Take in the view. Traders paused to take in the view from up here in yesterday’s trade, easing back on stocks, just one day after making new all time highs. It was a day of rest and uninspiring earnings, prompting stocks to pull back slightly.
WHAT YOU NEED TO KNOW:
1) Earnings are not too shabby. Of the earnings reported so far this season, around 79% of companies have beaten consensus estimates by an average 5.7%. The figures are better than the five year averages. A word of caution though, consensus estimates have been driven down in past months as a result of lower guidance given in last quarter's releases. Additionally, earnings growth is still expected to have fallen by around -3%.
2) Markets are enjoying the non-hostile climate. In an almost Goldilocks scenario with low unemployment, under-control inflation, a growing (albeit tepid) economy, respectable earnings, a potentially positive outcome to US-Chinese trade talks, and - most importantly - a benevolent Federal Reserve Bank, stocks are in a low volatility cycle plying new highs. The VIX Index, often referred to as the fear index, spent much of last year’s fourth quarter above average levels around 20. Since the Fed policy shift, the index has fallen below its averages trading in the low teens with yesterday’s close -63% below its Christmas Eve, 2018 high. For more information about the VIX Index, read my note on the topic here: https://www.siebertnet.com/blog/index.php/2018/11/21/cold-turkey/ .
THE MARKETS:
Stocks were unable to hold on to their highs yesterday falling slightly in the session as a healthy pullback leaves the S&P and NASDAQ composite still within striking distance of all their all time highs. The Dollar Index, which tracks the performance of the US Dollar compared to a basket of currencies with trading partners, broke out on the upside yesterday (see chart 13 my attached daily chartbook). The move represents the strong US economy relative to those of its trading partners. The composition of the index weights the Euro currency by greater than 50% leaving the falling Euro as one of the key drivers of the move. The strong dollar is a mixed blessing making the goods companies who rely on exporting more expensive to foreign consumers. A stronger dollar has negative impacts on the trade deficit which has been in the Administration's sights over the past year. The good news is that the US is still a net importer of goods and the strong dollar means that goods purchased overseas will be cheaper. Stocks fell yesterday with the S&P500 falling by -0.22%, the Dow Jones Industrial Average trading off by -0.22%, the Russell 2000 climbing by +0.19%, and NASDAQ 100 easing by -0.34%. Bonds traded up yesterday with the 10 year treasury yield pulling back by -5 basis points to 2.51% as bond traders continue to price in weaker economic performance and rate cuts in the future.
WHAT TO LOOK FOR TODAY:
Todays numbers include weekly Initial Jobless Claims, which are expected to come in 200k versus last month’s 192k. Additionally we will get a preliminary read on Durable Goods Orders for March and orders are expected to have risen by +0.8 versus the -1.6% pull back in the prior month. Lots of notable earnings releases before this morning's opening bell including UPS, Southwest Airlines, AbbVie, WWE, Valero Energy, Bristol-Myers Squibb, Freeport McMoRan, and Raytheon. Notable reports after the bell include Amazon, Ford, Intel, Starbucks, and Oaktree Capital. The Treasury will auction off $32 billion 7 year notes at 1:00 PM.