The Dow touched 23,000 today just over two months after hitting 22,000.
The time it takes from one milestone to the next is shrinking because a 1% gain on the Dow is now 230 points. That means we are only 4% from 24,000 and roughly 8% from 25,000. With some of the Dow components surging higher, those gains are coming even faster. The Dow hit 22,000 on August 2nd. The table below shows the points gained by each Dow component from the close on the 2nd until today's close and the Dow points those stocks provided. The total is not exactly 1,000 points because of the close-to-close methodology but you get the idea. The top five stocks contributed to 508 points of the 1,000-point gain.
Today the Dow was pushed to that 23,000 level thanks to a post earnings bounce from UnitedHealth that added 73 points and Johnson & Johnson added 23 points. Goldman Sachs erased 43 points.
On the economic front the NAHB Housing Market Index rose from 64 in September to 68 in October. This was encouraging because it suggests the impact from the hurricanes has passed. The index declined from 67 in August to 64 in September because of that impact. The component for single-family sales rose from 70 to 75 and the six-month projection rose from 73 to 78. Buyer traffic inched up slightly from 47 to 48. The factor hindering further growth is the limited supply of new homes and the rising prices. Existing homeowners are finding it hard to sell because replacing their home will cost them more money with bigger payments.
Import & export prices for September rose 0.7% and slightly over consensus for 0.6%. This comes after a 0.6% gain in August and a decline of -0.4% over the prior five months. April was the only month to post a gain in that five-month period at +0.2% while the rest of the months declined.
The lifting force came from oil and gasoline. Without oil and products the gain would have only been +0.3%. Oil prices rose 4.5% for the month. If you exclude autos, prices actually fell -0.1%. The report was ignored because of the storm impact.
Industrial production for September rose +0.3% after a -0.7% decline in August. Durable goods rose 1.0% and nondurable goods declined -0.9%. Boring! The report was ignored.
The calendar for the rest of the week is led by further home sales data and the Philly Fed Manufacturing Survey. The Fed Beige Book on Wednesday is important but it is not expected to show any material changes with the exception of Texas and Florida, which of course will be ignored.
Wednesday is the expected date for another North Korean provocation. They have multiple missiles on launchers moving around the country and they threatened this morning that nuclear war could break out at any moment. They warned other countries not to participate in the joint military exercises being conducted this week by the US and South Korea or risk being nuked along with those participants.
The US has two carrier battle groups either offshore South Korea or on their way there as in the case of the USS Theodore Roosevelt with a complement of 7,500 Marines. The US also parked the guided missile submarine USS Michigan offshore with 154 cruise missiles. If Kim Jong-Un does something stupid, there is more than enough firepower to make him regret it. Unfortunately, the market would react negatively to any conflict.
Thursday is the anniversary of Black Monday, Oct 19th, 1987 when the Dow fell 23% in one day. On the Friday before the crash the market was down -4% and it was down -10% for the week. The outlook was already grim but people were putting their life savings into equities thinking this was a great buying opportunity. Even famed investor Stanley Druckenmiller loaded up on equities on Friday. Over the weekend he decided he was wrong and bailed at the open on Monday. He based his exit decision on Treasury Secretary James Baker telling Germany over the weekend to either inflate the mark or the US would deflate the dollar. Druckenmiller said that was the deciding factor and he knew the market was going to crash. Adding to the confusion was a conflict with Iran in the Persian Gulf over some oil platforms. There was no internet or smartphones so all the trades had to be called in and getting somebody to answer the phones was a problem.
In the end, some firms made money for the week because they bought dip or were long puts from the market decline the week before.
We have circuit breakers today so it would take a major meltdown somewhere to repeat the declines from 1987.
UnitedHealth (UNH) reported earnings of $2.66 that beat estimates for $2.57. Revenue of $50.3 billion increased 8.7% and missed expectations for $50.37 billion. Medical enrollments rose to 49 million, up from 48.1 million. They guided for adjusted 2017 earnings of $10.00 per share, up from $9.75-$9.90 in prior guidance. Shares exploded higher with nearly an $11 gain.
Johnson & Johnson (JNJ) reported earnings of $1.90 that beat estimates for $1.80. Revenue of $19.65 billion beat estimates for $19.28 billion. They guided for full year earnings of $7.25-$7.30 on revenue of $76.1-$76.5 billion. Analysts were expecting $7.18 on revenue of $75.83 billion. The company said its plants in Puerto Rico were up and running but they could not guarantee there would not be drug shortages. JNJ said it had 9 potential blockbuster drugs in the pipeline that would launch between 2017-2021.
Morgan Stanley (MS) reported earnings of 88 cents that beat estimates for 81 cents. Revenue rose 3% to $9.20 billion and beat estimates for $9.01 billion. Investment banking revenue rose 18.2% to $1.38 billion. Revenue from their wealth management business rose 8.7% to $4.22 billion. Sales and trading revenue declined -9.4% to $2.9 billion. Shares rose only fractionally.
