U.S. markets were sluggish on Friday’s open following disappointing economic news and ongoing trade developments concerning rolling back American tariffs on Chinese imports.
President Trump said the U.S. hasn’t agreed to a rollback of tariffs on China as negotiations between the two countries continues.
Trump added that while China wants a partial reversal of tariffs, he has not agreed to roll them back yet. Despite the negative headlines, a late day rally lifted the major indexes into positive territory and fresh lifetime closing highs to end the week.
The Nasdaq rose 0.5% after closing on its high of 8,475. Current and lower resistance at 8,500-8,550 held with the prior session all-time high at 8,483.
The Russell 2000 climbed 0.3% with the session peak falling just shy of 1,599 into the closing bell.
Near-term and lower resistance at 1,600-1,615 was challenged but held for the 5th-straight session.
The S&P 500 added 0.3% after trading in a 20-point range while closing at the session high of 3,093.
New and lower resistance at 3,100-3,125 was challenged for the 2nd-straight session with the current all-time high at 3,097.
The Dow edged out a 6-point win, or 0.02%, after testing an opening high of 27,694. Fresh and lower resistance at 27,750-28,000 easily held with Thursday’s all-time intraday peak at 27,774.
The Nasdaq advanced 1% for its 6th-straight weekly win while Dow was up for the 3rd-straight week after gaining 1.2%. The S&P 500 was higher by 0.8% to extend its winning streak to 5-straight weeks and the Russell 2000 rose 0.6%.
Healthcare and Technology were the strongest sectors on Friday after rising 0.7% and 0.6%, respectively. Energy and Utilities were the weakest sectors after giving back 0.4%.
For the week, the best performing sectors were Financials and Industrials (4%) followed by Energy and Technology (2.4%). Real Estate (-3.8%), Utilities (-3.5%), and Consumer Staples (-0.6%) paced sector laggards.
The Q3 earnings season is 80% complete with results from 403 of the S&P 500 members having reported numbers. Total earnings are down -1.7% from the same period last year on 4% higher revenues, with 73% beating EPS estimates and 58.1% beating revenue estimates.
For the Tech sector, Q3 results from 84.3% of the sector’s total market cap in the S&P 500 index have been announced.
Total earnings for these Tech companies are down -6.6% on 3.1% higher revenues, with 82.6% ahead of EPS estimates and 67.4% beating revenue estimates. This is a weaker performance from the group than the first half of the year.
All results for the Finance sector are in the books. Earnings were up 3% on 9.3% higher revenues, with 72.2% beating EPS estimates and 70.1% topping revenue estimates. This is a notably better performance than the first half of the year.
For Q3 as a whole, combining the results from the 403 index members that have come out with estimates for the still-to-come companies, total S&P 500 earnings are expected to be down -2.4% on 4.1% higher revenues.
Q3 earnings growth is expected to be negative for a number of sectors, with double-digit declines for Energy (-35.1%) and Basic Materials (-28.6%). Meanwhile, Tech sector earnings are expected to be down -7.9%. Excluding the Technology sector, total Q3 earnings would only be down by -0.2%.
Sectors with positive earnings growth in Q3 include Business Services (13.2%), Transportation (8.2%), Utilities (9.3%), Medical (6.7%), Finance (3%) and Construction (5.1%). Q3 earnings for the index would be down -3.7% on an ex-Finance basis.
For the small-cap S&P 600 index, Q3 results from 419 companies, or nearly 70% of the index’s total membership, have been reported.
Total earnings are down -18.2% from the same period last year on 0.9% higher revenues, with 66.1% topping EPS estimates and 56.6% ahead of revenue estimates.
Looking at Q3 as a whole for the small-cap index, total Q3 earnings are expected to be down -22.4% from the same period last year on 2.9% higher revenues. This would follow declines of -12.6% and -18% in 2019 Q2 and Q1, respectively.
Total 2019 earnings or aggregate net income for the S&P 500 index are expected to be down -1.3% on 2.2% higher revenues, which would follow the 23% earnings growth on 9.2% higher revenues in 2018.
Growth is expected to resume in 2020, with earnings growth of 8.5% on 4.7% higher revenues.
Global Economy – European markets cooled following conflicting signals about the ongoing U.S./ China trade situation.
UK’s FTSE 100 fell 0.6% and Germany’s DAX 30 gave back 0.5%. The Stoxx 600 was down 0.3% while the Belgium20 and France’s CAC 40 each slipped a point.
Asian markets closed mostly lower after China’s exports and imports declined in October but topped forecasts.
Hong Kong’s Hang Seng lost 0.7% and China’s Shanghai was lower by 0.5%. South Korea’s Kospi dropped 0.3% while Australia’s S&P/ASX 200 was down a couple of points, or 0.04%. Japan’s Nikkei bucked the trend and was up 0.3%.
China exports fell -0.9% while imports sank -6.4% from a year ago, versus forecasts for exports to fall by -3.9% and imports to decline -8.9% from year ago levels.
