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Market Update

Got Earnings? Lots of Them on Docket as Parade Marches On in Full Force

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October 26, 2017

(Thursday Market Open) This is the busiest earnings day of the season, and the markets could repeat the pattern they’ve etched out so far this week of rising and falling with the strength of quarterly results.

You’ve heard this here before: earnings drive the markets. Robust earnings reports sent the markets into fresh record territory Tuesday, and disappointing earnings reports from the likes of Chipotle (CMG) and Advanced Micro Devices (AMD), coupled with results from Boeing (BA) Wednesday yanked them down.

Today’s parade of earnings results might be mixed, considering the volume, but the benchmarks are mostly moving higher early on amid robust earnings from Ford (F), Twitter (TWTR), United Parcel Service (UPS), Altria (MO) and Buffalo Wild Wings (BWLD), among others.

The European Central Bank said it will extend its quantitative easing policy until September 2018 and possibly beyond, though it will pull back the rate of bond purchases while it keeps its interest rates unchanged at minus-0.4%. That’s not quite a tapering, but a step down nonetheless. Bonds and the dollar spiked on the news earlier but have since eased off. It might be interesting to watch how the dollar continues to react while also listening to what multinationals have to say about the dollar’s impact on their earnings.

Earnings volatility could be expected throughout the day and even after the markets close when results from the likes of Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT) and Wynn Resorts (WYNN) are reported. There’s also a vote on early steps in tax reform—the biggest tax rewrite since 1986--on the agenda in Washington, D.C., today that might impact broader market activity.

Yesterday, Boeing’s stock took a nearly 3% hit, despite beating Wall Street’s expectations, and was the biggest drag on the Dow Jones Industrials ($DJI). Tough as that might sound, remember that Boeing’s stock is up nearly 78% on a year-over year basis and some 66% on the year.

When it all shook out after the bell, the S&P 500 (SPX) lost 0.47% while the Dow backtracked by 0.48%. The Nasdaq Composite (COMP), smacked by CMG’s worst intraday drop in five years after the Mexican quick-service restaurant missed profit projections by nearly $1—a reported $0.69 a share vs. the $1.63 a share Wall Street estimate—fell back 0.52%, its biggest drop in three weeks.

The pullbacks turned out to be the largest one-day falls for the SPX and Dow in more than seven weeks. That could pressure the SPX’s six-week winning streak, but the index is still up solidly for the month at this point, and, of course, the year.

Meanwhile, bond prices, which typically track opposite of the stock market, were running in tandem yesterday, falling. That pushed the 10-year yield up to 2.42%. In the early going, it was pulling back modestly. (See below.)

The Volatility Index (VIX), the market’s fear gauge, jumped throughout the day, but settled relatively unchanged at 11.14, after dipping below the 11-mark in intraday trading. 

VIX

FIGURE 1: VOLATILITY STANDS STILL.

The Volatility Index, or the VIX, has long been a barometer of anxiety about the markets. As the major benchmarks have consistently tested and passed fresh peaks this year, the VIX has stayed relatively steady despite a few ticks here and there. Data sources: CME. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.

Hey Bonds, Whatcha Doing? Typically bond prices track opposite the stock market, meaning when stocks fall, like they did yesterday, bond prices tend to rise and yields drop. But that didn’t happen yesterday. They traded in unison with the stock markets. As a result, the 10-year Treasury yield closed at 2.42% after settling above 2.4% for the first time since May on Tuesday. In intraday trading Wednesday, yields reached 2.4736%, the topmost since March, and are moving in both directions in the early going but still above 2.4%.

This might be interesting to watch because the yield had backed off the 2.4% resistance level a few times over the last five months. The 2.5% level now might be ready for testing.

Spend, Spend, Spend: During the holidays, most consumers are projected to spend an average of $1,226; wealthier consumers will dole out double that, according to Deloitte’s 32nd annual holiday-spending survey. And they’re not expected to buy “presents” to put under the tree, but “experiences,” though the survey didn’t define what those might be.

“Approximately one-quarter of survey respondents prefer to buy gifts that can’t be wrapped up in a bow,” according to Deloitte, which also noted that more money will be spent on holiday entertaining and socializing than gifts. That might make the tree look bare this year but retail sales could still be good.

Wake Up ‘Snoozer’ Investors: Nearly a quarter of all investors told researchers in a recent Wells Fargo/Gallup Investor and Retirement Optimism Index poll that they rarely look at their portfolios. Those “snoozers” appear far outnumbered by those who consider themselves ‘listeners,” some 55% who know where to find advice. Another 10% consider themselves “pros” who do it on their own, while “instinctive investors,” some 8%, mostly wing it.  

Maybe more interesting in that context is that 60% of investors grade their overall knowledge of stock investing at a “C” or below. Only 8% think they deserve an “A.”

Good Trading,

JJ
@TDAJJKinahan

economic calenar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR

Source: Briefing.com

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