The scary climb

The scary climb.  Stocks advanced yesterday with the S&P500 closing at an all-time high as earnings worked hand-in-hand with headlines to cheer on the bulls.  Earnings are beating expectations and the trade deal is ahead of schedule.

 

MY TWO CENTS

 

  1.  The forest.  Yesterday was one for the record books.  The S&P500 had reached a fresh peak, closing at 3039, marking the first all-time high close since back in July… last earnings season.  Despite all of the bearish mood exuded by professional money managers (Barron’s actually did a poll and only 27% of large managers are bullish, the lowest in 20 years), the macro conditions were ripe for the bulls to make a run for the top.  President Trump announced that the Phase One trade deal was ahead of schedule: Good; the EU granted the UK a three month delay for Brexit, lowering the likelihood of a no-deal Brexit: also Good; and today the Fed starts its two-day confab in which they are expected to lower key interest rates by another -25 basis points (a 96% chance based on Fed Funds futures): really Good.  Historically, the November through December period has proven to be one of the best for risk rallies, though history doesn’t always repeat itself.  That said, yesterday was a good day to make a new high.

 

  1.  The trees.  It wasn’t only the macro picture that helped propel the large cap index to new highs, but it was also individual company news that provided the after-burner effect adding to bullish momentum.  Microsoft (MSFT) has had a landmark year and an announcement that the Department of Defense selected it for a $10 billion dollar project helped the stock jump by +2.46%.  Spotify (SPOT) turned a surprise profit sending its shares up by +16.17%!  AT&T (T) beat earnings estimates and missed on revenues but its announcement that it would sell off non-core assets and continue to focus on strong cash flows sent its stock up by +4.28%.  Competitor, T-Mobile (TMUS) also beat Wall Street estimates causing its shares to advance by +0.94%.  Walgreens (WBA) logged an earnings beat causing its shares to climb by +0.69%.  Tiffany (TIF) jumped by +31.63% in yesterday’s session on news that LVMH was seeking to acquire the company.  After the bell, WHILE YOU COMMUTED, Beyond Meat (BYND) announced that it had beaten estimates by a bunch but the stock tumbled as much as -14% in after hours trading.  The company has performed well but the stock has been under pressure since peaking in late July as many traders speculate that it went too high too fast and is one of the most highly shorted stocks.  Adding to that pressure, a lockup period for restricted shares ends on November 1st which will most likely see additional compression on the stock as employees take profits.  Finally, Alphabet/Google (GOOG) missed on earnings after the bell.  Large investments in cloud computing contributed to the weaker earnings figure.  Earlier in the day, Alphabet announced plans to acquire Fitbit sending their shares up by +30.86%.  Google shares sold off in the after-market by as much as -4% but has since recovered to a loss of -1.4%.  Lots more company news ahead as we are only half way through earnings season and still have many more trees to climb.

 

THE MARKETS

 

Stocks rallied yesterday on good earnings announcements and positive news on trade.  The S&P500 climbed by +0.56% to a new high, the Dow Jones Industrial Average traded up by +0.49%, the Russell 2000 advanced by +0.85%, and the NASDAQ Composite Index jumped by +1.01% driven by tech shares.  Bonds slipped for a third day in a a row and 10-year treasury yields climbed by +5 basis points to 1.84%.

 

WHAT’S NXT

 

– This morning we will get Case-Shiller Home Price Index, which is expected to have fallen by -0.10% compared to last month’s growth of +0.02%.

– The Conference Board will release Consumer Confidence which is expected to have increased to 128.0 from 125.1.

– Pending Home Sales are expected to have increased by +3.6%, up from last month’s +1.1% advance.

– This morning Merck, Ingersoll-Rand, KKR, Martin Marietta, and ConocoPhillips beat while Pfizer and AO Smith missed expectations.  Also out before the bell will be Croning, HCA, GM, Mastercard, Mattel, and Mondelez, amongst others.  After the close earnings will include AMD, Boston Beer Co, Electronic Arts, Amgen, Stryker, and Public Storage.

–  Boeing’s CEO will testify in Congress.

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