- China’s rapidly deteriorating economy
- Corporate profits and guidance misses (Johnson & Johnson (JNJ) & Sherwin-Williams (SHW))
- Massive miss on existing homes
- Confusion ahead of US-China trade meeting
- The shutdown drama thickens
- The ‘end of the world in 12 years’ countdown has officially begun
- Breathless commentary from financial media (the end is always nigh & the worst-case scenario is the only best-case scenario)
The 50-Day Moving Average
I have to say that Tuesday was the best (down 300 points) Dow Jones Industrial session I’ve seen in a long time. The headlines will speak of a market drubbing for a variety of concerns (see above). I see the resolve in the face of a variety of concerns that would have sent the market into a death spiral not too long ago. The session saw a battle to hold above the 50-day moving average. The drama was in place for the closing bell when buyers materialized and spiked major indices above that important technical indicator. I don’t think it was “dumb” money that showed up into the close.
Sector Review
The biggest losers included industrial and energy names, which are more sensitive to the fragility of the global economy than other sectors. Momentum stocks also took it on the chin as big money fled to safe havens, including utilities, real estate, and health care names. The Fifth Third Bank (FITB) posted solid results, but it’s not large enough a company to carry the financial sector.
S&P 500 Index | -1.42% |
Communication Services (XLC) | -2.07% |
Consumer Discretionary (XLY) | -1.50% |
Consumer Staples (XLP) | -0.92% |
Energy (XLE) | -2.18% |
Financials (XLF) | -1.15% |
Health Care (XLV) | -0.69% |
Industrials (XLI) | -2.07% |
Materials (XLB) | -1.38% |
Real Estate (XLRE) | -0.18% |
Technology (XLK) | -1.68% |
Utilities (XLU) | +0.19% |
After the close, IBM posted results that saw a review decline from a year ago, but it is better than Wall Street consensus. The only red flag is free cash flow, which probably will come in below the Street’s estimate.
Portfolio Approach
We took no actions yesterday, although we were tempted to ring the register a few times. This looks like what could be a significant breakout where current winners could significantly outperform.
Communication Services | Consumer Discretionary | Consumer Staples |
2 | 4 | 1 |
Energy | Financials | Healthcare |
1 | 1 | 1 |
Industrial | Materials | Real Estate |
3 | 4 | 0 |
Technology | Utilities | Cash |
1 | 0 | 2 |