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Valuation Update: Dangers of FOMO (Fear of Missing Out)

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What’s in Today’s Report:

  • Valuation Update:  Dangers of FOMO (Fear of Missing Out)

Futures are slightly lower as a potential “stall” in U.S./China trade talks and disappointing data weigh marginally on global stocks.

Chinese economic data was universally disappointing, as Fixed Asset Investment, Retail Sales and Industrial Production all missed estimates.  The soft numbers implied the global economic rebound expected by stocks isn’t a done deal just yet.

Today there are two notable economic reports, Jobless Claims (E: 215K) and PPI (E: 0.3%) and a figurative parade of Fed speakers including (in order of importance):  Powell (10:00 a.m. ET), Clarida (9:10 a.m. ET), Evans (9:10 a.m. ET), Daly (11:45 a.m. ET), Williams (12:00 p.m. ET), Bullard (12:20 p.m. ET).

But, the data points shouldn’t move markets, and neither should any of the Fed speak because Chair Powell spoke yesterday and clearly signaled the Fed is on hold, which is what the market expects and has priced in.

So, we can expect trade commentary and headlines to move markets.  Clearly the market is ignoring the phase one “stall” headlines, otherwise, stocks would be down sharply this morning.  But, headlines worsen and the stall increases the risk of a phase one breakdown, that will hit markets hard.

Is Europe a Buy?

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What’s in Today’s Report:

  • How Powerful Is the Growth to Value Rotation?
  • Is Europe a Buy?

Futures are edging higher in early trade while most international markets rallied on better-than-feared data overnight.

In Europe, the headline to the German ZEW Survey was a slight miss but business expectations rebounded to -2.1 vs. (E) -12.5 as recession fears continued to moderate.

In the U.S., the NFIB Small Business Optimism Index was 102.4 vs. (E) 102.0 another incremental economic positive.

With no economic reports today, focus will be on Trump’s midday speech in NY regarding the trade war. Additionally, there are two Fed speakers: Harker (1:00 p.m. ET) and Kashkari (6:00 p.m. ET).

The trade war is still by far the most important influence on the markets right now so whether Trump is negative or positive in his discussion regarding trade negotiations today will likely decide whether stocks rally or extend yesterday’s pullback this afternoon.

U.S./China Trade Update (What’s Priced In Now?)

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What’s in Today’s Report:

  • U.S./China Trade Update:  What’s Priced in Now?
  • One More Important Stat on Corporate Buybacks

Futures are modestly higher as the Chinese Ministry of Commerce  said the U.S. and China have agreed to existing tariff reduction in “phases.”

There were no further details on the timing or conditions that would accompany tariff reduction, however, and that’s tempering the rally somewhat.

Economically, German Industrial Production declined but slightly beat estimates (-0.6% vs. (E) -0.7%).

Today the only notable economic reports are Jobless Claims (E: 220K) while we also have two Fed speakers: Kaplan (1:05 p.m. ET), Bostic (7:10 p.m. ET), but none of that should move markets.

Instead, the focus will remain on the U.S./China trade, and if the U.S. confirms this “tariff reduction in phases” statement by the Chinese, then we could see the S&P 500 make a run at 3100.

Does this Cyclical Rotation Have Legs?

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What’s in Today’s Report:

  • Does this Cyclical Rotation Have Legs?
  • Factory Orders Data Takeaways
  • Dr. Copper Update

U.S. stock futures are higher this morning and global stocks rallied overnight thanks to more positive trade headlines and mostly “Goldilocks” economic data overseas.

The Financial Times was the first to report the Trump administration is considering rolling back $112B worth of tariffs that went into effect on September 1st which would be a significant concession and first sign of real progress towards a “phase one” deal being reached.

Economically, the first composite PMI reports were released overseas and both the Chinese and British figures firmed in October, further easing concerns about the health of the global economy.

Today, there are several economic reports due to be released: International Trade (E: $52.5B), ISM Non-Manufacturing Index (E: 53.5), and JOLTS (Previous: 7.051M, while two Fed officials are scheduled to speak: Kaplan (12:40 p.m. ET) and Kashkari (6:00 p.m. ET).

Beyond the data and Fed speakers, focus will be primarily on the trade war as investors look for further insight to whether or not the Trump Administration will move forward with tariff rollbacks and delays as was reported overnight. Any confirmation would be well-received and see stocks extend this recent squeeze higher towards 3,100 in the S&P.

FOMC Takeaway: Will Three Rate Cuts Save the Bull Market?

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What’s in Today’s Report:

  • Will Three Fed Rate Cuts Be Enough To Save the Bull Market?
  • Why Wednesday’s GDP Report is Important
  • Oil Market Update

Futures are modestly lower as weak global economic data offsets good earnings from AAPL and FB.

The Chinese October manufacturing PMI fell to 49.3 vs. (E) 49.8, the lowest level since January 2016.  German retail sales and EU unemployment also slightly missed estimates and the takeaway is that the hoped for stabilization in the global economy isn’t happening yet.

On U.S./China trade, a Bloomberg headline hit early this morning saying a long term U.S./China trade deal is unlikely, but that’s not news as it was never expected.  Instead, consensus expectations are for an ineffectual Phase One document to be signed, and then no further progress after that (the key to this whole drama remains whether there’s any tariff relief).

Today’s focus will remain on economic data as earnings begin to move towards the back burner.  Key reports to watch today, in order of importance, are:  Core PCE Price Index (E: 0.1%, 1.7%), Employment Cost Index (E: 0.7%) and Jobless Claims (E: 215K). From a data standpoint, with the Fed now on hold, “good” economic news is good for stocks, and “bad” economic news is bad.  So, the bulls are looking for good news for the remainder of the week.

