What Yesterday’s Sell Off Means for Markets

What’s in Today’s Report:

  • What Yesterday’s Selloff Means for Markets
  • TGT Earnings – Not as Negative as it Seemed but Bad Things Happen Fast
  • EIA Analysis and Oil Update

Futures are sharply lower following more disappointing earnings and on momentum from Wednesday’s collapse.

Cisco (CSCO) missed earnings after the close and the stock is down 12% after hours.  The company blamed Chinese lockdowns for the earnings miss and made positive comments about overall demand, but in this market, that nuance doesn’t matter, and the results weighed on futures.

Today’s focus will turn back towards economic data and specifically the Philadelphia Fed Manufacturing Index (E: 16.1).  If it plunges like Empire did on Monday, that will increase anxiety about stagflation and further weigh on stocks.  Other notable data includes Jobless Claims (E: 197K) and Existing Home Sales (E: 5.650M) and we get two Fed speakers, Michael Barr (10:00 a.m. ET) and Kashkari (4:00 p.m. ET) but they shouldn’t move markets.

Jobs Report Preview (Too Hot is the Risk)

What’s in Today’s Report:

  • Jobs Report Preview (Too Hot is the Risk)
  • Oil Update and Inventory Analysis

Futures are slightly higher following a quiet night as markets tentatively bounce back from Wednesday’s losses.

Economic data was mixed overnight as German Manufacturers’ Orders beat estimates (4.1% vs. (E) 1.5%) while the UK Construction PMI missed estimates (58.7 vs. (E) 63.8).

On COVID, Los Angeles could  follow NYC in requiring proof of vaccination for indoor activities (if this becomes widespread policy in large cities it’ll be an economic headwind.)

Today we have a Bank of England meeting (No Change to Rates Expected), Jobless Claims (E: 381K), and one Fed speaker, Waller at 10:00 a.m. ET (who could be hawkish again, remember he called for tapering to start as early as September).

But, unless there’s a major surprise from the BOE or jobless claims, then COVID headlines will drive markets, and any signs of restrictions or behavior changes in people will cause volatility (and a decline in stocks).

Market Multiple Table (Updated)

What’s in Today’s Report:

  • Market Multiple Table:  December Update
  • EIA and Oil Market Analysis

Futures are little changed as overnight markets digested the week’s rally amidst better than expected economic data and more stimulus chatter.

Economic data was solid overnight as Chinese (57.8 vs. (E) 56.8), EU (41.7 vs. (E) 41.3) and British (47.6 vs. (E) 45.8) service sector PMIs all best estimates.

On stimulus, Democrat leader Pelosi and Schumer said the current $990 bln stimulus bill was a good “starting point.”

Today focus will be on economic data, especially Jobless Claims (E: 770K) because if they rise close to or above 800k, that will be more evidence the recovery is losing momentum.  We also get the ISM Services Index (E: 56.1).  Finally, stimulus chatter continues to heat up, and markets will embrace any further hints at negotiations (although a near-term deal still is very unlikely).

What Happens to Markets If Trump Wins?

What’s in Today’s Report:

  • What Happens To Markets If Trump Wins?
  • Oil Update and EIA Analysis

Futures are marginally weaker following negative stimulus headlines overnight.

President Trump tweeted that stimulus talks had again hit an impasse, implying there would be no deal before the election.  This has always been the base case for the market, but as we and others have said, as long as the market expects the $1.5T-$2.0T in stimulus before year-end, the breakdown in negotiations isn’t a major headwind on stocks.

Today, stimulus headlines will continue to move the tape in the short term, but we’ve also got an important economic report via weekly Jobless Claims (E: 868k) and if that number breaks above 900k, we’ll see concern start to rise the economic recovery is starting to slip.

Other notable events today include Existing Home Sales (E: 6.2M) and three Fed speakers: Barkin & Daly (1:10 p.m. ET), Kaplan (6:00 p.m. ET).

Finally, earnings season is starting to head up, and while stimulus talks are dominating the headlines, earnings are still important.  Some report to watch today include:  KO ($0.45), AAL (-$5.62), T ($0.77), LUV (-$2.44), UNP ($2.03), INTC ($1.10), COF ($1.99), STX ($0.98).

Why are Treasury Yields Breaking Out?

What’s in Today’s Report:

  • Why Are Treasury Yields Breaking Out (And Cyclical Sectors Outperforming?)
  • Weekly EIA Report and Oil Update

Futures are modestly higher mostly on momentum from yesterday’s rally, following a quiet night of news.

The Vice Presidential debate was traditional and didn’t provide any surprises and won’t impact the Presidential race.  Currently the market is fully expecting a Biden win and partially pricing in a “Blue Wave” in November.

Economically, German exports slightly beat estimates, rising 2.4% vs. (E) 1.5%, but that number isn’t moving markets.

Today focus will remain on chatter of any potential stand-alone stimulus bills for the airlines or direct payments to citizens, but nothing is expected.  Beyond stimulus, we do get an important economic report via Jobless Claims (E: 819K), and markets will want to see continued improvement to show the recovery is indeed ongoing.  A drop below 800k would be positive surprise.

Finally, there are multiple Fed speakers today including Rosengren (12:10 p.m. ET), Kaplan (1:00 p.m. ET), Bostic (2:00 p.m. ET) and Barkin (2:30 p.m. ET), but none of them should move markets.

How Much Further Can the Correction Go?

What’s in Today’s Report:

  • How Much Further Can the Correction Go?
  • Oil Update and EIA Analysis
  • Flash PMIs:  More Signs of a Plateau in the Recovery?

