A big day, indeed!

A big day, indeed!  Stocks were off slightly yesterday as investors weighed in on earnings and awaited the Feds next move.  Consumer confidence may be waning but still remains in a good place.

 

MY TWO CENTS

 

  1.  It’s an index.  Yesterday, the S&P500 slipped by -0.08%, a day after it achieved a record high.  The large cap index was weighed down by a drop in Alphabet/Google, which lost -2.12% after announcing weaker earnings after Monday’s close.  This statement warrants some close examination.  If we look closer at the S&P500 member stocks, we would note that only a small percentage of them are at highs while the index itself is just below one.  How is that possible and what does it mean to investors?  First, a word on the index.  The S&P500 is a capitalization weighted index, which means that companies with larger market caps are counted more heavily than the smaller ones.  Looking at the top ten stocks in the index you would find Microsoft, Apple, Amazon, Facebook,  Berkshire Hathaway, JP Morgan Chase, Alphabet/Google Class C, Alphabet/Google Class A, Johnson & Johnson, and finally Visa.  That appears to be a pretty good group of stocks, which also happen to be the largest stocks in the world by market cap.  As far as the index goes, those top ten stocks make up roughly 22% of the total index by weight!  Remember that there are another 490 stocks that make up the balance.  Market capitalization is calculated by multiplying a stock’s price by the amount of shares it has outstanding, therefore if a stock’s share price goes up so does a company’s market cap.  This means that these large cap companies are “large cap” because their stocks have performed well, making the index a self-selecting club of winners.  What does it mean to us?  Well, as I just described the S&P500 as being a collection of the largest cap stocks where best performers are given the most weight, it would seem that if someone wanted to invest in “the stock” market, the index might be a good place to start.  In fact, it is that very assertion that supports the growth in popularity of index investing and passive ETF’s.  A word of caution though, as we learned yesterday, when one of the titans stumbles, so does the index.  Today we will hear from #2 and #4: Apple and Facebook.  Their combined weights on the index is 6%.  Oh, and there will be another 40 members releasing their earnings today as well.

 

  1.  Turning point.  By now, all of my readers are well aware of my obsession with consumer health.  One of the ways we track that health is through confidence surveys.  These surveys ask consumers about their plans and feelings about the current situations and about the future, six months and beyond.  I love these numbers because we know that confident consumers spend money.  If the numbers continue to show health then we can expect spending to continue.  The drawback to these surveys is that consumers tend to be fickle, changing their feelings often, especially about the future.  The numbers can be choppy and change on a dime in response to news events.  That is why we look at a trend rather than the actual number.  Yesterday, the Conference Board released its highly watched Consumer Confidencesurvey which came in at a lower than expected 125.9, down from last month’s 126.3.  The move represents the fourth decrease in a row.  Breaking down the number further, we learned that consumers were more upbeat about their present situation but less so about their expectations for the future.  Still it is important to note that the number is still right around a high achieved last September and far better off than we were leading up to the financial crisis which saw the index fall from 111 in the summer of 2007 to 25 by February of 2008.  The recent trend is worth noting, but more importantly as we enter the holiday season, the hard numbers such as Retail Saleswill give us a better clue about what we can expect in the year ahead.  That said, the Federal Reserve is poised to lower interest rates for a third time today.  That, according to Fed Funds futures which has the probability of a cut at 97.3%.  Though many economists have argued that a rate cut is unnecessary and may not happen, the Fed is certainly hoping to ensure that the current confidence of the consumer is translated into spending, and lowering rates further can help.  The FOMC will announce its decision this afternoon at 2:00 PM EST and will follow up with a press briefing.

 

THE MARKETS

 

Stocks slipped yesterday on mixed earnings.  The Health Care sector was the best performer, helped by beats from Merck and Pfizer while Communication Services Tech was the worst, held back by Alphabet/Google.  The S&P500 slipped by -0.08%, the Dow Jones Industrial Average dropped by -0.07%, the Russell 2000 climbed by +0.33%, and the NASDAQ Composite Index sold off by -0.59%.  Bonds advanced slightly and 10-year treasury yields fell by -1 basis point to 1.83%.

 

WHAT’S NXT

 

– ADP Employment Change is expected to show that the economy added +110k new jobs compared to last month’s +135k.

– GDP is expected to have grown by an annualized quarterly rate of +1.6%, slower than last quarter’s +2.0% growth.  Personal Consumption is expected to have grown at +2.6%, down from last month’s read of +4.6%.

– The FOMC will announce its policy this afternoon at 2:00 PM EST.  They are expected to cut rates by -25 basis points.  Assuming that they cut rates, the real fireworks will be around the wording of the statement along with Chairman Powell’s comments and Q&A that follows the announcement.

– This morning GE beat earnings estimates and we expect to hear from US Steel, ADP, Simon Properties, McKesson, and Royal Caribbean.  After the bell releases include Zynga, Yum Brands, Twilio, MGM, MetLife, Facebook, Lyft, Annaly Capital Management, Apple, and Starbucks, to name a few.

daily chartbook 2019-10-30

IMPORTANT DISCLOSURES.

Muriel Siebert & Co., LLC is an affiliated broker/dealer of the public holding company, Siebert Financial Corporation, which also owns Siebert AdvisorNXT, LLC. Siebert AdvisorNXT, LLC is a registered investments advisor (RIA) with the SEC and with state securities regulators. We may only transact business or render personal investment advice in states where we are registered, filed notice or otherwise excluded or exempted from registration requirements. Investment Advisor products are NOT insured by the FDIC, SIPC any federal government agency or Siebert’s parent company or affiliates.

You are being provided this Market Note for general informational purposes only. It is not intended to predict or guarantee the future performance of any security, market sector or the markets generally. This Market Note does not describe our investment services, recommendations or market timing nor does it constitute an offer to sell or any solicitation to buy. All investors are advised to conduct their own independent research before making a purchase decision. This Market Note is to provide general investment education and you are solely responsible for determining whether any investment, security or strategy, or any other product or service, is appropriate for you based on certain investment objectives and financial situation. Do not use the information contained in this email as a basis for investment decisions. You should always consult your investment advisor and tax professional regarding your investment situation before investing. The charts and graphs are obtained from sources believed to be reliable however Siebert AdvisorNXT does not warrant or guarantee the accuracy of the information. Any retransmission, dissemination or other use of this email is prohibited. If you are not the intended recipient, delete the email from your system and contact the sender. This is a market commentary, not research under FINRA Rule 2210 (b)(1)(D)(iii) and FINRA Rule 2210 (c)(7)(C).

© 2021 Siebert AdvisorNXT All rights reserved.