moving average above that in order to re-trend (see chart 4 in my attached daily chartbook). The Dow Jones Industrial Average closed up +0.49% in Friday’s session bouncing off its critical Fibonacci resistance at 25487 (see 6 in my attached daily chartbook). The Russel closed up +0.22% in Friday’s session which was enough for the index to close above a key resistance level at 1525 (see chart 7 in my attached daily chartbook). The index still remains on life support far away from regaining its positive trend. The NASDAQ 100 closed down -0.34% on Friday held back by the tech sector even though AAPL had a second positive close after several sessions of pain. The pain may not be over for AAPL as more iPhone production cuts were reported over the weekend, WHILE YOU TAILGATED. This weekend also featured reports of diplomatic roadblocks between the US and China as Vice President Pence exchanged barbs with Chinese officials in speeches given at the APEC summit.
Today, we have very little in the way of releases as we kick off an abridged trading week. We will get the first of a series of housing numbers in the NAHB Housing Market Index, which is expected to come in at 67 versus last month’s 68. We will get more reads on housing tomorrow and Wednesday. The market is particularly sensitive to the housing sector these days as it has been showing signs of weakness caused by the increasing cost to borrow. Today we will get only one pre-market earnings report from Spectrum Brands (SPB) which produces consumer products for the building industry (see attached weekly economic and earnings release calendars). The remainder of the week will feature a number of retailer releases in this most-holy of retail weeks. Expect the sector as a whole along with consumer electronic companies to be highly volatile as the holiday season shopping commences. Any and all reports on retail health will be a factor in those sectors. On Thursday the market is closed and on Friday the market will close early. The week will be a low volume one, which can add to the already prevalent, all too familiar theme of volatility. Please call me if you have any questions.