foxex: Getting Defensive

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Tuesday's Headlines

1. Markets Mellow but Dow Still Sets New Records

2. The U.S. Trade Deficit Narrows

3. Defensive Stocks Lead the Charge

4. Ola From Portugal

Markets Closed

Dow
27,492.63 +0.11%

S&P
3,074.62 -0.11%

Nasdaq
8,434.68 +0.02%

VIX
13.1 +2.10%

Bitcoin
$9,381.98 -0.53%

US 10-Yr Yield
1.87 +4.48%

Image: Getty Images

Markets Today

Results from global markets were fairly muted today. None of the three major U.S. indexes, the Dow, the S&P 500, and the Nasdaq, moved more than 0.15%. The STOXX and FTSE in Europe were similarly mellow. China saw a bit more movement as the Shanghai Composite rose a little over half a percent. The one exception was Japan, where the Nikkei rose 1.76%.

Here are some of today's biggest headlines:

Headlines

The U.S. trade deficit shrank in September to the lowest level in five months as imports dropped more sharply than exports. America ran a rare surplus in petroleum.
The U.S. Services Purchasing Managers Index fell to its lowest levels since February 2016 as new business stagnated and export demand continued to fall. Job numbers dropped at the quickest pace for almost a decade.
Shares of Peloton fell 5% as the company reported its first earnings since going public as the company took on more losses to fuel growth.
Shares of Walgreens were halted today on rumors the company may be taken private.
Defensive Stocks are leading the markets to record highs as investors shift away from technology and growth.

The U.S. Trade Deficit Fell in September

The U.S. traded less in September than in August. However, imports fell more than exports, leading to the trade deficit shrinking. The trade war with China might be to blame, in part, but the overall slowdown in the global economy is hurting demand.

The U.S. trade deficit with China is 12.8% lower than it was a year ago, although it remains the largest imbalance America runs with any country. The U.S. also ran the first surplus in petroleum in more than forty years. While it was relatively small, the $252 million surplus reflected the fact that the United States exported $15 billion in petroleum products in September, while importing $14.7 billion. Since President Obama's first term, the U.S. has been on a mission to become a net exporter of oil and gas, and it looks like it finally made it. (It puts Saudi Arabia's urgency behind the IPO of Saudi Aramco in perspective... better get that public money soon.)

The U.S. trade deficit is not new, and is definitely not stopping investors from buying U.S. securities. However, it is a useful window into the strength of the American economy and its trading partners. Further declines in trade show how soft the global economy is becoming.

source: US Commerce Dept.

U.S. Investors are Playing Defense

While U.S. markets are at, or near all-time highs, it's interesting to see the composition of the sectors that are leading the charge. The last round of record highs earlier this year was driven by technology and growth stocks. Companies like Apple and Amazon hit trillion dollar market caps and drove the markets upward.

This time around, it's defensive stocks leading the charge as investors pivot away from growth and seek the relative stability of defensive sectors. Industrial stocks, which can also be defensive, have also rallied on hopes of a trade deal with China that will eliminate or reduce steel and manufacturing-related tariffs.

So far this earnings season, the sectors that are showing greater than 1% earnings growth are utilities, health care, and REITs (Real Estate Investment Trusts). It doesn't get much more defensive than that.

chart courtesy Morgan Stanley

If you want to drill down and see the stocks that are making 52-week highs, you'll see a lot of names across these sectors, too. Yes, Apple is in there, but it's also one of the most widely held stocks on the planet.

Barcharts.com breaks down companies hitting their 52-week, and all-time highs and lows, if you want to filter for performance.

(Side note and a correction... one of our smart readers pointed out yesterday that I said sales were slowing across S&P 500 companies, yet we showed a chart of sales 'growth' slowing. He was right. Both sales and sales growth are slowing, but we should've been more consistent and accurate.)

Ola from Web Summit in Lisbon

I'm lucky enough to be in the beautiful city of Lisbon, Portugal for the first time, speaking and moderating panels at the gigantic Web Summit conference. When I say gigantic, I mean there are 70,000 attendees here, representing 126 countries. It's a showcase for technology and creativity, with both startups and established firms trying to connect with investors, each other, and the media.

Despite the size, the Web Summit team puts on an amazing and well choreographed show, bringing in high profile speakers (present company excluded) from dynamic companies to have smart conversations. They stream the keynotes and some of the conversations, and I recommend watching a few.

Margrethe Vestager, who heads the EU's regulatory commission will speak here on Thursday about technology companies that have run amok and the rules and fines she and the EU have levied upon them. They kicked off the conference with a pretty controversial keynote featuring Edward Snowden, the NSA whistleblower who exposed the programs the U.S. government uses, in partnership with the largest technology firms in the world, to monitor our behavior. Think what you want about Snowden, his tactics, and government surveillance, but his interview is worth watching. We are living in the age of the end of privacy, no matter how you look at it.

More News:

Canopy Growth Earnings: What to Look For

Speculators Scooping Up Wynn Resorts Shares

Shake Shack Extends Decline After Same-Store Sales Disappoint

(chart courtesy YCHARTS)

Grocery store Kroger issued strong guidance at an investor day today, sending its stock up 11.1% today. International Flavors and Fragrances jumped 8.4% today after it announced that it had finished its investigation into improper payments made to customer representatives in Russia and Ukraine.

Generic drug manufacturer Mylan fell 9.8% after it said it was likely to take a revenue hit next year. Medical device company Becton Dickinson delivered an earnings beat, but investors were still unsatisfied, sending the stock down 5.4%.

Word of the Day

Defensive Stocks
A defensive stock is a stock that provides a constant dividend and stable earnings regardless of the state of the overall stock market. Because of the constant demand for their products, defensive stocks tend to remain stable during the various phases of the business cycle. A defensive stock should not be confused with a "defense stock," which refers to stock in companies that manufacture things like weapons, ammunition and fighter jets.

Image Credit: Wikimedia Commons

Today in History

November 5, 1999

Today in 1999 U.S. district court judge Thomas Jackson ruled that Microsoft was a monopoly. He argued, among other things, that Microsoft had wielded its market power to erect barriers to entry for its competitors. In 2000 he said the appropriate legal remedy to this breach of antitrust law was for Microsoft to be broken up into 2 companies, one that produces its operating system, and one that produces other software. This breakup was overturned on appeal and Microsoft remains one of the largest companies in the world.

Sources: https://www.justice.gov/atr/us-v-microsoft-courts-findings-fact

https://www.investopedia.com/ask/answers/08/microsoft-antitrust.asp