Fed Meeting Preview

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What’s in Today’s Report:

  • FOMC Preview

Stock futures are slightly lower and bonds are rising modestly as investors digest yesterday’s new all-time highs in the S&P, eye Brexit developments, and position ahead of the week’s long list of catalysts.

British PM Boris Johnson is making a new push for a general election in early December, increasing the odds of a no-deal Brexit which is weighing on stocks this morning.

There are a few economic reports to watch this morning including S&P Case-Shiller HPI (-0.1%), Consumer Confidence (E: 128.6), and Pending Home Sales (E: -0.2%) but the market’s reaction is expected to be limited as the FOMC meeting begins which will likely lead to a degree of “trader paralysis” today.

Meanwhile, earnings season remains in full swing and there are several notable reports due today which could influence sector trading:  MA ($2.01), MRK ($1.25), PFE ($0.63), GM ($1.31), AMD ($0.18), and AMGN ($3.51).

Why Markets Are Ignoring Bad Data

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What’s in Today’s Report:

  • Why Markets Are Ignoring Bad Economic Data

Futures are slightly higher following a generally quiet night of mixed earnings.

On the earnings front, AMZN missed earnings badly but INTC posted strong numbers and the two are largely offsetting one another.

Regarding U.S./China trade, there is a phone call between the two countries today where China will ask for the December tariff increases to be formally scrapped and the 9/1 tariff increases to be rescinded. If this happens, it’s a positive surprise.

Today the calendar is quiet as we have just one economic report, Consumer Sentiment (E: 96.0) and only a few notable earnings reports, VZ ($1.24) and BUD ($1.36).

So, focus will be on that U.S./China trade call, and if we see the September tariff increases rolled back, that will likely send the S&P 500 to new all-time highs.

Print This Table (Updated Market Roadmap)

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What’s in Today’s Report:

  • Print This Table:  Updated Market Roadmap into Year-End
  • If you want a PDF copy of the updated Market Multiples table, please email info@sevensreport.com

Futures are slightly higher as better than feared earnings offset more disappointing economic data.

Global flash PMIs universally disappointed this morning as the Japanese (49.8 vs. (E) 51.5), German (48.6 vs. (E) 48.7) and EU ( 50.2 vs. (E) 50.4) numbers missed estimates, reminding us again that we still don’t have stabilization in the global economy.

Today there is a lot of economic data and numerous notable earnings reports, but the most important event of the day is the Pence speech on China (11:00) a.m.  Pence is expected to be tough on China, but nothing so drastic that it imperils Phase One.  However, last year’s speech sparked volatility, so this remains something to watch.

Economically there are several notable reports including, in order of importance: Flash Composite PMI (E: 50.9), Durable Goods (E: -0.7%), Jobless Claims (E: 214K), and New Home Sales (E: 698K). Additionally, there is one Fed speaker today, Williams (7:00 p.m. ET).

On the earnings front, the reports will continue to roll in, and here are the report we’re watching today: MMM ($2.47), NOC ($4.74), AMZN ($4.46), V ($1.43), INTC ($1.24), COF ($2.87).

Finally, today is the final ECB press conference for ECB President Mario Draghi.  There shouldn’t be any surprises and it won’t move markets.  But, I did want to note it for history’s sake, as this man literally saved the euro currency and the EU more broadly with these speeches and actions back in 2012 and 2013, although I’m skeptical he will ever get that credit.

Where Will the S&P End the Year?

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What’s in Today’s Report:

  • What Brexit Means for Markets
  • Where Will the S&P End the Year? (A Market Multiples Update)

Stock futures are flat amid continued Brexit uncertainty ahead of a very busy day of earnings in the U.S.

Economically, the French Business Climate Indicator fell to a more than 4 year low of 99 vs. (E) 102, underscoring the recent trend of weakness in the EU manufacturing sector.

Looking into today’s session there we will get one more data point on the housing market: FHFA House Price Index (E: 0.4%) while no Fed officials are scheduled to speak.

On the earnings front, the Q3 reporting season is nearing its peak with notable reports from: BA ($2.04), CAT ($2.83), FCX (-$0.01), GD ($3.06), WGO ($0.98), and NSC ($2.57) due out before the bell while TSLA (-$0.41), MSFT ($1.25), PYPL ($0.66), F ($0.26), and EBAY ($0.64) will release after the close.

Bottom line, markets will remain sensitive to any material developments regarding Brexit or the Trade War but investor focus is increasingly shifting to earnings, and if reports remain healthy, the S&P could reclaim 3,000 and potentially drift towards the all-time highs.

Is the Trade War Optimism Warranted?

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What’s in Today’s Report:

  • Is Rising Optimism Towards “Phase One” of the U.S.-China Trade Deal Warranted?

Futures are little changed while most international markets rallied overnight as investors remain optimistic about the “phase one” trade deal, continue to eye the fluid Brexit situation, and look ahead to the peak of earnings season.

There were no market-moving headlines overnight.

There are a lot of moving pieces in the market today between economic data and earnings.

On the data front, Existing Home Sales (E: 5.445M) is due out shortly after the open and then things will quiet down until the early afternoon when the Dallas Fed’s Kaplan speaks at 1:00 p.m. ET.

There is also a 10-Yr Treasury Note Auction at 1:00 p.m. ET. Yields have been steadily grinding higher in recent sessions, so strong demand (low yields) could weigh on stocks in the afternoon.

Switching to earnings, there are multiple consumer, defense, and transport companies reporting today including: LMT ($5.03), MCD ($2.20), PG ($1.24), UPS ($2.05), UTX ($2.03), JBLU ($0.53), TRV ($2.39).

For now, the trend in stocks is cautiously positive, but any of the catalysts above could potentially trigger a pullback given the tentative nature of the latest rally.