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Why the October Sell Off Was Different

What’s in Today’s Report:

  • Why The October Sell Off Was Different
  • Valuation Update (the market is fairly valued here)

Futures are moderately lower following more disappointing Chinese economic data.

Chinese auto sales plunged 12% yoy in November and annual car sales growth turned negative for the first time since the early 1990’s, further fanning fears of a Chinese economic slowdown.

Earnings results were mixed as DIS posted solid numbers while EU corporate earnings were disappointing.

Today focus will be on inflation via PPI (E: 0.2%) and it needs to remain “Goldilocks” so as to not put more downward pressure on stocks.  We also have several Fed speakers (Williams (8:30 a.m. ET), Harker (8:50 a.m. ET), Quarles (9:00 a.m. ET)) although the next big Fed event will be Fed Chair Powell speaking on Tuesday.

Election Takeaways & FOMC Preview

What’s in Today’s Report:

  • Election Takeaways (Short and Longer Term Implications)
  • FOMC Preview – All About the Fed Put
  • A Seasonal Pattern That’s Worked 100% of the Time

Futures are modestly higher on a relief rally as the U.S. mid-term elections provided no surprises.

As was widely expected, Democrats gained a small majority in the House of Representatives, while the Republicans expanded their majority in the Senate.

Economically, data from Europe was good as German Industrial Production (0.2% vs. (E) -0.1%) and Euro Zone Retail Sales (0.1% vs. (E) 0.0%) both beat estimates.

Today focus will be on the FOMC Decision (2:00 p.m. EST, E: No Change to Rates) and the key will be whether the Fed mentions recent stock market volatility.  If they do, that will be taken as a slightly dovish shift, and it likely will help extend today’s early rally.

Trade War Indicator

What’s in Today’s Report:

  • A Realtime Trade-War Indicator to Watch

Futures are slightly lower with EU markets this morning on renewed political tensions despite upbeat economic data o/n while US focus turns ahead to the mid-terms.

Italian shares are down nearly 1% as the revised budget due on 11/13 is not expected to have the improvements investors previously hoped which could lead to further tensions with the EU.

Economically, the EU Composite PMI came in better than expected (53.1 vs. E: 52.7) which is a longer term positive as we need to see overseas data “catch up” to US growth metrics to help fuel continued gains in stocks broadly.

Today, trader focus is going to primarily be on the mid-term elections although results will not come in until after the close.

On the economic front, there is just one report to watch: September JOLTS (E: 7.110M) while there are no Fed officials schedules to speak ahead of the two-day Fed meeting that begins tomorrow.

Lastly, markets will remain sensitive to any trade war developments while technicals are still playing a major role in intraday price swings so if momentum is generated back towards 2700, the odds of another ugly break to the mid $2600’s would rise significantly.

Growth and Volatility

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.

Jobs Report Preview

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.

Was Yesterday an “All Clear?”

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.

Bounce or Bottom? Updated Market Technicals

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 CNBC on October 25, 2018

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.

Four Steps to a Bottom

What’s in Today’s Report:

  • Technical Update
  • Four Steps to a Bottom

US futures are in the red again this morning although there is again no clear reason why while overseas shares traded mostly “ok” overnight amid mixed economic data.

Japanese PMI Manufacturing Flash beat (53.1 vs. E: 52.6) helping the Nikkei rally but EU data was on the soft side.

As far as US economic data goes today, there are two reports on the housing market this morning: FHFA House Price Index (E: 0.3%) and New Home Sales (E: 625K) while the more important release to watch will be the PMI Composite Flash (E: 54.1) due out shortly after the open.

The Fed speaker circuit also remains busy with Bostic (10:00 a.m. ET, 2:00 p.m. ET), Bullard (11:30 a.m. ET), and Mester (12:30 p.m. ET) all speaking during the Wall Street session today.

Lastly, and likely most importantly for stocks right now, there are a slew of earnings reports today. A few notables include: BA ($3.51) and T ($0.93) ahead of the open and MSFT ($0.96) and V ($1.20) after the close.

Updated Market Outlook Post Pullback

What’s in Today’s Report:

  • Putting the Pullback In Context (We’ve Seen Something Similar Twice This Year)
  • Weekly Market Preview (All About Earnings and Data)
  • Weekly Economic Cheat Sheet (Market Needs a Confidence Boost)

Futures are moderately lower following a generally quiet weekend, as markets digest Friday’s bounce.

Nothing outright negative occurred over the weekend to cause the resumption of selling. But, there was no improvement in any macro headwinds either and as such markets are digesting Friday’s gains.

There were no notable economic reports overnight.

Today focus will turn towards economic data and we get two important reports: Retail Sales (E: 0.6%) and Oct. Empire Manufacturing Survey (E: 19.3).  Strong readings will give the market a needed boost of confidence as they’ll remind investors the economic remains strong.

On the earnings front, activity picks up starting tomorrow but there are two notable reports today:  BAC (E: $0.62), SCHW (E: $0.64).