Daily Market Notes: 12-10-2019

After Friday’s upside moonshot, things cooled off yesterday as a report that China’s exports decline in November for the fourth straight month raised the idea of slower economic growth, similar to the lower export number by the U.S. in last week’s trade deficit report for October. After a nominally higher start for the first hour or so, things gave way as the afternoon moved along and basically ended at their worst levels of the session.

The Dow finished with a closing decline of 105 down to 27,908 led by weakness in AAPL on the still uncertain status of the trade talks, BA and 3M on weak industrials, GS on lower bond yields and UNH. The S&P ended off by 10 to 3136 while the Nasdaq fell by 35 as the aforenoted weakness in AAPL weighed on it in addition to AMZN and BKNG. The Russell 2000 Index of small stocks, which everyone is falling in love with after its recent strength and gain of 20% for the year instead of loving it when it was low in the late summer, declined by 5 to 1629.

Breadth numbers were slightly negative and the VIX really bent bonkers on the upside with a large gain of 2.24 to 15.86 as there have been several articles lately how large market participants are taking huge bearish bets in the options market through the purchase of puts on stock index futures in anticipation of some negative market action later next year.

Bond yields were a little lower after their large rise on Friday’s strong market activity. The 2-year Note was down to 1.64% and the 10-year ended at 1.82% while the 30-year was 2.26%. The dollar was a little weaker and gold was up a bit at $1,465 an ounce. Crude oil ended down at $59.02 after its large gain last week.

This week will see some preliminary earnings reports for the fourth-quarter from those companies whose fiscal third-quarter ended in November and the lineup is as follows: today – SFIX, MTN, AZO higher and CASY, CHWY, CMD, CONN, FRAN, TOL lower; tonight –  PLAY, GME; Wednesday – LULU, AEO, VRA, PLCE; Thursday – CIEN, ADBE.

Economic reports will include: Wednesday – November C.P.I.; Thursday – November P.P.I., weekly jobless claims; Friday – November retail sales.

Today has been a little on the volatile side, especially this morning as the Dow futures were as low as 170 points. Then as we got close to the opening, there was a report that trade negotiators were planning to delay the imposition of new tariffs scheduled to go into effect on December 15th. This got the futures back to about unchanged.

But referring to the volatile side as just mentioned, after a steady opening, the major indices took a dive with the Dow reaching a decline of 105 points at 9:40am. It then recovered to show a gain of 40 at 10:30am and from that point on, it has vacillated in a narrow range on either side of unchanged which it is now as this is being written. The Dow is being restrained to some extent by a decline in BA while the Nasdaq is doing better on a recovery in the shares of AAPL and by another strong gain in TSLA.

In addition to the trade developments, the market is also waiting for the Fed announcement on interest rates tomorrow at 2pm at which it is expected to do nothing so their statement will be scrutinized by market participants for further direction on interest rates.

Breadth numbers are just about even and the VIX is slightly lower at 15.70

Bond yields are a little higher with the 2-year Note at 1.65% while the 10-year is 1.84% and the 30-year Bond is up to 2.27%. Gold is doing nothing at $1,467 an ounce and crude oil is also doing little at $59.13 a barrel.

For the first quarter of 2018, earnings gains were 27% the best such showing in seven years, the second-quarter was 25%, the third-quarter saw a gain of 28% and the fourth-quarter was 13.1% and this was the fifth straight quarter of profit growth in excess of 10%. The final number for the first and second quarters of 2019 were fractionally lower with the third quarter down by around 2%. The fourth quarter is projected to show a gain of 6%.

This is now the longest bull market ever as the S&P escaped the ignominy of falling 20% last December by 0.1% on a closing basis. Since its beginning on March 9, 2009 the S&P has now gained 475%. The second best bull market was from 1949 to 1956 with a 454% advance while the 1990’s bull run increased by 391% and the 2002 – 2007 gains were 121%.

The S&P now trades at 18.8 times for 2019’s projected profits of $167 and at 17.9 times what are supposed to be $176 profits in 2020. These multiples have expanded on the recent higher move in equities this month and there is no guarantee that the earnings projections will be reached either for this year or next year.

Economic growth for 2017 was at 2.6% for the entire year and in 2018, G.D.P. was revised down to 2.5% for the year. For 2019, the first quarter of 2019 came in at 3.1%, the second quarter was 2% while the second estimate for the 3Q is now 2.1%.

Donald M. Selkin

Chief Market Strategist

 

 

Disclosures

Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds, or other instruments in the companies noted in this report.