Markets were relatively quiet yesterday even as IBM had a massive earnings and revenue miss, a miss that is believed to be company specific. For the third quarter, S & P 500 profits are now expected to rise by 5.9%, an upward revision from a 4.8% gain expected on October 10. Sales are still projected to rise by 4.0%.
Equities surged ending an eight day losing streak on signs of more stimulus and improving earnings. All must remember stocks are valued by present and future cash flow discounted by some interest rate. Investor sentiment is also of great importance.
How much of today’s volatility is the result of the election? Many times I have opined the averages decline 5% to 20% in a midterm because of uncertainty. If one is to believe the polls, there will be a change of power in the Senate.
It is really getting ugly as stocks at one time declined by their greatest one day amount in over three years. Conversely early yesterday morning the thirty year treasury staged the largest gain since 2009 when the global economies and face of American economy was imploding on a daily basis.
Stocks led by a 1.2% gain in the Russell 2000 rebounded from their steepest selloff since 2011 as over $744 billion was erased from US equities since October 8. This is now the third consecutive day the small caps have outperformed their large capitalized brethren.
Will everyone now become an armchair technical analyst? I have opined several times it appears market trading has been co-opted by the machines. To hell with earnings and valuations as it is now all about trend lines and moving averages.
It is getting really ugly. Oil has been decimated down over 23% since its June apex. In many regards it looks like oil futures are in a complete collapse as Brent crude is at the lowest level since December 2010.
Equities staged the biggest rally of the year following the release of the Minutes from the September FOMC meeting. The Minutes stated “growth might be slower than they expected if foreign economic growth came in weaker than anticipated.” The Fed also commented the rising value of the dollar could dampen inflationary expectations.
Equities declined sharply as the IMF cut its outlook for global growth and German industrial production fell, the biggest decline since 2009. Selling accelerated late in the afternoon after several moving average lines were violated. In my view, the proverbial machines co-opted trading once these levels were crossed.
In my view the employment report was relatively strong in many dimensions. Both private sector and non-farm payrolls were considerably higher than expected and so were the revisions from August. The jobless rate fell to 5.9%, the lowest rate since July 2008’s level of 6.1%. Average hourly earnings and hours worked also exceeded expectations both of which are precursors for future job gains.