Futures are little changed as markets digest Wednesday’s selloff following a quiet night of news.

Economic data was mixed as German Ifo Business Expectations slightly missed estimates (97.7 vs. (E) 98) while British Distributive Trades (retail sales) beat (10% vs. (E) -11%).

Today the key report will be weekly Jobless Claims, which are forecast to move up to 880K.  If weekly claims are worse than expectations, concerns will grow that the economic recovery is indeed plateauing (and remember we’re almost certainly not getting stimulus until late November/early December, at the earliest).  We also get the latest look at New Home Sales (E: 875K).

Finally, there is a veritable parade of Fed speakers today:  Kaplan (8:50 a.m. ET), Bullard (12:00 p.m. ET), Barkin (1:00 p.m. ET), Evans (1:00 p.m. ET), Williams (2:00 p.m. ET), Bostic (2:00 p.m. ET), Powell (10:00 a.m. ET).  Of those speaking, Powell is clearly the most important, but we don’t expect him to say anything new (and as such the market should ignore pretty much all of it).

Finding Value With a Positive Catalyst (Not Energy or Financials)

What’s in Today’s Report:

  • Why Did Stocks Care About Coronavirus Stats on Wednesday?
  • Where to Find Value with a Positive Catalyst In This Market (Not Energy or Financials)
  • Oil Update and EIA Analysis

Futures are modestly lower but well off overnight lows as coronavirus cases continued to surge in the U.S.

New daily cases in the U.S. rose above 36k and are right back at the peak of new daily cases set in late April.

Meanwhile, corporations continue to respond, as DIS delayed the opening of its California park (and a delay in Florida is becoming more likely).

Today there are two economic reports, Durable Goods (E: 8.5%) and Final Q1 GDP (E: -5.0%) but neither should move markets as they are “old” data from May and Q1.  There are also several Fed speakers, including Kaplan (9:30 a.m. ET), Bostic (11:00 a.m. ET) and Mester (12:00 p.m. ET), but again none of them should move markets, either.

So, as has been the case, trends in coronavirus, and specifically the response from companies (do they delay reopening plans?) will drive markets.  Overnight, S&P 500 futures dropped to support at 3,000, so that’ll be an important level to watch today, and if needs to hold, otherwise this selloff could gain momentum.

What Does The Fed Decision Mean for the Rally?

What’s in Today’s Report:

  • What Does the Fed Decision Mean for the Rally?
  • The Key Takeaway from Yesterday’s Fed Decision (It Wasn’t Positive)
  • EIA Analysis and Oil Update

Futures are sharply lower on follow through from the modest declines following yesterday’s FOMC decision.

If there’s a “reason” for the pullback it’s two-fold:  First, digestion of Powell’s depressing outlook on future growth and second, a potential rebound in coronavirus cases.

Regarding coronavirus, the number of new cases is not spiking, but it is accelerating, as it’s done for over a week.  Point being, there hasn’t been a recent spike in new cases over the past few days, the rise in cases has been occurring for over a week.  But, the news cycle is turning again and renewed media focus on the virus is weighing on sentiment.

Looking forward to today, the key number is Jobless Claims (E: 1.500M) and again we need to see this number 1) Continue to decline and 2) Beat expectations, especially in light of Powell’s caution on the economy.  Also, Continuing Claims needs to decline.  If jobless claims disappoint markets, the selling today will likely intensify.

Jobs Report Preview (Can the Market Look Past 20 Million Job Losses)?

What’s in Today’s Report:

  • Jobs Report Preview (Could the Market Look Past 20 Million Job Losses?)
  • Why Are Treasury Yields Rising?
  • EIA Analysis and Oil Update

Futures are sharply higher thanks to better than expected Chinese export data.

Chinese exports rose 3.5% vs. (E) -11%, sparking hope that their economy is quickly getting back to “normal.”

But, in reality, data was more mixed than good as Chinese service PMIs remained weak (44.4) while German Industrial Production missed estimates –9.2% vs. (E) -6.4%.  Additionally, the better than expected Chinese export data was due in part to a surge in medical supply exports, something that’s hopefully not needed for much longer.

Today focus will be on Jobless Claims (E: 2.991MM) and has been the case for the past few weeks, continued declines from the previous week will give the market hope that the economic “worst” is behind us.

Finally, there are multiple Fed speakers today including Bostic (8:30 a.m. ET), Kashkari (12:00 p.m. ET) and Harker (E: 4:00 p.m. ET), but none of them should move markets.

Valuation Update (Cheap, Fairly Valued, or Still Expensive?)

What’s in Today’s Report:

  • Market Valuation Update:  Cheap, Fairly Valued, or Still Expensive?
  • Oil Update (Weekly Inventory Data)

Futures are seeing a moderate rally/bounce as the Fed acted, again, and oil bounced on comments from Trump.

The Fed said it will exclude Treasury holdings and deposits from certain leverage ratios (that essentially allows banks to lend more money which should help the economy).

On oil, Trump said he expected a Russia/Saudi oil deal within “days” but gave no specifics as to how that might happen (although it would be a positive if it does).

Today the key report is Jobless Claims (E: 3.350M), although we also get Motor Vehicle Sales (E: 14.3M) and International Trade (E: -$39.5B).

But, in reality, the real driver of markets right now is coronavirus headlines.  They were more positive in tone last week, but have turned more negative this week and that’s why stocks dropped so hard yesterday.  Any good news on 1) A pharma solution (vaccine/antibody treatment/trials) or 2) Slowing of the spread will help make this early bounce more sustainable.