There was no shortage of headlines on Friday with John Boehner resigning, Xi Jinping at the White House, the Pope in New York, Volkswagen imploding, biotechs crashing and Janet Yellen having health issues.
The markets got a heavy dose of news on Friday but none of it was particularly important to the market. The indexes opened higher with the Dow up +264 at the highs. The Dow and S&P traded sideways until mid afternoon when they rolled over to give back much of their gains. The Nasdaq did not wait for the afternoon. The opening print was the high of the day and the selling accelerated as the day progressed. The majority of the decline was the biotech sector dragging the Nasdaq lower.
The biotechs declined -5% on Friday and -11.56% for the week. The IBB ETF has 144 companies with 72% already in a bear market and 96% in correction or worse. The biotech index is -22% off its July highs.
The news broke just before the open that House Speaker John Boehner was resigning at the end of October and would leave Congress. The speculation was rampant on whether this would alter the odds of a government shutdown on October 1st or December 11th. Congress needs to vote on a continuing budget resolution before October or risk a shutdown. Currently a large number of congressmen and senators want to link a budget bill with defunding Planned Parenthood. President Obama has pledged to veto any bill with a defunding clause.
With Boehner announcing his resignation, it frees him to work with the democrats to get a clean bill passed and avoid a shutdown. However, it may only be a short-term bill because the debt ceiling battle will return again on December 11th. There are rumors that the House could pass a budget bill with an addendum saying they were going to bring up defunding again with the bigger debt ceiling battle in December. With Boehner's resignation, we may skip the October drama but face a bigger debate in December.
These events complicate the Fed's plans to hike rates. Yellen implied on Thursday there was still the potential for a hike in October or at least by December. The exact language was "Most of my colleagues and I anticipate that it will likely be appropriate to raise the target range for the federal funds rate sometime this year."
After the speech, she had to be helped from the stage after she became weak and paramedics were called. They later determined it was dehydration, heat and stress. Later she was seen having dinner with others and walking to her car alone to return to the airport. Apparently, there was nothing serious but any unexpected health issue with Yellen could throw the market into turmoil.
The president of China met with President Obama at the White House and while the public comments were cordial, the presentations were stiff and appeared to be forced. Reportedly they agreed to a cyber warfare truce but Obama said the equivalent of "talk is cheap let's see if there is any follow through."
Volkswagen is replacing officers daily in an effort to head off a terminal prosecution for criminal wrongdoing. Europe said it was going to impose tougher inspections on all automakers and the EPA in the U.S. was quick to notify automakers that it would also aggressively inspect vehicles to make sure they complied with emission rules.
President Obama is scheduled to meet with Putin at the U.N. meeting in New York and there are rumors he may also meet with Iranian officials in an effort to develop a strategy for Syria. The Ayatollah must be giddy with his newly found status as a world power.
There were plenty of headlines to keep investors distracted including an update for Q2 GDP.
The headline number was revised up again from 3.7% to 3.92%. That is up from the initial estimate at 2.3% and the final Q1 growth rate at +0.64%. The upward revisions were due to increased consumer spending on services, business investment and residential investment. Increased consumer spending added +2.4% to growth. That was up from +1.2% in the prior quarter. Final sales rose +3.9% compared to a -0.2% decline in Q1. Apparently, the savings from cheaper gasoline is finally finding its way into the economy in the form of spending.
Corporate profits rose +3.5% after falling -5.8% in Q1. Inventory growth also added to the overall number but those high inventories will also detract from growth in future quarters.
Q2 was a strong quarter and significantly out of context with the prior two quarters. However, the Atlanta Fed is only forecasting 1.4% growth for Q3 compared to analyst forecasts of 2.5%. The economy is still in a muddle through period of economic volatility and has not yet found any real traction.
The final revision of Consumer Sentiment for September rose slightly from the initial report. The headline number inched up from 85.7 to 87.2 but was still well off the recent highs at 98.1 in January. This was the third consecutive monthly decline and a 12-month low. Volatility in the equity markets was blamed since equity prices in retirement accounts are directly related to how consumers feel about their finances.
The present conditions component declined from 105.1 to 101.2 and the expectations component declined from 83.4 to 78.2. Roughly 43% of respondents expect financial conditions to deteriorate and an equal 43% expect conditions to improve. Twenty-seven percent expect rising unemployment while 19% expect jobs to improve.
The calendar for next week is heavily weighted to payrolls for September. The ADP Employment on Wednesday is expected to be flat at +191,000. The Nonfarm Payrolls on Friday are expected to rise slightly from +173,000 to +203,000.
