The markets were tame despite strong economics. Today was a nothing day and sometimes that is the best kind.
The big cap indexes dipped at the open but recovered in the afternoon to close mildly positive. It was touch and go at the close as a sell program appeared about 2:45 to knock -6 points off the S&P but it still squeezed out a 3-point gain.
Tuesday was a consolidation day where the buyers and sellers were almost evenly matched and it gave traders a chance to take a breath and decide what they are going to do the rest of the week.
On a 15 min chart the broadest market index shows how choppy the market has been the last two days. This is normal in a consolidation and it normally resolves to the upside.
The economics started strong when the Q3-GDP revision rose to +3.2% growth. That is the highest quarterly growth in two years. I discussed at length in the original release that it was a function of the pull forward of several billion dollars in soybean exports that normally occur in Q4. This was a onetime event and is not reflective of the actual growth.
Consumer spending declined from 2.88% in Q2 to 1.89% in Q3. Fixed investment declined -0.15% with inventories adding 0.49%. Corporate profits soared +6.62% after a -0.61% decline in Q2.
Over the prior three quarters, growth was 0.9% in Q1, 0.8% in Q2 and 1.4% in Q3.
Consumer confidence for November exploded higher from 100.8 to 107.1 and the highest level since July 2007. The Trump victory has apparently energized consumers. The present conditions component surged from 123.1 to 130.3. The expectations component rose from 86.0 to 91.7.
The rise in confidence after the election has not translated into new buying plans. Consumers planning on buying an appliance rose from 51.8% to 52.4% of respondents. Homebuyers increased from 5.5% to 6.5% but prospective auto buyers declined from 13.4% to 12.5%.
The idea of lower taxes, replacing the Unaffordable Care Act and creating more jobs seems to have caught fire. Now Trump only needs to do the impossible and make those things happen.
The Texas Service Sector Survey rose from 3.0 to 12.6 and a five-month high. The current conditions component rose sharply from 0.3 to 15.6 but the big gains were in the expectation component. The respondents are looking at the future through rose-colored glasses with a spike from 12.2 to a whopping 32.6. The general business activity index jumped from 9.1 to 29.1.
Economic expectations are busting out all over thanks to the election results and just the fact that it is now behind us.
The first big report of the week is out tomorrow with the ADP Employment. Unless jobs fell under 100,000, which is not likely, the actual number will have no impact on the Fed rate hike decision in December. They will hike and it is already priced into the market.
The bigger event for Wednesday is the OPEC production decision. That could impact equities in a big way depending on the outcome. If they fail to come up with a credible agreement that is verifiable the oil market is likely to crash back to $40.
Regardless of what they decide or fail to decide, they will more than likely announce an agreement of some sort to save face after three months of promising they would cut production. If it is readily seen as just a token announcement, the prices will likely fall and take equities down with oil.
Even if they do announce a credible agreement, there are so many facets that we could still get a sell the news event. The Saudi Oil minister said this week that Iran, Libya and Nigeria would be exempt. That means the three countries with the largest potential increases in production will not be bound by the agreement. That alone makes any agreement nearly worthless.
On Thursday, the ISM Manufacturing Index is the most important of the manufacturing reports for the month. It is expected to show a minor gain.
The Nonfarm Payrolls on Friday will be less important than normal because the Fed's mind is already made up. About the only real danger would be an extremely hot report over 250,000 that could create concerns about a half point hike in December rather than a quarter point. I am not sure the market would even care since the rate trajectory is already accelerating.
There was very little stock news since the earnings cycle has slowed to a trickle. Specialty pharmacy company Mallinckrodt Plc (MNK) reported earnings of $2.04 that 15.1% and beat estimates for $1.98. Revenue of $887.2 million rose 13.9% to beat estimates for $851.5 million. They ended the quarter with $280.5 million in cash and generated $140.8 million in free cash flow for the quarter. The company appears to be in good shape with a strong drug portfolio seeing double-digit sales increases. Apparently, I am the only one that saw that because shares fell -9% to $52. The company did say it saw a double-digit decline in generics revenue after an 18% decline in fiscal 2016. Analysts seized on that one point and shares crashed.
Tiffany (TIF) reported earnings of 76 cents compared to estimates for 67 cents. Revenue increased only 1.2% to $949.3 million and beat estimates for $923.7 million. This was the first quarterly sales increase in eight quarters. Same store sales declined -2% but that was better than the -3% analysts expected. They warned that sales could be impacted by the security cordon around 5th Avenue and Trump Tower. The company said there were very few shoppers because of the mob scene, protestors, heavy police presence and TV camera crews. Shares rallied 3% on the earnings.
