Happy Friday

Happy Friday.  Stocks rallied on Friday on good earnings and more trade optimism.  Good headlines dominated, pushing the S&P500 to new intraday highs.

 

MY TWO CENTS

 

1.  The most-hated rally.  Many money managers find themselves asking “how did we get here”?  Stocks continue to rally despite increasing worrisome headlines about the global economy, trade disputes, legal problems for the Administration, a slowdown in corporate earnings… the list goes on and on with very few apparent positives.  Still stocks continue to seek new highs.  In fact, it was not just stocks that had a remarkable year.  Bonds, crude oil, gold, and even Bitcoin have all seen increases in the past year.  Recent positive moves in the market have come from the positive progress in trade talks between the US and China but the overall positive tenor of the markets is coming from the accommodative Fed.  Let’s unpack that for a quick second.  The Fed has been a real friend to the market in both word and action.  They are quick to remind us that they will fight any slowdowns brought on by global economic headwinds, they have cut interest rates twice, and they have stepped up asset purchases (which is accommodative, despite what the Fed says).  So the Fed is worried about the economy slipping into a recession and they are making it easier for banks, companies, and individuals to borrow money hoping that spending will turn the ship around.  That is, of course, how modern monetary policy has worked for so many decades.  What is somewhat unique now is the fact that markets are behaving as if there are no headwinds, which there are, and growing earnings, which there aren’t.  All of this leaves many wondering if Friday’s intraday all-time high for the S&P500 is its last look before the house of cards tumbles.  It is smart to be diligent, but if investors avoided twitter and news headlines for the past twelve months, the positive moves in the market may not be so surprising.  Money is cheap (thanks Fed), consumer confidence remains intact, unemployment remains low, and companies continue to be profitable.  With those four pillars still standing it’s really no wonder how we got here.

 

2.  What to expect when you’re expecting.  The week ahead will be one of expectations met and missed.  We are still in the midst of Q3 earnings season.  The results so far have been good on the surface.  Companies are beating EPS estimates, though the bar has been set quite low.  What many average investors don’t know is that earnings are down around -4% from a year earlier.  Still a beat is a beat, which means companies are at least meeting their goals.  Economic releases in the week ahead will compete with corporate earnings for the spotlight.  Consumer Confidenceis an important number to look at as the consumer has really been the driver behind the prolonged economic expansion and many economists are wondering when that confidence might fade, if ever.  We will find out how the US economy is performing when we get US GDP and all of the numbers that come along with it.  The GDP is rarely a shocker but many economists pay attention to Personal Income and Spending as well as thePCE Deflator.  These numbers tell us  about consumer health (income) and what they do with their hard earned dollars (spending).  Further, the deflator tells us about inflation, which also affects how consumers behave.  On Friday we will hear about the employment situation with the release of Non-Farm Payrolls and the Unemployment Rate.  The real showstopper in the upcoming week will be the FOMC meeting which will wrap up on Wednesday with the Fed’s rate decision, statement, and Chairman Powell’s press briefing.  Economists largely expect the Fed to cut rates by an additional -25 points to 1.5%.  Fed Funds futures predict a 94% chance of a cut.  The real drama will come in the press briefing when we will get a hint of what we can expect going forward.  These are just a few of the many numbers that will be released this week.  Every Monday, I attach weekly calendars of earnings and economic releases.  Please refer to those for details.

 

THE MARKETS

 

Stocks flirted with all-time highs on Friday as a trade deal with China seems to be getting closer and corporate earnings continue to deliver.  The S&P500 traded up by +0.41%, the Dow Jones Industrial Average climbed by +0.57%, the Russell 2000 advanced by +0.55%, and the NASDAQ Composite Index ascended by +1.97 (tech sizzled).  Bonds slipped and 10-year treasury yields climbed +3 basis points to 1.79%.  Bitcoin continues to catch a bid and was helped by Chinese President Xi saying good things about blockchain technology, WHILE YOU SLEPT.

 

WHAT’S NXT

 

– Chicago Fed National Activity Index is expected to be .05 compared to last month’s .1.  Dallas Manufacturing Index is expected to have fallen from 1.5 to 1.

– Walgreen’s Boots, AT&T, and T-Mobile will announce earnings before the bell.  After the close earnings will include Transocean, Akamai, Beyond Meat, and Alphabet/Google.

– Refer to the attached earnings and release calendars for details of the week ahead.  It will be a busy one.

daily chartbook 2019-10-28

earnings releases 10_28

econ numbers 10_28