Joyful Sentiments

Joyful sentiments.  Stocks posted modest gains yesterday as investors continued to press go, knowing that the Fed will have their backs.  With no real news, decent earnings, potential advances in trade discussions, and the upcoming Fed meeting traders bought stocks. 

MY TWO CENTS

1.  It plays like a broken record.  With the rebirth of vinyl records, I thought this might be a fun analogy.  First, the A side.  Bulls have been repeating the same 4 tracks over and over.  Track 1: The benevolent Fed will save us all with a huge rate cut... or many small ones, it doesn’t matter, as long as cuts come soon, like next week.  Track 2: Trade with China is tricky and a real solid deal seems unlikely, but the Administration will probably pull off some sort of a deal, even if no one remembers what the original issue was.  Track 3:  Unemployment is at a record low.  Track 4: Corporate earnings are not growing as fast as they were last year, but companies continue to beat estimates, even if the bar is lower. [scratching sound] Repeat from Track 1.

2.  What is on the B side of the record? To continue with my vinyl record theme, there are some seldomly played, less well-known tracks that have the potential to be big hits, if discovered.  Track 1: The Fed is lowering rates because there are problems with global economic growth.  Specifically in the EU with its largest member economies slowing to an almost stop.  Track 2:  China is also trying to jumpstart its slowing economy, which was already slowing prior to the onset of the trade war.  Track 3: The trade war, in which US companies have largely suffered the brunt of the tariffs imposed on China.  At some point the companies will have no choice but to pass the increased costs on to consumers with price hikes.  Track 4: Companies have been lowering the earnings bar by providing lower forward guidance at an increasing rate.  Companies are also increasing EPS by lowering the number of shares of outstanding stock through stock buybacks.  Investors like this, though there are no direct benefits to them.  Track 6:  The US economy continues to grow but is slowing, specifically in manufacturing.  The employment situation continues to be healthy, but small businesses are planning to cut back on hiring in the months ahead.  Flip back to the A side - it is more fun!

THE MARKETS

Stocks traded up slightly yesterday as traders were heartened by the potential for a face to face meeting between US and Chinese trade officials next week.  Technology got a boost as chipmakers met with Administration officials to discuss ways to get around the Huawei moratorium.  The S&P 500 climbed by +0.28%, the Dow Jones Industrial Average advanced by +0.07%, the Russell 2000 slipped by -0.20%, and the NASDAQ 100 jumped by +0.90%.  Bonds traded up and 10-year treasury yields gave up -1 basis point to close at 2.04%.  WHILE YOU SLEPT congressional leaders came to a budget agreement with the White House and raised the debt ceiling, lowering the possibility of a default.  The deal will take budget wrangling off the table for the next two years.  WHILE YOU COMMUTED this morning, Boris Johnson, Chief Brexiteer, was named the new Prime Minister of the UK.  His appointment increases the likelihood of the UK’s leaving the EU on time… no matter what.

WHAT’S NXT

- This morning, we will get FHFA House Price Index which is expected to have grown by +0.4% for a second month.

- Richmond Fed’s Manufacturing Index is expected to be at 5, up from last month’s reading of 3.

- Existing Home Sales are expected to have fallen by -0.4% month over month, compared to the prior month’s growth of +2.5%.

- The Treasury will sell $40 billion 2-tear notes.

- Pre-bell earnings releases featured beats by Stanley Black & Decker, PulteGroup, Hasbro, Biogen, Harley-Davidson, United Technologies, JetBlue, and Coca-Cola.  We will also hear from Texas Instruments, Travelers, and Lockheed Martin, amongst others.  After the close announcements include Chipotle, Snap, Visa, and FirstEnergy.

daily chartbook 2019-07-23