Morning Lineup – Leaning Positive
In what is preliminarily looking like another turnaround Tuesday, S&P 500 and DJIA futures are indicating a positive open this morning and looking to erase all of Monday’s declines. While there has been no easing in trade tensions with China, the rally in US futures is coming on the back of a positive day in Europe. Bulls are hoping the gains can hold throughout the day, but all it takes is one tweet…
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Although S&P 500 and DJIA futures are on pace to erase most of Monday’s declines, the same can’t be said for the Nasdaq which isn’t even on pace to erase half of Monday’s declines. The last couple of weeks have been especially tough on the tech sector, and therefore the Nasdaq, versus the broader market.
As shown in the intraday relative strength chart from the last three weeks, the underperformance for the Nasdaq began in earnest after the first full week of May and really accelerated with the major gap down at the open last Monday (5/13). While the Nasdaq spent much of the rest of the week trying to dig itself out of the hole, shortly before the close last Friday and into Monday, the bottom fell out again.
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Morning Lineup – Weekend to Weakstart
We hope you enjoyed your weekend because it’s looking like a weak start to the trading week. Futures were actually in positive territory overnight but have been sinking ever since Europe opened for trading. The culprit once again is trade concerns with China, and the technology sector is bearing the brunt of the weakness following Friday’s blacklisting of Huawei by the US.
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With tech facing much of the selling this morning, semiconductors have been especially weak. Making matters worse for the sector this morning is that Morgan Stanley is recommending that investors reduce exposure to the sector. This is sure to make what has already been a weak technical picture for the sector worse as the sector was already down nearly 13% from its late April high heading into today. If that 200-DMA around 1,300 breaks this week, it wouldn’t be a good sign for the technology sector. Watch how the sector reacts to opening weakness this morning for any signs of investor interest.
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Morning Lineup – Oh Deere
Futures are indicating a lower close for equities to end the week, and a big reason for that decline is the latest earnings report from Deere (DE). In addition to missing EPS forecasts by 11 cents (3.52 vs 3.63), DE also lowered guidance. The company summed up the factors affecting its impact with the statement that, “Ongoing concerns about export market access, near-term demand for commodities such as soybeans, and a delayed planting season in much of North America are causing farmers to become much more cautious about making major purchases.” Trade and weather.
In other earnings news, Nvidia (NVDA) is trading modestly lower after initially seeing a very positive reaction to earnings in after-hours trading on Thursday, while Applied Materials (AMAT) is trading higher after a strong report. Finally, Pinterest (PINS) is down over 17% in the pre-market after reporting a wider than expected loss and lowering guidance in its first earnings report as a public company. Rule #1 for IPOs, for at least your first earnings report as a public company, it’s a good idea to manage street expectations well enough so that you don’t come in weaker.
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The term ‘stock-picker’s market’ has become a bit of a cliche in stock market conversation, but looking at where sectors are currently trading relative to their trading ranges shows that the term is especially applicable right now. While the S&P 500 is essentially right at its 50-day moving average, sectors are pretty much evenly split between trading above and below that level. At the extremes, Consumer Staples is the only overbought sector while Energy is the lone sector in oversold territory.
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Morning Lineup – Strong Economic Data For a Change
It’s been a while since we last had a busy day of economic data and every report came in better than expected, but that’s exactly what happened today as Housing Starts, Building Permits, Jobless Claims, and the Philly Fed Manufacturing reports all topped expectations. Even the sun is shining over the New York Stock Exchange! Somebody pinch us and make sure we’re not dreaming!
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In yesterday’s Retail Sales report, one negative trend we noticed was the sharp drop in sales for Building Materials from their recent highs. As shown in the chart below, sales for the sector have dropped over 6% from their recent highs in what has been the largest decline from a 52-week high since 2012. While that sounds like it has ominous implications for the construction sector, one contributing factor behind the weakness may be the weather. With wet weather across the country this year, people have no doubt been slow to start Spring gardening projects and that means fewer visits to their local Home Depots or Lowe’s.
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Bespoke Morning Lineup – Inverted Again
Weak economic data out of China, Japan, and other regions of the world has investors clamoring for the safety of treasuries this morning, pushing the yield curve (10-year vs 3 -month) back to inverted levels. At other areas of the curve, the two-year yield dropped to its lowest level since February 2018.
US economic data has come in mixed so far with the Philly Fed Manufacturing report exceeding expectations and coming in at its highest level since November, but Retail Sales missed expectations falling 0.2% compared to expectations for growth of 0.2%.
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While Retail Sales in the US were a downer, the same indicator in China was even a bigger disappointment. On a YTD basis, retail sales through the month of April grew 8%. That may sound pretty positive at the surface, but it’s actually the slowest pace of growth since June 2003!
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Bespoke Morning Lineup – Hoping for a Turnaround
Global equity markets are attempting to rally back from the plunge yesterday thanks to trade headlines. The bounce appears to be mostly a function of the same kind of headlines, if not even more speculative in nature, but the move higher has been pretty consistent with Europe up 1% and US equities poised to gap up by about 63 bps. The market continues to be dominated by trade-related headlines, but at some point soon, tweets and headlines just aren’t going to cut it, and investors are going to demand concrete results.
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The list of oversold stocks is really starting to pile up. Through yesterday’s close, 18.6% of stocks in the S&P 500 were at short-term overbought levels while 38% were oversold. That net reading of 19.4% is the most negative reading since January 7th.
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