Multiple analysts have said that any Nonfarm number over 225,000 with a big upward revision to August will guarantee a rate hike in October. For the prior two months, the revisions have been positive.
Numerous analysts believe the Fed made a mistake not hiking in September and now the Fed has realized it. Yellen's speech on Thursday was somewhat hawkish as though she was trying to warn that October was back on the table.
The ISM Manufacturing on Thursday is a national report and it has been in a downtrend since last October when it topped at 57.9 and has declined to 51.1 in August. If this manufacturing index falls into contraction below 50 it would severely crimp the Fed's plans to hike in 2015.
There is an abnormally high number of Fed heads speaking this week. The market is going to be totally confused about Fed intentions by the end of the week.
There were no split announcements last week. Full Stock Split Calendar
The markets would have been a lot worse on Friday were it not for Dow component Nike (NKE). Shares rallied +9% to $125 after they reported a 23% rise in earnings to $1.34 per share, up from $1.09 in the comparison quarter. Analysts were expecting $1.19. Revenue of $8.4 billion beat estimates for $8.2 billion. The company said it sold more higher-margin shoes and other apparel. Sales of footwear in China rose +36% and apparel increased +22% and erased the fears that Chinese consumers were cutting back on purchases. Their future orders, a proxy for future earnings, rose +17%. The spike in shares put Nike at a forward PE of 28 and they may struggle to add to their gains without a pause for profit taking. Nike's $10.21 gain added roughly 79 points to the Dow or 70% of the Dow's gain.
Canaccord Genuity, Stifel, FBR Capital Markets, Cowen and Jefferies hiked target prices on Nike.
Jabil Circuit (JBL) shares rallied +12% after reporting earnings of 48 cents that beat estimates for 35 cents. Revenues of $4.68 billion beat estimates for $4.59 billion. Revenues were up +15.5% because the company makes phone casings for Apple. Electronics manufacturing services revenue rose to +59% to $2.8 billion. Diversified manufacturing services surged +47% to 41% of the total at $1.19 billion. Jabil had $914 million in cash at the end of the quarter with free cash flow at $293 million. The company guided for the current quarter to be in the range of 72-88 cents with 16 cents of charges. That compares to analyst estimates for 51 cents. Even with the charges that will be another big beat.
Dow component Caterpillar (CAT) was downgraded again with William Blair doing the honors on Friday. The analyst said "there are too many headwinds to ignore" and that downside risk outweighs upside potential. On Thursday, Caterpillar warned that revenue would be $1 billion below prior forecasts, 2016 sales would also decline and it would reduce its workforce by another 4,000-5,000 employees. Blair cut CAT from outperform to neutral and dropped the price target from $90 to $60. The analyst said weakness from China, Brazil, the energy sector and the commodity sector would last at least until next year. Caterpillar's main focus now is "managing the downturn" and it will be "challenging" according to Blair.
This was the first weekend of the Apple iPhone 6s sales. Social app company Foursquare said Apple will sell between 13-15 million phones. The company said Apple stores registered a 360% increase in customer traffic over the last week. Compared to the September 2014 release of the 6 and 6+ models with a 330% increase in foot traffic. Apple sold 10 million phones in that weekend. Most analysts are expecting 12-13 million phones to be sold.
The company tracked foot traffic in prior launches and uses that to predict sales. In 2012 traffic increased 2.4 times and in 2013 3.5 times the prior 12-week average. Foursquare has 50 million users that "check in" to businesses and other locations. They currently track traffic at 65 million businesses in 100-plus countries.
There were long lines outside all the Apple stores on Friday morning. There were some analysts questioning whether Apple could keep up with initial demand. Some colors like the rose gold (sparkling pink) were sold out very early. However, some trackers said the lines at some of the regional stores were a lot shorter than the lines at major stores in New York and California. Reston VA only had about 75 people and that was 25% of the year ago numbers. Most (87%) planned on buying the iPhone 6S Plus, which is a high profit item for Apple. Apple shares declined fractionally on the crowd news. As of Sept 15th, there were 92.636 million Apple shares short. That was the highest number since October 31st, 2014 at 99.5 million.
Apple component makers had a good day. Those include Avago (AVGO), Qualcomm (QCOM), Texas Instruments (TXN) and Skyworks Solutions (SWKS). Cirrus Logic (CRUS) spiked 15% after an iFixit tear-down showed Apple used its chips in the phones.
Shares of the CME Group (CME) rallied after the company announced a joint venture to explore opportunities with the China Foreign Exchange Trade System (CFETS). That is the major trading platform and pricing center for RMB and related products. The pair will participate in the joint development of offshore RMB products. The CME Group will also facilitate its customers trading of Chinese interbank products and CFETS will do the same for CME products. This is a major development for CME and equates to the expanding of China's currency market to global traders. Obviously, it has not happened yet but this is the first step.
