Markets mostly treading in record territory again; Earnings, Davos on tap
(Tuesday Market Open) It looks like it could be a mixed day of trading by what we saw of early traction in the markets. But that’s what the picture was yesterday until the arrows turned more solidly higher by mid-morning to end the session in, yes, another record-setting level.
The benchmarks were mixed in the early going today, with the Dow Jones Industrials ($DJI) and the S&P 500 (SPX) bouncing around the flat line. The Nasdaq Composite (COMP) had stronger upward momentum that some analysts said might be tied mostly to Netflix (NFLX), which turned in surprisingly strong results after the bell Monday.
There’s plenty of earnings news on the docket today but no economic reports. Meanwhile, the corporate elite and some global politicians, including President Trump, are scheduled to be in Davos, Switzerland, for the annual World Economic Forum, which sometimes generates market-moving news.
The market didn’t open in a happy mood yesterday but looked like it closed in cheery form. All three major benchmarks finished in record territory. The Nasdaq was the percentage winner, up 0.97%. The SPX settled higher by 0.81%, the Dow tacked on 0.55%. The small-cap dominated Russell 2000 (RUT) advanced by 0.47%.
Some of the market upticks yesterday might have been tied to Congress’s late-day agreement to reopen the government after the three-day shutdown—at least until Feb. 8. But as we’ve seen before, the markets don’t seem too interested in the noise coming out of Washington, D.C. And as we’ve noted before, headlines might inspire a little fear but it’s not a time to panic.
The energy sector was among the biggest gainers yesterday, hitting a fresh 52-week peak as well. Halliburton (HAL) shares jumped higher than 6% and were edging up in the early going. The oilfield-services firm’s quarterly results were better than Wall Street’s expectations.
Some other stocks reached milestones: Alphabet (GOOG), the parent of Google, attained a market value of $800 billion, joining only Apple (AAPL) as companies to ever top that. Microsoft (MSFT) briefly touched a $700 billion market cap, which it first hit on Jan. 8.
NFLX could be in play today, with shares up better than 10% in early action. The streaming-video company turned in quarterly results after the bell that outpaced revenue expectations and came in line with earnings forecasts. Its subscriber base solidly beat expectations with 8.3 million new subscribers, well above the 6.3 million the company had predicted. The company also raised its guidance for revenue and earnings.
Shares jumped nearly 10% in after-hours trading. That post-market trading pushed NFLX’s market capitalization over $100 billion for the first time.
Other stocks that might be worth watching today include Johnson & Johnson (JNJ), whose shares were up about 1% early on. The pharmaceutical giant turned in better-than-expected earnings and revenues. Procter & Gamble (PG) also beat Wall Street’s expectations on the top and bottom lines, though profits were lower than the year-ago period. PG’s volume sales were up, but prices were down. Those shares were off about 1.3% in the early going. Verizon’s (VZ) earnings results were lower than last year’s but revenues outpaced expectations and the company said it expects cash flow to be higher this year. Shares were up by nearly 1% in early action.
Treasury yields climbed again Monday but appeared to erase some of those gains in the early going. The 10-year yield, which closed on Friday at a high it hasn’t seen since June 2014, touched another 3½-year top in intraday trading yesterday. The two-year yield hit an intraday peak it had not been near since late September 2008. Both were off moderately in early trading. Remember, yields move in the opposite direction of prices.
In other news, on Monday TD Ameritrade extended its trading hours for a group of select exchange-traded funds (ETF) on its platform to 24 hours, five days a week. This change allows trades during the eight-hour window between the close of the after-hours session and the open of premarket trading.
FIGURE 1: BENCHMARKS PERK UP.
The market started Monday’s session with a yawn but came around late morning and was wide awake by the close. All four benchmarks—the Dow with bars, the SPX in purple, the Nasdaq in blue and the RUT in pink—found fresh territory to settle in this hour-by-hour rendition of yesterday’s session. Data sources: CME Group, Standard & Poor’s. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Wage Growth Ahead? The Federal Reserve has openly lamented about the sluggish pace of wage growth amid a tightening employment scenario. Could wage growth be finally in the cards? The economists at Bank of America seem to think so.
“Wage increases by companies, and higher state and local minimum wages should provide a slight bump to wage growth in the next few months,” BofA economists wrote in a recent note. “Once the initial boost to wage growth fades, we think the trajectory for wage growth should be a function of the degree of tightening in the labor market. The descent in the unemployment rate should be able to boost wages to a high-2% pace by year-end and to 3% by the middle of 2019. The trajectory is still gradual, but clearly higher.”
IMF Sees U.S. Growth Ahead: But not for long, according to the World Economic Outlook update the International Monetary Fund (IMF) released in Davos, Switzerland, Monday. The recent U.S. bill that cut corporate and individual taxes is expected to juice economic growth, according to the IMF, “assuming the declines in tax revenues will not be offset by spending cuts in the near term,” the report adds. But the growth rates will be short-lived because of the temporary nature of some of the bill’s provisions, the IMF report said.
Overall, the IMF raised its U.S. growth forecast to 2.7% from 2.3% for 2018, and to 2.5% from 1.9% in 2019. “In light of the increased fiscal deficit, which will require fiscal adjustment down the road, and the temporary nature of some provisions, growth is expected to be lower than in previous forecasts for a few years from 2022 onward, offsetting some of the earlier growth gains,” according to the report.
More from IMF: Global growth looks great right now, the IMF said in this blog item yesterday, but don’t get too comfortable. “The current upturn did not arise by chance,” the blog said, “and owes much to accommodative macroeconomic policies…underpinning the current easy global financial conditions.”
“Our view is that the current upturn, however welcome, is unlikely to become a ‘new normal’ and faces medium-term downside hazards that likely will grow over time,” according to the item. “The next recession may be closer than we think, and the ammunition with which to combat it is much more limited than a decade ago, notably because public debts are so much higher.” Build policy buffers, reinforce defenses against financial instability, and invest in structural reforms, productive infrastructure, and people now, the report encouraged.
Good Trading, JJ @TDAJJKinahan
FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR
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