Bank run!! Stocks ran up in yesterday’s session led by strong earnings from the left-for-dead banking sector. After a difficult year in which the banking sector was down by -18% (it was down as much as -23%), banks are showing signs of picking up as they showed investors that they can achieve and even beat their targets even in a trying and volatile market. Most banks reported difficulties in fixed income trading but managed to the fill the gap with strength in other diverse businesses such as investment banking. The strong earnings has investors re-looking at the sector which offers a 2.62% dividend yield, greater than the 2.07% offered by the broader S&P500. The banking sector is up +9.97% year to date. The sector heavies are rounded out this morning by Morgan Stanley which reports its earnings before the bell. Morgan Stanley is expected to earn $0.891 per share on revenues of $9.354 billion for the 4th quarter. American Express will report after the bell along with Netflix, which will kick of tech earnings. Equity markets largely shrugged off the ongoing government shutdown and Theresa May’s defeated Brexit placing all indexes in solid technical positions. The S&P500 rose by +0.22%, the Dow Jones Industrial Average gained +0.59%, the Russell 2000 advanced by +0.66%, and the NASDAQ 100 fell by -0.02%. Though still risk off, the S&P 500 is above its key 2600 level. Likewise with the Dow, which is above 24000 and bumping up against its 24332 Fibonacci line (see charts 4 and 6 in my attached daily chartbook). The small cap Russel 2000 along with the tech heavy NASDAQ also remain risk off despite recent advances. Bonds were relatively quiet yesterday as ten year yields rose slightly to 2.72% and the 2/10 yield curve was steady at +17 basis points.
This morning we will not get the scheduled housing numbers due to the ongoing government shutdown leaving us with weekly Jobless Claims and Philadelphia Fed Survey. The Philly Fed Survey provides a business outlook for the Philadelphia fed region and it is expected to come in at 9.5 up from last month’s 9.4. Initial Jobless Claims are expected to come in at 220k versus last week’s 216k. It will be up to the pre bell releases to help set the tempo for stocks today. Overnight, WHILE YOU SLEPT, Theresa May survived her vote of no confidence and the Brexit debate will rage on in the news cycle today. On a sad note, Jack Bogle, the founder of Vanguard, passed away yesterday at the age of 89. Amongst other things, Bogle is credited with creating the first index fund in 1975. His investment philosophy stressed a long term approach and the use of passive, index-based funds which had low fees. That should sound familiar as it serves as the basis for many of today’s most popular investment strategies. Please call me if you have any questions.
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