Dow and S&P 500 are on the Brink of Exiting a Stock-Market Correction

The Nasdaq has climbed 12.3% from its Christmas Eve low but remains in a bear market

A new year, a new market. The Dow Jones Industrial Average and the S&P 500 appear in position to exit correction territory if a multiday rally on risk assets continues apace.

The Dow DJIA and the S&P 500 SPX marked a fourth straight gain, at least partly attributed to optimism around three days of talks intended to resolve a protracted dispute around tariffs between China and the U.S., and growing signs that the Federal Reserve is ready to dial back what has been perceived as an aggressive rate-hike path.

It was concerns over trade and rising rates, and worries that global growth was receding with the U.S. was on the verge of a recession, that shattered investor confidence, and drove the stock market down from an autumn peak.

Anxieties around those matters, however, have subsided somewhat, with the Dow knocking on the door of exiting correction, at least by one measure.

A correction is usually defined as a drop of at least 10% from a recent peak. Some market-technician purists believe that an asset must put in a new high to officially emerge from a correction phase, while Dow Jones’s data group views an exit from that phase after it gains 10% from the correction low.

The Dow needs to close at or above 23,971.42 to emerge from correction, by that measure.

 

The S&P 500 would need to climb to 2,586.21 or above, according to Dow Jones Market Data.

 

Thus far, the Dow has climbed 9.57% from its Dec. 24 low, while the S&P 500 has gained 9.95% from that Christmas Eve low, when stocks put in the worst trading action on the trading day before Christmas on record.

Meanwhile, the Nasdaq Composite Index COMP is up 12.3% from its Christmas Eve nadir, but that index remains squarely in bear-market territory, usually defined as a decline of at least 20% from a bull-market peak. The index would need to climb another 7.7 percentage points to break out of a bear market, which it entered on Dec. 21.

Wednesday marks Nasdaq’s 12th day in bear market and it would surpass the March 2009 bear market for the Nasdaq which ran 14 days. That bear market lasted from March 3 to March 23, 2009. March 9, 2009 was the bear low, according to Dow Jones Market Data.

 

Source: Dow Jones Market Data

Gains for equities also come as oil futures CLG9,  LCOH9 viewed as a so-called risk asset like stocks, broke out of a bear market, gaining 20% from their Dec. 24 nadir. Oil and stocks have moved in tandem recently, amid worries about economic expansion throughout the globe contracting, exacerbated by tensions around U.S.-China trade.

Both stocks and oil are approaching trades above their 50-day moving averages, which is seen by some industry participants as a further sign that a bullish trend is trying to reestablish itself (see chart below of S&P 500’s 50-day moving average at 2,637.24, compared with its close on Wednesday at 2,584.96):

 

Bespoke Investment Group in a Wednesday research report noted that since World War II there have only been 12 other declines of 15% or more within the span of three months that were immediately followed by a rally of 10% or better in 10 trading days or fewer (see Bespoke chart below):

 

Source: Bespoke Investment Group

On Wednesday, the release of minutes from the Fed’s December rate-setting meeting, helped to underline the view that the central bank is no longer in a hurry to raise interest rates, which, arguably, produced the stiffest headwinds for financial markets.

Wall Street, however, may find new worries afoot as a partial government shutdown is set to enter a 19th day, and is already the second-longest in 40 years.

Ken Jimenez contributed to this article.

Article and media were originally published by Mark DeCambre at marketwatch.com


The Big Question This Week: Is the Fed about to Completely Break This Market?

All eyes will be on the Federal Reserve meeting midweek, as bulls pin their hopes on some dovish words, if not a pause in the rate-hike playbook, to lure buyers back in to this reeling stock market.

It’s almost Christmas, after all.

But one way or another, there will be fireworks, according Chris Puplava, CIO at Financial Sense Wealth Management, who says the powwow will likely end the consolidation we’ve been seeing in the market over the past two months.

“If the Fed turns a deaf ear to the market and does not signal a pause in rate hikes, we are likely to see markets in the U.S. and globally continue to sell off and break down to new lows,” he explained in our call of the day. “However, if the Fed finally acknowledges the material slowdown underway in interest-rate sensitive sectors, like housing and autos, and signals a pause we will likely be treated to a sell off in the dollar DXY and a rally in risk assets over the coming weeks.”

In other words, get ready for even more volatility VIX — we’ve already had plenty, as you can see from our chart of the day below — during a time of the year that has typically gifted investors with seasonal gains.

Puplava says this particular meeting is critical in understanding the kind of market climate we can expect in the year ahead.

“The Fed often raises rates until something breaks, whether it be a break in the financial markets with some financial event or a break in the economy in which a recession occurs,” he wrote. “What should be on the Fed’s and investor’s minds is the question of whether or not the Fed is close to breaking something in the markets or economy.”

Puplava posted this “list of casualties from past Fed rate hikes” going all the way back to the 1970s. The pink columns show the recessions:

 

Puplava’s takeaway: “Investors may want to position themselves defensively heading into what is likely to be a very volatile 2019.”

If the reading from the Bank of International Settlements is any indication, getting defensive isn’t such a bad idea. The group, one of the world’s oldest international financial organizations, predicts that more selling is on the way.

“The market tensions we saw during this quarter were not an isolated event,” BIS’s Claudio Borio wrote. “Monetary policy normalization was bound to be challenging, especially in light of trade tensions and political uncertainty.”

As we enter “the most wonderful week of the year,” there’s reason to believe this time won’t be so wonderful, though stocks are showing some life early.

