One Inch at a Time

One inch at a time.  Stocks advanced slightly yesterday without any real stimulus as earnings roll in and beat low expectations.  With earnings season in full swing, traders are unsure about how to deal with earnings buying some beats but selling others.

WHAT YOU NEED TO KNOW:

1)  China’s economy is getting stronger.  WHILE YOU SLEPT, China announced its GDP had grown at +6.4% year over year pace beating the +6.3% expected.  Additionally, Factory Output increased by +8.5%, Retail Sales grew by +8.7%, and Investment expanded by +6.3% year to date, all beating expectations.  This means that stimulus is working.  The strong numbers also indicate that economists, and the Fed will consider adjusting their global estimates up.

2)  Recession fears, while still present, are being eased as more and more central banks become accommodative.  More and more analysts are beginning to push recession threats out beyond next year.  To be clear though, what they are really saying is that the expansion that the US is enjoying, just shy of the largest in recent history, could possibly be extended a bit further with the recent shift in monetary policy.

3)  It’s slow going for Industrial Production.  The Federal Reserve came out with its Industrial Production release yesterday and the top line number came in below expectations with a decline of -0.1% versus last month’s growth of +0.1%.  The decline was led by a fall in Auto and Auto Parts production which fell by -2.5% last month.  Additionally Capacity Utilization fell to 78.8% from a downward revised 79%.

THE MARKETS:

Stocks are inching closer and closer to all time highs achieved last year as stocks posted a minor uptick in yesterday’s session.  Yesterday, Larry Kudlow, the Administration’s economic advisor whose other job is to make the stock market go up with good news, did his best to remind traders that US-China talks continue to head toward resolution.  Traders yawned having heard that news many times in the past for several months.  What that really means is that successful talks are already factored in the market and when a deal is finally struck, its magnitude will be assessed and the market will reflect any adjustments.  What is certain is that investors continue to hold a lot of cash and if stocks hit their previous highs stocks may experience a healthy bump up resulting from the FOMO trade.  FOMO = Fear Of Missing Out.  None of that happened yesterday, but stocks did trade up as the S&P500 traded up marginally by +0.05%, the Dow Jones Industrial Average climbed by +0.26%, the Russell 2000 climbed by +0.23%, and the NASDAQ 100 ascended by +0.34%.  Bonds pulled back slightly and 10 year yields added +4 basis points to 2.59% breaking through a Fibonacci resistance level. The 2 year / 10 year yield curve is at the high end of its range at around +17 basis points.  Pinterest is scheduled to go public this week in one of the biggest IPO weeks of the month.  IPO’s have been drawing a lot of attention lately, specifically ones that include tech-based unicorns such as the now-public LYFT and the soon-to-be-public Uber.  Because it is geek-out Wednesday, I thought that it would be a good opportunity to go through a quick primer on Initial Public Offerings, attached as a PDF.

WHAT TO LOOK FOR TODAY:

This morning we will get Trade Balance numbers from the US Census Bureau and they are expected to reflect a deficit of -$53.4 billion, an increase from last month’s -$51.1 billion deficit.  Later this morning we will get EIA weekly Crude Oil Inventory report, which will be of interest to energy traders as crude attempts to find some new higher closes.  This afternoon we will get the Fed’s Beige Book which offers anecdotal information on the health of the economy across the various Fed regions. Before the bell we will hear from US Bank Corp, PepsiCo, Bank Of NY, Morgan Stanley, and Abbott Labs, amongst others.  After the bell earnings will include Kinder Morgan, Alcoa, United Rentals, and E*trade Financial.  The Fed’s Harker and Bullard will speak today at 12:30 and 12:45 respectively.

daily chartbook 2019-04-17

geek out topic - Initial Public Offerings