Stocks Higher on Trade Deal Optimism
- NASDAQ Composite +0.36% Dow +0.63% S&P 500 +0.34% Russell 2000 +0.58%
- NASDAQ Advancers: 1332 Decliners: 991
- Today’s Volume (vs. Tuesday) +1.14%
- Crude -1.73%, Gold -1.14%
Market Movers
- MBA Mortgage Applications fell 10.1% in the week ending 9/20 after falling 0.1% the prior week. Purchases were down 3.1% after rising 6.4% the prior week.
- August US New Home Sales 713K vs. consensus 660K. July sales were revised up to 666,000 from 635,000
- Department Of Energy reports crude oil inventories +2.41M barrels vs consensus +100K barrels
- The American Petroleum Institute late Tuesday reported that U.S. crude supplies rose by 1.4 million barrels in the week ended Sept. 20. The trade group also showed a 1.9 million barrel rise in gasoline stocks and a 2.2 million barrel fall in distillate inventories.
- Britain's House of Commons reconvened this morning after the Supreme Court’s landmark ruling yesterday against Boris Johnson’s suspension of parliament
Charlie’s Commentary
Part of the perils of writing the Midday note is that markets can change on a dime as soon as you hit the “send” button. That clearly happened yesterday after President Trump’s address to the UN General assembly contained strong language towards China less than a month before the two largest economies meet in high level trade talks. Impeachment proceedings / inquiries also picked up and were formalized by Speaker Pelosi as allegations the President sought foreign help to smear a political rival gained momentum. While markets closed off the lows, all three indexes remained in the red reversing from the morning gains. The Dow slipped -0.53% while the S&P 500 was –0.84% and Nasdaq fell -1.46%. Energy and Communications sectors were the worst performers while safe haven Utilities and Consumer Staples were the only sectors in positive territory.
This morning equities are relatively unfazed, essentially trying to figure out what this whole “impeachment investigation” means coupled with the ongoing trade war situation and flashing signs of a deteriorating global economy. Wall Street loves to look at context in these situations to gauge how to react to this unfolding drama. Markets largely shrugged off an impeachment inquiry of President Nixon on February 6th 1974 but the S&P 500 did fall close to 30% until he resigned on August 9th of that year. On the day the House voted to begin impeachment proceedings of President Clinton, the S&P fell close to 2%. By the time he was acquitted the in February of 1999, the index was up 28%. So much for “context” providing the street with a clear road map.
The markets did take a dip lower as the transcript of the call with Ukrainian President Volodymyr Zelensky was released. The transcript showed that the President asked Zelemsky to look into Biden and his son’s dealings in the country with his personal lawyer Rudi Giuliani and the Attorney General. At the moment the market does not feel this was an abuse of power. As such, traders are focusing on the more tangible aspects of trade progress and economic reports. The markets are currently trading higher as the President commented to reporters that discussions with the Ukrainian leader was a “nothing call” and that a deal with China could happen “sooner than you think.” That sound bite reversed both Nasdaq and the S&P 500 who were under some pressure this morning and bolstered the Dow even higher.
In economic news, applications to buy new homes have taken a step back. According to the Mortgage Bankers Association, steadily rising interest rates over the last two weeks have had a negative effect on mortgage applications which have declined by -10.1% for the period ending 9/20. While applications have fallen, volume of applications was still 46% higher that a year ago when rates were higher. The average contract interest rate for a 30 year fixed mortgage increased to 4.02% from 4.01% with points increasing to 0.38 from 0.37. Applications to refinance a home loan also fell by 15% but are still up 104% vs a year ago. Sales of new homes in the United States recovered at a faster pace than estimated in August as declining rates created a more favorable environment for purchases. August new home sales rose to 713,000 vs the consensus estimate of 659,000. Single family home sales rose 7.1% to 713,000 surpassing all estimates. The median sales price increased by 2.2% from a year earlier to $328,400 shares.
Oil is under pressure this morning falling for a second day as reports by the Department of Energy and the American Petroleum Institute showed that inventories increased. Domestic crude inventory that includes the Strategic Oil Reserve increased by 2.4 million barrels from the previous week. Rising inventories in combination global economic concerns potentially reducing demand is pressuring the commodity. Gold has come off three week highs, but remains relatively strong as a hedge against uncertainty caused by global growth concerns, the lack progress in trade negotiations, Brexit and domestic political shenanigans.
From a sector standpoint. Consumer Staples leads (+0.55%) followed by Industrials (+0.37%) and Financials (+0.27%) Trailing the market are Utilities (-0.54%), Healthcare (-0.26%) and Technology (-0.12%).
Sector Recap
Brian’s Technical Take
New home sales for August climbed 7.1% to an annualized pace of 713k, surpassing all Bloomberg estimates and coming in just shy of the 729k figure reached in June which then marked a 12-year high. The positive housing data is consistent with recent existing home sales and home starts, the later surging to its fastest pace since mid-2007.
The iShares homebuilders ETF (ticker ITB) is up a modest 0.4% in today’s session. Far more impressive are the intermediate and long term returns since emerging from the depths of the financial crisis. In 2019 the ITB ETF has registered positive gains in eight of the nine months for a YTD return of 42%. Since of start of 2009 it has recorded positive gains in nine of eleven years with an average annual return of 18%.
We last covered the ITB ETF in the MIDDAY Updates 10/23 and 11/8, when it was down 35% and 32% from its January 2018 highs, at which point we argued the techncials were lining up for an attractive entry on the long side. With the broader risk on rally sparked in large part by the Fed’s dovish pivot and the meaningful decline in rates, the ITB is up 40% and 36% from those two periods.
Today the long term techncials are standing out as the ITB is within 4-8% of a key resistance level, $44 - $48, which represents its prior cyclical highs made back in January 2018, and also a key pivot from 2006-2007. While an upside breakout to new highs is certainly a possibility, typically the first test of a major price level is met with initial resistance. While a few percentage points remain on the table before the ITB reaches resistance, we may soon start seeing signs of distribution over the near to intermediate term.
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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