The market

Futures on the Dow YMH9, S&P ESH9 and Nasdaq NQH9 have tilted south. Gold GCZ8 is up a little, as is crude CLH9. The dollar DXY is down. Asia markets ADOW closed mostly mixed, while Europe SXXP is having a rough day.

The chart

It’s about as rough as it gets out there in terms of volatility. According to S&P Dow Jones Indices, there have been 12 times this year when the S&P 500 SPX has moved at least 3% from its intraday low to its high — that’s the most we’ve seen since 2011. This chart from the New York Times NYT captures just how clustered the swings have been relative to the prior year.

 

As the Times points out, more than half of the 3% swings have come since October, and things don’t appear to be quieting down as we head toward the holidays.

The buzz

Netflix NFLX has some seriously grand plans. As part of its ambitious aim to become the most prolific movie studio in show business, the Los Gatos, Calif.-based streaming giant is looking to release 90 films a year in what its original-movies chief describes as a “cinematic onslaught.”

Healthcare stocks are looking softer, with Humana HUM, Centene CNC and Community Health Systems CYH among those dropping after a Texas federal court ruled Friday that Obamacare was unconstitutional.

Goldman Sachs GS is taking a hit on news that the bank and two of its Asian subsidiaries have been officially charged in Malaysia over that 1MBD scandal.

If the home stretch to 2018 is any indication, next year promises to be a wild one for markets. To help you get a handle on every twist and turn, check out the our annual list of the must-follows on Finance Twitter TWTR.

The quote

“It is an awful, awful ruling and we are going to fight this tooth and nail” — Sen. Chuck Schumer, talking to NBC’s Chuck Todd on “Meet the Press” Sunday about the federal judge’s decision to strike down the Affordable Care Act.

The stat

62% — That’s the percentage of Americans who say President Trump has been lying about the investigation into Russia’s interference in the 2016 presidential campaign, according to a new national NBC News/Wall Street Journal poll. As you can see by the graphic below, that number is on the rise.

 

The economy

Other than that expected rate hike from the Federal Reserve later this week, we’ll also get November housing starts and existing home sales. The third estimate of third-quarter GDP is also on the way. As for what’s on tap Monday, the New York Fed Empire State manufacturing survey came in pretty weak for December.

Meanwhile, the White House on Sunday pushed the government to the brink of a shutdown, standing strong on its demand for $5 billion to build that wall. “We will do whatever is necessary to build the border wall to stop this ongoing crisis of immigration,” said senior adviser Stephen Miller. And that includes a shutdown.

And China’s annual Central Economic Work Conference starts Tuesday. The government will set out policy direction and perhaps announce stimulus for an economy that’s been showing signs of sagging.

Article and media were originally published by Shawn Langlois at marketwatch.com


Jobs Report Provides Reason for Fed Caution on Interest Rates Next Year

The November jobs report is strong enough to keep the Federal Reserve on track to raise interest rates later this month, but the central bank will turn cautious and slow the pace of rate hikes in 2019, economists said Friday.

The Fed has generally been hiking at once per-quarter pace since late 2016. Economists expect that pace to slow to two rate hikes in 2019.

The November jobs data “gives... ammunition” to Fed officials advocating caution, said Omair Sharif, senior U.S. economist at Societe Generale in New York.

On Thursday, Dallas Fed President Robert Kaplan said he wanted to see the Fed become more patient.

Lewis Alexander, chief U.S. economist at Nomura, said the market thinks that any pause in Fed rate hikes would be the end of the tightening cycle. But Fed officials “like to think they have the option to slow down,” he said.

Since the Jackson Hole meeting late this summer, Fed Chairman Jerome Powell has stressed the central bank was approaching a “transition” away from a steady pace of raising rates to a period of being less predictable, Alexander said. Powell has used the analogy that the Fed is in a dark room and needs to be cautious moving around.

“There is an impressive amount of uncertainty.”

Lewis Alexander, chief U.S. economist at Nomura

“We’re close” to that transition,” Alexander said. Going forward, the Fed is going to be more reactive. This will lead to only two moves next year.

The November job report by itself was not a game-changer, economists said. While job growth slowed down, the trend is still strong enough to keep the unemployment rate trending down.

What has changed is the recent volatility VIX  in financial markets, Alexander said.

On its face, this volatility suggests to the Fed that balance of risks in the economy have shifted more to the downside, he said.

“There is an impressive amount of uncertainty around key policy issues” — including U.S.-China relations, Brexit and the outlook for U.S. fiscal policy, Alexander said.

The message from the Fed in December will that the rate hike is justified as the economy is doing well but looking forward there is a lot of uncertainty, he said.

Kevin Cummins, senior U.S. economist at NatWest Markets Securities Inc., said the message from the Fed will be they are backing away from any plan to take interest rates into restrictive territory.

“They’ve shifted to calm market a little bit,” he said, adding he also expects two hikes next year.

After a positive opening, stocks turned lower in morning trading. The Dow Jones Industrial Average DJIA was recently down 10 points.

Article was originally published by Greg Robb at marketwatch.com


U.S. Stocks Retreat Modestly as G-20 Summit Gets Under Way

U.S. stocks on Friday traded down on the last trading day of the week and month, as investors prepare for a highly anticipated meeting between President Donald Trump and Chinese leader Xi Jinping on the sidelines of the G-20 summit in Argentina.

How are benchmarks performing?

The Dow Jones Industrial Average YMZ8 fell 42 points, or 0.2%, at 25,295, the S&P 500 index SPX was off less than a point, or 0.1%, at 2,737, while The Nasdaq Composite Index COMP slipped 6 points at 7,265, a decline of 0.1%.

