It was wild session yesterday to say the least, and it was almost the one we needed to ring the bell on the carnage.  But buying faded, and last-minute selling killed dreams of the ultimate intraday reversal while underscoring the degree of anxiety. The good news is there wasn’t any see of panic.  Even when the Dow Jones Industrial Average was off more than 500 points, it felt like orderly selling taking out lows and triggering more preset selling levels.

Market Breadth

NYSE

• 8 new highs, 497 new lows
• 1.3 billion up volume, 2.9 billion down volume

NASDAQ

• 14 new highs, 511 new lows
• 1.2 billion up volume, 1.5 billion down volume

The market is now down in twelve of the last fourteen sessions, so the bias is to the downside, and downside swoons happen in 100 Dow point clips.  Still, the session was encouraging for many names that have missed the rally all year long.

The underdogs had their moment in the sun, or should I say the dogs with fleas had their moment in the shadow of the comeuppance of the names that have been on fire for a long time.

Homebuilders rocked on the financials out of Pulte Home.  I think the group is oversold and could gain traction with better margins from lower lumber prices.  I’m worried about starter homes and finding workers, and of course, higher mortgage rates.

Consumer Staples continue to enjoy haven status even though few of the names have displayed any pricing power.  But they are cheap by some metrics, and the brands will be around for another century, but it’s too much to ask investors to make long term investments.

Regional banks were higher, but they are such a small component of the S&P financial sector, and the moves were not mind boggling.  I’m still very worried about those huge banks, which are run by the masters of the universe types, that often fancy themselves doing divine work.  I’m still digging into the problems, which have negated solid earnings results from Goldman and Morgan Stanley.

A World Without Tech

The other day, my 6-year-old granddaughter came up to my home office to hang out with me and play pinball (no matter how busy I am, I always play a couple of games) when she spied an old calculator on my desk.  Having mastered the Apple iPhone and iPad, this strange contraption captured her attention. It was one of those old solar-powered calculators that I think I got in an adult Happy Meal 20 years ago. 

We played a couple of game of pinball (Spiderman edition), then she turns her attention back to the calculator.  I showed her how this primitive device worked, and she laid on the rug and played with it for 20 minutes.

She asked if she could take it home when they left, and I said sure.  I doubt she is still interested, but if so, wait until I breakout the fancy Texas Instruments calculator on her. 

Speaking of which, the company posted results after the bell that immediately saw the stock get smacked, down 5%. 

This gets me back to an important question: can this market ever enjoy a sustained rally without tech?

The market can rally without tech leading the way, but it would take the next three sectors with a benign retreat in IT to provide the kind of leadership investors are seeking.

IT is 20.8% of the S&P 500.

Health care	15.1%	Consumer staples	7.1%
Financials	13.3%	Energy	5.9%
Consumer discretionary	10.1%	Utilities	3.1%
Consumer services	10.0%	Real estate	2.7%
Industrials	9.6%	Materials	2.3%

The Laundry List

These days, it might be easier to ask what doesn’t ail the market. There are so many worries, and some are serious, too.   I continue to believe that the biggest threat to the market, that one that influences trillions of dollars, not billions or millions, is the Federal Reserve.

At the very least, I hope these folks stop talking.  This week’s appearances are just too much.

Yesterday Neel Kashkari Raphael Bostic Robert Kaplan Charles Evans Esther George

Today Raphael Bostic James Bullard Loretta Mester Raphael Bostic Lael Brainard

Thursday Richard Clarida Loretta Mester

Worries

Fundamentals

• Strong Dollar
• Global Economic Slow Down
• Fed Policy
• Trade War
• Weak Banks

Emotional (Behavioral)

• Technical (need new support points and reversals)
• Market Leadership
• Midterm Elections
• Tough Comparisons (good news is bad news)

Geopolitical Concerns

• Saudi Arabia
• China
• Russia
• Italy vs EU

Today’s Session

Boeing (BA) just delivered a monster quarter and gave strong guidance.  The company beat on revenues, and earnings were $3.58, beating by $0.11.  The quarter was a cash machine.

• Cash flow from operations $4.6 billion, +34%, beating consensus by $3.0 billion
• Free cash flow $4.1 billion from $3.0 billion, the street was looking for $2.4 billion

Commercial Segment

• $15.3 billion from $15.4 billion on 190 delivers from 190 a year earlier
• Operating margin 13.2% from 9.8%

Guidance (high end)

• Full year $100 billion from $99.0 billion
• Earnings $17.10 from $16.60

The news lifted Dow futures into the green, but there are a bunch of names that missed and/or offered disappointing guidance.

Misses/Disappointments

• United Parcel Service (UPS)
• General Dynamics Corp (GD)
• Laboratory Corporation of American Holdings (LH)
• Texas Instruments (TXN)
• AT&T (T)

The open will be mixed, but watch for buying in big tech on today’s dips ahead of a slew of major names reporting. 

Comments

When the Transports start missing and take guidance lower it is signaling a definite slowdown in the economy. So look at activity domestically and internationally for clues on future economy vitality. garro on 10/24/2018 10:30:56 AM

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