Thursday,April18, 2019, 12:31 PM, EST
- Healthcare stocks weaker again today.
- U.S. Retail Sales better than expected.
- Jobless claims of 192,000 below estimates (205,000) again as were continuing claims.
- U.S. Manufacturing PMI a little light at 52.4 vs. 52.8 expected.
- Stock Markets closed tomorrow for Good Friday.
Today healthcare is still in focus as the worst performing sector in a brutal week that saw sharp selloffs in managed care and biotechnology shares. Still, the broader indexes are working higher with the Dow outperforming with help from Travelers (earnings), UNH (rebound) and BA (progress on 737 Max issue). Some high profile IPOs are seeing good demand and the momentum for the most part has been to the upside. Today is the heaviest day of the week for earnings with results from about 20 S&P 500 companies Including Industrial companies Honeywell and Danaher, super-regionals BB&T, SunTrust and Regions Financial and many other companies, most of which traded higher. There was also a good deal of economic data, with March Retail Sales rising 1.6% vs. an estimate of 1.0%. Ex Autos, the figures also beat, 1.2% vs. 0.7%. Initial Jobless Claims were once again below expectations at 192,000 vs. 205,000 estimated. Continuing claims of 1.653 million was below estimates (1.722 million) and the lowest since October. And investors have been closely watching manufacturing PMI's (yes we mean you Germany and China). Euro-Area April manufacturing came in a little light, which has been the norm lately at 47.8 vs. the 48 forecast. Recall numbers below 50 indicate contraction. Bulls hope we are putting in the bottom and that U.S./China trade talks will help the heavily export dependent German economy. The U.S. Manufacturing PMI was a little lighter than expected 52.4 vs. 52.8 but still indicative of growth. Services PMI was 52.9 vs 55 estimated. This is the slowest increase in about a year for a sector that is 80% of the economy but markets took it in stride. Pricing is down and exports fell for a second consecutive month. This week we've spent a bit of time setting the stage for 1Q earnings, which by now you know are expected to decline 3.7% year over year. To end the trading week, we look to future quarters in 2019 and interest rates to explain why the stock market has exhibited strength despite a weak quarter ahead. 2Q earnings expectation slipped into negative territory last week for the first time (-0.4%) after hanging on to 0.1% growth expectations for about three weeks. However, bulls seem to be hoping for an earnings rebound in Q3 and Q4 (+1.4% and +8.3% growth respectively). This feels a little tenuous since Q3 estimates have also been declining and Q4 just feels as though people have not gotten around to revising them yet! More important to stocks is the fact we now have lower rates (and lower future rate expectations) for 2019. In fact, a cut in rates during 2019 is quite possible based on Fed Fund futures - though the data moves around a bit from week to week. While Powell said there was no bias about the next direction, hike or cut, markets were pricing in almost 75% probability earlier in March that the Fed's next move will be a rate cut by December. Currently these odds have slipped to 40% with a 60% chance of no movement. Even 75bp worth of cuts was on the radar (see the blue line) but the odds have receded back to zero along with the rate hike odds. So folks buying stocks are looking for the Fed to stand pat or cut rates once. This allows them to look past the Q1 and Q2 earnings valley to the hills (or maybe just the plateau) of 2H'19. In addition to low rates, improving China data last week, U.S. jobs & other economic data including Jamie Dimon's comments about the economy, and a potential positive resolution to U.S./China trade are keeping folks from retreating to the sidelines. Sector Recap
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Brian's Technical Take Yesterday the Nasdaq 100 (NDX) was the first of the major US equity indices to make a new all-time high. That is quite a remarkable accomplishment considering its 27% decline in 2H'18. The NDX has rebounded more than 30% from its December lows and now stands +21.3% YTD as of yesterday's close. And while its large cap brethren in the Dow Jones Industrials and S&P 500 are less than 2% away from joining the new high club (not to be confused with mile high). On the other side of the market cap spectrum stands the small cap Russell 2000 and Russell Microcap indices which are a "healthy" 10% 15% below their all-time highs. In fact the Russell 2000 made its YTD high in late February when it ran into its 200-day moving average, now 1,567, and has since been consolidating. The below chart shows the small cap index has a history of being very sensitive to its 200-day sma which previously acted as support from late 2016 through 1H'18 and is now currently resistance. The underperforming small caps indicate the breadth of the market is weakening. So the question to ask is whether or not this is a bearish divergence, i.e. a canary on the coalmine signaling the broader market is due for a deeper correction, or will small caps be the benefit of rotation and help extend this remarkable rebound. Look for the Russell 2000 to find support at the converging 20 and 50-day moving averages which reside just below at 1,557 and 1,555. There is your clearly defined price level for fresh longs to measure risk. Above 1,600 and the momentum tilts to the upside.
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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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.