On Thursday, the Dow slid 27.59 points, or 0.1%, to 25,338.84, while the S&P 500 index dropped 5.96 points, or 0.2%, to 2,737.83. The Nasdaq shed 18.51 points, or 0.3%, to 7,273.08.

The Dow is set to post a weekly gain of 4% and a monthly advance of about 0.6%, the S&P 500 is poised for a weekly rise of 3.9% and a 0.8% November increase, while the Nasdaq is set to show a weekly climb of 4.6%, but a monthly decline of 0.6%.

What’s driving markets?

Trade talks between China and the U.S. in Buenos Aires are at the center of investors’ attention, as presidents Trump and Xi are scheduled for a face-to-face meeting Saturday, where it is hoped the two sides can come to a deal on delaying new or expanded tariffs, which the American president has threatened to implement in January, absent significant changes to Chinese trade policy.

The meeting comes on the heels of a week of speeches by Federal Reserve officials who appeared to deliver a dovish message to investors, who have been fearful that the central bank will raise rates aggressively in 2019 after a widely expected 25 basis-point hike in rates in December.

Trump on Thursday said he was “close to doing something with China” but wasn’t sure he wanted to, citing revenue from tariffs on Chinese imports. He tweeted that “billions of dollars” are pouring into the U.S. Treasury from tariffs and that there is “a long way to go.”

In contrast to the protracted trade standoff between the U.S. and China, leaders of all three North American nations gathered in Argentina Friday to formally sign the new U.S.-Mexico-Canada Agreement, meant to replace the Nafta pact that has governed North American trade for more than 20 years. The agreement still needs to be approved by the three countries legislatures before the deal can take effect.

Investors are hopeful that the U.S.-China trade negotiations will be resolved in a similar way as the U.S.-China-Mexico pact, which was agreed to only after the president issued a series of tough statements, and engaged in significant brinkmanship, before finally compromising on a deal at the 11th hour.

What Fed speakers and data are on tap

New York Fed President John Williams said that the Federal Reserve is undergoing a strategic review of its interest-rate policy, which could lead to the central bank tolerating higher inflation rates than it is current 2% target, during a speech on Friday.

Meanwhile, a reading of Chicago purchasing managers index for November was slated for 9:45 a.m. Eastern Time.

What were strategists saying?

Tom Essaye, president of the Sevens Report, argued in a Friday morning note to clients that the market is expecting a “trade war truce” to result from this weekend’s trade talks, in which “Trump and Xi agree to freeze tariffs at current levels, and begin a multi-month negotiating period aimed at a comprehensive deal.”

If we don’t get this truce, however, and signals emerge that current 10% tariffs on $250 billion in Chinese imports will be raised in January, Essaye predicts a significant selloff. “We’d likely see the post Powell bounce erased, and depending on what happens with Italy and the EU, a serious test of support at 2600 for the S&P 500 before year end,” he wrote.

“Adding to all of this, yesterday, U.S. President Trump tweeted that ‘there is a long way to go’ with regards to tariffs imposed to Chinese imports, and while speaking to reporters before departing for Argentina, he noted, ‘I think we’re very close to doing something with China but I don’t know that I want to do it,’ wrote Charalambos Pissouros, senior market analyst at JFD Brokers, in a Friday note.

“The Fed minutes confirmed the case for a December hike, but revealed uncertainty with regards to the path of future rate increases,” he added.

Which stocks were in focus?

Shares of Marriott International Inc. MAR were in focus after the hotel management company said that it encountered a data breach affecting hundreds of millions of its customers. Marriott’s stock was down 5.7% at the start of trade.

GameStop Corp. GME stock is tumbling more than 9% Friday, after the company issued weak full-year guidance for 2018. The stock is down 26.4% on the year.

Workday Inc. WDAY shares were in focus before the start of trade Friday, following a Thursday evening earnings report that beat Wall Street expectations for earnings and revenue in the third quarter. These beats helped convince Stifel Nicolaus to raise its price target for the stock from $150 to $160, and the stock is up 8.7&.

Shares of Laboratory Corp. of America Holdings LH were down 5.7% at the open Friday, after the company cut it is full-year 2018 guidance.

PVH Corp. PVH stock is up 2.9% in early trade Friday, after the Calvin Klein parent company reported third-quarter earnings above analysts estimates and raised its full-year 2018 guidance.

Shares of Goldman Sachs are in focus Friday, down 2.3%, after reports that the Federal Reserve is intensifying its investigation into the bank’s relationship with the 1MBD sovereign-wealth fund. The news comes as Bank of America downgraded the stock, citing uncertainty surrounding scandal.

How are other markets trading?

Asian stocks were mostly higher on Friday, with Japan’s Nikkei NIK gaining 0.4% on the day, while Hong Kong’s Hang Seng Index HSI advanced 0.2% and the Shanghai Composite Index SHCOMP, +0.81% rose 0.8%.

European markets were broadly lower Friday—the Stoxx Europe 600 SXXP is trading down 0.3%, while the FTSE 100 UKX has declined 0.6% on the day.

Crude oil CLF9 added to its November losses Friday, falling 1.7%, during month when the commodity has fallen more than 22%. Gold prices GCG9 are down 0.2% Friday, while the dollar DXY has gained 0.2%.

Article was originally published by Mark DeCambre and Christopher Matthews at marketwatch.com


Opinion: The Tech-Stock Selloff is a Golden Opportunity to Buy Amazon, Apple, Netflix and Tesla

If a technology is fundamentally disruptive enough, that fact will always overwhelm the noise of the day about valuation.

