foxex: Behind Closed Doors

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Monday's Headlines

1. U.S. Markets Add to Record Highs, but Sell Off at the Close
2. Trump Invites Powell to Closed Door Meeting
3. China Adds Capital to Banks to Induce Liquidity

4. The Big Get Bigger as Apple and Microsoft Dominate Indexes

Markets Closed

Dow
28,036.22 +0.11%

S&P
3,122.03 +0.05%

Nasdaq
8,549.94 +0.11%

VIX
12.49 +3.65%

Bitcoin
$8,301.36 -4.36%

US 10-Yr Yield
1.808 -1.42%

Markets Today

U.S. markets added to their record highs today, although gains evaporated towards the close. Stocks were under pressure for a good part of the day as the trade negotiation news out of China was "pessimistic," according to Chinese officials. Friday's "mood music" must've worn off over the weekend. We are roughly four weeks away from December 15, the day a new round of U.S. tariffs on Chinese imports are set to go into effect. Asian markets did manage to close higher for the day, especially the Hang Seng Index, which climbed 1.35% on the day. All this despite escalating tensions in Hong Kong, which have turned increasingly violent over the past few days.

Headlines

China's central bank, the People's Bank of China (PBOC), lowered the interest rates on its regular reverse repurchase open market operations for the first time since October 2015, aiming to boost market confidence and prop up slowing growth. Like the U.S. Central Bank, the PBOC is lowering overnight rates to ensure that banks have ample liquidity for their overnight lending efforts.
India's economy is growing at the slowest pace in six years, according to official figures. Non-oil imports fell 12.3% in September from a year earlier. Industrial production and sales tax revenue fell 4.3% and 2.7% respectively, over the same period.
T-Mobile CEO John Legere announced he is stepping down from the company on May 1st of next year. COO Mike Sievert will succeed Legere, who was rumored to be considering taking the helm at WeWork, but said last week that he's not interested.
WeWork is expected to announce as many as 4,000 layoffs this week as the company restructures following its cancelled IPO and the departure of its founder and CEO Adam Neumann.
Ford (F) unveiled the Mustang Mach-E SUV on Sunday. The all-electric car is the first update to the Mustang lineup in 55 years and will arrive late next year. With a starting price of almost $44,000, it will come in various versions with either a standard 75.7 kWh or extended-range 98.8 kWh lithium-ion battery and an EPA-estimated range (distance covered on a single charge) of up to 300 miles.
Saudi Aramco settled for a valuation of up to $1.7 trillion ahead of the debut of its shares in Riyadh. The world's most profitable company said the top end of the price range has been set at SAR 32, or $8.53, per share, and the base offer size will be 1.5% of its outstanding shares.
Fed Chair Jerome Powell met with President Trump and Treasury Secretary Mnuchin behind closed doors at the President's request to discuss monetary policy. The Fed put out a statement about the meeting indicating that Powell did not discuss his expectations for monetary policy, except to stress that the path of policy will depend entirely on incoming information that affects the outlook for the economy. Powell indicated in his testimony to Congress last week that the FOMC is comfortable with where monetary policy stands today, leaving many to speculate that the Fed will not lower interest rates at its next meeting in December. As of today, options traders see less than a 1% chance that the Fed will lower rates at that December 11 meeting.

chart courtesy CME FedWatch

The Big Disconnect

As U.S. markets continue to march to new highs despite economic headwinds and the trade war, many are wondering about the sustainability of these market records. It's a reasonable question. As we know, the stock market and the economy are not one in the same, but they do influence one another. But as leading economic indicators like manufacturing, business spending, and inventory builds continue to slow down, the markets' record highs are looking more and more precarious. There is a notion, however, that manufacturing headwinds are slowing, and could start to turn positive if and when a trade deal between the U.S. and China takes shape. The question is whether or not stocks have priced that recovery in already, or whether there will be even more gains if and when a trade deal is reached.

chart courtesy Morgan Stanley

Morgan Stanley's research team looked at whether we have hit a bottom for Global PMI, that's the Global Purchasing Manager's Index (dark blue line), against the S&P 500's climb to record highs (the light blue line). As you can see, the disconnect is pretty wide, bringing into question whether the market will rally pending better trade and economic news. So far it has.

Meanwhile, the Big get Bigger

Stocks have been climbing as the Federal Reserve and other central banks have lowered interest rates steadily over the past year. That drives investors into stocks in search of yield. Some of the biggest stocks have been the beneficiaries of that flight to growth, namely Apple (AAPL) and Microsoft (MSFT).

Both are at or near 52-week highs and pull a lot of weight in the S&P 500 index funds and ETFs. What is really remarkable, however, is that combined, they are bigger than the Russell 2000 index. That's a small-cap index of the 1000th biggest to the 3000th biggest stocks in America.

charts courtesy Bianco Research

Apple, on its own, is bigger than the entire market cap of the S&P 500 energy sector. If you needed more evidence that the global economy has changed, look no further than these two charts. When stocks get crowded they have a tendency towards extremes. As the herd rushes in they push toward higher highs. But when the sentiment sours, they fall hard and fast.

More News:

10 Bargain Cyclical Stocks That Will Lead as Economy Rebounds

Talking to Chuck: The Original Discount Broker

Big Buying in Software and Biotech Stocks Is Bullish

chart courtesy YCHARTS

It was a good day for makers of graphics cards, with NVIDIA growing 3.9% and Advanced Micro Devices rising 3.5%. TV company Discovery, gained 3.5% after billionaire investor and cable mogul John Malone bought $75 million in shares.

Medical device company Abiomed dropped a whopping 20.3% after two studies from the American Heart Association showed a higher risk of "adverse events" from its Impella heart pump, than from a cheaper alternative. As uncertainty over the U.S.-China trade deal rises, energy companies took a beating. Cabot Oil & Gas, Noble Energy, Helmerich & Payne, and Apache fell 5.5%, 4.6%, 4.2%, and 3.9% today respectively.

Word of the Day

Open Market Operations
The Federal Reserve purchases and sells U.S. Treasury securities on the open market in order to regulate the supply of money that is on deposit in U.S. banks, and therefore available to loan out to businesses and consumers. It purchases Treasury securities to increase the supply of money and sells them to reduce the supply of money.

Today in History

November 18, 1928

Today in 1928 the animated short Steamboat Willie aired at the Colony Theater in New York. The cartoon was inspired by the success of the "talkie" film, The Jazz Singer which was released the previous year. It was the first cartoon that used synchronized sound, and was a loose parody of the 1928 silent film Steamboat Bill, Jr., starring Buster Keaton. It was an enormous success and it was soon re-released at the largest theater in the world, the Roxy in New York. It was added to the Library of Congress's National Film Registry in 1998.

Source: https://d23.com/a-to-z/national-film-registry/