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Morning Commentary

Market Limbo

By Charles Payne, CEO & Principal Analyst
8/14/2018 9:25 AM
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It was another session yesterday where rally attempts fizzled quickly, and the market slumped into the close on Monday. The losses weren’t catastrophic, but market breadth was ugly.

NYSE

NASDAQ

On that note, ‘the fear index’, aka the CBOE Volatility Index (VIX) surged to its highest level since early July.  On another note, gold continues to crumble in value, and bond yields didn’t flash any signs of panic.

VIX

The Message of the Market

On Monday, the stock market began a strong stealth rally off the March and April lows. However, last week, all the major indices were in the shadow of record milestones. Its inability to breakout has resulted in four days of losses.  It’s not unusual for a stock or an index to see such a pullback after a repeated failure to breakout.

For me, the biggest concern is the continued disappointment of Financials (XLF). Over the past three months, the S&P 500 was edging up more than 4%. The Financials were the second-worst performer after Energy (XLE).  In yesterday’s session, the hardest hit financials were the big banks:

A part of the problem is big banks moved away from good old-fashioned lending a long time ago, in favor of gimmicks and shady products. I don’t think the situation in Turkey or other exogenous events are what’s pressuring U.S. banks.  And if I’m right, that means a part of their current woes could be a byproduct of macroeconomic issues, such as mounting debt and growing defaults. Neither are at levels that should derail the economy, but they are flashing signals that could be giving the market pause.

S&P 500 Index Three Month Performance

+4.05%

Consumer Discretionary (XLY)

+7.69%

Consumer Staples (XLP)

+7.47%

Energy (XLE)

-1.74%

Financials (XLF)

-1.10%

Health Care (XLV)

+9.56%

Industrials (XLI)

+0.70%

Materials (XLB)

-0.39%

Real Estate (XLRE)

+3.95%

Technology (XLK)

+4.36%

Utilities (XLU)

+5.33%

 

Technical Signals

Investors should focus on the S&P 500 because it has made a series of higher highs and lows and holding well above its 50-day moving average.

The thing is that the index is looking even cheaper after the most recent earnings period, so it’s not unreasonable that it should challenge the record high.

I think such a test and creation of new milestones will actually happen without a lot of fanfare. That being said, all eyes are on Home Depot (HD), which reported before the open this morning.

According to research from E*TRADE (covering 54 earnings release), Home Depot has traded lower in the pre-open in subsequent sessions a majority of the time. Perhaps, it won’t be the broad market savior some are hoping for. 

In fact, this has been a monster earnings period, so if it was going to be knee-jerk reactions to the results and guidance, the market would be in the stratosphere. That’s another reason for anxiety. 

I have to say investors should continue to focus on fundamentals and understand that earnings news must justify the current trend and bolster future value propositions.

It Feels Like Hell

After 2017, investors got really spoiled and were too unrealistic. I think it’s going to hurt those that act impulsively. This goes more for professional investors than even individuals. A sideways market often feels like Dante’s version of Limbo on the edge of hell or its first circle. The good news is according to Dante, great thinkers, heroes, and many of the most thoughtful citizens of the ancient world inhabited Limbo

So, be smart and don’t panic. Don’t sweat it, as it could be a whole lot screwier and hotter.  

Today’s Session

Brick and Mortar retailers had huge hurdles to cross, and this morning, they have with Olympian ease.

Home Depot

Tapestry

Advanced Auto

On Fire

Couple retail earnings news with small business optimism surging to its second highest level ever, and its clear, America’s economy continues to fire on all cylinders.


 

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