Market Rebound Optimistic Following Weekend Scrutiny

MarketInsite Stocks Graphic

Wednesday, December 26, 2018, 12:09 PM, EST

  • NASDAQ Composite +1.76% Dow +0.94% S&P 500 +1.12% Russell 2000+0.72%
  • NASDAQ Advancers: 1591 Decliners: 758
  • Today’s Volume (Vs. Monday) -14.57%
  • Crude +6.14%, Gold +0.78%

Market Movers

  • US Redbook retail sales +0.1% for December-to-date vs. November. Sales +7.8%% for w/e 22-December vs. year-ago week
  • October US Case-Shiller Home Price Index (20-city, m/m) +0.4% vs. consensus +0.4%
  • Richmond Fed’s December Manufacturing Survey at -8 vs. consensus 15
  • President Trump’s aide Kevin Hassett said that Federal Reserve Chairman Powell’s job is “100% safe”

Charlie’s Commentary

It certainly felt like the market got pummeled for 15 rounds on Monday. While the trading session was an abbreviated one, it was far from quiet as events over the weekend were scrutinized prior to the open changing the futures from positive to negative. Two events stand out with the fist being rumors that President Trump wanted to fire Federal Reserve Chairman Jerome Powell. While there was no question he was furious over the Fed’s latest rate hike, the President of the United States does not have the authority to fire the Fed Chairman.

Regardless this only reinforced the disconnect between the White House and the Federal Reserve that has investors concerned. The second event was the carefully orchestrated news leaked by the Treasury Secretary that he had conversations with the six major banks, making sure that they had sufficient liquidity to weather this current financial storm.

While the strategy to go public with this was intended to assure investors, it actually backfired as concerns about liquidity was not top of mind with Wall Street. Treasury scrambled to do damage control as the market sold off swiftly by the skeleton crews that were at their desks before catching a bid mid-morning as it was rumored that investor David Tepper was in the market nibbling at what he thought were some oversold areas. That too was quickly sold off as the S&P 500 plunged to a 19 month low on heavier than usual Christmas Eve volume.

When all was said and done the Dow Jones Industrial Average slid 653.17 points, or 2.9%, to 21,792.20, marking its lowest close since Sept. 7, 2017, while the S&P 500 index fell 2.7% to 2,351.10, its lowest since April 21, 2017. The Nasdaq Composite Index tumbled 2.2% to 6,192.92, its lowest close since July 10, 2017. It was the worst decline on Christmas Eve ever.

Today’s market initially looked to be a little more optimistic after the Christmas break buoyed by some positive comments from President Trump as he remains in Washington amidst the current government shutdown. He was recently quoted stating that the recent market sell off was a tremendous opportunity for investors. He also reversed earlier criticism of two of his favorite punching bags by expressing confidence in both Fed President Jerome Powell and Treasury Secretary Steven Mnuchin.

While investors remain extremely wary given the last several weeks of selling, the S&P 500 is at its cheapest levels relative to forward earnings since 2013. The S&P 500 has given investors a 56% return since the beginning of the last quarter of 2013. Fundamentally earnings growth is strong with a healthy job market and robust consumption growth. Many sectors such as Financials and energy stocks are at their lowest levels in several years yet investors remain reluctant to buy the dip.

Looking at the retail sector, it appears that the consumer was bullish this holiday season as according to Mastercard SpendingPulse sales grew by 10.2% between November 1st – December 24th compared to the same period last year. Total U.S retail spending increased 5.1% to more than $850 billion during the period this year, the strongest growth in the last six years.

With all of this positive sentiment and data as background the market remains wary today giving up all of its gains at one point, see sawing between positive and negative territory. The Dow has had a 300 point swing today as the VIX remains high at 35. Yield on the 10 year is currently at 2.74%. We have mentioned in the past that in a vacation week with light volumes, movements within the market can be exaggerated and we appear to be seeing that today.

