- Stocks move higher in the morning after opening lower.
- Traders digesting earnings and incremental news on U.S./ China trade negotiations.
- Consumer Confidence of 125.9 for October slipped to a three-month low and missed the 128.0 estimate.
Heading into today futures were suggesting we’d give up about half of yesterday’s gains and retreat from the S&P 500’s record highs achieved yesterday. So far at midday, the index is back at a record high and the Dow has gained a modest 22 points. There are a lot of moving parts but the main narrative of improving risk sentiment, an expectation of a rate cut tomorrow, de-escalation of the U.S./China trade war and better than feared corporate earnings has not changed. The South China Morning Post reported that President Trump and Chinese President Xi Jinping will meet on November 17 in Chile to sign an interim trade deal “if everything goes smoothly.” It seems the "Phase One" issues might be close to resolution and that can only be good for stocks.
New news today includes earnings from GM, Alphabet (Google) Pfizer, Merck, Xerox, Mastercard and Kellogg along with many others hitting the tape. Most were positive surprises. Many companies continue to lower guidance however, but this seems to be expected (or ignored) by investors. Meanwhile, in economic news Consumer Confidence was reported at 125.9, which was higher than September’s initial 125.1 reading but below the revised 126.3 figure. Consensus was for 128.0 so this was considered a miss. Confidence for 2019 so far has ranged between 121.7 and 135.8 and is still relatively high compared to past years. However, it’s the lowest reading since June and a four-month low so something to watch.
Tomorrow we get Advance GDP, Mortgage Applications, ADP’s Employment Report and Personal Consumption releases in the morning but that will only be a warm-up act for the 2 p.m. Fed announcement on interest rates and the subsequent press conference. The stock market expects a 25bp cut or will throw a tantrum,
In the commodity pits, oil fell for a second straight day $54.73/bbl to as traders positioned for inventory increases. The trade war's weight on demand and strong U.S. production have prices falling since late April. The effect of a potential trade deal flowing through to increased global demand is not being priced in yet.
Speaking of oil, Saudi Arabia’s Aramco reportedly earned $68 billion! in the first 9 months of 2019 - making it by far the world’s most profitable company.
Sector performance is mixed, with Tech lagging along with Utilities and Healtcare rising along with Real Estate. (Merck, Pfizer and HCA are among the companies giving the former a lift). Please see the full table below for details.
Brian’s Technical Take
The major US equity indices are in a bit of a holding pattern ahead of tomorrow’s FOMC, but overall it has been a strong month for stocks. Size has not been a factor as the large cap Nasdaq 100 (NDX, +4.2%) and small cap Russell 2000 (RTY, +3.5%) have been this month’s top performers.
Amongst the eleven GICS sectors, the top monthly performers are technology (+3.9%) and healthcare (+3.9%). Healthcare is playing catchup and currently stands +7.5% YTD. Yesterday we noted the upside potential in the NBI Index which if it plays out should provide a nice tailwind for healthcare. Meanwhile, Technology closed at a new all-time high yesterday and a YTD return of 35.4%.
The S&P 500 technology index has been nothing short of impressive over the near, intermediate, and long term. The last time it saw two consecutive years in the red was during the bursting of the dotcom bubble in 2000-2002. Beginning in 2003 it has seen only two down years, 2008 (-43.7%) and 2018 (-1.6%). Over this 17 year span including 2019, the top two performing years were 2003 (+46.6%) and 2009 (+59.9%) when stocks were making their initial rebound off bear market lows. The next best performing years were 2017 (+36.9%) and 2019 (+35.4%).
While price is king and technology’s new all-time high made yesterday is certainly not bearish, there are some “technical divergences” to be mindful of which may suggest, at the very least, a pullback could be in store. From an intermediate and longer term perspective both the monthly and weekly period MACD and RSI are making lower highs. Breadth is also concerning as just 12% of the members within the index made new 52-week highs yesterday, which is well below the 32% and 28% readings made at the prior breakout to new highs in April and July.
Given the already strong price performance this year, combined with the fading breadth and momentum measures which can often lead price, the technology space could be on the wrong end of sector rotation as we head into the final two months of 2019. The growth to value ratio has not yet turned, but since early September many have been calling for that rotation. If so we should see it in technology’s absolute performance.
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.