Autodesk (ADSK) reported an adjusted loss of 18 cents compared to estimates for 24 cents. Revenue of $489.6 million beat estimates for $476.8 million. However, shares fell -$2 in afterhours when they guided to a loss of 32-39 cents for Q4 on revenue of $460-$480 million. Analysts were expecting 31 cents and $488.5 million. Autodesk is in the middle of a transition away from a software sales model to a subscription model, which will make earnings more regular in the future. Their "new model" recurring revenues rose 88% to $414 million. This was their first quarter of selling only subscriptions and no longer selling the software. New cloud subscriptions rose to a record.
Splunk (SPLK) reported earnings of 12 cents that beat estimates for 8 cents. Revenue of $244.8 million also beat estimates for $230.4 million. They guided for Q4 revenue of $286-$288 million and analysts were expecting $285 million. License revenue rose 34% to $140 million. Shares spiked to more than $63 in afterhours after closing at $57.41. Late session selling saw the stock sink back to $59.
Apple shares traded flat despite KGI Securities claiming iPhone sales in 2018 will set records. The analyst said Apple is testing more than 10 different models of iPhone 8 beta phones. He said the iPhone 8 plus two additional reiterations of the iPhone 7 could power record sales. Suppliers have been told to plan on 120-150 million units in order to avoid the problems Apple is having with the model 7. They cannot make phones fast enough after having cut component orders twice leading up to the model announcement. Apple is expected to sell 78 million phones in Q4, up from 75 million in the year ago quarter.
Online sales are setting records this year. Black Friday sales set a new record at $3.34 billion even though "Black Friday" has somehow morphed into a ten-day period surrounding the day after Thanksgiving. We do not have numbers for the other 9 days but from the look inside the UPS truck when it delivered today, there was plenty of buying. My driver knows I write about package demand and his truck was still fully loaded when he arrived at 3:PM. Starting next week he will have a holiday helper for the rest of the year. The vast majority of the packages had Amazon tape on them.
On Cyber Monday, sales rose 12.1% to $3.45 billion according to Adobe Digital Insights. They track over 80% of the major online retailers. Estimates were for 9.4% growth. Analysts believe the surge in post election buying will compensate for the slowdown the weeks before the election. The online shopping estimates for the full holiday season are currently $91.6 billion and 11% growth. ShopperTrak said actual visits to brick and mortar retailers declined on Black Friday weekend by more than 1%. The National Retail Federation said 3 million fewer shoppers visited stores over the weekend, while 5.5 million more shopped online. In total 108.5 million shopped online compared with 99 million that shopped in stores. For the entire retail sector, the November/December total is expected to rise 3.6% to $655.8 billion in sales.
If I were going to report any more stock news, I would have to make it up because there was nothing happening. The same is true on the market news. Nothing happened.
The markets opened slightly lower, dip buyers appeared and the losses were erased. A sell program hit at 2:45 that knocked 6 points off the S&P but all the big cap indexes closed slightly positive.
This was a textbook example of consolidation. There was not enough conviction on either side to extend either the gains or the losses and the contest ended in a draw.
While this type of consolidation will take longer than a sharp V bottom sell off and rebound, it is preferable. Those of us with stop losses may avoid being stopped out and be able to keep existing positions. On the V bottom method, everyone is forced to take profits and stock ownership is transferred to new buyers. We could still have a sharp decline at any time but so far, there are no signs of a pending collapse.
The S&P slipped back to 2,200 but held over that psychological level. It would not be unreasonable for a drop back to 2,175 but that would be a little more painful.
The Dow traded in a narrow 82-point range with most of the movement in the opening dip. UnitedHealth Group (UNH) added about 40 points to the Dow and along with Goldman's 14 Dow points they kept the index in positive territory. The advancers and decliners were about even and there was no sign about future direction. However, I doubt UnitedHealth is going to gain another $5 on Wednesday.
The Dow is holding well over psychological support at 19,000 and closed only 30 points below the historic high. It would be a hard argument to say the Dow is weak when it is holding the high ground on a consolidation day.
The Nasdaq Composite traded at new intraday highs in early afternoon but gave back 25 points with the late day sell program. The big cap tech stocks are still weak with Facebook and Netflix closing flat and Amazon losing 4 points. Google managed to remain positive but a $2 gain for an $800 stock is still flat.
The 5,400 level remains resistance but we have a solid pattern of higher lows so I do expect an eventual breakout.
The small cap indexes closed fractionally lower with the Russell 2000 losing -1.60 and the S&P-600 losing 68 cents. Given their massive gains over the prior three weeks, they could lose a lot more and still remain in a bullish uptrend. The Russell has closed negative for two days. Let's hope it is not starting a 15 day streak in the opposite direction.
I would not be surprised to see a new move higher begin at any time OR for the current consolidation process to continue the rest of the week. We had three weeks of massive gains. It only makes sense that it will take more than two days of mediocre selling to remove those overbought pressures.
Remember, Wednesday is month end window dressing. It is also MSCI index rebalance and the OPEC decision. Volume will be very high and normally there is no change in direction. However, normal may be the wrong word to use for Wednesday.
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