Zig Zag Zig…

Zig zag zig….  Stocks zigged up yesterday as China pumped more economic stimulus into its economy and newly reported cases of COVID-19 appear to be slowing.  The Fed is happy with its policy and homebuilders are busy, really busy.

N O T E W O R T H Y

• A tale of two apples.  You remember that big news story about Apple telling us that they will miss their revenue targets because of the virus outbreak in China?  I hope so. I wrote about it Tuesday morning as traders got back from a 3-day weekend.  It wasn’t just me (although I wake up earlier, which earned me the worm) as news of Apple’s plight spread through the financial news like wildfire.  The news sent Apple’s stock down and all of its manufacturers followed… and also the Dow and S&P500 indexes which include Apple as a prominently weighted member.  That was Tuesday and now I am sure that you remember.  Well, Wednesday (yesterday) traders seemed to take a different view and by “different” I mean completely different, as the stock traded straight up through lunch and then faded slightly into the close, but the net result was that the stock traded up by +1.45% on the day.  The theme here is: investors get some credible information which is negative for a stock and sell… a day later… investors decide that things are not so bad so they buy the dip.  That should seem familiar as it is the same pattern which has driven the broader US equity markets over the past two quarters. What is the message here? Long term focus!  The caveat however is, if investors are being blindly optimistic about the future relying on greed to fuel the market, they may be in for some pain… that’s where the second message comes in.  Diversify!
• Can we build it – yes we can.  I often write about real estate and not just because I feel that it offers good investment opportunities (warning: not for everyone and requires expert advice), but because it is vital to the US domestic economy. Builders employ many laborers and consume lots of commodities, both of which fuel economic growth.  What are the two main drivers of the  sector?  Interest rates and the weather.  That’s right, the weather.  Building is seasonal and construction typically slows during the winter months in much of the US.  This  winter being a relatively mild one has enabled builders to well, keep on building.  Interest rates are a big factor as builders rely on construction loans to complete projects, and lower rates mean lower costs, adding to potential profits.  In other words, when rates are low projects typically pick up. Oh, and lower rates are also good for homebuyers, enabling them to pay higher prices… more potential profits for builders.  Mild winter + low interest rates = good for builders.  The proof can be found in the numbers. Yesterday, month over month Housing Starts were down -3.6%, far less than the expected -11.2%.  That, after starts grew by an adjusted-up +17.7% in the prior month. Another gauge of growth is Building Permits which are issued for new construction. That number surged by +9.2%, beating expectations. Mild weather, low interest rates.

THE MARKETS

Stocks traded up yesterday as investors decided that they overdid in the prior session and maybe the spread of the Coronavirus is slowing.  The S&P500 rose by +0.47%, the Dow Jones Industrial Average traded up by +0.4%, the Russel 2000 climbed by +0.54%, and the NASDAQ Composite Index ascended by +0.87%.  Bonds fell slightly and 10-year treasury yields were unchanged at 1.56%.

NXT UP

– Philadelphia Fed Business Outlook may have fallen to 11.0 from 17.0.

– The Conference Board’s Leading Index is expected to have advanced by +0.4% in January compared to a slip of -0.3% in the prior month.

– Richmond Fed President Thomas Barkin will speak today.

– This morning Six Flags Entertainment missed expectations and we will hear from Domino’s Pizza, Newmont, and Viacom before the bell.  After the close announcements include First Solar, Fitbit, Envestnet, and Puma Biotech.  For a full rundown of earnings from top securities you can get my weekly calendar here: https://www.siebertnet.com/blog/wp-content/uploads/2020/02/earnings-releases-2_18.xlsx

daily chartbook 2020-02-20