Goldman Sachs (GS) reported blowout earnings of $5.02 compared to estimates for $4.17. Revenue rose 2% to $8.33 billion and beat estimates for $7.54 billion. Investing and lending revenue rose 34.7% to $1.88 billion and investment banking revenue rose 16.9% to $1.8 billion. Bond trading revenue declined -26% to $1.45 billion. Shares were up in the pre market but crashed in regular trading.
Harley Davidson (HOG) reported earnings of 40 cents that beat estimates by a penny. Revenue of $962.1 million beat estimates for $952 million. Motorcycle sales were down -8.1% but the overall industry was down -9.2% suggesting they did slightly better than their competitors. They guided for FY 2017 shipments of 241,000 to 256,000 motorcycles, down 6% to 8% from year ago levels. They expect to ship 46,700 to 51,700 in Q4, compared to 42,414 last Q4. Shares rose slightly on the news from 52-week low levels.
After the bell, IBM reported earnings of $3.30 compared to estimates for $3.28. Revenue of $19.15 billion also beat estimates for $18.67 billion. They guided for full year earnings of $13.80. This was the company's 22nd consecutive quarter of declining revenue. However, they guided for Q4 revenue of $22.0-$22.1 billion, up slightly from the year ago quarter. Analysts were expecting $21.8 billion. The company said they had a new mainframe computer that will provide the boost. When IBM sells a mainframe, they typically sell a lot of software and services along with it. Analysts would rather have seen the gains come from their cloud business but dollars are dollars. Shares exploded higher by $6 in afterhours.
Cree Inc (CREE) reported earnings of 4 cents that beat estimates for 3 cents. Revenue of $360.4 million missed estimates for $361.3 million. They guided for Q4 for a loss of 1 cent to earnings of 4 cents on revenue of $340-$360 million. The CEO promised to do better in the future after a thorough review of all their business lines. Shares fell $1 in afterhours.
Only one Dow component reports on Wednesday and that is American Express. Ebay is the biggest tech reporter but it has lost its excitement among tech investors. PayPal is the next tech highlight on Wednesday along with Dow components Travelers and Verizon.
The Dow hit 23,000 but it was only briefly. The index hit that level three times over a 15 min period in the morning and each time it was immediately sold. The first two did not see a material decline. The third touch saw it knocked back to 22,967. The index traded sideways for the next three hours before starting to creep up again just before the close. At 5 min before the bell, the index hit 23,000.51 but sellers were waiting and it closed slightly lower at 22,997. The Dow futures are up +26 because of the gain in IBM in afterhours. The S&P futures are up only a quarter of a point. There is no excitement and definitely a lack of momentum.
Only two stocks added 105 Dow points and the index only posted a 40-point gain. The Dow is very overextended and the 23,000 level would be a perfect spot for some profit taking to break out. Support is well back at 22,745 and I am sure any dip would be bought.
The S&P only managed to gain just under 2 points but did extend its move over prior resistance at 2,555. The S&P has consolidated over the last 8 days with only minimal gains like today. It has the potential to move higher but the lack of momentum is troubling. If the Dow were to pull back slightly I doubt the S&P would dip much but they would move in tandem.
The S&P needs a catalyst to power a decent move. I do not see it in the earnings calendar for this week but I could be mistaken. There is always the chance the markets are simply holding their gains while they wait to see what North Korea does this week.
Support on the S&P is around 2,545 or less than a 1% retracement from here.
The Nasdaq traded negative most of the day and almost returned to positive territory at the close. The big cap techs were evenly mixed with half up and half down. Netflix fell -$3.20 for the day after being down more than that at noon. This decline after strong earnings poisoned the rest of the big cap tech stocks. The ones that were positive were only barely positive.
The Nasdaq has support at 6,565 and resistance at 6,700.
The Russell 2000 broke below support at 1,500 and could be trouble if this decline is not immediately reversed. This is a critical level and a declining Russell is bad for market sentiment. The Russell futures are up 1.50 tonight and that is a good sign even though it can change in an instant.
The Russell has not tested the upper resistance at 1,515 since the initial spike. We need a retest to rekindle interest in the small cap sector. The A/D ratio on the small caps was 2:1 in favor of decliners.
There is nothing on the horizon that should tank the market other than the potential for North Korea to do something stupid this week. The earnings should keep investors interested but next week is when the flood appears. This is option expiration week and that can produce some volatility but it normally happens early in the week so this could be a tame expiration.
Remember, the market does not need a reason to decline. It can happen at any time. The events we expect are not nearly as dangerous as the events we are not expecting. That suggests a benign event from North Korea could actually be a buying opportunity because they did not go for the big provocation. At this point, anything short of launching a missile at the US ships or launching an H-bomb into the Pacific as they have also threatened, could actually produce a relief rally.
Keep some cash in your account in case we do get a buying opportunity.
Enter passively, exit aggressively!
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