Bounce House

Bounce house.  Stocks bounced back yesterday on a report that, despite all of the negative signs, the US and China are still close to a deal.  Trade positivity kept weak economic numbers in traders’ blindspots.

 

N O T E W O R T H Y

 

• Gimme’ a sign.  There have been signs that shouldn’t be ignored by investors.  In the years that followed the financial crisis, aggressive financial policy created a good environment for growth stocks to flourish.  And flourish they did.  The FAANGS are a superlative group of the post financial crisis boom.  The original FAANGs are Facebook, Apple, Amazon, Netflix, and Google.  Facebook has grown by +419% since its IPO in 2012, Apple: up +2046% since the lows of the crisis, Amazon: up 3333%, Netflix: +8071%, and Google: +756%.  There is no other way to describe that type of growth other than: huge.  Imagine if an investor after being beaten up in 2008 holding onto the old standard large caps, losing almost -50% in the market correction held on but started to buy some of the up and coming tech stocks that were in the news every day.  Google was always a staple, Netflix reinvented itself as a digital media provider, Amazon became… bigger (and went into cloud computing), Apple came out with its wildly successful iPhone,  and Facebook came onto the scene as the next big thing (though its IPO languished for a while before really taking off).  It wasn’t difficult for just about any investor to hold some or all of these would-be superstars.  Sure there were bumps along the way, and Apple is the only one in the group that pays a dividend, which made it somewhat difficult for investors at times.  But buy-and-hold gave investors a pretty good ride.  The big question is:  Can we expect the same type of upside from these types of growth stocks for the next ten years?  There is no clear answer, as there never is with markets and macro economics.  One thing is clear though, there is a rapidly growing movement to tax, regulate, and even break up some of these high flyers.  Just look at how many times Mark Zuckerberg was on Capital Hill this past year.  France’s new digital tax is based on revenues of these types of companies, though they don’t even have any physical presence in the country.  Just last night, WHILE YOU SLEPT, Presidential candidate and Senator Elizabeth Warren is drafting a bill that would retroactively look at “mega mergers” for their legality.  Mega mergers includes things like Facebook’s purchase of Instagram.  Antitrust watchdogs have long contended that the merger should not have been allowed, making it illegal.  The news feeds are chock full of stories like this and investors who have grown comfortable with these stocks need to watch the signs carefully.
• Labor of love.  Manufacturing has been in focus for much of the past eighteen months as it has shown signs of first, slowing down and eventually, declining.  Earlier this week, ISM Manufacturing PMI registered its fourth consecutive month of decline, which is troubling for the sector.  Economists watch Purchasing Managers Indices closely as they can be an early indicator of economic recession.  The US economy is not as reliant on manufacturing as in the past and the aggregate only represents around 13% of GDP, but it can still cause the larger economy to stall if it is on shaky legs.  Services make up the bulk of the US GDP and yesterday’s release of the ISM Non-Manufacturing PMI suggests that the service economy may be slowing as well.  The PMI came in at 53.9, missing expectations and down from last month’s reading of 54.7.  Granted, the index remains above 50, indicating growth, but the slowdown can’t be ignored.  Also released yesterday was the ADP Employment Change number which showed that only +67k jobs were added last month, also missing expectations by a lot and down significantly from last month’s increase of +121k jobs.  Tomorrow we get the official employment read from the Bureau of Labor Statics and economists are expecting Non-farm Payrolls to have increased by +185k.
• In the corner.  Yesterday’s positive action indicates that investors are hopeful that the Presidential bluster this week was just that, bluster.  Earlier in the week, I reported that Marco Rubio was proposing a bill to sanction Chinese leaders for human rights abuses against Uighur Muslims and China was quick to respond in anger.  Since then the House approved the bill and last night WHILE YOU SLEPT, the Senate also approved the bill, which is now going to the President’s desk for signature.  We will see just how far this game of chicken will go.  A signed Phase One trade deal would be welcomed by the market.

 

THE MARKETS

 

Stocks recovered yesterday in response to a report that China and the US are still talking and close to a deal.  An oversold market from prior sessions and a hint of positive trade news were all it took to bring out the bulls, who ignored some weak economic numbers from the morning.  The S&P500 climbed by +0.63%, the Dow Jones Industrial Average advanced by +0.53%, the Russell 2000 traded up by +0.70%, and the NASDAQ Composite Index ascended by +0.54%.  Bonds slipped and 10-year treasury yields climbed by +6 basis point to 1.77%.  Crude oil added another +4.15% as investors are hopeful that OPEC will agree to cut supply as they meet in Vienna this week.

 

NXT UP

 

– Factory Orders are expected to have rebounded by +0.3% from last month’s decline of -0.6%.

– The final read on Durable Goods Orders is expected to show a growth of +0.6%, same as the prior reading.

– Fed Vice Chairman Randall Quarles will speak on Capital Hill again today.

– This morning Tiffany and Michael’s missed estimates while Dollar General and Signet Jewelers beat.  Ulta, DocuSign, Crowdstrike, and Zoom will release earnings after the bell.

 

daily chartbook 2019-12-05