Thursday, November 8, 2018, 12:11 PM, EST
- NASDAQ Composite -0.32% Dow +0.18% S&P 500 -0.09% Russell 2000 -0.16%
- NASDAQ Advancers: 1102 Decliners: 1193
- Today's Volume -10.63%
- Crude $68.05 -0.76% , Gold -$0.24%
- Initial claims for the week ending November 3 decreased by 1,000 to 214,000 while continuing claims for the week ending October 27 decreased by 8,000 to 1.623 million
- The Federal Reserve releases its policy statement at 2:00 pm
- The Bloomberg Consumer Comfort Index increased to 61.3 for the period ending November 4th
- In China, exports denominated in dollars rose 15.6 percent from a year ago in October, exceeding an expected 11 percent growth economists had forecast. Dollar-denominated imports, meanwhile, rose 21.4 percent from a year ago, topping an expected 14 percent.
Yesterday as the markets interpreted that a divided Congress would preserve market friendly policies namely tax cuts and deregulation efforts, President Trump sprinkled a little sugar on top by mentioning bipartisan efforts to work with the Democrats in the House on infrastructure, trade, and lowering drug costs. Was that a kumbaya moment? The market apparently believed it as both the S&P 500 and the Dow soared 2.1% and Nasdaq rose 2.6%. Even the beleaguered Russell 2000 expressed euphoria climbing 1.7%.
This morning's pull back is not entirely that surprising given the scope of yesterday's gains. Investors are also focusing back on a concern that plagued the market for much of October. Rising interest rates. The Federal Reserve is concluding its 2 day policy meeting today with a statement to be released at 2:00 pm (there will not be any press conferences until 2019).
Given the fact that we have solid US economic data and inflation that is finally bubbling upward, the Fed is not expected to deviate from its policy of continued, gradual rate hikes. There is only a 7% probability of a rate hike being announced today with a 78% chance of a hike during the December meeting. They are expected to keep its key rate unchanged in a range of 2 - 2.25%, the level it reached in September when it last raised rates.
Three rate hikes are predicted for 2019. The Fed is expected to discuss the size of its balance sheet which currently stands at $4.1 trillion from a high of $4.5 trillion. The central bank has been letting upwards of $50 billion of bond holdings roll off its balance sheet every month. Traders are looking for hints in the statement on when the Fed is going to stop. They will also be looking for references to the recent market stress in October.
Chairman Powell has stressed in the past that the Fed is determined to follow a centrist approach that involves gradually and cautiously raising rates to control inflation but avoid tightening too aggressively that would possibly trigger a recession.
Stay tuned at 2:00 pm! Turning to the earnings scorecard with approximately 445 of the S&P 500 reporting, 60.36% have had a positive sales surprise while 82.21 have had a positive earnings surprise. This compares to the one year averages of 73% and 77% respectively. The yield on the 10 year Treasury has slipped slightly to 3.21 while the dollar index has risen slightly to 96.13.
The economic calendar yielded two reports this morning. The first was jobless claims for the week ending November 3. The report showed a decrease of 1,000 claims for the period totaling 214,000. Jobless claims have been under 300,000 now for 192 consecutive weeks. Continuing claims for the week ending October 27 decreased by 8,000 to 1.623 million.
That is the lowest level since the summer of 1973, reinforcing a downward trend in layoffs that's likely to continue given the tight labor market. The second report was on consumer comfort. The Bloomberg consumer comfort index increased by 1 point to 61.3 in the period ending November 4. While a measure tracking current views of the economy rose to 66.9, a 17 year high.
In the trading pits, crude prices are under pressure dropping for a ninth consecutive day, now dipping into bear market territory on continued signs of increased supply and record Chinese imports. Chinese trade data released earlier data showed the nation's oil imports rose to an all-time high of 9.61 bpd in October. Gold is on pace for its 5th straight loss as the dollar has firmed in wake of the midterm elections and we await clues on the pace of future rate hikes.
Investors are decidedly risk off before the Fed's statement at 2:00 pm. From a sector perspective only financials, consumer discretionary, health care and consumer staples are trading in positive territory while the other seven remaining sectors are negative led by materials and communication.
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Brian's Technical Take: Healthy consolidation after recent relief rally
The S&P 500 is down modestly today following yesterday's 2.1% gain to a high of 2,815. Since last Monday's lows at 2,604, the flagship, large-cap index has rallied a total of 212 points, or +8.1% in less than eight sessions.
Yesterday's high is smack in the middle of our initial target range which was based on the 61.8% Retracement of the October decline, 2,810, and the mid-October high, 2,817. The 100-day moving average, now 2,820 reinforces what we see as a minor resistance zone at 2,810, - 2,820.
We noted yesterday the October decline totaled 336 points which was nearly identical to the 340 point drop in February. The initial February rebound gained 257 points, nearly identical to the 76.4% Fibonacci Retracement. A similar retracement this time equates to 2,861, +1.9%, and thus our next upside target where healthy overhead supply should be expected.
In the very near term healthy consolidation from here could see a relatively minor pullback to support at yesterday's gap, 2,756 - 2,774, reinforced by the 200-day sma, now 2,763 (yellow line), which resides in the middle of the gap. At risk of putting the horse before the cart, this scenario would put in play a bullish "head & shoulder" bottoming pattern with the neckline at the October and yesterday's highs, 2,815 - 2,817. We will revisit that potential scenario and upside target in the near future as price action unfolds.
Today's FOMC rate decision and statement is due out at 2pm. There will not be any forecast updates or Q&A, and there is very little expectation for a rate hike. Minutes of today's meeting will not be released for weeks and so accordingly today's meeting can be considered a nothing burger. It is noteworthy that the 2-year treasury yield, a market barometer of Fed rate hikes, is already back to making new highs.
The new highs in yields as well as the weak 30-year auction yesterday could be reason the homebuilder ETF , ticker ITB, is leading to the downside today with a decline of 3.2%. The ITB gained more than 10% from our bottoming call on 10/23 https://business.nasdaq.com/marketinsite/2018/MID-October/October-23-2018.html to yesterday's high, and in that context today's decline should not be unexpected.
Homebuilders have been one of the bearish divergences throughout 2018. A retest of the October low could be a gift horse for longs who missed the recent upswing, and at the very least provides a clearly defined price level to measure one's risk.
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Nasdaq's Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.