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Market Update

From Tepid to Sizzling; Markets Moved Higher in Early Going Amid Earnings

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October 24, 2017

(Tuesday Market Open) The stock market appeared to move solidly to the upside in early trading today after a handful of major Dow Jones Industrials ($DJI) and S&P 500 (SPX) components turned in earnings reports that beat Wall Street expectations and forecast better results ahead.

All three benchmarks started the pre-market trading in relatively tepid waters but streamed higher, led by major components like 3M (MMM), Caterpillar (CAT),  McDonald’s (MCD) and General Motors (GM). MMM, CAT and GM’s profits climbed amid higher sales, while MCD’s earnings missed by a penny though revenues and same-stores sales, a key industry measure, were better than expected. Elsewhere, shares of Eli Lilly (LLY) and United Technologies (UTX) were on the upside in early trading. Shares of MMM and CAT contributed some 90 points to the Dow’s 140-point advance in the early going.

As noted here many times, earnings is a hot button for market movement no matter what direction, and the earnings parade, so far, appears to have moved solidly ahead this quarter. The season continues on full throttle this week, but let’s not forget Thursday’s get-together of European Central Bankers and Friday’s release of Q3 gross domestic product. Asia appears to be on good footing, too, with the Nikkei exchange up for its 16th straight close.

Yesterday, the Dow and the SPX snapped seven consecutive days of gains, but just barely. Both opened higher, as did the Nasdaq Composite (COMP), breaching records, but lost most of their momentum before the morning was out. The rest of the day, they were hugging the flat line after Friday’s finish of six weeks in a row of logging gains.

The slips were just that—little slides. The pattern of tiny moves we’ve seen for much of this year appears to be intact. None of the benchmarks yesterday made even close to a 1% move, and the Nasdaq was the only one that lost more than half a percentage point, at 0.64%. (See chart.)

“In the past 12 months, the S&P 500 has recorded only 11 trading days in which it rose or fell by 1% or more,” according to Sam Stovall, chief investment strategist of CFRA Research. (See below.)

Crude oil prices skidded yesterday, too, but after zigging and zagging by nearly a buck as they tried to resume the upward trajectory they’ve mostly been on since late August.  Oil analysts have suggested that the market is synchronizing supply with demand as oil prices move toward $60 a barrel level. Baker Hughes reported a drop in the number of active U.S. oil rigs late last week for the third week in a row of declines.

“The drop in rig counts is more than just storm related,” Phil Flynn, senior market analyst at Price Futures Group, told MarketWatch. “It is a sign that shale producers are pulling back. That should support prices and further tighten supply.”

However, geopolitical risks might have impact too. Light sweet crude oil futures (/CL) were slightly higher in the early going. Stay tuned.

SPX chart

FIGURE 1: TINY MOVES TOWARD FRESH PEAKS.

The SPX notched its sixth weekly gain last week to up the fresh-peak tally to 175. But the moves to the upside were in small increments as the index has recorded only 11 trading days when shifts in either direction was by 1% or more. Data sources: CRFA Research. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.

This Number: 175. That’s the number of fresh peaks the SPX has topped during the market’s bull rally, according to CFRA Research. Nineteen of them were added in the last six-week stretch of weekly advances. That makes it second only to the bull market run of 1990-2000, which added 308, but just sixth of the 11 since 1949 in the total-trading-days category in new-high territory. What might be different this bull market? “Absence of volatility,” according to the report.  

And This Number: 238. That’s the count of U.S. cities in 54 states, provinces, districts and territories that made a bid for Amazon’s (AMZN) second headquarters, an office behemoth that the online retailer has promised to invest $5 billion in new construction in and create some 50,000 jobs, Amazon said yesterday.

One of the requirements was that the metro area have a population of 1 million, but only 10 cities in the U.S. can claim that number, according to the U.S. Census Bureau. Many of the others, of course, are strategically placed in geographical areas that allow them to include the “greater” numbers of the areas surrounding them. Amazon said it will make a decision in 2018.

And Then This Number: 75 Billion. That’s the guesstimate of square feet of parking—roughly half of the parking spaces in the U.S.—that Green Street Advisors and the Urban Land Institute recently reckon might go away amid a potential mass adoption of driverless vehicles and ride-sharing services, That, the two believe, comes amid a potential decline in vehicle ownership that could wipe out the need for parking and, possibly, even garages.

“Implications are likely unfavorable for self-storage, billboards, transit-oriented residential, and commoditized retail,” according to Dave Bragg, Green Street’s managing director. High-quality malls, however, might become the biggest beneficiary of the transportation revolution. 

Good Trading,

JJ
@TDAJJKinahan

Economic calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR

Source: Briefing.com

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