In America, we’re in the business of waiting for rationality these days. In politics, it will be delivered in two years, minus two weeks (unless we’ve all lost our minds). In stocks, the smart course is to figure on it taking six months or even less — which means acting relatively soon to take advantage of it.

This is basically the only reaction to a market that continues to slaughter indiscriminately, and not exactly intelligently. Tuesday’s example is Target TGT down more than 10% after third-quarter earnings missed expectations by 2% while the company raised wages and beat revenue targets. Target, which is still up substantially this year, is no General Electric GE sorting through underperforming businesses and realizing that it wasted so much money on stock buybacks that the ex-icon of America’s Industrial Might has a negative tangible book value.

Or, put it this way: How much sense did it make when the market’s reaction to a weak report on home-builder sentiment and foot traffic at new-home communities was to sell off technology stocks?

But that’s where we are, with the last of the gains this year in the Dow Jones Industrial Average DJIA and the S&P 500 SPX wiped out.

And that means it’s time to follow Uncle Julius.

Julius was Julius Westheimer, who in my own misspent youth was a Baltimore stockbroker and denizen of the Baltimore Sun, where he was a columnist to my cub reporter, and a regular on Wall $treet Week, a public-TV stock-market show produced at Maryland Public TV. Julius was a lovely man, to my 27-year old eye a million years old if he were a day (he was actually 72 when we met) and an uncommonly bright man with a singularly common opinion it would be well to act upon right now.

He was a nut for, and taught me about, dollar-cost averaging.

Dollar-cost averaging is what its name implies — the practice of buying dips to lower the average cost of the shares you own, the better to smooth out rough market rides like we’ve seen in November. Every month, or every paycheck, put the same amount of money into your investments. That gives you more exposure to shares bought when investors are pessimistic, as they are now, and less exposure to shares purchased at short-term peaks like the one the market hit in August..

So how does that apply right now?

It works best if you couple Julius’ approach with lessons I’ve learned in 20 years of tracking tech stocks, the most important of which is to ask yourself whether a company you’re investing in is driving an important, secular change like the advent of online commerce 20 years ago or the not-so-gradual migration of corporate computing to “cloud” services companies like Microsoft MSFT or Amazon.com AMZN today.

Because the one fundamental law of tech investing is that if a technology is fundamentally disruptive enough, that fact will always overwhelm the noise of the day about valuation. And it rarely takes long.

Right now, that basic approach is good news for stocks like Microsoft and Amazon — and for Netflix NFLX and Tesla TSLA. It’s a mixed bag for Facebook FB (since social networking, while fun and amusing, actually does little to boost productivity) and AAPL (mobile phones are obviously a big deal, but may be a maturing market). But even for those, the balance of risks points to continuing to treat those stocks pretty much as you have.

If you like them, there’s not a lot that has happened recently that should change that, especially with the stocks on sale now. (My detailed take on Facebook is another column). And if you didn’t, you were wrong and have been wrong, literally, for years.

Let’s review.

Tesla: Electric cars will still be cheaper than internal-combustion vehicles by about 2025, Bloomberg New Energy Finance says. And they’re faster and much cleaner. CEO Elon Musk will need money for expansion, and is far from the world’s best executive, but a slightly unstable genius is still a genius.

You can worry about the stock’s recent drop from $370 to $340 and wonder if the sky’s falling — if you block out the fundamentals in the last paragraph, and listen to people who thought Tesla wildly overpriced at $100, or have long argued that financial markets that have made Tesla will turn on it with profits at hand. Don’t.

Amazon: If you’re even thinking the word “Christmas” about Amazon, you’re doing it wrong. Even before the recent bust, two-thirds of Amazon’s value came from Amazon Web Services. That cloud computing unit’s market-share gains continue apace, and it’s far more profitable than the retail business.

Netflix: A little tougher because the valuation is high by any standard — it always has been, and the stock still trades for 64 times 2019 estimates even after falling by a third. But the company is revolutionizing the film and TV industries, taking share all over the world, with excellent management and, many analysts think, ample room to raise prices. A less-frantic market will remind itself of those virtues.

Apple: What is it about the recent hand-wringing over maturing iPhone demand that does not sound exactly like the worries over sales in China that made Apple stock sell off in 2015? Great companies — Apple is one —solve problems all the time that are bigger than whether the new iPhones are too expensive. Apple’s shares trade for 13 times earnings. Take out Apple’s cash pile and the rest of the company costs about 10.

At prices like these, your odds are pretty good, I’m confident Julius would have said. (He died in 2005). And it’s a much simpler calculation, for investors whose bonus and job security aren’t measured in three-month increments, than deciphering the latest mumbo jumbo from chartists trying to tell you what will happen next week.

Article was originally published by Tim Mullaney at marketwatch.com


Santa Rally for Stocks? Get Out While the Getting is Good, Says This Strategist

Blink and you may have missed the one shining moment for equities this week.

Thursday’s gains for the S&P 500 and other big indexes look pretty lonely when stacked up against the rest of the week’s losses. It could be tech stocks again, that spoil the party for everyone else on Friday after chip maker Nvidia warned that its revenue will decline in the fourth quarter.

After some brutal selling in October, the last quarter of the year is already stacking up to be the worst since September 2015.

Fitting that, yet again, investment advisers are sounding some end-year caution. Our latest and call of the day, from Seema Shah, global investment strategist at Principal Global Investors, says “take cover, worse has yet to come,” when it comes to equities.

Waving the red flag in a recent note, she tells clients not to be lulled into a false sense of security by the small rebound stocks have seen since red October, when the S&P 500 fell nearly 7% — it’s up 0.7% so far for November.

