A sea of green. Stocks climbed yesterday led by technology shares breaking a five day losing streak on pure optimism. Stock traders bought the dip and continued the buying that drove up stocks late in Friday’s session as retail sales figures and numbers out of China emboldened their bullish ambitions.
WHAT YOU NEED TO KNOW:
1) Boeing is scrambling to provide answers as a mounting list of countries and airlines ground the 737 Max 8 following a crash over the weekend. Shares of Boeing were down as much as -13% on yesterday’s session dragging the Dow Jones Industrial Average down along with it. Despite the drag, the Dow managed to close up +0.8%, which would have been significantly more without Boeing.
2) Retail sales recovered somewhat after last month’s disappointing dip. Yesterday’s Retail Sales figure released by the Census Bureau showed a monthly gain of +0.2% beating expectations after posting a decline of -1.2% last month. Investors cheered the news despite the fact that last month’s figure was revised down to -1.6%.
3) Analysts are gaining confidence in technology. Upgrades for tech superlatives Apple and Facebook helped ignite buying in the group (I use the term “group” because technically they are in two different sectors) which led yesterday’s rally.
4) A BREXIT deal may finally result from all the political wrangling that has dogged progress. Last night WHILE YOU SLEPT, Theresa May held a press conference announcing that she secured some critical concessions from the EU which should satisfy some Parliamentarians who have been on the fence. The British Pound rallied on the news.
Stock traders were determined to break a five day losing streak yesterday choosing to focus on the positives and ignore the negatives. Sure there was plenty of good news to go around yesterday: tech upgrades, a good trade number out of China, large acquisitions in semiconductors, and some positive sales figures. One has to wonder if the optimism can continue to drive equities despite an almost accepted reality that earnings growth is slowing. If earnings are going down and stock prices are going up we get multiple expansion, which can be justified if stocks are expected to perform better in the near future. The Fed along with many economists expect the economy to grow at a slower pace going forward as benefits from the 2017 tax package wane. If this is the case stocks may be getting overvalued. Yesterday’s surge in stocks included the S&P500 trading up by +1.47%, the Dow Jones Industrial Average increasing by +0.79%, the Russell 2000 surging by +1.77%, and the NASDAQ 100 rocketing up by +2.11%. Bond traders were not so optimistic as they continue to hover at the higher end of their recent range. Bonds closed the day out unchanged with ten year yields at 2.63% and the 2/10 yield curve around +16 basis points. Taking a closer look at the yield curve we see an inversion from 2 year maturities out through 5 years making shorter maturities more valuable to investors (see chart 17 in my attached daily chartbook).
WHAT TO LOOK FOR TODAY:
This morning we will get inflation figures from the Bureau of Labor Statistics. The Consumer Price Index (CPI) is expected to show that prices have increased by +1.6% year over year compared to the same figure last month. Excluding food and energy, the CPI is expected to be at +2.2% year over year, also flat from last month’s reading. These numbers are right around the Fed’s target levels. Average hourly earnings will also be included in the release and economists will be watching those carefully for sharp increases. The Fed’s Lael Brainard will speak this morning, though she is not likely to offer any new insights. Finally the US Treasury will auction $24 billion ten year notes.