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Market Update

Watching Dow 23,000: Index Flirts with Fresh Milestone, Financials Move Up

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October 17, 2017

(Tuesday Market Open) Is today the day that the Dow Jones Industrials ($DJI) marks another major milestone with Dow 23,000? Yesterday, it closed 43 points short of making it and in the early going, it looked like it might pass that highpoint. Of course, if it does, there’s a full day of trading ahead and how the session ends is still a crap shoot.

An earnings beat from Goldman Sachs (GS) could help. GS outpaced analysts’ profit expectations, ringing up at $5.02 a share, ahead of the $4.31 share forecast. Revenues were up at $8.33 billion compared with $8.17 billion a year ago, but pressured by declines in trading bonds and other fixed-income products, the company said. At the open, shares were marginally off.

Morgan Stanley (MS) also beat Wall Street with a per-share profit of $0.93 vs. $.081 a share projection. Revenues, powered by strength in its wealth-management division, came in at $9.20 billion, up from $8.91 billion a year ago. MS shares were higher at the open, as were some other financials.

Elsewhere, Johnson & Johnson (JNJ) also topped Wall Street’s estimates for the third straight quarter, and raised its sales and earnings forecast for the next quarter. UnitedHealthcare Group (UNH) beat Street projections on the profit side, but missed them on revenue. JNJ shares were edging higher in the early going, as were UNH’s.

The revenues news continued to be bad for Harley Davidson (HOG), which reported that sales decelerated in every one of its geographical units for an overall decline for the third consecutive year. A per-share profit of $0.40 was better than Wall Street’s forecast of $0.39, but below last year’s earnings of $0.64 a share.

“Baby Boomers are not buying bikes at the same rate when they turn 60 as they did when they were 40,” UBS leisure and lodging analyst Robin Farley said on CNBC this morning. “The bikes that younger riders are buying are the lower-margin bikes. Even if you replace a Baby Boomer with a younger rider, (the sales) are less profitable.”

Crawling into Record Territory

Monday finished the session in another record position for all three major benchmarks, though the moves higher appear to be coming in baby steps. The sideways movement for the S&P 500 (SPX) has been apparent throughout much of the last six weeks while the $DJI has moved sideways with few exceptions since June. The Nasdaq Composite (COMP) has had a bumpier ride.

In terms of records, however, the Dow notched its 49th fresh peak this year while the SPX is closing in on 60. With the Dow on the verge of turning 23,000, Dow 10,000, considered an unthinkable breakpoint when it hit in May of 1999, might seem quaint now.

Healthcare and biotech stocks took a hit yesterday after starting the session on solid footing. The sector moved lower after President Trump renewed his criticism of drug prices, noting at a press conference that they were “out of control.” In the early going today, they looked like they might be recovering.

The geopolitical premium appeared to kick in for oil prices Monday, apparently amid dissension between Iraqi and Kurdish troops after the Iraqis descended on oil-rich Kirkuk, according to published reports. That appears to have led to fears of oil supply disruptions, despite recent reports of abundant resources available. Crude oil prices closed at a three-week high of $51.92.

In another commodities corner, gold prices slipped but the price of copper surged 3.4% to close at a better than three-year high. Some industry experts hypothesized that the increase might have been because of upbeat economic data out of China. But this synchronized global growth that you hear a lot of analysts talking about now might also be bullish for metals. Copper prices are up nearly 30% on the year and higher by 56% on a year-over-year basis.

After the bell, Netflix (NFLX) turned in earnings that were above Wall Street’s expectations but delivered better-than-expected subscriber numbers—a big revenue driver—and forecast a strong Q4. Shares were higher in anticipation of the news, closing at an all-time high before the results were announced. Though they moved higher in after-hours trading, shares were off slightly in the early going today.

SPX with Dow overlay

FIGURE 1: THE SLOG HIGHER

The SPX and the Dow, seen in purple, did it again Monday, inching their ways to fresh peaks and marking big double-digit record numbers for the year. Data sources: CME Group. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.

Black Monday’s 30-Year Anniversary: Anyone who was trading or watching the stock market that day remembers it as a white-knuckled ride that not many traders would likely ever want to experience again. It was Monday, Oct. 19, 1987, and the Dow tumbled 22.6%, or 508 points. A similar percentage dive from yesterday’s record Dow close would be a jaw-dropping 5,188 points today.  

Can it happen again? It’s unclear, though many market analysts might say that another crash is always a likelihood. Remember, though, that the market of three decades ago was a different animal as compared with today’s market, with exchange-traded funds, lots of computerized trading and circuit breakers designed to stall swift declines, as well as a number of other complicated trading modes in place now that weren’t then. There’s no crystal ball that could predict what those impacts on a crash might or might not be. And as always, never forget that past performance is not a guarantee, or even an indication, of future results.  

Next up, Janet Yellen: The chair of the Federal Reserve is said to be on President Trump’s agenda Thursday for an interview to keep her post, according to Politico. The site also reports that Trump already has interviewed former Fed governor Kevin Warsh, current governor Jerome Powell, National Economic Council Director Gary Cohen and Stanford University economist John Taylor.

The Wall Street Journal reports that Warsh and Taylor tend to be more hawkish on interest rates than Yellen and Powell, and are in favor of changes being made at the Fed. It’s unclear how Cohen stands. Trump told WSJ in July that he thought Yellen had done a “good job” and reiterated his penchant for low rates and that Yellen’s “historically been a low-interest-rate person.”

Thanks Pop! Millennial fathers are expected to be the biggest spenders this holiday season, according to PriceWaterhouseCoopers’ recent retail survey. Some 94% of Millennial dads say they will spend the same or more when the busiest shopping season of the year begins in earnest, and much of that will be on electronics for their families.

Overall, PwC has said it expects holiday spending to climb as much as 6% over last year, fueled mainly by high-income consumers. That’s in line with National Retail Federation projections, which estimate holiday retail sales to increase from 3.6% to 4%, targeting a range of $678.75 billion to $682 billion, up from last year’s $655.8 billion.

Good Trading,

JJ
@TDAJJKinahan

Economic calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR

Source: Briefing.com

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