MarketWatch
Clawing back

Shah says “rather than a signal of renewed equity market strength—any year-end rally should be considered an opportunity to exit U.S. equities.” Mull that over if Santa rally talk starts to reach your water collar.

Shah’s concerns are based on some familiar themes — Fed tightening, a negative economic hit from a strong dollar, POTUS stimulus that is slowly fading, a rout for tech stocks and the U. S-China trade spat. But one of these stands out bigly.

“I should emphasize again that my negative outlook for U.S. equities rests heavily not on assumptions about the trade war, but on the reversal of easy monetary conditions,” Shah says. Her full note to clients can be found here.

The market

Dow YMZ8 S&P 500 ESZ8 and especially Nasdaq NQZ8 futures in the red. That’s after the S&P SPX Dow DJIA and Nasdaq COMP snapped a five-day losing streak on Thursday.

Even a big gain from crude US:CLU8 doesn’t seem to be helping much. (Note, oil moves don’t always have such a big effect on stocks) Gold US:GCU8 is up a bit, and the dollar DXY, -0.60% is firmer, with the pound GBPUSD getting some breathing room as Brexit stays in the spotlight.

Check out the Market Snapshot column for the latest action.

Europe SXXP is sagging and Asia stocks ADOW were mixed, with chip-makers under pressure.

The chart

Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, has been crunching the numbers on hedge-fund activity in the third quarter. Her firm’s research found that those funds continued to back out of tech, communication services and internet retail in the period, turning underweight on that sector for the first time since RBC started tracking the data in 2010.

But have the hedgies found a new hero? In RBC’s so-called Hot Dogs Screen, which shows the S&P 500 stocks that have seen the most hedge fund dollars invested, Microsoft MSFT has claimed the No. 1 spot, after Facebook fell to No. 5.

Here’s a look at the top 10 stocks hedge funds loved the most in the third quarter in our chart of the day:

 

RBC

The buzz

Nvidia NVDA is plunging after the chipmaker’s earnings and outlook fell short of expectations. Blame it on a crypto-hangover. Plus here’s how bad the chip slowdown could get.

Boeing BA shares are down. The airliner is being sued by the family of a passenger killed in the deadly Lion Air crash, amid accusations it failed to tell airlines and pilots about a potential deadly fault in the MAX 8 jet hardware. Meanwhile, Southwest LUV repaired two faulty flight-control sensors on its MAX jets just three weeks before the Lion Air disaster.

Tesla TSLA vows to produce 7,000 Model 3’s a week by end-November.

Some rumblings on the geopolitical front as North Korea has announced a new “secret” weapon. And U.S. Commerce Secretary Wilbur Ross says the U.S. still plans to bump China tariffs up to 25% in January.

Industrial production is the only data on tap for Friday.

Article and media were originally published by Barbara Kollmeyer at marketwatch.com


Here are the Post-Election Stock-Market Winners in the Dow, S&P 500 and Nasdaq

The three benchmark indices were up over 2% after the midterm elections

Midterm elections historically lead to stock market rallies, regardless of the results. Wednesday was no exception when there was a late-day rally in marijuana stocks adding icing to the cake.

The Dow Jones Industrial Average DJIA rose 545 points, or 2.1%, to close at 26,180.30. The S&P 500 Index SPX was up 2.1%, while the Nasdaq Composite Index COMP added 2.6%.

A split in party control of the two houses of Congress tends to cheer investors.

The resignation of Attorney General Jeff Sessions — at President Trump’s request — added fuel to the broad rally and helped stretch a seven-day rally for marijuana stocks. It’s too early, of course, to consider whether Trump’s eventually nominee to replace Sessions will share the outgoing AG’s opinion that legalizing the recreational use of cannabis is a bad idea. The ETFMG Alternative Harvest exchange-traded fund MJ rose 7.1%, while the Horizons Marijuana Life Sciences ETF HMMJ was up 8.1%. Shares of Aurora Cannabis ACB ended the day 9% higher, while Tilray TLRY was up 31%, and Cronos Group CRON rose 8.4%.

All stocks in the Dow Jones Industrial Average were up on Wednesday, except for Procter & Gamble PG.

