Finally, there was some relief. Too bad it might have only lasted one day.

It was a good session on Thursday. However, the rally fizzled into the close as investors, or probably more to the point, traders, started to cash out of a big percentage of trades ahead of the large slate of earnings after the bell.

Market breadth got much better yesterday, except for one measure that reminds us of the carnage and the vulnerability.

NYSE

• 2178 winners - 829 losers
• 3.3 billion up volume - 829 million down volume

NASDAQ

• 2172 winners - 894 losers
• 2.1 billion up volume - 640 million down volume

Milestones

NYSE

• 11 new highs - 305 new lows

NASDAQ

• 23 new highs
• 284 new lows

The Fear Index

Although this has been a difficult month, the so-called “fear index” hasn’t spiked anywhere near early-year levels.

Inflation & Runaway Fed

The first spike of fear happened in February with the 10-year yields rapid approach toward 3%, which somehow became the sword of Damocles ready to strike a deathblow. It was a combination of the yield moving higher, and speculation that Chairman Powell & Co would overreact. That never happened, and the yield eventually moved higher in the ensuing months and didn’t rattle the market.

Trade War & Peak Earnings

The second spike was another one-two combination. The trade war became official, and the term “watershed moment” got everyone thinking the party was over. It turns out those first quarter results being rolled were not peak earnings. 

Runaway Fed & Peak Earnings

The current spike in the CBOE Volatility Index (VIX) is Fed-driven once again. For whatever reason, members of the Fed have felt the need to walk and talk with more swagger. Powell may not be loco, but his words have driven the market crazy.

Now, with hits to Amazon (AMZN) and Alphabet (GOOGL), it will be interesting to see how much fear is displayed via the VIX. Honestly, there is no way anyone could believe either one of these companies has reached “peak earnings,” but they must go through the comeuppance with missing the Street and offering a lower current quarter guidance.

Hang on to your hat boys and girls.

Today’s Session

This earnings period, the number one issue from corporate America’s point of view (not to be confused with talking heads that never even crack open an income statement or listen to any conference calls) is the strong dollar.  This morning, it’s a major factor why Google/Alphabet missed on revenue.

Today, the dollar hit a new 2018 high.  Not only does this hurt top line revenue for multinational companies, but it’s having a devastating effect on emerging growth nations. 

Goldilocks Still Here

The initial read on 3Q18 GDP 3.5% comes in higher than Wall Street consensus, led by a robust consumer.  The PCE (inflation read) 1.6% headline and 1.6% ex-food and energy, was down sequentially from 2.0% and 2.1%.  This is a strong report with little inflation, and the consumer savings rate of 6.4% underscores my contention consumers are smarter post the Great Recession, and will spend more, but won’t get over their skies.

Summation

Don’t confuse the results from Google and Amazon as negatives on the U.S economy.  On the contrary, there is a lot of noise in there. What we are seeing is stronger competition for both companies, which means greater investment opportunities. 

We are focused on capitalizing on the strong consumer into the end of the year and into 2019.

This afternoon we will be updating our Portfolio Approach with an update to the current sectors, weightings, and stocks.  We will be paring industrials, which have been value traps, and increasing cash. If  you are not already a subscriber to our Hotline Service, now is a great time to get started. Call your account representative or email info@wstreet.com.  

 

Comments

Hi Charles, As a long time investor, It's sometimes amazing to me that people don't learn. Panic selling is alive and well. As Warren Buffett says, "Be fearful when others are greedy and be greedy when others are fearfull". Well said. Manny Olmo on 10/26/2018 1:59:36 PM

In addition to enjoying your financial comments, I especially like your corrections to guest who misstate facts and figurers. So many Fox host allow guest to misstate facts without correction. Ron Miller on 10/28/2018 4:14:54 PM

Tweet

 

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