Investors are still nursing their wounds from the bruising month of October, so it’s understandable there is an aura of trepidation and anxiety.  

Still, last week was the best for the Dow Jones Industrial Average since March 9th. It has been the first back-to-back winning weeks for the NASDAQ composite since late summer. The sector’s performance painted a picture of caution, sending investors into Consumer Staples, Real Estate, and Utilities. Industrials and Materials benefited from bottom-fishing, but “offensive” sectors Technology and Communication Services were lagging and were down, respectively.

S&P 500 Index	+2.13%
Communication Services (XLC)	-1.03%
Consumer Discretionary (XLY)	+1.90%
Consumer Staples (XLP)	+3.10%
Energy (XLE)	+1.39%
Financials (XLF)	+2.81%
Health Care (XLV)	+4.13%
Industrials (XLI)	+2.01%
Materials (XLB)	+1.89%
Real Estate (XLRE)	+3.69%
Technology (XLK)	+1.60%
Utilities (XLU)	+3.24%

Beware of Bias Reporting 

Bias reporting, which runs rampant in the mainstream media, is now dominating the financial media.  Sadly, the news is skewed to make investors less confident about the market, and it exacerbates sell-offs.  One area of poor reporting is the U.S.trade battle against China.  

It is being played up by the media as the biggest problem for corporations when companies miss on revenue. Even though it’s overwhelming, it’s the same companies that are pointing to currency issues first and foremost, followed by merging markets.

On the profit side, higher raw material and wages are the biggest problems. 

Material cost associated with steel and aluminum is tied to tariffs under Section 232 that include Canada and Mexico. I think the stories and questioning of executives are designed to make the administration look bad or blame it for any economic shortfall.  

The truth is at some point, corporations will be squeezed, but the fastest wage gains in a decade mitigate the impact to corporate bottom lines. However, there might be more pain in the future. If so, it should be reported. Right now, the hysteria you are hearing on TV and radio doesn’t match what corporations are saying.

The Real Story

According to FactSet, fewer companies have mentioned “tariffs”in the third-quarter conference calls than the second-quarter:

415 conference calls 

• 3Q: 33% mention

• 2Q: 38% mention 

Sector (more than ten mentions)

• 3Q: four out of ten

• 2Q: seven of 

Folks, this is a tough time for the market after an amazing stretch. Try not to take any unnecessary losses. However, by the same token, be prepared to make a lot of money as stocks are cheaper in general (forward PE) than the five-year average.

Today’s Session

Equities have been under moderate pressure for most of the morning, as there is lots of rubbernecking, the Florida vote recount is pending and waiting for fresh signals on the economy.   There are some big earnings reports out later in the week with Walmart and Home Depot being the most influential.

By the way, it’s hard to believe, but the aggregate earnings beat of 28.8% hasn’t gotten any press.  I like that investors are focused on top line growth but think the interpretation of why most companies missed, and the reluctance to highlight enormous bottom line gains, is unfortunate.

In fact, the U.S. Dollar continues to press higher, and for me, it remains the top headwind to corporate earnings, while the fed remains the top risk to the economy and stock market.

The interesting spat of upgrades from sell or underperform ratings might be a signal Wall Street sees some kind of bottom.

Company	Symbol	New rating	Frim	YTD
Armstrong World	AWI	Neutral	Bank of America	+11%
Crocs	CROC	Neutral	Morgan Stanley	+100%
Jabil	JBL	Neutral	Goldman Sachs	-4%
Med Equities Realty Trust	MRT	Neutral	Citigroup	-22%
Michael Kors	KORS	Market	Bernstein	-24%

Singles Day

The record $30.0 billion in sales is not helping shares of Alibaba (BABA) today, in part, because it was the slowest year over year growth since the debut of the “holiday.”  In fact, growth of 26.9% is well below the 39.4% achieved last year, and 91.2% in 2015.  There are several factors, including greater competition.  But, the news probably reflects the slowing China economy more than anything else.

Comments

Excellent clarity on what is really happening in the media fake reporting vs what the big corporations are actually saying. So good to hear the truth. William L. Baumner III on 11/12/2018 10:06:31 AM

I’ve had this nagging “fake blues” idea floating around in my brain for some time, but your article hit the nail on the head. Thank you David Hyman on 11/12/2018 10:13:48 AM

Great reporf, it is unfortunate that even stock market is being manipulated by the opposition to make administration look bad, I know Chinese businessman bough high tech company in California possibly for IP, I am more than happy to provide more information Art on 11/12/2018 2:16:00 PM

Hedge Fund managers are getting request for withdrawals ( @ 11% so far ), the dollar is up, Trump is putting his foot in his mouth repeatedly, global economic activity is weak so IMHO the buying opportunity for most equities will be in 12 -18 months down the road. Sure there will be some individual growth opportunities but, mostly safety will be the attitude going forward. garro on 11/12/2018 5:35:44 PM

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