Faltering Thursday – Failure at S&P 3,000
We did not hold it.
The S&P finished "Will We Hold It Wednesday" at 2,984, dropping 19.62 points from Tuesday's close and, since our run was from 2,800 to 3,000, that wasn't even a weak retracement, which would have been 40 points so we're still on a very bullish path unless 2,960 fails today but, so far, the Futures are improving, though we do expect to at least see 2,860 tested at some point.
The Philly Fed came in quite strong this morning at 21.8 vs just 5 expected and 0.3 in the prior reading and we can add that to strong Empire State Manufacturing (4.3 vs 2 expected and -8.6 prior), strong Retail Sales (0.4% vs 0.2% expected and 0.4% prior), lower than expected Business Inventories (0.3% vs 0.4% expected and 0.5% prior) although we did have declining Import (-0.9%) and Export (-0.7%) Prices and Industrial Production (0% vs 0.2% expected and 0% prior) was awful and Housing Starts (1.25M) were a bit disappointing.
We will get Leading Economic Indicators at 10 am and they are expected to be flat and tomorrow we get the Michigan Consumer Sentiment reading, which was last seen at 98.2 and that's it for our data so mixed – no matter what happens with the last two. Still the mixed economic reporting doesn't seem like the Fed is likely to cut rates. Yesterday's Beige Book Report from the Fed showed most businesses see economic activity expanding modestly despite concerns over the Trade War:
“The outlook generally was positive for the coming months, with expectations of continued modest growth despite widespread concerns about the possible negative impact of trade-related uncertainty,” said the Fed’s Beige Book survey, a report of anecdotes drawn from business contacts around the country by the Central Bank’s 12 regional banks. Businesses pointed to consumer spending as a strong point, despite flat vehicle sales. Retail sales have been rising for four straight months, according to the Commerce Department.
Businesses also continued to complain of worker shortages. Some construction companies in Idaho debated relaxing drug testing for applicants. Wages grew at a modest-to-moderate pace, the report said, with some employers expanding benefit packages to draw workers – something we discussed in detail in yesterday's Live Trading Webinar.
Rising wages takes the Fed off the table and if traders begin to think that the Fed is not going to lower rates at their upcoming meeting – we could quickly go back to the May lows at 2,750 and I don't see how the Fed can justify even a 0.25% drop, let alone the 0.5% drop people are talking about. If not for the Trade War, the economy would be chugging along and rate cuts aren't going to fix that.
IBM (our Stock of the Year) earnings were good for the Dow last night but are fading this morning on cloud competition but Netflix (NFLX) was a disaster and the stock is down over 10% into the open (something we also discussed extensively in our Live Trading Webinar) but it has nothing to do with the economy – just to do with how ridiculously valued the company was (and still is) going into the report.
There was literally nothing NFLX could do to justify trading at over 100x earnings and that does not bode well for Amazon (AMZN) who are failing right at the $1Tn line at $2,000 for a company earning "just" $12Bn this year so 83x earnings means we need to see a path to $50Bn for AMZN (July 25th earnings) or it's time to bring that stock lower as well.
Asia and Europe are also pulling back on earnings and Japan's Nikkei 225 Index is testing 21,000 after topping out at 21,750 at the beginning of the month so down 3.5% while the S&P, so far, has fallen from 3,020 to 2,980 (1.3%). If you remember, Japan imploding on their debt is my #1 Global Economic concern but it looks like the UK might beat them to it as their own Office for Budget Responsibility is warning that a no-deal Brexit (which seems likely now) will plunge them into Recession, costing the UK 2.1% of its GDP.
Also, despite the BS spun by the Trump Administration, NO actual meetings with China have taken place since the G20 summit and none are currently scheduled – that's worrying people too. Keep in mind the market rallied 2,500 Dow points (10%) since early June on hopes of a Trade Deal and hopes of a Fed Cut and it's very possible, at the moment, that neither one of those things is actually going to happen.