foxex: Lack of Support

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

1. Markets Fall as Fed Rate Cut Euphoria Fades

2. Trade Concerns Trump Earnings

3. Global Exports Keep Sliding

4. U.S. Farm Bankruptcies on the Rise

Markets Closed

Dow
27,046.23 -0.52%

S&P
3,037.56 -0.30%

Nasdaq
8,292.36 -0.14%

VIX
13.2 +7.06%

Bitcoin
$9,244.20 0.40%

US 10-Yr Yield
1.69 -5.95%

Image: Getty Images

Markets Today

U.S. markets sold off today as the euphoria from yesterday's interest rate cuts gave way to concerns about the tenuous U.S.-China trade agreement and the slowdown in the global economy. Corporate earnings, which have been stronger than forecast, did little to move the markets as a whole, although some individual stocks benefited from strong report cards. A key manufacturing report from the U.S. Midwest showed a sharp decline in activity, further emphasizing the degree of economic sluggishness in the industrial sector.

Here are some of today's biggest headlines:

Headlines

President Trump says the U.S. and China are close to picking a new venue to sign Phase One of the trade agreement after Chile cancelled the APEC summit, scheduled for mid-November amid mounting protests in Santiago, the country's capital.
Bloomberg News reported Thursday that Chinese officials have been casting doubt over the possibility of a long-term trade deal with the U.S. The report added Chinese officials are concerned about President Donald Trump's "impulsive nature" and the risk of him backing out of any kind of deal.
About 75% of the 342 companies in the S&P 500 that have posted results through Thursday morning have beaten expectations, according to FactSet. That is slightly above the five-year average of 72%.
Oil giant Royal Dutch Shell reported a 15% decline in third-quarter net profit citing lower energy prices and chemicals margins. The company announced the third stage of a stock buyback program that will total $2.75 billion by the end of 2020.
Shares of Pinterest plunged 18% in after-hours trading as the photo sharing app missed earnings and revenue expectations. Shares are down more than 30% since August.
Adam Neumann, founder and former CEO of WeWork, is being sued by his former Chief of Staff for gender discrimination and for smoking marijuana in front of her while she was pregnant.
The personal consumption expenditures price index (PCE), fell by a seasonally adjusted 0.01% last month from August, its weakest monthly reading since January, according to the Commerce Department. Compared with September 2018, the index was up 1.33%, well below the Fed's 2% inflation target.

Stocks Meet Wall of Resistance

Yes, we have had several record highs for the S&P 500 over the past few days as investor sentiment has turned positive following better-than-expected corporate earnings, an anticipated interest rate cut by the Fed, and what seemed like good news on the U.S.-China trade talks.

The fact that the S&P 500 and all major U.S. equity markets sold off today is by no means a cause for alarm. After all, multiple record highs is not a bearish sign. Still, it is important to look at the price action in markets to see where the resistance and support levels lie. Markets trade on fundamental information like news, earnings, economic developments, and the like, but a lot of trading is done by algorithms, which are programmed to react to price.

We've mentioned the 3,000 level for the S&P 500 a lot lately, because a lot of technical analysts and market watchers have been focused on it. If the S&P 500 crossed the 3,000 level and continued to push higher, the thinking goes, its next resistance level would be even higher, around 3200, according to many technical analysts. That, obviously, has not happened -- at least not yet. It still might, but when we look at price action, we can see the S&P 500 churning higher, but not breaking beyond the 3050 level. The question is, is 3050 the new resistance level?

chart courtesy tradingview.com

Most individual investors like me don't worry too much about these levels since I don't trade in and out of stocks or indexes every day. But technical analysis like this does provide another useful way of looking at the markets without the noise or the news. As technical analysts like James like to say, "Focus on the price."

Read more: What is Technical Analysis?

Declining Global Exports Tell the Tale on Trade

A slowing global economy is not news to anyone these days. The IMF reduced its predictions for global GDP growth for 2019 from 3.2% to 3.0% just a few weeks ago, and the U.S. reported 1.9% GDP growth for the third quarter yesterday.

But to really see the slowdown in action, we need to look at global exports, which are one of the key economic engines of all major economies. At the beginning of October, the World Trade Organization (WTO) forecast that global trade would only expand by only 1.2% during 2019, in what would be the weakest year since 2009, when it plunged by nearly 13% in the midst of the financial crisis. Only six months ago, the WTO was forecasting more than double that pace of growth, a 2.6% expansion in merchandise trade.

The U.S.-China trade war is just one of the culprits. Europe is dealing with a manufacturing recession in countries like Germany and is beset by the uncertainties surrounding Brexit. Mexico is dealing with its first quarterly decline in GDP in more than a decade, and other developed economies like Brazil and Argentina are facing their own internal challenges.

All of this is weighing down export growth, which is now negative for major economies around the world.

Source: CPB World Trade Monitor

U.S. Farm Bankruptcies Surge

The decline in exports has hurt industries across the world and it is having a huge impact on U.S. farmers.

According to the U.S. Farm Bureau, farm bankruptcies in the U.S. are up 24% from a year ago. While farm income is expected to rise to $88 billion this year, the highest levels since 2014, it is still 29% below 2013's record high.

Moreover, the Farm Bureau reports that 40% of the 2019 income – some $33 billion in total -- is related to trade assistance, disaster assistance, the farm bill, and insurance indemnities, and has yet to be fully received by farmers and ranchers.

It's harder than ever to make a living as an independent farmer these days with unpredictable climate events and trade uncertainties.

More News:

Square Earnings: What to Look For

Uber Earnings: What to Look For

Blue Apron Bullish Engulfing Could Signal a Turnaround

(chart courtesy YCHARTS)

Medical device maker Abiomed rose 14.1% despite an earnings miss. This was because the miss was caused by an unrealized loss from its investment in fellow medical device company Shockwave Medical. Without that loss, it was well on track to beat earnings estimates. Kraft Heinz rose 13.6% today after a significant earnings beat, giving the beaten-down stock the first good news in a while.

Data storage device maker Western Digital fell 17% when it announced that CEO Steve Milligan was retiring and projected lower-than-expected earnings for next quarter. Water management company Xylem fell 8.7% as it matched earnings estimates, but missed on revenue and lowered full year projections. Insurance and investment management holding company Lincoln National fell 8.5% on an earnings miss.

Word of the Day

Halloween Strategy

The Halloween strategy, Halloween effect, or Halloween indicator, is a market-timing strategy based on the theory that stocks perform better between Oct. 31 (Halloween) and May 1 than they do between the beginning of May through the end of October. The theory posits that it is prudent to buy stocks in November, hold them through the winter months, then sell in April, while investing in other asset classes from May through October. Some who subscribe to this tactic say not to invest at all during the summer months.

The idea that investors can time the market in this way is contrary to the buy-and-hold strategy, in which an investor may ride out down months, and invest for the longer term. The superior results seem to contradict the premise of the Efficient Markets Hypothesis and that stocks behave in a completely random manner.

Today in History

October 31, 2002

Today in 2002, ex-Enron CFO Andrew Fastow was indicted on 78 counts of various charges including fraud, money-laundering, conspiracy, and obstruction of justice. He defrauded Enron's investors by artificially inflating the company's profits by piling bad assets into financial vehicles called "special purpose entities," getting them off Enron's books. In reality, Enron was going broke. Enron was one of the largest energy companies in the U.S. when it went bankrupt in 2001.

Source: https://www.baltimoresun.com/bal-enron1031-story.html