Monday was the toughest session of 2018 with the Dow Jones Industrial Average taking a 177-point drubbing. That hit to the market was followed by the biggest single-session loss since June 24, 2016. The two-day decline was orderly even as would-be buyers finally moved out of the way and resisted the urge to buy the dip.
The market had been going straight up for such a long time it was actually on pace to double this year, so a pullback was expected. Still, when these things happen even when it feels as though we are braced for them, questions linger, and doubts grow.
Compounding the situation was the announcement about Berkshire Hathaway, JPMorgan, and Amazon’s plan to revolutionize health care. The three corporate behemoths would bring different skills to an area where no one has been able to curb costs. It shocked the entire health care universe as all those stocks took it on the chin.
- Healthcare Insurer
- Medical Device Markets
- Drug Companies
There were compelling action and bright signs, including names that would benefit big time from infrastructure spending.
Industrials
United Rentals (URI) and Caterpillar (CAT) are some of the names I’ve frequently mentioned on my show. United Rentals erased a big loss, and Caterpillar rebounded almost $6.00 to finish higher. Caterpillar was one of just two winners on the Dow Jones Industrial Average. Airline stocks United (UAL) and Delta (DAL) have been eking out gains on a pre-open upgrade.
Material
Air Products & Chemicals (APD) and Vulcan Materials (VMC) shook off early weakness to close higher.
Healthcare
HCA Healthcare (HCA) posted strong earnings to finish higher, and Cerner Corporation (CERN) climbed higher on rumors of a bid from Amazon. It stands to reason that if Jeff Bezos is serious, he will need to buy some expertise and existing footprint.
Deteriorating Breadth
I’ve talked about this potential dip for the last week as there have been increasing signs (including market breadth) that the rally was acting tired. New lows have mounted on the NYSE from just 67 last Thursday to 252 on Tuesday, against only 46 stocks closing at new 52-week highs.
Key Parameters are the same as yesterday’s Afternoon Note, but I would also like to see the lows hold on a closing basis.
Dow Jones Industrial Average Key Support Points:
- 26,028 (yesterday’s low)
- 26,017 (recent resistance breakout point)
- 25,027 (50- day moving average)
S&P 500 Key Support Points:
- 2,818 (yesterday’s low)
- 2,798 (recent breakout point)
- 2,719 (50-day moving average)
NASDAQ Key Support Points:
- 7,373 (yesterday’s low)
- 7,296 (recent breakout point)
- 7,078 (50-day moving average)
Economic Data
While the market was falling through a trapdoor, there were more signs of economic strength via corporate earnings reports and economic data, including homeownership data. After a decade of gimmicks and government programs to spur more homebuyers, it failed to stem the tide of declining ownership. The turn has finally happened as fourth-quarter homeownership increased year-over-year for the first time since 2004.
Highlights
- Under 35 years old: 36.0% from 34.7%
- Overall ownership: 64.2% from 63.7%
- Households less median income: 50.2% from 49.5%
- Black households: 42.1% from 41.7%
- Hispanic households: 46.6% from 46.3%
Hail to the Chief
That was the speech America needed to hear last night. The tone was right, the message was clear and strong, and it should move the chains. The nation desperately wants to finally get a handle on immigration, to fix our roads and bridges, and to secure the border. I was especially happy to see all the heroes and I wept after hearing the stories about the slain children.
I know the political divide is as wide as the Pacific Ocean, and there are powerful forces that profit from disunity, but I can only hope the shared goals of prosperity and safety will chip away at those not wedded to ideology but just want a better country.
For now, the stock market should be fine despite the horror stories you’ve heard about it being so good that it can only lead to things like a hard landing or aggressive Fed actions. Let’s cross those bridges if they materialize; for now, let's enjoy the great American revival.