Wednesday was another tough session for the market, which exhibited some grit. But, at the end of the session, the Dow Jones Industrial Average was down more than 200 points. The late rally attempts were sparked by news of a Brexit deal; however, the markets fell in the last thirty minutes of trading as sellers headed for the exits again.
With market bias strongly to the downside, it’s hard to point to what could catapult the market higher. Of course, at this point, investors would be overjoyed just to put the brakes on the slide. As for getting the market to move higher, I have consistently said one issue is leadership. On that score, the Communication Services (XLC) sector was compelling.
The index officially came online on September 28, 2018, opening at $49.07 and closing at $49.00. It was the only S&P sector to close higher yesterday. The names that powered it higher could lift the broad market:
- (GOOG) Google/Alphabet
- (FB) Facebook
- (DIS) Disney
- (TWTR) Twitter
I will be more convinced if XLC closes above $47.50 on strong volume and widespread buying.
Jay Powell
Last night, at the Dallas Federal Reserve, Fed chair Jay Powell held a meeting. He took questions from moderator Robert Kaplan and the audience. He was very optimistic and stressed the Fed must be transparent. While he worries about things such as trade tariffs, there is no evidence it is having a negative impact on the economy.
Q&A
Q How much further to raise rates and the pace?
- Look carefully at how markets, the economy, and business contacts react to policy along with income data.
Q He was asked about headwinds over the next 18 months to two years.
- Slowing growth abroad
- Fiscal changes & spending increase impetus “wearing off.”
- The Lag effect of Fed action (read interest rate hikes). “We think about that.”
Q What are the misconceptions about the Fed, and what is the decision procedure?
- The 12 reserve bank presidents and five governors all working collaboratively…I don’t wave a magic wand.
Q What data do you use to determine the outcomes of your decisions 18 months later?
The Fed knows actions take “long and variable lags” to impact the economy, but there is no immediate data to know the real effects on the economy. You know how financial conditions are reacting in real time. Therefore, they take a gradual approach.
Q If there is one message to deliver to an audience, what can they take away about the Fed and your leadership?
- I want to end on two messages. I want to end on a note of optimism. We’re in a good place now, and the economy can grow and grow faster. I travel around the world, and I see their problems, and you always want to come home and take the hand of cards we have.
- Committed to serving the public in a non-partisan way.
I’m not sure Jay Powell has erased those ominous and feckless comments from October 3rd. However, I heard a man that wants his legacy to be about growing the economy, not killing it. He talked proudly about how the Fed rescued the economy, so the last thing he needs is a legacy of derailing it.
If he is listening to markets, and not just the hysterical whining of Wall Street, where teeth gnash at any hints of fiscal or monetary restraint, but to housing, global economy, and corporate chieftains, Powell should know it’s time to slow his roll. We’ll see how the Street interprets his comments.
Low Inflation
The Core Consumer Price Index (CPI) has been down sequentially since peaking at 2.4% in July, which suggest the Fed may have been overreacting and probably needs to sharpen their pencils.
Moreover, historically, the level of inflation is near historically low levels.
Today’s Session
I suspect the market will continue to struggle as buyers sell into rally attempts, while economic data and corporate earnings continue to paint the picture of American prosperity.
Walmart’s (WMT) financial results were very good for the company and a great reflection of the American economy.
Revenue was reported at $124.9 billion, missing consensus estimate of $125.5 billion, but the miss was all about its international business.
International revenue of $28.8 billion would have been $30.0 billion in constant currency. Moreover, comp store sales were higher in nine of ten international markets for the company.
United States
- Traffic +1.2% (up 15 straight quarters)
- Ticket +2.2% (year ago +1.2%)
- Comp +3.4% (year ago +2.7%)
- Ecommerce +43%
Omni channel
- Pick up 2,100 locations
- Grocery delivery 600 locations
Company raised guidance
- FY2019 $4.75 to $4.85 prior $4.65 to $4.80
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