Galapagos NV (GLPG) shares fell -27% after AbbVie (ABBV) said it was scrapping a deal to license a rheumatoid arthritis drug from GLPG and use one of its own instead. The AbbVie drug ABT-494 is in mid-stage studies. If it succeeds it will save AbbVie more than $1 billion a year it would have had to pay to GLPG for licensing their drug. Both drugs are a new class of medicine that blocks an inflammation-causing enzyme known as JAK1. Galapagos said it was already in talks with more than half a dozen companies about licensing filgotinib and advancing it into late stage studies. The news did not help their stock.
Coca-Cola (KO) was started with a buy rating and $45 price target at Deutsche Bank. Shares rose 1%.
3M (MMM) was upgraded from neutral to outperform at Credit Suisse with a price target of $155. The consensus target is $159.50.
Bed Bath & Beyond (BBBY) was upgraded from underperform to market perform by Telsey Advisory.
Nomura upgraded Cyberark Software (CYBR) from neutral to buy with a $62 price target.
PayPal (PYPL) was started with a buy rating at Canaccord with a $43 target.
Swift Transportation (SWFT) warned on earnings. They are now expecting 30-33 cents for the current quarter with consensus at 44 cents. They are predicting 48-54 cents for Q4 and analysts were expecting 59 cents. Full year guidance was cut from $1.64-$1.74 to $1.43-$1.52 and analysts were expecting $1.69. Shares fell -5% on the lowered guidance.
Sequenom (SQNM) warned that revenue for 2015 is now expected to be in the range of $127-$130 million. Analysts were expecting $144.9 million. Shares fell -7% on the news.
Frac sand provider Emerge Energy Services (EMES) was cut from hold to sell at Piper Jaffray with a price target of $8. Shares were already lower after the company withdrew its expected distribution guidance due to "difficult" market conditions. Emerge is a limited partnership and removing distribution guidance is the kiss of death. The company said it would not release guidance for the rest of the year.
Blackberry (BBRY) reported a loss of -24 cents compared to -39 cents in the year ago quarter. However, the adjusted loss of -13 cents was still almost double the consensus estimate for a -7 cent loss. Revenue was $490 million compared to $916 million in the year ago quarter. Analysts were expecting $622 million. Hardware contributed 41% of the revenue, services 43% and 15% from software and technology licensing. They sold 800,000 phones during the quarter. Free cash flow was $223 million. Long-term debt declined from $1.707 million to $1.322 million. The company still expects to be profitable in 2016. The Blackberry Enterprise Server, BES12, is becoming more widely accepted and could help turn the company back to profitability. However, shares closed at a 52-week low.
The earnings calendar for next week is light with only a couple big names. With the quarter ending on Wednesday, the real earnings parade will not begin until the following week.
Crude oil continued to hold over support at $44 despite negative news. There was another small decline in inventories of -1.9 million barrels but the fat lady is about to sing. Two weeks of unexpected declines should come to a halt soon.
Refinery utilization fell from 93.1% to 90.9% as the maintenance period kicks into gear. This should decline to 85-86% in the weeks ahead. Nearly 2.0 million barrels per day will be taken offline at the peak.
The bad news came from Iran. A top Iranian official said Iran was planning on increasing its oil sales by 500,000 bpd by late November or early December even before the western sanctions were expected to be removed. Ali Kardor said Iranian exports would grow by 1.0 million barrels per day by mid 2016. OPEC had not expected any additional exports to begin until Q2-2016.
The new exports would be to Asian nations with the most going to China. The Asian nations did not impose the same kind of sanctions as the western nations. China, India and South Korea still import about 1.0 mbpd even though the sanctions still exist. Iran currently produces about 3.0 mbpd with 2.0 mbpd consumed internally. Before the sanctions they produced about 4.0 mbpd.
Kardor expects only a $3-$4 drop in prices when Iran increases its exports. The official said he expects to talk to OPEC members at the December meeting about reducing their output to accommodate the additional Iranian oil in the market. Good luck with that. I doubt they will voluntarily agree to just cut production so Iran can earn more money to export terrorism in the Middle East.
The critical part for WTI prices will actually be the arrival of Iranian oil on the market. With current supply about 2.0 mbpd more than demand and global inventories rising about 25 million barrels a month there will have to be some involuntary production cuts soon. With Iran adding 500,000 bpd to start and increasing to 1.0 mbpd the high cost suppliers are going to be in serious pain.
