Going Nowhere Fast

Going nowhere fast.  In another low volume day, the market appeared lethargic as traders tried to make sense of mixed earnings releases yesterday.  Stocks halted their slow climb yesterday in the absence of any new positive news.

WHAT YOU NEED TO KNOW:

1)  Cost cutting is good but not enough to inspire investors.  Yesterday, both Goldman Sachs and Citigroup beat wall street estimates for earnings per share but missed the mark on revenue.  This is the result of effective cost cutting which also appeared to be the theme in earnings calls.  Investors like to hear about revenue growth…  they did not get it yesterday.  Citigroup sold off slightly and Goldman Sachs sold off by -3.82%.

2)  The Federal Reserve remains the market’s best friend… for now.  The Fed has accomplished quite a bit in the last year.  They managed to raise rates, keep inflation under control, shrink their bloated balance sheet, and preserve record low unemployment.  Most importantly and more recently the Fed has shifted its attention to the stock markets using jawboning and policy shift to prop up markets.  There is solid logic behind the move as the Fed is well aware that there is a correlation between consumer spending and stock market growth.  Consumer spending, which contributes around 65% to the GDP, is worth looking after.  Chicago Fed Chief Charles Evans toed the line yesterday and said that he didn’t expect rates to be touched until fall of 2020.  He also spoke of letting inflation go above the Fed’s 2% target… that means he is not in favor of raising rates anytime soon.  Fed funds futures give a 46% chance of a rate cut by December of 2019.

THE MARKETS:

A no-news, mixed-earnings Monday gave way to a low volume day in which stocks drifted and bonds took back some of the ground lost on Friday.  You may have noticed that I have been reporting low volume days more often in the past several sessions.  Technicians like to see positive market moves accompanied by higher volume, which is a sign that there is broad participation in a rally.  In the absence of volume growth, market moves tend to give way to pullbacks.  If you add low volatility to the mix, as evidenced by the VIX index now hovering around 12, you end up with the potential for an erratic response to an event.  With around 40 S&P 500 companies reporting this week and another 134 reporting next week there will surely be something to spur the markets in either direction. Yesterday, stocks sold off mildly with the S&P 500 pulling back by -0.6%, the Dow Jones Industrial Average selling off by -0.1%, the Russell 2000 trading off by -0.36, and the NASDAQ 100 climbing by +0.1%.  Bonds came back a bit with the 10 year treasury yield falling by -1 basis point to 2.55% and the 3 month / 10 year treasury curve ending the day at +14 basis points.

WHAT TO LOOK FOR TODAY:

This morning the Federal Reserve will release its Industrial Production number which is expected to show a month over month gain of +0.2% versus last month's +0.1% gain.  Later this morning the National Association of Home Builders will release its market index which is expected to have climbed to 63 from last month’s read of 62.  An index of 50 or greater means that surveyed home builders view conditions as being positive.  This morning, Bank of America, BlackRock, and J&J will announce earnings before the bell, amongst others.  After the bell earnings include IBM, Netflix, CSX, and United Continental.  Dallas Fed President Robert Kaplan will also speak today.

daily chartbook 2019-04-16