China’s Trade Balance for October came in $42.81 billion, compared to forecasts of $40.83 billion.
Consumer Sentiment inched up 0.2 points to 95.7 in November, a little shy of expectations of 96, after rising 2.3 points to 95.5 in October. Strength was in the expectations component which rose to 85.9 following October’s 0.8 point gain to 84.2.
The current conditions index declined to 110.9 after rising 4.7 points to 113.2 in October. The 12-month inflation index was steady at 2.5% for the 2nd-straight month while the 5-year gauge rose to 2.4% versus October’s 2.3%, reading, which was a record low.
Wholesale Trade Inventories for September were down -0.4% versus estimates for a decline of -0.3% for the month.
Baker-Hughes reported the U.S. Rig Count was down 5 rigs to 817, with oil rigs declining 7 to 684, gas rigs unchanged at 130, and miscellaneous rigs up 2 to 3.
The U.S. Rig Count is down 264 rigs from last year’s count of 1,081, with oil rigs down 202, gas rigs down 65, and miscellaneous rigs up 3 to 3. The U.S. Offshore Rig Count was up 1 to 23 and is up 2 rigs year-over-year.
Market Sentiment – Atlantic Fed Raphael Bostic believes the policy stance is slightly accommodative and echoes the current thinking of most policymakers.
He said given that outlook and with the signs of improvement in U.S. data, as well as the progress being made on trade, it’s not a surprise to see the FOMC on hold for the foreseeable future.
He also added there are still risks out there as many of the uncertainties haven’t been resolved.
The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 2nd-straight session and 5 of the past 6 with the intraday low tapping $134.78. Current and upper support at $134.50-$134 easily held. A close below the latter would signal additional risk towards $132.50-$132 and late July lows.
Near-term and lowered resistance is at $135.50-$136 with additional hurdles at $137.50-$138.
RSI has been in a downtrend but is showing signs of leveling out after holding support at 35. A close below this level could lead to continued weakness towards 30-25 and levels from October 2018.
Market Analysis – The Invesco QQQ Trust (QQQ) was up for the 4th time in 5 sessions after reaching an intraday peak of $201.25. Fresh and lower at resistance at $201-$201.50 was cleared and held.
Continued closes above the latter and Thursday’s all-time high at $201.72 would be an ongoing bullish signal with upside potential towards $202.50-$203.
Current support is at $200-$199.50. A close below the $198 level would be a slightly bearish development and signal a possible near-term top with additional risk towards the $196-$194 area.
RSI has been pushing resistance at 70 and the mid-July peak.
A move above this level would signal additional upside potential towards 75-80 with the latter representing the April peak. Support is at 65-60.
The Financial Select Sector Spiders (XLF) had its 5-session winning streak snapped following the intraday pullback to $29.64. Near-term and upper support at $29.75-$29.50 was breached but held.
A close below the latter would be a slightly bearish development with downside risk towards $29.25-$29.
Fresh resistance is at $30-$30.25 with the prior session and all-time intraday high reaching $30.03. There is blue-sky territory towards $30.75-$31 on a move above the latter.
RSI has been in an uptrend but could be peaking after holding lower resistance at 75-80 with the latter representing the January 2018 peak. Support is at 70 with a move below this level signal a continued backtest towards the 65-60 area.
The percentage of S&P 500 stocks trading above the 200-day moving average closed at at 72.16%, down 0.4%, with the intraday low reaching 71.57%.
Upper support at 72.5%-70% was breached and failed to hold. A move below the latter would signal additional weakness towards 67.5%-65% with the late October low at 65.34%.
Resistance is at 72.5%-75% with Thursday’s high and the monthly peak reaching 75.54%. The latter also represents the mid-September and late July high.
A close above the 75% level would be a bullish development with potential momentum towards 77.5%-80% and January 2018 highs.
The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 70.29%, up 2.97% and session high. Current and lower resistance at 70%-72.5% was cleared and held.
A close above the latter would be an ongoing bullish signal with strength towards 77.5%-80% and the monthly peak at 78.64.
Near-term support is at 67.5%-65%. A close below the latter would be a slightly bearish signal for additional weakness towards 62.5%-60% with the late October low at 60.19%.
We are allocating the portfolio as follows:
28% in AMGN closed on Friday 221.11
28% in CTXS closed on Friday 110.73
28% in KLAC closed on Friday 174.21
16% in TMF closed on Friday 25.68
Option Traders – the following (regular monthly) options meet our criteria:
28% in AMGN – 17JAN $215 Strike Price CALL (Expires January 17, 2020)
28% in CTXS – 17JAN $110 Strike Price CALL (Expires January 17, 2020)
28% in KLAC – 17JAN $170 Strike Price CALL (Expires January 17, 2020)
16% in TMF – 21FEB $30 Strike Price CALL (Expires February 21, 2020)
All the best,