The sugar rush is over

The sugar rush is over.  Stocks slipped yesterday on weak manufacturing data and some new trade uncertainty.  Chile will not host the APEC summit at which China and US were set to sign a phase one agreement but the President assured us that a deal will get signed.

 

MY TWO CENTS

 

1.  Santa Claus coming to town?  Halloween holds a special place in hearts of stock traders.  Not because they can rush home after the close and raid their kids’ candy stashes – though that can be fun.  Halloween tops off a month that is infamous for its crashes and the 31st has historically been an up day, on average.  The real reason traders love Halloween is that it marks the end of what is typically a bad period for the market and the beginning of one that is typically good.  Today marks the beginning of the holiday season… for stocks, that is.  Sure, we all start to focus on Thanksgiving and the holidays and in New York, Bryant Park’s famous winter village actually opened yesterday.  What traders are thinking about is a Santa Claus rally, which occurs around Christmas and caps off a historically strong couple of months.  Many analysts begin to focus on the new year and traders, allegedly more joyful, tend to have a more bullish outlook.  Now would be good time for me to remind you that history does not always repeat itself, so trading on this alone is a dangerous proposition, and yesterday’s down day should serve as a reminder of that.  We might also recall last December in which Santa Claus came in the form of Fed Chairman Jerome Powell who famously pivoted in the days after Christmas and in the wake of a painful selloff in stocks.  Consumers have remained strong through a rather murky period for the global economy and they will hopefully continue to play their important roll as the retail sector enters its most crucial period.  Another famous icon here in NYC is the Rockefeller Center tree.  The tree will be lit on December 4th.  By then we will hopefully have a phase one trade deal signed and retail should be in full swing giving us a better picture of what form Santa may take this year.

 

2.  A Ghoulish picture.  In the wake of an OK Gross Domestic Product release and a highly expected bearish rate cut, yesterday’s numbers were a bit of a letdown, but by no means a wash out.  First the good news.  The Core Personal Consumption Expenditures (PCE) Deflator showed that prices rose by just +1.7% annually.  The number came in lower than last month’s +1.8%.  The Fed uses this indicator as its preferred read on inflation.  It measures changes in prices paid by consumers adjusting weightings quarterly based on spending habits compared to CPI, which rebalances every two years.  Because of the scope of goods it covers, it is thought to be a more accurate read on the impacts of inflation on consumers.  Yesterday’s +1.7% release being below the Fed’s +2% target gives them room to lower rates without fears of causing inflation.  Yesterday’s economic releases also showed that Personal Incomegrowth slowed from +0.5% to +0.3% while Personal Spendinggrew by +0.2%, slightly lower than expected.  Still good but not great.  Finally, MNI released its Chicago Purchasing Managers Index yesterday and it came in at 43.2 well below expectations and last month’s 47.1.  This shows a marked slowdown in business activity which was brought on by declines in new orders.  Though this is a regional indicator, it is highly watched and was a contributor to yesterday’s market selloff.  Today we will get national PMI’s from both Markit and ISM.

 

THE MARKETS

 

Stocks sold off a day after a Fed-induced mini-rally drove the S&P 500 to new all-time highs.  Bloomberg reported yesterday that the Chinese were skeptical that a long term deal could be reached with President Trump and Chile canceled the APEC summit spooking traders.  Adding to the fear were economic numbers that showed a decline in business activity.  The S&P500 dropped by -0.30%, the Dow Jones Industrial Average sold off by -0.52%, the Russell 2000 slipped by -0.66%, and the NASDAQ Composite Index traded down by -0.14%.  Bonds climbed yesterday in response to the Fed actions and ten-year treasury yields fell by -8 basis points to 1.69%.

 

WHAT’S NXT

 

– Non-Farm Payrolls are expected to have grown by 85K jobs compared to last month’s +136K.  The Unemployment Rate is expected to have ticked up to 3.6% from 3.5%.

– Markit Manufacturing PMI is expected to be 51.5, same as last month.  The ISM Manufacturing PMI  is expected to be 48.9 compared to last month’s 47.8.

– Construction Spending is expected to have grown by +0.2% compared to last month’s growth of +0.1%.

–  This morning we will hear from Chevron, Exxon Mobile, Colgate-Palmolive, Seagate, and AbbVie before the bell.

 

Have a great weekend!

daily chartbook 2019-11-01