Growth and Volatility

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What’s in Today’s Report:

  • Updated Market Outlook: “Growth Pillar” Remains Solid, but Volatility Not Necessarily Over
  • Weekly Economic Cheat Sheet

US stock futures are little changed this morning as last week’s gains are digested with focus remaining on the trade war with China, elections, and recent economic data.

There were no material developments on the trade front over the weekend however sentiment has deteriorated modestly since Friday which weighed on risk assets overnight, namely in Asia.

Additionally, China’s Services PMI fell 2.3 points to a thirteen month low of 50.8 in October which further weighed on Asian markets.

Looking into today’s session, there is one economic report to watch in the US: ISM Non-Manufacturing Index (E: 59.4) and there are two Fed speakers: Williams ahead of the bell (8:30 a.m. ET), and Kaplan later this evening (7:30 p.m. ET).

On the charts, 2705 will be a key support level to watch in the S&P today as a violation would likely see selling accelerate back down into the mid 2,600’s. To the upside, a break above 2,750 would open the door to a run back above 2,800.

Rebound Update

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What’s in Today’s Report:

  • Bottom Line: Rebound Update
  • Jobs Report Preview (Abbreviated Version)

Futures are decidedly higher this morning after Chinese shares led global equities higher overnight thanks to continued optimism about a US-China trade deal.

A Bloomberg article released early this morning reported that the Trump Administration has begun working on the terms of a trade agreement to present to President Xi at the G20 spurring sizeable risk-on money flows overnight.

Looking ahead to today’s session, focus will be on economic data early with the Employment Situation (E: 190K), International Trade (E: -$53.3B), and Factory Orders (E: 0.4%) figures all due out within an hour of the open. There are no Fed officials scheduled to speak today.

On the earnings front, there are several notable releases to watch ahead of the bell: BABA ($1.09), XOM ($1.21) and STX ($1.55).

Once earnings and economic data are digested, focus will likely return to momentum, technicals, and any incremental news on trade. On the charts, the S&P’s 200 day moving average is sitting at 2765 which will be an initial upside target if the bullish momentum continues today.

Jobs Report Preview

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What’s in Today’s Report:

  • Jobs Report Preview
  • Technical Update:  Good Bounce, Poor Price Action

Futures are modestly higher on continued momentum from the Wednesday rally, as markets ignored more disappointing economic data.

For the second straight night foreign economic data disappointed, and this is a becoming a disconcerting trend.  UK Manufacturing PMI dropped to a 27 month low at 51.1 vs (E) 53.6.

AAPL reports today but after the bell, so the focus of the regular session today will be on economic data.  There are three reports to watch but the ISM Manufacturing Index (E: 59.0) is the most important one, followed by  Jobless Claims (E: 212K) and Productivity and Costs (E: 2.3%, 1.1%).  Bottom line, we need Goldilocks data (not too strong to make the Fed hawkish, not too weak to get us worried about growth) to further fuel this rebound.

Sevens Report’s Tom Essaye quoted in MarketWatch on October 31, 2018

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Sevens Report’s Tom Essaye quoted in MarketWatch on October 31, 2018. Read the full article here

Was Yesterday an “All Clear?”

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What’s in Today’s Report:

  • Dusting Off An Old Leading Indicator for Recessions
  • Was Yesterday an “All Clear?”

Futures are extending Tuesday’s rally thanks to decent overnight earnings and despite universally disappointing economic data.

FB earnings beat after the bell yesterday and the stock rallied 3% after hours, capping a decent day of earnings.

Economically, Chinese Oct. Manufacturing PMI declined to 50.2 vs. (E) 50.6.  Japanese IP and German Retail Sales also missed expectations.

Today focus will remain on earnings.  GM ($1.26) is the highlight but if the broad number of results are “ok” that should continue to help sentiment.  Economically the ADP Employment Report (E: 178K) and Employment Cost Index (E: 0.7%) are the two key reports, and both need to show “Goldilocks” readings (firm but not strong enough to make the Fed hawkish) for this bounce to continue.

Valuation Update: Good, Bad, and Ugly

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What’s in Today’s Report:

  • Valuation Update: Good/Bad/Ugly Scenario Analysis
  • Technical Update: Not Necessarily Done Yet

Futures are slightly higher this morning and Asian stocks traded relatively well overnight despite yesterday’s selloff in the US while EU markets fell on soft economic data.

Italian GDP missed (0.0% vs. 0.2%) which led to some further risk off money flows amid the ongoing budget drama but otherwise, data in Europe was mostly inline overnight including German Unemployment figures, the Eurozone GDP Flash, and Eurozone Economic Sentiment.

Looking to the calendar in the US today, there are two second tier economic reports due out: S&P Corelogic Case-Shiller HPI (E: 0.1%) and Consumer Confidence (E: 136.3) and there are no Fed officials scheduled to speak.

That will leave focus on earnings: GE ($0.21), MA ($1.68), PFE ($0.76) before the open and FB ($1.46) after the close, and of course price action, especially in tech, will be very important.

For the S&P to gain material upside momentum, we will need to see a strong run to and through 2700 and then for that area to hold, otherwise an early gain followed by a pullback (like yesterday) will be more likely and the path of least resistance still lower for the very near term.

Updated Market Outlook (Fundamental & Technical)

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What’s in Today’s Report:

  • Updated Market Outlook (Medium/Longer Term Risk/Reward Attractive As Long As Growth Remains Solid)
  • Updated Technical Outlook
  • Weekly Economic Cheat Sheet (Inflation Metrics)

Futures are enjoying a modest oversold bounce following Friday’s drop.

The weekend was generally quiet although sentiment towards Italy is a bit better after S&P did not downgrade the country’s credit rating.

Economically, Japanese Retail Sales beat estimates (2.1% vs. (E) 1.7%) but that report isn’t moving markets.

There are no notable earnings reports today so focus will be on the Core PCE Price Index (E: 0.1% m/m, 1.9% y/y) which is contained in the Personal Income and Outlays Report.  This market does not need suddenly “hot” inflation numbers that will make the Fed more hawkish.  So, if the Core PCE Price Index prints in-line, that should help fuel today’s early rally.  Finally, there is also one Fed speaker:   Evans (9:45 a.m. ET).

Bounce or Bottom? Updated Market Technicals

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What’s in Today’s Report:

  • Bounce or Bottom?  Updated Market Technicals

Futures and global markets are sharply lower and have given back most of Thursday’s gains as it was another bad night of corporate earnings.

AMZN and GOOGL both posted disappointing earnings and that caused a resumption of the weakness in tech, which is dragging global markets lower.

The only notable economic data was German GkK Consumer Climate, which was unchanged at 10.6.

Today we get Initial Q3 GDP (E: 3.3%) but that won’t move markets unless it’s a major disappointment (remember GDP is very backward looking).

Bottom line, markets look like they are going to open sharply lower, so holding Thursday’s lows, especially in the Nasdaq (7099) is important, otherwise we could be looking at another Wednesday washout.

Sevens Report’s Tom Essaye quoted in MarketWatch on October 25, 2018

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Sevens Report’s Tom Essaye quoted in MarketWatch on October 25, 2018. He wrote in a note to clients that so far, third-quarter earnings have been disappointment and that “peak earnings is a potential reality” that investors are now struggling with. Read the full article here.

Sevens Report’s Tom Essaye quoted in CNBC on October 25, 2018

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Sevens Report’s Tom Essaye quoted in CNBC on October 25, 2018.

“What happened yesterday was the market got way oversold,” said Tom Essaye, founder of The Sevens Report. “Was a decline on earnings warranted? Yes, but not 10 percent.” Read the full article here.