Active rig counts declined by -4 to 838 and another decade low for the week ended on Friday. Oil rigs declined -4 to 640 and gas rigs fell -1 to 197. Miscellaneous rigs rose +1 to 1. The offshore rig count rose +2 to 33 and -29 rigs below year ago levels.
On Tuesday, I wrote that S&P 1,950 would be the level to watch to see if any rebound had legs. Apparently, there were no legs. On Wednesday and again on Friday the S&P stalled at the 1,950 level before declining significantly after both tests.
On Thursday, the S&P declined to support at 1,912 and rebounded immediately. On Thursday night, I thought we had a good chance of a decent move higher. That move appeared on Friday morning but it failed with the decline in the biotechs crushing the Nasdaq and dragging the S&P back into negative territory.
The S&P is now showing a potential failure of that 1,912 level for next week. The double test and failure of 1,950 on decent volume suggests there will be another test of 1,912 and it may not hold. On the daily chart the formation has turned into a continuation pattern and it should continue in the direction of the primary trend and that means a move lower.
Investors have become frustrated with dip buying not working and every decent rebound being sold on the slightest weakness. The historical trend for the week after September option expiration has added one more decline to the count. Now only five of the last 18 years have posted a gain.
Next week is not any better. The average decline is about 1.2% and there is nothing on the horizon to act as a catalyst to lift us out of our slump.
Q3 earnings are now expected to decline -4.5% and revenues -3.3%. More than 110 S&P 500 companies have warned or lowered guidance. Negative guidance announcements are now running 3.2 to 1 over positive announcements.
The Dow is a similar chart to the S&P except the 79-point jump from Nike's gain helped push it back over resistance at 16,335 at the open. The short covering in the other 29 stocks began to fade in the afternoon and the Dow fell back below the 16,335 level.
The Dow is stuck in the range between 16,030 and 16,666 while we wait for some headline to give us direction. Without a positive headline, the path of least resistance is down. Without some stock to give the Dow a 50-60 point spike every day the shorts will be loading up again.
The Nasdaq was crushed by the -11% biotech drop over the last week and -5% on Friday alone. If that sector does not find a bottom soon it will drag the Nasdaq back to critical support in the 4545-4605 range.
The majority of tech stocks are listless but still volatile. One-dollar gains are followed by $2 losses then repeat. Intel was upgraded on Friday and it managed a whopping 30-cent gain. More than 45% of the Nasdaq 100 stocks are in a bear market with losses of more than 20%.
The tech sector needs a leader. That can be the biotechs, chips, computers, software, etc, but somebody needs to lead. If Apple's iPhone sales are not incredibly strong on Monday we are going to see Apple's shares weaken and probably take the Nasdaq lower. The 4,635 level is key support and a break there targets 4,500.
The Russell 2000 is broken. The index is well below support at 1,150 and appears to be targeting 1,100. Should that fail the next support is 1,082. The small cap index has a lot of biotech stocks so the Russell is suffering the same fate as the Nasdaq. The problem is that the Russell 2000 is the sentiment index and right now, the sentiment is bearish.
With the next nine trading days typically bearish and every uptick being sold the outlook is negative. However, market lows are typically made in the first 10 trading days of October with strong rebounds through month end. This means investors with a longer time horizon should be making a shopping list for the first week of October. If we do get a retest of the August lows, we should be ready to profit from that dip.
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The AAII Sentiment Survey was barely changed in the week ended on Wednesday. The markets returned to the middle of their prior range and neutral sentiment rose as investors were undecided about the eventual direction.
The top ten global equity markets are suffering their biggest losses since 2008. Is this the start of something bigger or just a bump in the road?
USA - Dow -2,000 points, -10.9%
China - Shanghai -40%, Manufacturing PMI at 78-month low.
Japan - Nikkei -3,000 points, More QE ahead.
Germany - DAX -25%, auto scandal pushing it lower.
UK - FTSE -16%.
France - CAC-40 -18%, following the Greek debt path.
Brazil - Market down -12,000 points from peak.
Italy - Stocks down -15%, economic trouble coming.
India - Sensex down -4,000 points from its high.
Russia - RTS only down -10% but low oil prices crushing economy.
