This is a theme we’ve noted time and time again: sometimes there’s a disconnect between individual stocks and the market at large. And sometimes, when one index or even one stock is particularly strong, it can carry the whole market. Yesterday, we saw a narrow breadth on the S&P 500, only 3 of the 11 sectors advancing – and yet the market ended higher.
Markets yesterday woke up to fire and brimstone from the U.S. Commander in Chief, Trump tweeting in capital letters his wrath at the Iranian regime. With mid-term elections around the corner, Trump is trying to consolidate his base by way of patriotic pride and flexing his muscles. It seems like Trump doesn’t cease to surprise; for a few days in a row we heard about his frustration about rate hikes, seemingly hedging against any economic downturn, ready to blame the Fed at a minute’s notice. This time, though, it was Iran’s Rouhani: “To Iranian President Rouhani: NEVER, EVER THREATEN THE UNITED STATES AGAIN OR YOU WILL SUFFER CONSEQUENCES THE LIKES OF WHICH FEW THROUGHOUT HISTORY HAVE EVER SUFFERED BEFORE. WE ARE NO LONGER A COUNTRY THAT WILL STAND FOR YOUR DEMENTED WORDS OF VIOLENCE & DEATH. BE CAUTIOUS!” Oil climbed after the tweet, only to fall by the end of trading. Days before, it was bonds falling – and yields climbing – after Trump blamed the Fed for denting his fiscal stimulus package, neutralizing the effects of his tax cuts. The name of the game seems to be following the tweets, with little more to it.
Another stock we’ve commented on time and time again is Tesla (TSLA). Known as the most shorted stock on the market, yesterday it seemed to stir the pot yesterday after asking suppliers for refunds on purchases already made. For its part, Tesla denied that account, claiming that it was asking for discounts on current orders. Not that that helped, though, the stock falling 3.31% in regular trading. If you’re looking for an easy buck, follow TSLA. You have to be wise about picking the right entry and exit points, but TSLA is a stock that moves and a lot. It also seems to be a company that piques a lot of scepticism. Even when reaching its Model 3 target, the stock got clobbered, analysts pointing to a lack of sustainability. Tesla’s Musk has looked to slash workers wherever he can, trying as hard as possible to streamline cash flow issues that have seemingly mounted since the start of the company’s push into mass production.
As for the developing trade war, little progress is being made in reaching a resolution. The G20 countries didn’t go far, the EU and the U.S. refusing to budge. The Wall Street Journal has reported that it’s taking a toll, even, for example, for meat producers which have record amounts of meat in storage given Chinese and Mexican tariffs. While, for example, prices could be lowered for domestic consumers, China boosted the duty on pork this past month to 62%. The lack of foreign demand is also crimping, as a case in point, new investments, creating the opposite of the ripple effect touted by supply side economics. For now, the U.S. economy has weathered the storm but if expectations grow for contracted demand, we may see more and more employers eliminating shifts, which could likewise push down wages, lowering purchasing power at a time of heightened inflation given higher import prices. That, after all, is the reason Trump has set his sights on the Fed rate hikes, knowing that that’s the monkey wrench that could quell growth, and gnaw at his legacy, and perhaps more importantly, his chances of holding both chambers of Congress.
No stock report, though, would be complete without highlighting Google’s parent, Alphabet, which could perhaps give the market a nice boost today. Even after being walloped by the EU with a massive fine, the American tech powerhouse came out on top, surging 3% in after-hours trading yesterday. Google clobbered consensus earnings of $9.59, the actual number coming out at $11.75 per share. The revenue beat wasn’t as impressive, but was noteworthy nonetheless. And paid clicks were up a huge 58%, trouncing expectations of 49 cents per share.
FTSE Russell global markets research managing director, Alec Young, was sanguine, overall, about the market’s trajectory. “We have a trend of strong corporate fundamentals and economic data, and also a Federal Reserve that is willing to slow its pace of interest-rate hikes if the market wobbles. Those factors will support risk appetite even if negative trade headlines remain.” At the same time, it seems like the market’s sideways movement hasn’t corroborated what he said. Young noted, “The degree to which we have a negative reaction to trade is related to the degree to which it erodes fundamentals. However, so far there’s little evidence that it is having an impact on earnings or revenue, or data or business sentiment.” By the same token, the market has seemed devoid of stamina and momentum for some time, and we’ll have to see today if Google can get it out of its funk. With other FAANG stocks failing to do the trick, we’ll have to see what Apple’s numbers bring, but overall, given the more complex market milieu, it’s not going to be easy. The market has not been forgiving, the presumption being that the stellar earnings season was already priced in, with uncertainty looming more and more.
Market Summary: The blue-chip Dow slipped by less than 0.1%; it was still, though, its third consecutive losing day. The S&P 500 and the NASDAQ ended higher, the S&P 500 tacking on 0.18%, the NASDAQ, adding on 0.28%.
Economic Calendar: The Markit Manufacturing PMI flash will be released at 9:45 along with the Markit Services PMI flash.
Hot Stocks: VSI, ZION, OI, NTGR, AMTD, WHR, GOOGL
Watch bond movement today; if rates continue to creep up, it could place a damper on the stock market.
Have a great trading day!