Thursday, October 17, 2019
Don’t forget the big picture
There are just over nine weeks left in 2019. And it's a year that's been full of concern about trade fights, a global recession, impeachment proceedings, and disappointing IPOs from some of the decade's defining tech names.
But it has also been an awesome year for stocks.
Through Wednesday's close, the S&P 500 is up 19.2% year-to-date.
In a note to clients published this week, Tom Lee at FundStrat reminded readers that the S&P 500 is still tracking for its best year since 1998. Lee said this confirms his view that the best analogue for 2019 isn't a recent pre-recession year like 1999 or 2007, but instead the post-crisis rebound year of 2009.
And it could get better still.
“Given our view that PMIs are bottoming (rates confirming) and the strong 4Q seasonals, we see the S&P 500 on track to exceed our nearly Street high view of 3,125,” Lee said. On Wednesday, the stock market closed at 2,989.69, implying a roughly 5% rally for the market through the end of the year.
Of course, the calendar is ultimately arbitrary. And simply benchmarking the performance of stocks to the beginning of this year ignores what's been a challenging two-year period for investors.
Since the market's then-peak in January 2018 — which capped what had been an almost unbroken post-election rally and coincided with a World Economic Forum in Davos that saw "disturbingly high" optimism among the global elite — the S&P 500 is up just 4%. A disappointing 21 months considering the S&P 500's average annual return is just under 10%.
The Fed's pivot at the beginning of this year to move from its most restrictive monetary policy stance in more than a decade to easing policy as aggressively as we've seen since before the crisis has also supported financial markets this year. And as we've seen time and again this decade, when the Fed gets involved many investors get upset.
Economic data released Wednesday also proved once again why it's been so hard for investors to admit and accept that this has been a great year for the market. Because the economy, all else equal, doesn’t exactly seem like an environment that would be supporting a 20% rally in stocks.
Retail sales for the month of September were a flop, falling 0.3% from the prior month — the biggest miss relative to expectations since February — and confirming that the U.S. economy is indeed slowing down.
Michael Pearce at Capital Economics did note, however, that annualized retail sales growth for the third quarter was still an “unusually” 7.3%. And the team at Bespoke Investment Group said Wednesday that after six straight months of increases in retail sales, it was inevitable there would be a give back. Especially considering the strong upward revisions to August's data.
Wednesday also saw the release of homebuilder sentiment data which revealed that U.S. builders haven't been this confident since February 2018. As Neil Dutta at Renaissance Macro said Wednesday, "Things are fine."
"While the growth bears focus on September retail sales, we've seen a drumbeat of solid survey data in October.”
What to watch today
8:30 a.m. ET: Building Permits month-on-month, September (-6.0% expected, 8.2% in in August); Housing Starts month-on-month, September (-3.2% expected, 12.3% prior)
8:30 a.m. ET: Philadelphia Fed Business Outlook, October (7.1 expected, 12.0 in September); Initial Jobless Claims, week ended October 12 (215,000 expected; 210,000 prior); Continuing Claims, week ended October 5 (1.670 million expected; 1.684 million prior)
9:15 a.m. ET: Industrial Production month-on-month, September (-0.2% expected, 0.6% in August); Manufacturing Production, September (-0.3% expected, 0.5% in August); Capacity Utilization, September (77.7% expected, 77.9% in August)
9:45 a.m. ET: Bloomberg Consumer Comfort, week ended October 13 (49.5 prior)
6:30 a.m. ET: Honeywell (HON) is expected to report adjusted earnings of $2.01 per share on $9.16 billion in revenue
7 a.m. ET: Philip Morris (PM) is expected to report adjusted earnings of $1.36 per share on $7.65 billion in revenue
7:30 a.m. ET: Morgan Stanley (MS) is expected to report adjusted earnings of $1.10 per share on $9.59 billion in revenue
8 a.m. ET: Union Pacific (UNP) is expected to report adjusted earnings of $2.31 per share on $5.65 billion in revenue
E-Trade Financial Corporation (ETFC) is expected to report adjusted earnings of $1.01 per share on $743.08 million in revenue
From Yahoo Finance
Editor in chief Andy Serwer interviews former National Security Advisor Susan Rise for the latest installment of his weekly Influencers with Andy Serwer, which begins at 5 p.m. ET.
Facebook CEO Mark Zuckerberg will deliver a speech on free expression at Georgetown University’s McCourt School of Public Policy and its Institute of Politics and Public Service. Watch him speak live on Yahoo Finance’s YFi PM at 1 p.m. ET.
Netflix earnings beat expectations in 3Q 2019, shares surge [Yahoo Finance]
Pound pops on as Boris touts 'great new deal' on Brexit [Yahoo Finance UK]
Kit Kat maker to hand investors up to $20 billion [Yahoo Finance UK]