Company Ticker Price change - Nov. 7 Price change - November Price change - October Price change - 2018 through Nov. 7 Price change - 2017
Caterpillar Inc. CAT 4.5% 11.4% -20.4% -14.3% 69.9%
UnitedHealth Group Inc. UNH 4.2% 5.1% -1.8% 24.6% 37.8%
Microsoft Corp. MSFT 3.9% 4.8% -6.6% 30.9% 37.7%
Pfizer Inc. PFE 3.2% 3.1% -2.3% 22.6% 11.5%
DowDuPont Inc. DWDP 3.1% 11.0% -16.2% -16.0% 24.5%
Intel Corp. INTC 3.1% 3.9% -0.9% 5.5% 27.3%
3M Co. MMM 3.1% 5.8% -9.7% -14.5% 31.8%
Apple Inc. AAPL 3.0% -4.1% -3.0% 24.1% 46.1%
Cisco Systems Inc. CSCO 3.0% 4.7% -6.0% 25.1% 26.7%
Home Depot Inc. HD 2.9% 6.5% -15.1% -1.2% 41.4%
Visa Inc. Class A V 2.8% 5.0% -8.2% 27.0% 46.1%
Merck & Co. Inc. MRK 2.4% 2.0% 3.8% 33.4% -4.4%
American Express Co. AXP 2.2% 4.5% -3.5% 8.1% 34.1%
United Technologies Corp. UTX 2.0% 5.1% -11.2% 2.3% 16.4%
Nike Inc. Class B NKE 1.8% 3.9% -11.4% 24.7% 23.1%
JPMorgan Chase & Co. JPM 1.7% 2.3% -3.4% 4.2% 23.9%
Chevron Corp. CVX 1.7% 8.3% -8.7% -3.5% 6.4%
Walgreens Boots Alliance Inc. WBA 1.6% 2.7% 9.4% 12.8% -12.3%
Johnson & Johnson JNJ 1.5% 3.4% 1.3% 3.6% 21.3%
Boeing Co. BA 1.5% 4.8% -4.6% 26.1% 89.4%
International Business Machines Corp. IBM 1.4% 8.2% -23.7% -18.6% -7.6%
Goldman Sachs Group Inc. GS 1.3% 2.6% 0.5% -9.2% 6.4%
Travelers Cos. Inc. TRV 1.3% 4.1% -3.5% -4.0% 10.8%
Exxon Mobil Corp. XOM 1.3% 4.2% -6.3% -0.7% -7.3%
Walmart Inc. WMT 1.0% 4.0% 6.8% 5.6% 42.9%
McDonald's Corp. MCD 0.8% 4.2% 5.7% 7.0% 41.4%
Verizon Communications Inc. VZ 0.8% 1.0% 6.9% 8.9% -0.8%
Coca-Cola Co. KO 0.5% 3.1% 3.7% 7.6% 10.7%
Walt Disney Co. DIS 0.3% 1.9% -1.8% 8.9% 3.2%
Procter & Gamble Co. PG -0.2% 2.9% 6.5% -0.6% 9.3%
Source: FactSet

Here are the day’s 10 best-performing stocks among the S&P 500:

Company Ticker Price change - Nov. 7 Price change - November Price change - October Price change - 2018 through Nov. 7 Price change - 2017
Cimarex Energy Co. XEC 12.1% 17.3% -14.5% -23.6% -10.2%
DaVita Inc. DVA 9.9% 13.0% -6.0% 5.3% 12.5%
Centene Corp. CNC 9.2% 9.7% -10.0% 41.7% 78.5%
Pioneer Natural Resources Co. PXD 8.9% 9.8% -15.5% -6.4% -4.0%
WellCare Health Plans Inc. WCG 7.3% -0.3% -13.9% 36.8% 46.7%
Align Technology Inc. ALGN 6.9% 10.9% -43.5% 10.4% 131.1%
Amazon.com Inc. AMZN 6.9% 9.9% -20.2% 50.1% 56.0%
Humana Inc. HUM 6.7% 10.5% -5.3% 42.7% 21.6%
Anthem Inc. ANTM 6.6% 5.2% 0.6% 28.9% 56.5%
Illumina Inc. ILMN 6.2% 10.1% -15.2% 56.8% 70.6%
Source: FactSet

Here are the top 10 performers on Wednesday in the Nasdaq 100 NDX:

Company Ticker Price change - Nov. 7 Price change - November Price change - October Price change - 2018 through Nov. 7 Price change - 2017
Align Technology Inc. ALGN 6.9% 10.9% -43.5% 10.4% 131.1%
Workday Inc. Class A WDAY 6.9% 8.4% -8.9% 41.8% 53.9%
Amazon.com Inc. AMZN 6.9% 9.9% -20.2% 50.1% 56.0%
Illumina Inc. ILMN 6.2% 10.1% -15.2% 56.8% 70.6%
Netflix Inc. NFLX 5.4% 8.5% -19.3% 70.6% 55.1%
Adobe Inc. ADBE 5.4% 3.1% -9.0% 44.6% 70.2%
American Airlines Group Inc. AAL 5.1% 5.4% -15.1% -28.9% 11.4%
Intuitive Surgical Inc. ISRG 5.0% 4.7% -9.2% 49.5% 72.6%
Vertex Pharmaceuticals Inc. VRTX 4.9% 8.5% -12.1% 22.7% 103.4%
Henry Schein Inc. HSIC 4.6% 5.2% -2.4% 25.0% -7.9%
Source: FactSet

Article was originally published by Philip van Doorn at marketwatch.com


S&P 500 Tries for First 3-day Win Streak in 6 Weeks

Hopes for a resolution in the U.S.-China trade spat may help to extend the stock market’s rally

U.S. stocks rose modestly out of the gate Thursday, as all three major indices aimed to extend their winning streaks for a third day, and kick off November where it ended one of its most withering Octobers in years: on a high note.

Closely followed quarterly results after the close of regular trade from Apple Inc., the world’s largest publicly traded company by market value, may provide a more lasting impetus for investors.

Benchmarks

The Dow Jones Industrial Average DJIA was up 163 points, or 0.7%, at 25,280, while the S&P 500 SPX traded up 14 points, or 0.5%, at 2,726. The Nasdaq Composite Index COMP climbed 0.6%, or 40 points, to reach 7,348.

On Wednesday, the Dow gained 241.12 points, or 1%, to 25,115.76, the first finish above 25,000 for the blue-chip index since Oct. 23.

The S&P 500 index advanced 29.05 points, or 1.1%, to 2,711.68, climbing for two days in a row, something it had not done since its three-day winning streak that ended on Sept. 20.

The Nasdaq Composite Index rose 144.25 points, or 2%, to 7,305.90.

For October, the S&P 500 shed 6.9% for its biggest monthly decline since September 2011, while the Dow dropped 5.1% in its biggest monthly percentage fall since January 2016. The tech-heavy Nasdaq was the worst-performing major benchmark, dropping 9.2% in October for the biggest fall since November 2008.

