Leaves, Leaves, Leaves

361 Capital Market Commentary | October 21st, 2019

The tree leaves are everywhere this week. High winds across the Rockies brought down all of our leaves over the weekend. Now it’s time to pick them up before the snow hits. With the biggest week of earnings in front of us, investors will be raking through a different set of leaves to see what the future might hold for corporate earnings. We have had a small pile to work on the last two weeks and while the reported earnings have been okay, cautious guidance has led to downward revisions to future estimates.

The markets did get a basket of tea leaves from the U.S. economy last week and they were somewhat moldy. Retail sales missed. National Association of Housing beat. Housing starts missed. Philly Fed missed. Industrial production missed. And Friday’s Leading Economic Index missed. Bottom line is that it wasn’t inspiring for many except for those Federal Reserve Board members looking to cut rates on the 30th. The market is placing the odds of a cut at 90% right now.

It was another rough week in Washington D.C. for everyone except the pizza delivery companies. Between the pullout in Syria, Mulvaney’s comments, the Doral decision and Guiliani’s ongoing presence, some GOP members have started speaking their mind and letting the White House know how unhappy they are to defend the Executive Office. This caused a backtrack on Doral and will cause a partial reversal in the Syria retreat. President Trump announced today that he is expecting to be impeached by the House soon which means that a trial will soon follow and dominate the newswires. So expect even more political news through the year end. More joy.

Another Fed Fund rate cut is coming on October 30th as the data deteriorates…

“A clearer picture of protracted weakness in investment spending, manufacturing production and exports had emerged” between the Fed’s first quarter-point rate cut in July and the second quarter-point cut at its Sept. 17-18 policy meeting, according to minutes of the latter meeting released Wednesday.


It’s been 11 years since the BofA Merrill Lynch model of U.S. Economic Activity has slowed down…

U.S. Economic Activity

Speaking of slowdowns…

The incumbent parties in these three states are facing significant headwinds going into next year’s election. Ending the tariff and trade war with China might just save the manufacturing crash.

Tweet from @menzie_chinn

Portfolio managers want the Trade War to end…

Unfortunately fewer and fewer think it will occur in the next 12 months.

Policies for Bullish Equity Markets

Keep an eye on this important datapoint…

In their earnings, American Express said that their corporate customers are cutting back on their spending. We know that CEOs and CFOs have been cautious and this will likely flow through to travel, hotel and dining spending as the reporting season continues.

Corporate Crunch

Stocks follow earnings. And the earnings trend is continuing lower…

As Q3 earnings season begins and companies report their progress and update their guidance, analyst forward estimates are accelerating their revisions downward. If it continues, this will be a significant headwind for the market.

S&P 500 EPS Growth Estimates

This week is peak earnings for the big companies…

3Q19 S&P 500

Here is a visual list of some of the largest names to report…

Most Anticipated Earnings Releases

Stock buybacks are the only thing that matters to the U.S stock market…

What makes stocks go higher? More buyers than sellers. Investor flows into buying equities are flat for the last 10 years. At the same time, stock repurchases have added up to $5 trillion. So if the government ever decides to tax or ban stock buybacks by corporations, drop everything and run. Don’t even wait for my phone call.

Tweet from @biancoresearch
Are Buybacks Driving the Show?

Even the best growth areas of the market will not be able to fight the multiple compression caused by worries of falling economic growth…

Tweet from @carlquintanilla

If you want to know how bad the new issue IPO market is right now…

The Peloton IPO priced at $29. First trade was at $27. Today 14 of its issuing underwriters recommended it with a ‘BUY’ rating and the stock is down 5% to $22 and change.

PTON Peloton Interactive Inc

But more than IPOs, Micro Cap stocks are also significantly underperforming…

Tweet from @MichaelKantro

Quote of the week…

Tweet from @ChrisPavese

Energy stocks are working on another solid year of underperformance…

Too much global oversupply + slowing global GDP + 2020 political change uncertainty. The sector is -17% year to date and looking at its 8th losing year in the last nine.

XLE Energy Sector Select SPDR Fund

In contrast, the housing stocks are building to break out…

My new high lists are littered with most of the homebuilder stocks, as well as the material input companies. While consumers may be less reluctant to step up and buy big ticket goods right now, they are still looking to spend on a new or existing home.

ITB iShares U.S. Home Construction ETF

Morgan Stanley notes that consumers are feeling less confident about buying major goods…

And in the past, this cautiousness has translated into rising unemployment rates which hasn’t been good for anyone except for bond bulls.

Consumers Feel Less Confident

Interesting chart…

BofA Merrill Lynch Global Fund Manager Survey

Over-promising or risk-increasing?

It is either one or the other. If you are dependent on a long-term public pension, plan accordingly.

Risk-Free Returns Fell

Solar and battery power demand in California should catapult the region into becoming a global leader for the alternate energy industry…

Michael Wara, director of Stanford University’s Climate and Energy Policy Program, estimates that the PG&E outages had a $1.8 billion economic impact, a number that is on the higher end of the $65 million to $2.5 billion impact he calculated before the event.

Until a few days ago, he said, most businesses had not “fully faced up to the reality of what’s going to happen in California over the next 10 years,” he said. “Only now are they really thinking about their reliance on the grid.”


Disney+ launches in 21 days…

It includes content from Disney, Pixar, Marvel, Star Wars and National Geographic. At $6.99/month, how does it not quickly become a top streaming service?

Tweet from @ballmatthew

If you happen to be visiting Denver in the next three months, plan ahead to get tickets to this very special art show…

The Denver Art Museum will be home to the most comprehensive U.S. exhibition of Monet paintings in more than two decades. The exhibition will feature more than 120 paintings spanning Monet’s entire career and will focus on the celebrated French impressionist artist’s enduring relationship with nature and his response to the varied and distinct places in which he worked.

On View through February 2, 2020
Denver Art Museum – Hamilton Building


Monet Now on View

So the team from the ‘city that never sleeps’ has not yet read ‘Why We Sleep’

Congrats to the most well rested team in Major League Baseball and their return to the World Series. Expect earplugs, blackout shades and Fitbits to see a rise in use during the baseball off season and into next year.

Tweet from @FOXSports

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