Ten Largest Economies Crashing
Murray Gunn, head of technical analysis at HSBC warned that the U.S. market is putting in a bigger top than eight years ago. Based on his analysis the Dow "could have put in an historic top, one that may well turn out to be more significant than the top in 2007." Colossal Market Top
Over the last 21 years the equity markets have averaged a low for the month in the first ten days of October and then closed the month at the highs. Early weakness as Q4 begins has proven to be a great buying opportunity. Over the last 21-year period October has risen to be the third strongest month of the year for the S&P and second best for the Nasdaq. October Trading Trends
October is Bear Killer Month
How many iCars will Apple sell? A team of analysts from Jefferies released a report saying Apple will probably sell 200,000 self driving electric cars that cost $55,000 on average in 2019. That will add $11 billion in revenue and $1.6 billion in profits. That will be just a drop in the proverbial bucket since Apple is expected to generate $244 billion in revenue for 2019 with $54 billion in profits. Apple iCar
The most popular Halloween costume this year turns the wearer into Donald Trump. The most popular piÃ±ata in Mexico is a caricature of Donald Trump. MaxWigs.com cannot keep its Donald Trump Deluxe wig in stock because the demand is so strong. Trump Deluxe
Sunday night at 10:47 PM ET there will be a "Blood Moon" eclipse. The moon will be low on the horizon and the earth's atmosphere will make the moon look red. This will be a rare "supermoon" eclipse. There have only been five since 1900. Those were in 1910, 1928, 1946, 1964 and 1982. The next one will be in 2033. Supermoon Eclipse
Enter passively and exit aggressively!
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"Yogi Berra top 50 Berra-isms from USA Today.
Berra-isms (colloquial expressions that lack logic) are now countless, and many of them are just attributed to Berra, even if he never actually said them. As he so perfectly put it: "I never said most of the things I said." Here are 50 of USA Today favorites.
1. When you come to a fork in the road, take it.
2. You can observe a lot by just watching.
3. It ain't over till it's over.
4. It's like deja vu all over again.
5. No one goes there nowadays, it's too crowded.
6. Baseball is 90% mental and the other half is physical.
7. A nickel ain't worth a dime anymore.
8. Always go to other people's funerals, otherwise they won't come to yours.
9. We made too many wrong mistakes.
10. Congratulations. I knew the record would stand until it was broken.
11. You better cut the pizza in four pieces because I'm not hungry enough to eat six.
12. You wouldn't have won if we'd beaten you.
13. I usually take a two-hour nap from one to four.
14. Never answer an anonymous letter.
15. Slump? I ain't in no slumpâ€¦ I just ain't hitting.
16. How can you think and hit at the same time?
17. The future ain't what it used to be.
18. I tell the kids, somebody's gotta win, somebody's gotta lose. Just don't fight about it. Just try to get better.
19. It gets late early out here.
20. If the people don't want to come out to the ballpark, nobody's going to stop them.
21. We have deep depth.
22. Pair up in threes.
23. Why buy good luggage, you only use it when you travel.
24. You've got to be very careful if you don't know where you are going, because you might not get there.
25. All pitchers are liars or crybabies.
26. Even Napoleon had his Watergate.
27. Bill Dickey is learning me his experience.
28. He hits from both sides of the plate. He's amphibious.
29. It was impossible to get a conversation going, everybody was talking too much.
30. I can see how he (Sandy Koufax) won twenty-five games. What I don't understand is how he lost five.
31. I don't know (if they were men or women fans running naked across the field). They had bags over their heads.
32. I'm a lucky guy and I'm happy to be with the Yankees. And I want to thank everyone for making this night necessary.
33. I'm not going to buy my kids an encyclopedia. Let them walk to school like I did.
34. In baseball, you don't know nothing.
35. I never blame myself when I'm not hitting. I just blame the bat and if it keeps up, I change bats. After all, if I know it isn't my fault that I'm not hitting, how can I get mad at myself?
36. I never said most of the things I said.
37. It ain't the heat, it's the humility.
38. If you ask me anything I don't know, I'm not going to answer.
39. I wish everybody had the drive he (Joe DiMaggio) had. He never did anything wrong on the field. I'd never seen him dive for a ball, everything was a chest-high catch, and he never walked off the field.
40. So I'm ugly. I never saw anyone hit with his face.
41. Take it with a grin of salt.
42. (On the 1973 Mets) We were overwhelming underdogs.
43. The towels were so thick there I could hardly close my suitcase.
44. Little League baseball is a very good thing because it keeps the parents off the streets.
45. Mickey Mantle was a very good golfer, but we weren't allowed to play golf during the season; only at spring training.
46. You don't have to swing hard to hit a home run. If you got the timing, it'll go.
47. I'm lucky. Usually you're dead to get your own museum, but I'm still alive to see mine.
48. If I didn't make it in baseball, I won't have made it workin'. I didn't like to work.
49. If the world were perfect, it wouldn't be.
50. A lot of guys go, 'Hey, Yog, say a Yogi-ism.' I tell 'em, 'I don't know any.' They want me to make one up. I don't make 'em up. I don't even know when I say it. They're the truth. And it is the truth. I don't know.