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Market Update

Might Markets Pull Back Today? Tax Reform, Earnings on Agenda

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October 19, 2017

(Thursday Market Open) In the early going, stocks looked ready to pull back gains made in recent sessions that have helped nudged the three major benchmarks to consecutive days of fresh peaks. That, of course, might change as the day wears on and issues like tax reform, headed for a vote in the Senate today, make headlines.

There are other tensions out there that might be responsible for today’s early pullback, according to some analysts. Among them: political pressures in Europe, particularly Catalonia, and lackluster economic reports out of China, possibly suggesting geopolitical news might be the primary driver upsetting this stock-market apple cart.

Though the declines in the markets might seem like a big move to the downside, don’t forget that the markets have barely budged in a long series of sessions and when they have, it has rarely been to the downside.

What investors might want to also pay attention to today is earnings, as a stack of them are on the docket. Technology stocks were in pullback mode early on with shares of EBay (EBAY) sliding nearly 6%, which some analysts said is likely linked to the online auctioneer’s lowered profit guidance for the full year.

Yesterday, the three major stock benchmarks found themselves resting in fresh territory at the close, with the Dow Jones Industrials’ ($DJI) notching the biggest gain, up 0.70% for the 51st session of fresh highs this year. It also notched another record with its first closing above 23,000, only 77 days after it crossed the 22,000 line, and marking the fourth time this year that the Dow has passed a 1,000-point milestone. The S&P 500 (SPX) and the Nasdaq Composite (COMP) advances were narrower, but enough to make the books.

IBM (IBM), which has been somewhat of a sleeper during this bull run, was among the biggest drivers of the Dow yesterday, racking up nearly 90 of the Dow’s 160-point upturn. Once known as Big Blue, shares climbed nearly 9% after IBM, possibly linked to its report of better-than-expected earnings, making it the 12th straight quarter to do so. It was the biggest post-earnings gain since Jan. 21, 2009. Despite the jump, IBM was still down 3.9% year to date at the close, lagging the double-digit advances of the Dow and the technology sector. (See Chart.) Like 27 other components of the Dow 30 early on, shares were moderately off today.

Elsewhere, American Express (AXP) also outpaced Wall Street’s revenue and profit projections, and raised guidance for the next quarter. But the news that Kenneth Chenault, its chief executive for 16 years, was stepping down Feb. 1, might have overshadowed that. Shares slipped in the afterhours and early this morning were off nearly 2%.

Crude oil prices settled higher again yesterday at $52.04 a barrel but were falling back nearly 1.5% in the early going. Yesterday was the fourth session in a row that oil hit three-week highs after the U.S. Energy Information Administration reported a bigger-than-expected draw down in crude stockpiles.

IBM Dow

FIGURE 1: CATCH UP TIME?

Shares of IBM rose 9% to score their biggest one-day post-earnings pop since 2009. But the shares are still among only three in the Dow 30 that are sitting in negative territory year to date while the Dow has advanced 17.2% as of yesterday’s close. Data sources: CME Group. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.

No FOMO Here Folks: The three major benchmarks appear in better stead than they were on the same date, Oct. 19, that the stock market crashed 30 years ago. Sam Stovall, chief investment strategist at CFRA Research, said the factors that appear to be inflating investor enthusiasm might include ongoing optimism toward U.S. tax reform, and a rebound in Q3 and full-year S&P 500 EPS estimates. Some 73% of companies reporting earnings have beat Wall Street’s top line estimate while 80% are outpacing profit projections.

What’s different today? “Unlike 30 years ago,” Stovall said, “when the market had already recorded a more-than 16% decline from its prior peak, the DJIA, S&P 500 and Nasdaq all recently hit new highs, and the FOMO (fear of missing out) mindset has yet to shift into high gear.”

Tick, Tick, Tick: That’s the sound of the Federal Reserve who-will-be-chair clock. Janet Yellen, who holds the reins until her term expires in February, is reported to be on President Trump’s interview docket today. He has already had meet-and-greets with former Fed governor Kevin Warsh, current governor Jerome Powell, National Economic Council Director Gary Cohen and Stanford University economist John Taylor. Another name that popped up in published reports this week was John Allison, the former chief executive of BB&T Bank.

Speculation continues to flurry around who the choice might be, and the White House said yesterday that Trump will make the decision in “coming days,” without noting how many days that might mean.

Looking for a Cup of Java? If you can’t find one, you might not be looking hard enough—no matter where you live. In addition to coffee served at restaurants and other foodservice outlets, there are 33,129 gourmet coffee shops in the U.S., according to the NPD Group, a consumer research. That’s a 2% year-over-year jump, thanks mostly to chain-store increases at the expense of independents, according to a recent survey. What city has the most coffee shops per capita? Juneau, Alaska, with Anchorage coming in second.

Good Trading,

JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR

Source: Briefing.com

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