Market drivers

After some $4 trillion was wiped from the market capitalization of American corporations in October, Apple Inc.’s AAPL quarterly results after Thursday’s close of trade may help to solidify a tenuous resurgence of bullish sentiment among investors following a bruising period.

Results from the iPhone maker will be important because the constituents of so-called FAANG names, an acronym representing a quintet of technology and internet-related stocks including Apple, Facebook Inc. FB, Amazon.com Inc. AMZN, Netlfix Inc. NFLX and Google-parent Alphabet Inc. GOOGL have be at the center of the recent market turmoil that drove the Nasdaq into correction territory for the first time in two years.

On Wednesday, upbeat results from Facebook were partly credited with providing some upward thrust for the broader market, after the social-media giant delivered a report that wasn’t as scary as Wall Street feared.

Worries about tariffs remain among investors’ biggest concerns headed into a fresh month of trade, with the U.S. and China leaders set to meet later in November in attempt to resolve differences that have festered into a tit-for-tat trade clash that many CEOs say has increased the costs of goods and services.

Larry Kudlow, President Donald Trump’s top economic adviser, told CNBC in an interview on Wednesday that a full slate of tariffs on all of Chinese imports may still be avoided: “Nothing is set in stone right now.” He said any additional tariffs would be the result of “policy talks,” not any “arbitrary timeline.”

Bloomberg News on Monday reported that the Trump administration may impose tariffs on all remaining Chinese imports in December, if November talks between the president and Chinese President Xi Jinping don’t prove fruitful.

Meanwhile, midterm elections in the U.S. on Nov. 6 will also be an important moment for stocks, with Democrats seen as likely to take control of the House while Republicans are expected to hold the Senate.

Stocks in focus

Shares of Apple AAPL were up 0.9% ahead of this afternoon’s earnings report.

Spotify Technology S.A. SPOT stock is down 11.2% in early morning trade, after the streaming music company missed analysts estimates for total monthly active users and falling revenue per user. On the plus side, the company did beat profit and revenue forecasts for the third quarter.

DowDuPont Inc. DWDP shares are rising 4% Thursday morning, following the release of a third-quarter earnings report that beat profit expectations. The firm also announced a new $3 billion stock buyback program.

Shares of Wayfair Inc. W are taking a sharp dive, down more than 17% after the firm posted a wider-than-expected, third-quarter loss Thursday morning.

Newfield Exploration Co. NFX shares are up 12.2% after Encana Corp. ECA said it would buy the firm in a stock-swap that values Newfield at $27.36 per share, or a 35% premium.

Shares of Marathon Petroleum Corp. MPC are down 1.8% in early trading, after the company reported Thursday morning that profits fell 18% in the third quarter, year-over-year.

Abiomed Inc. ABMD stock is trading up 7%, after the firm announced 37% revenue growth in the second quarter of fiscal 2019.

Shares of Hanesbrands Inc. HBI are falling 5% in early morning trade, after the firm missed third-quarter revenue estimates.

Teva Pharmaceuticals Ltd. TEVA, stock is up 5.8% after reporting earnings and revenue beats Thursday morning.

Economic data

Nonfarm productivity growth grew at a 2.1% annualized rate in the third quarter, the Labor Department reported Thursday, versus the 2% consensus estimate, according to FactSet. Unit labor costs rose by 1.2%, versus expectations of 1.1%.

The number of newly unemployed Americans seeking jobless benefits fell in the seven days ended Oct. 27 to 212,000, a touch more than the 210,000 expected by economists surveyed by MarketWatch. This figure remains at historically low levels.

At 9:45 a.m., Markit will give the latest reading of its PMI manufacturing index.

At 10 a.m., the Census Bureau will release its monthly estimate of construction spending for the month of September. At the same time the Institute of Supply Management will release its survey-based gauge of U.S. manufacturing activity.

What analysts say

“Equity markets were a sea of green yesterday, as risk appetite remained supported for another day. White House economic adviser Kudlow said that more tariffs on China are not ‘set in stone’, which may have boosted somewhat further market sentiment,” wrote Charalambos Pissouros, senior market analyst at brokerage and investment firm JFD Brokers, in a Thursday research note.

Other markets

Asian stocks generally rose Thursday, with only the Nikkei NIK losing ground, down 1%. European stocks are trading higher Thursday, with the Stoxx Europe 600 SXXP up 0.6% on the day.

Oil ticked higher, after October registered as the commodity’s worst month in two years. The dollar index edged down, while gold prices are rising Thursday.

Article was originally published by Mark DeCambre and Chris Matthews at marketwatch.com


Why the Dow Tumbled 600 Points and the Nasdaq Fell into Correction Territory for the First Time in 2 Years

The Dow has lost 2,245 points, or 8.4%, since its Oct. 3 all-time high

A few short weeks ago the Dow industrials were on the verge of busting through another psychological milestone at 27,000.

However, all that momentum has evaporated as a sweeping downturn grips financial markets, sending the Dow Jones Industrial Average DJIA tumbling more than 600 points on Wednesday and pushing the Nasdaq Composite Index COMP into correction territory for the first time since Feb. 11, characterized as a drop of at least 10% from a recent peak.

On top of that, the Dow and the S&P 500 index SPX on Wednesday wiped out all their hard-fought gains over the past 10 months to turn negative for 2018.

So, what happened?

The return of volatility

Well, investors have grown all-too comfortable with a market that has merely churned higher as it did in 2017, producing boffo returns without a significant bump lower.

