 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Friday's Headlines 1. Markets Fall as Investors Dismiss Earnings 2. China's Growth Slows Again 3. CEO Confidence Falls Impacting Spending 4. What to Expect Next Week Markets Closed
Year-to-Date
 Image: Getty Images
Markets Today
U.S. equity markets were bathed in red all day Friday to close out an up and down week, punctuated by corporate earnings and the aftermath of last week's trade talks.
There was no real catalyst to drive markets lower, but investor sentiment soured, even as many companies reported better than expected quarterly results.
Netflix, which was a big winner on Wednesday and Thursday, sold off 6% today as analysts downgraded the stock and expressed doubt about its ability to grow subscribers in the face of heated competition.
Boeing and Johnson & Johnson dragged down the Dow today as Reuters reported that instant messages from executives inside the company suggest Boeing misled regulators over the safety systems of the 737 Max.
Johnson & Johnson fell 4.8% after the company recalled baby powder upon finding traces of asbestos. Earlier in the week, J&J offered to pay $4 billion to settle lawsuits related to its role in the opioid crisis.
Coca-Cola, on the other hand, beat analyst forecasts for earnings and revenue on stronger sales of Coke Zero and new coffee drinks it is selling outside the U.S. Guess which company has not mentioned the trade war or global economic uncertainty in its earnings results, and is handily outperforming the Dow Industrials over the past year?  The China Growth Train Continues to Slow Most countries would kill to have a 6% GDP growth rate. But most countries weren't growing at 14% just a few years ago with plans to be the dominant economy on the planet by 2025. It might still get there, but it will need to reverse this trend.  chart courtesy tradingeconomics.com
In the last quarter, China's growth fell to its lowest level in nearly three decades, as the world's second largest economy continues to feel the pain from the trade war with the U.S.
CEOs are Losing their Mojo
When the boss loses confidence, expect spending to slow. That's exactly what we are witnessing across industries as top executives' uncertainties about the future are playing out in their projections for capex spending, research and development spending and other areas key to growing their businesses.
The Conference Board's Measure of CEO Confidence shows that CEOs have grown more pessimistic about current economic conditions, with only 8 percent saying conditions are better compared to six months ago, down from 13 percent last quarter. Close to three-quarters say conditions are worse, up from 42 percent in Q2. CEOs were also more negative about current conditions in their own industries compared to six months ago. Currently, only 15 percent say conditions are better, down from 21 percent last quarter. Close to two-thirds say conditions are worse, up from about one-third in Q2.
We are already hearing that in this quarter's earnings reports, as expected. But to see how it is manifesting inside their businesses, you have to follow the money.  Spending is slowing, and even fell 13% in the second quarter of 2019, on all the things that set companies up for future growth. Back in 2017 and 2018, CEOs spent the cash they got from the Trump tax cuts on stock buybacks and increasing their dividends. All of that took the stock market to record highs. While buybacks are still at high levels this year, they won't surpass 2018 levels.
As you know, companies buy back their shares when they think they are undervalued or don't have a better use for the cash. Buybacks are also a sign of confidence, so if CEOs are slowing down on that practice, how should investors feel about buying more shares? Rhetorical question.  And, How are You Feeling? Every few weeks we like to check in on the American Association of Individual Investors Sentiment survey to take the pulse of investors in this country. I know many of our readers are outside the U.S., and I would love to share similar surveys from other countries in this newsletter. Please send links if you have them.
As for U.S. investors, sentiment has improved - albeit slightly - from a month ago. But, close to 70% of those surveyed are either Bearish or Neutral. The AAII asked respondents to list their main areas of concern. In the top spot... trade uncertainty.  What to Expect Next Week? Ciao, Mario! Next week's European Central Bank policy meeting will be the last for President Mario Draghi. Draghi is going to be replaced by Managing Director of the International Monetary Fund, Christine Lagarde. Draghi leaves with mixed reviews.
His aggressive policies, including negative interest rates, helped end the Eurozone debt crisis, which early in the decade seemed like it would destroy the currency. However, a significant faction of ECB policy makers are unsure of the ECB's continued stimulus and whether negative rates will cause inflation or growth in the European Union, which is faltering.
Brexit Final Push
Earnings Season in Full Force Earnings season continues apace with giants like Microsoft, Amazon, and Visa announcing next week. We'll get to see if Amazon can recover from its earnings miss last quarter, and if consumer spending continues to buoy Visa.
Here are some important events happening around the world every day next week.
For a full calendar of economic events, we recommend TradingEconomics.com.
Monday: Japan All Industry Index
Existing home sales U.S.(September)
Wednesday: EU Consumer Confidence
Durable goods orders announced U.S. (September)
Consumer sentiment Index U.S. (October)
photo courtesy elpais.com 
(chart courtesy YCHARTS)  Railroad operator Kansas City Southern rose 7.2% on an earnings beat. Other stocks that rose on earnings beats were medical device maker Intuitive Surgical, which rose 7.1% and State Street Corporation which rose 6.2%.  L Brands and Macy's fell 9.8% and 4.3% after Credit Suisse downgraded the stocks to "Underperform." Boeing dropped 6.8% after it was revealed that people in the company knew about possible safety issues that led to crashes that led to hundreds of deaths. Netflix dropped 6.2% over concerns about subscriber growth, and Johnson & Johnson dropped 6.2% after J&J recalled baby powder due to asbestos contamination. Word of the Day Negative interest rates refer to a scenario in which cash deposits incur a charge for storage at a bank, rather than receiving interest income. Instead of receiving money on deposits in the form of interest, depositors must pay regularly to keep their money with the bank. This environment is intended to incentivize banks to lend money more freely.  Image: https://www.archives.gov/publications/prologue/1994/winter/alaska-check
Today in History October 18, 1867 Today in 1867, the territory of Alaska was formally transferred from Russia to the United States. As Alaska is about twice the size of Texas, the $7.2 million dollar purchase price was a bit less than two cents an acre. While the purchase was derided as worthless at the time, Alaska has accounted for a major portion of U.S. oil and seafood production.
October 18th is a big day for U.S. territorial acquisition. On this day in 1898, the US gained control of Puerto Rico from Spain.
Sources: https://www.history.com/this-day-in-history/u-s-takes-possession-of-alaska, https://www.archives.gov/publications/prologue/1994/winter/alaska-check, and https://www.loc.gov/item/today-in-history/october-18/
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Friday, October 18, 2019
Dissatisfied
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