The market came out the gate with slight weakness associated with the PPI report, as the core (ex- food and energy) was +0.3%.  Transportation for passenger +5.4% after two prior reads of -1.9% and -0.7%.  The news wasn’t jarring but enough to take equity futures from slightly higher to a weak start that only compounded anxieties of the last couple of weeks.

Headlines

• Wholesale inflation is back again, PPI shows, but it’s not rising as rapidly as it was earlier in the year

Market Watch

• Producer prices increase for first time in three months

The Bond Buyer

• US: September PPI poses downside risk to CPI report – Nomura

FX Street

Analysts at Nomura commented on the PPI numbers that only matched consensus but argued that airline fares may pose upside risk to core PCE inflation.

In the twelve-months ending in September, the PPI index rose 2.6% compared to the same time frame ended in August of 2.8%.  Year-over-year, core PPI rose 2.5% in September versus 2.3% in August.   

The index for final demand less foods, energy, and trade services increased 0.4% in September, the largest rise since a 0.5% increase in January. For the 12 months ended in September, prices for final demand less foods, energy, and trade services advanced 2.9%.

• The index for final demand goods dropped 0.1%, this was the first decrease since May 2017.
• Prices for final demand for energy declined 0.8%
• Final demand for food prices declined 0.6%
• The index for final demand services increased 0.3%.
• Final demand transportation and warehousing services increased 1.8%

The increase in transportation and warehousing is consistent with rising logistic inflation cited by PPG in its earnings warning.

Source: US Bureau of Labor Statistics

Rising raw materials, a slowdown in China, and the automotive and tire markets where to blame for Trinseo (TSE) issuing an earnings warning.  TSE is a global materials company and manufacturer of plastics and synthetic rubber.  Their warning came on the back of the warning from PPG yesterday.  TSE is trading down 17% and pressuring the plastics/packaging and materials companies.

S&P 500 Index	-1.40%
Communication Services (XLC)	-1.70%
Consumer Discretionary (XLY)	-1.46%
Consumer Staples (XLP)	+0.04%
Energy (XLE)	-1.86%
Financials (XLF)	-0.85%
Health Care (XLV)	-0.50%
Industrials (XLI)	-2.30%
Materials (XLB)	-1.49%
Real Estate (XLRE)	-0.25%
Technology (XLK)	-2.59%
Utilities (XLU)	+0.39%

Earnings Reactions

Reaction to earnings continues to be sell the news regardless of results.  

Fastenal (FAST) posted respectable results as product mix sent gross markets lower but operating margins improved from a year early.

• Revenue +13.1%
• GM 48.1% from 49.1%
• OM 20.5% from 20.2%

The impact of tariffs is unclear but not catastrophic, and yet, the stock is the worst performer in the industrial sector, which is the second worst sector after technology.

Technology Getting Hammered

While big tech keeps getting hit, and Amazon is now in correction and Facebook in bear market, other names in the sector are under even more pressure today.  Chips names were already a disaster coming into the session, but Adobe and Microsoft had been big winners for most of the year.  Those names at the top of our buy list are:

• Adobe
• Microsoft
• Broadcom
• Applied Materials
• Texas Instruments

China Consumer

Then came a warning from Louis Vuitton of weaker demand from its well-heeled Chinese customers.   The news sent shares of American luxury retailers lower including Tiffany.

Technical Risk

The Dow Jones Industrial Average is the only major equity index that is holding above its 50-day simple moving average, which has been breached but holding.  Because major markets have enjoyed huge moves (the third quarter was best in five years), there is a lot of room between 50 and 200-day moving average, which is an indication of potential risk.

Key Moving Averages (simple)	Dow Jones Industrial	NASDAQ Composite	S&P 500
50-day	26,000	7,920	2,880
200-day	25,141	7,499	2,765

• The Dow is down 332 points, 1.26%, @ 26,100
• The S&P 500 is lower by 39 points, 1.35%, @ 2,841
• The Nasdaq is lower by 157 points, 2.0%, @ 7,580
• The Russell 2000 is lower by 23 points, 1.44%, @ 1,598

Tweet

 

Home | Products & Services | Education | In The Media | Help | About Us | Disclaimer | Privacy Policy | Terms of Use | All Rights Reserved.