Equities have broadly been able to break above resistance at their 50-DMAs recently, but yesterday’s declines pushed the major index ETFs back downa bit.  While each of these ETFs still sit above these levels, they currently have less wiggle room.  With the exception of three of these names (IJH, IWM, and IWR), the index ETFs are less than a percentage point from falling back below their respective 50-DMAs.  With equities poised to open higher this morning following some solid earnings from the likes of IBM, UTX, and PG, at least for the beginning of trading it looks like things will generally move in the more optimistic direction.
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After a great three-week run, US equities kicked off the week on a disappointing note Tuesday.  After just barely closing above the 50-day moving average (DMA) last week, bulls were hoping the next milestone for the rally off the Christmas Eve lows would be the downtrend line from the September highs, but the market had other plans.  After falling as much as 2% and back below the 50-DMA heading into the final hour of trading, the S&P 500 rallied 0.60% in the final 60 minutes of trading to finish the day down 1.4% but above the 50-DMA.  After a strong run like the one we had over the past few weeks, at the very minimum, a pause was expected, and the fact that the S&P 500 was able to once again rally in the final hour of trading is something for the bulls to hang their hats on.

Besides the fact that the S&P 500 showed some life into the close, Tuesday’s sell-off came on extremely low volume which provides some consolation.  Whereas market sell-offs are almost always accompanied by an uptick in volume, volume on Tuesday was notably below average.  In fact, SPY volume was 13% below average coming in at under 110 million shares.  For the sake of reference, the last time the S&P 500 was down 1%+ and volume was more than 10% below average was almost a year ago in late February 2018 and between then and now, there have been 28 other days where the S&P 500 was down over 1% where volume was higher relative to its 50-day average.

Economic indicators for last week were slightly disappointing as there were more misses than beats.  There were no releases on Monday, but Tuesday kicked off with a weak reading from Empire Manufacturing which fell to 3.9 from 10.9.  PPI inflation data also came out on Tuesday matching expectations.  On Wednesday, the MBA’s mortgage applications came in lower than the prior week but still with a very strong reading. Applications rose 13.5% last week versus 23.5% the prior.  Also in housing data on Wednesday was a strong print on homebuilder sentiment as mortgage rates declined in the past month.  Import prices fell, albeit less than expected, while export prices came in lower than the previous month.  Finally, the last of the major releases Wednesday was the Fed’s Beige Book which had some more pessimistic tones that indicates a slowdown as seen through our Beige Book index.  On top of the usual weekly indicators released Thursday, the Philly Fed released their business outlook which saw a strong beat of forecasts and the prior period.  On Friday, Industrial Production and Capacity Utilization both beat expectations on Friday, but Michigan Confidence missed by a very wide margin.

This week will be quieter with a shorter trading week after markets were closed yesterday in observance of MLK Jr. Day.  As a result of the holiday, there were no releases yesterday.  Today’s only release was existing home sales which were released earlier this morning and missed forecasts.  Tomorrow, we will see yet another housing indicator with the FHFA’s House Price Index.  The Richmond Fed’s Manufacturing Index will be released a little later on that morning.  Thursday will be the busiest day of the week with preliminary Markit PMIs, the Kansas City Fed’s Manufacturing Index, and the Index of Leading Indicators—which is expected to show a slowdown in activity.  We will round out the week with preliminary Durable Goods Orders and New Home Sales assuming the government reopens prior to the releases.

With the government still shut down, a few of the releases scheduled in the coming days are dependent on the Federal government reopening its doors.  Last week further added to the growing list as Retail Sales Business Inventories, Treasury Flows, and both Housing Starts and Building Permits were all delayed.  The table below shows all of the releases missed along with their originally intended release date.  All of these releases are out of the Census and Treasury departments where funding has been curtailed.  Meanwhile, the releases we have seen recently have come out of non-government agencies or departments that have still have funding secured for the time being.

Below is a table showing the key earnings reports we’ll be watching this week.  IBM, Capital One (COF), and Wynn Resorts (WYNN) are three of the big reports tonight after the close, while we’ll hear from Procter & Gamble (PG), United Tech (UTX), Texas Instruments (TXN), and Ford Motor (F) on Wednesday.  Intel (INTC) and Starbucks (SBUX) will be the most closely watched reports on Thursday, while Friday morning is relatively slow with Colgate-Palmolive (CL), AbbVie (ABBV), and D.R. Horton (DHI) on tap.

Of the stocks listed in the table, United Tech (UTX) and American Airlines (AAL) have the strongest earnings per share beat rates at 93%+.  Intuitive Surgical (ISRG) has the strongest revenue beat rate at 84%, and ISRG has also historically responded the most positively to earnings with an average one-day change of +3.62% on its past reports.  Las Vegas Sands (LVS) has the worst historical reaction to earnings with an average one-day decline of 1.61%.  You can read more about the current earnings season in our most recent Bespoke Report newsletter, which is available with a two-week free trial to any membership level.