Market pragmatists and technicians say those days were statistical anomalies to start and have come to a natural conclusion. And October, an already seasonally volatile month, has delivered the clearest sign so far that the old quiescent regime is over.

Indeed, the S&P 500 has had 14 down days so far in October, representing the highest number of losing days for the broad-market benchmark since May of 2012 when it fell 14 days, according to Dow Jones Market Data. Another loss for the gauge and it will mark its highest number of down days since October of 2008.

A breakdown in support levels

Wednesday’s losses gained steam partly because the market has had difficulty finding support, or buyers that might step in to stem a fall. And selling that had already eroded certain levels throughout the month in financial markets — like cutting away strands from a bridge of ropes — has made the markets more vulnerable to succumbing to subsequent downturns.

“The market selloff has taken on a life of its own and selling is begetting more selling, but so far we haven’t seen a capitulation moment, so I’m taking a more cautious approach,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

Capitulation refers to the point at which market optimists succumb to fears and sell their holdings as stocks convulse lower. Earlier in the year, and last year, investors supported equities by buying dips. Now, that strategy has given way to more cautious investing as declines since early October have picked up.

The fear gauge

 

On Wednesday, the Cboe Volatility Index VIX or fear gauge as it is often called, closed at 25.23, gaining 22% on the day and closing at its second-highest level of 2018 (see image above). The VIX tends to fall when stocks rise, and vice versa, because it measures how much traders will pay for protective options on the S&P 500 in the coming 30 days. A reading of 25 is well above the index’s normal average of around 20 and above its average this year. Moreover, the VIX has climbed 109% so far in October alone. That means investors have been steadily paying for protection from a coming market downturn.

However, that VIX level may not mean that the selling is done.

“Currently the VIX is around 25, which is elevated from where we were earlier this month and well above this year’s average, but it isn’t high enough for me to feel confident we’ve hit bottom in the S&P,” said Zaccarelli.

The source of all this stock-market angst is manifold. MarketWatch has previously outlined many reasons for worry but it bears repeating: The overarching theme is that investors are concerned about slowing growth here and abroad and the impact of tariff clashes between the U.S. and China.

  • Policy mistake by the Federal Reserve
  • Rising interest rates that could make borrowing more expensive
  • A slowdown in global economic growth exemplified in China weakness
  • An overall breakdown in stocks, represented in equities trading at multimonth lows
  • Midterm election jitters, which have seasonally resulted in some jitters in U.S. markets
  • Seasonal October volatility, which has tended to translate into choppy trade
  • Worries that the U.S. economy is in the late stages of its expansion and due for a recession
  • Brexit
  • Italy’s budget crisis
  • The looming end of quantitative easing in Europe
  • The political implications of the killing of dissident journalist Jamal Khashoggi
  • Worries about the health of emerging markets outside of China.
  • Signs from U.S. companies that they are see earnings growth slowing
  • U.S.-China trade relations which may be exacerbating Beijing’s economic malaise
  • Growing deficits partly derived from President Donald Trump’s corporate tax cuts in 2017
  • Weakness in the banking sector which hasn’t benefited from rising interest rates
  • Softness in transports which Dow theorists tend to follow as a gauge of the health of the market
  • A rotation of investors out of growth stocks and into those names viewed as value
  • Major cracks in the housing market
  • A weak earnings outlook

The earnings conundrum

Problems in the stock market come as earnings have thus far been stellar, reflecting strength in the domestic economy. But any weak outlook from corporate executives and any sign of underperformance has been punished, while outperformance at times has been, well, punished too.

Of the 140 companies in the S&P 500 that have reported third-quarter results this year (as of Tuesday’s close) 81% posted earnings per share that were above Wall Street expectations, compared with 10.7% that fell below average analysts’ estimates. That compares with an average of 64% of companies beating EPS expectations and 21% missing since 1994, according to I/B/E/S data from Refinitiv.

Still, investors have been haunted by signs of stagnation with chip makers like Texas Instruments Inc. TXN notably projecting weaker-than-expected sales, citing the China trade spat.

There is worry that peak earnings may have already arrived for many companies.

“I think profit growth has topped out and will definitively slow going forward, contributing to the next recession, likely early in the next decade,” Mark Zandi, chief economist at Moody’s Analytics, said in one recent MarketWatch article. “Historically, profit growth peaks approximately two years prior to downturns.”

Bull or bear market

The set up in the markets has created a broader conundrum for market participants: Is this a downturn like one that routed stocks in early February and dragged the S&P 500 and the Dow into correction territory? Or is this something more pernicious, like a bear market, where stocks fall at least 20% from a peak?

“Right now I’m wracking my brain trying to figure out why my bottom-spotting indicators, normally very good, are not working right now. If this is a bear market, it would make sense because they can fail in a generally bearish environment,” wrote independent market analyst Stephen Todd in a Wednesday financial note. Todd concludes that the market may simply be oversold and that the fundamentals of the market remain intact.

Art Hogan, chief market strategist at B. Riley FBR Inc., said valuations remain attractive and the current downturn may amount to a garden-variety correction.

“Good news in my mind is valuations have become much more attractive here with the S&P 500 trading at about 15 times next year’s estimates,” Hogan said.

“Current earnings look great. The yield on the U.S. 10-year has settled down from its earlier explosive 20 basis point pop. Economic data continues to show no sign of a pending recession, and recessions are what kill bull markets. We are in a correction in a long-term bull, driven more by uncertainty over China and trade, than rising rates,” he said.

Article and media were originally published by Mark DeCambre at marketwatch.com