Rally Reinvented?

It’s been an interesting week, as the market has begun to stabilize, and it continues to seek new leadership.  Don’t get me wrong, there is still hell to pay for companies that miss Wall Street consensus, or give lower guidance, even if it’s just for a couple of quarters.

Today’s examples are Activision (ATVI) and Yelp (YELP).

Over the past five sessions, all S&P sectors are higher, which is a positive sign about distribution.

While tech continues its wild gyrations, maybe there is a bottom for the moment and until the next round of earnings. 

Meanwhile, healthcare is rocking lead by insurance companies that no longer need to worry about changes in Obamacare.  Pharmaceutical company stocks are doing well despite suggestions of bipartisan efforts to cap drug prices.

Brick and mortar retail names have powered the consumer discretionary sector as consumer confidence remains near the all-time high, and wages have begun to improve.

Financials have finally shown some life, although, those big Wall Street banks are still not living up to the hype of leading the way.  At the start of the year, Wall Street universally said big banks would be big winners as higher rates would mean wider margins. The Fed has done its part and will hike for the fourth time this year next month.  That was a foregone conclusion.  What isn’t clear right now is what happens next year.

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I thought the Fed statement yesterday was reasonable, and even made a nod to the curious action of the sharp decline in business investment in the third quarter.  That could mean the Fed is prepared to reassess the need for urgent rate hikes, which coupled with the quantitative tightening of $50 billion each month, is beginning to worry banks.

• Nasdaq Composite +9.1%
• S&P 500 +5.0%
• Russell 2000 +2.8%
• Dow Jones Industrial Average +6.0%

Dow Jones Industrial Average 5-Day Chart

Over the past five days, the Dow Jones Industrial Average is up 3.2%, while the Shanghai Composite is down almost 3.0%.

Shanghai

There have been some interesting developments this week in China ahead of that much anticipated G20 meeting.

China Economic

• China government orders banks to start buying corporate debt to help its plummeting bond market.
• China has more distressed bonds than all emerging market countries combined - had zero at the start of the year.
• China increased its tax rebates to producers of semi-fabricated aluminum to 16% from 13%.
• China auto sales slowed in October, and 2018 could be the first annual decline ever.
• Trump administration accused China of not adhering to 2015 bilateral agreement, which had reduced cyber targeting of American companies.

More Olive Branch?

There is encouraging news.  Overnight, American Express became the first foreign company given permission to build a network in China (with a China partner in a 50-50 JV).

The PPI number just came in hotter than expected adding a little more pressure on the market ahead of the opening bell.