Theeconomic calendaris extremely light today highlighted by the Case Shiller Home Price Index. Home prices in the 20 U.S. cities increased by 5% after rising 5.2% the prior month. This was the seventh consecutive month of declining growth which is the longest streak since 2014 as waning demand and higher mortgage rates provide a headwind. The weakest gains were in Washington which rose just 2.9% and Chicago which climbed 3.3%.

This data provides the latest signs that housing is in a broad slowdown with sales and building also showing signs of weakness. The December Richmond Fed’s Manufacturing survey came in at -8 vs the estimate of +15 dragged down by falling shipments and new orders slowing down.

Turning to the commodity space, oil is trading in positive territory on perceptions that a price slide to 2017 lows prompted by economic worries had been overdone amid an OPEC-led effort to tighten supply. Gold has risen to its highest level in 6 months as building worries over slowing global economic growth combined with mounting domestic political uncertainty is making the safe haven shiny metal more attractive to investors.

From a sector perspective the picture is mixed at best with Consumer Discretionary, Communications, Technology, Health Care and REIT’s all trading in positive territory. Leading sectors in negative territory are Financials, followed by Utilities, Materials, Industrials, Energy and Consumer Staples.

Economic Calendar

Wednesday 12/26

  • October Case Shiller Home Prices 9:00 am
  • December Richmond Fed Manufacturing Index 10:00 am

Thursday 12/27

  • Jobless Claims for the w/e 12/22 8:30 am
  • December Consumer Confidence 10:00 am
  • November New Home Sales 10:00 am

Friday 12/28

  • November Advance Trade in Goods 8:30 am
  • December Chicago PMI 9:45 am
  • November Pending Home Sales 10:00 am

Sector Recap

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Brian’s Technical Take

US equity markets closed early on Monday but that did not slow down the vicious downward spiral we have seen in what is turning out to be one of the worst performing months ever on record. It seems every day brings about a new statistic on how historic this selloff has been, and Monday was no different.

The Dow Jones Industrials (INDU) and S&P 500 (SPX) declined 2.9% and 2.7% on Monday for their worst Christmas eve performances ever. At the session’s lows the S&P 500 touched “bear market” territory with a decline of more than 20% from its 52-week highs, while the Dow’s -14.9% MTD decline is (i) the worst December performance since the Depression of 1931, (ii) 3rd worst December since the start of the 20th century, and (iii) the 14th worst performing month ever.

We know the laundry list of reasons for what is now being referred to as the Trump Slump, but what stands out to me is just one week ago today the FOMC hiked rates for the fourth time in 2018. In the 3.5 sessions that followed, the Dow declined 8%. Going into the meeting some pundits were arguing the Fed should do nothing given the current market turmoil.

Others felt a “dovish hike” was more appropriate given recent statements by senior policy makers who already locked themselves into a rate hike and not doing so would send a signal that they know something we don’t. While the decision to hike was unanimous, along with it was a confusing, “less dovish” message particularly in regards to its balance sheet reduction program.

Post-FOMC some are questioning if the “Fed put” is no longer a thing. Over the weekend Secretary Mnuchin reached out to “top bank executives” in an attempt to calm markets, but thus far to no avail. Is the PPT (plunge protection team) really a thing of the past? Did it ever really exist?

We leave you with the weekly chart of WTI crude oil which on Monday declined 6.7% making for a total drop of 45% from its early October highs. Monday’s intraday low of $42.36 bottomed in line with proven support established in late 2016 and reaffirmed in June of 2017. It has now seen a dead cat bounce of more than 5%.

At this point all technicals and fundamentals are out the window, but if this expected support level can hold it may just translate over into equities. I will be awaiting the full week’s price action and Friday’s close to see if there is any momentum to this relatively small bounce. Ideally I would like to see a weekly reversal candlestick pattern (hammer?) along with a “double bottom” pattern in the weekly RSI , the latter seen by some as a meaningful bottoming signal.

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What holiday movie includes a cameo by Donald Trump? Answer: Home Alone II

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.

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