January 19, 2018.

Fear of Shutdown Grinds Rally to a Halt

With fears of a potential governmental shutdown, the major indexes took a hit. But yesterday’s losses, were only a dent, giving the bears little to gloat about after Wednesday’s spectacular comeback after Tuesday’s turn for the worse. There were positive numbers from reporting firms, but the potential of the fraught and bitter fighting between Democrats and Republicans on Capitol Hill spilling over to a shutdown took its toll.

The Dow, though, held its own above the 26,000 point level, the S&P 500 tying the longest-ever stretch of trading days without a 5% pullback. The broad market index has now gone 394 sessions without falling 5%, a stunning accomplishment. Right after opening, the Dow hit an intraday high, only to retreat. The blue chip index traded off as much 168 points at the 25,947.32 level. All-in-all, Boeing (BA) was the index’s biggest loser, responsible for just about 70 points of its downtick. The S&P 500 was dragged lower by losses in the energy, real estate and utility sectors.

Daily Summary: All of the major indexes fell on the day, the blue chip Dow falling the most, shedding 0.37%. The S&P 500 dropped 0.16%, the NASDAQ falling 0.03%.

On Capitol Hill, if all of the political wrangling fails, a shutdown is set for Saturday. The stakes are high, neither party wanting to be blamed for the political fallout. The question is who would be seen as most intransigent! Immigration is a crucial issue, especially in light of Trump’s recent racist comments about African countries and Haiti. The tide could turn quickly and each side will play its hand as it sees fit, trying to use leverage and political capital to either thwart or cause a shutdown. The Wall Street Journal reported that now Republicans are set to push forward a short-term bill to keep the government churning through mid-February.

In bond news, the yield on the U.S. 10-year T bond hit its highest level since March, riding the wave of strong Chinese growth. China reported Q4 growth which accelerated for the first time in 7-years. Year-over-year, Chinese GDP rose 6.8% from October to December, the country’s export recovery facilitating expansion.

Yields rose to 2.642% from 2.611%. Obviously, the attractiveness of bond yields impacts the desirability of stocks, investors wanting to not only get the best yield but also the most predictable or reliable results. After the Labor Department announcing on Thursday that the number of people filing for unemployment was now at the lowest level in 45 years, yields also got a healthy boost.

Alcoa (AA) fell 7% after its quarterly results fell short of analyst forecasts. Morgan Stanley (MS) rose 0.9% after beating the consensus. Amazon (AMZN) announced that it had chosen 20 cities as finalists for its second headquarters. The stock ended the day marginally off by 0.13%. IBM bucked the trend it had set over the last 5 plus years. Having seen falling revenues for the last 22 quarters, the company announced that revenues were back on the uptick, after revenues came out at $22.5 billion, above analysts’ $22.06 billion forecast. Quarterly EPS came out at $5.18, a cent above forecasts; yearly EPS is now at $13.8.

Morgan Stanley (MS) and Goldman Sachs (GS) were also in the spotlight. MS recorded Q4 EPS of 84 cents, trouncing expectations of 77 cents. Revenues also beat out expectations. With that said, both MS and GS took a one time hit, lowering its non-cash assets on the books due to the tax reform bill. Goldman saw bond trading revenues fall by a ghastly 50%. American Express (AXP) also took a quarterly loss for tax purposes. Without the tax loss, according to the company, its quarterly EPS would be $1.58 per share. The company’s Q4 revenues grew by 10%, up from $8 billion to $8.8 billion, fueled by increased credit card usage and credit card loans.

Jobless claims fell 41,000 to 222,000. Construction on new homes in December fell to an annual rate of 1.19 million, a drop-off of 8.2%. With that said, housing starts, the number of new homes and permits hit their highest level since 2007. On the Fed front, the Philadelphia Fed announced that manufacturing in the Philly area fell to a 5-month low of 22.2 points in January. Bitcoin traded above $11,000.

Today’s Economic Calendar: Consumer Sentiment numbers will be coming out at 10:00, followed by the Baker-Hughes Rig Count at 13:00. With crude having recovered in large part, watch the rig count carefully to see its effect on crude and energy stock prices. At 13:30, San Francisco’s Fed Chief, John Williams, will be speaking.



Daily change


Friday’s Hot Stocks:  AXP, IBM, MLNX, STI, SLB


Have a great trading day!


Economic Calendar


DAYTIME (EST)EventForecastImpact
Tuesday8:30Empire State Mfg Survey18.6Medium
Wednesday9:15Industrial Production0.4 %Medium
Wednesday10:00Housing Market Index73Medium
Wednesday14:00Beige Book0.7 %Medium
Wednesday15:00Charles Evans SpeaksMedium
Thursday8:30Housing Starts1.280 MMedium
Thursday8:30Jobless Claims250 KLow
Thursday8:30Philadelphia Fed Business Outlook Survey25.0Medium
Thursday11:00Oil Inventories-4.9 M barrelsLow
Friday8:30Consumer Sentiment97High


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