Eq: Total Market
(New York)
There are a lot of dark clouds hanging over the market right now—trade war, rates, politics, Italy etc. However, one of the strong bright spots has been earnings. Company performance has been very strong, which has been a real boost against the headwinds. That is why this article scared us so much. Barron’s has run a piece analyzing earnings which shows that all is not what it seems. While earnings have been strong, with about three-quarters of companies beating estimates, what has been lost is that company’s are actually struggling with revenue, with only 58% beating estimates. That is the lowest percentage in six quarters, and shows that companies are having trouble hitting their sales goals.
FINSUM: Markets have reacted to this data, but not in a major way. We are quite worried about revenue struggles as it might indicate that consumers are tightening up and a recession could be on the way.
(New York)
Monday seemed like it was going to be a good day. Chinese stocks surged mightily, which pushed up US equities ahead of the market opening. However, things quickly turned into a rout, with the Dow and S&P 500 getting wounded badly. Everything from worries over the trade war, to Italy’s budget, to Saudi Arabia are weighing on the market right now. Solid earnings are helping prop the market up, but markets are still down strongly in pre-market trading today.
FINSUM: Many investors are starting to ask themselves if this bull market has finally peaked. We think it is a smart question. That said, as long as economic performance continues strongly, we have a hard time imagining the market will fall too steeply.
(New York)
The stock market has been given a lot of time to adjust to the midterm elections and their likely outcome. Most think Democrats will take back the House, while Republicans will hold the Senate. So what is the market saying about how different sectors will perform in that scenario? The answer is that stocks in the defense and infrastructure space are doing well, as most don’t see a fiscal tightening. Infrastructure spending is also seen as a bipartisan issue. Pharmaceutical companies are also benefitting as a split congress would be less likely to pass legislation to lower drug prices. Stocks impacted by trade tensions have continued to suffer as no one sees a bright outcome on that front.
FINSUM: So the market’s assumption are showing through, but that heightens the risk of what happens if the election does not go to plan. For instance, what happens to pharma prices if the Democrats sweep?
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(New York)
The market is doing what everyone hoped it would. Just as the big losses of the last few weeks saw both stocks and bonds falling at the same time, both markets are now rising in unison. Stocks rose strongly on Friday and are up on positive news out of China today, while bond yields are also falling. China had its biggest trading day in three years as the government announced it would support the economy following the slowest economy growth in nine-years.
FINSUM: One thing to watch in Treasuries is that there is such a supply of them right now that demand itself is starting to negatively affect the bonds. Therefore, it is not just the Fed and rates weighing on Treasuries, but the sheer volume that the market is having trouble consuming.
(New York)
The markets took another dive yesterday, with the Dow losing well over a 1%, the S&P 500 down almost 1.5% and the Nasdaq down over 2%. That loss jolted investors out of the sense that things might be back to normal after a strong recovery in recent days. This all begs the question of whether it is really time to start worrying about a recession? A new study from Bank of America says no. The bank did analysis of economic performance going back to the sixties and have found that compared to previous pre-recession cycles, the US is actually moving away from recession now.
FINSUM: Relying on historical data is probably not going to be very fruitful right now as the pretext (artificially low rates etc.) is totally different for this economic cycle.
(New York)
BlackRock just reported earnings and the results are not what many expected. Total inflows for the quarter were just $10.6 bn, the lowest since 2016. Interestingly, one of the biggest areas of losses was in passive strategies held by institutional managers, where BlackRock saw $30 bn of withdrawals. The poor results sent BlackRock’s stock to its lowest point since May 2017. BlackRock’s CEO Larry Fink blamed the uncertainty about rates and peak earnings as reasons for the outflows.
FINSUM: What is interesting here is that BlackRock is probably in the best position to keep devouring assets, but even it is having trouble.