Market Thoughts
Surprisingly, I think the market is acting ‘efficiently’ this week. With an expected move of $35 on Monday – $52 for the week (either direction) – we had our tag of that $35 point move Monday then faded on profit taking/expiring options. Now we likely chop into Non Farm Payrolls Friday with potential for a volatility spike while most are taking Friday off for a long-weekend.
Looking ahead at the second half of the year, statistically speaking, we have a history of receiving below-average performance with above-average pullbacks. I don’t see any reason to expect otherwise, especially as we chop into the legislative-heavy agenda of the Fall with the standoff likely on the Debt Limit/Government shutdown. Yes, enjoy the beach now.
Fundamentally, markets move on earnings. And with that, the banks begin reporting on July 15, 2019. Can we expect a move higher given the US Government just cleared 18 banks to boost payouts to shareholders through dividends and stock buybacks? That’s $173 Billion, a record for the group. Will the AirPocket I see, assuming it arrives this season, just get filled quickly on “light” volume buying by those greedy buyback desks? This is a distinct possibility.
Especially given we are swimming in the current of Fed ‘largess’. Rate Cuts. Expected Everywhere
“If the Fed does cut interest rates, the odds are high that the ECB and BoJ would follow suit, supplementing those moves with further asset purchases. The PBoC could reduce commercial banks’ required reserve ratios, causing the yuan to depreciate against the dollar.” @SriKGlobal
That would make a continued case for Higher USD, Lower Yields, which is an argument I made two weeks ago in Market Watch and Komal Sri-Kumar made in his Bloomberg piece, Not Even the Fed Can Keep the Dollar Down
So can Stocks and Bonds continue to rise together? Well, yes! Remember January of 2018 😉
Demand for safe havens as the global economy slows – bonds, gold, yen – will more than offset any weakness from lower U.S. interest rates I’m guessing.
I’m thinking Nordea would agree:
Macro data surprises have remained negative compared to consensus estimates, in line with our longstanding scenario, but equity markets have disregarded this and seem to be driven by a blind trust in central bankers’ abilities to turn the trend around before a more severe earnings recession takes hold. Falling bond yields have also renewed the push for higher valuation multiples, hence profit neutral valuations are back at multi-year highs. Falling interest rates have challenged our value bias and triggered a further valuation divergence between the expensive and cheap ends of the equity market. We still believe there will be a marked earnings recession and view analysts‘V-shaped earnings expectations into 2020 as very unlikely. There is a risk, however, that central bankers could manage to create a larger asset bubble before a more severe crash takes place in some distant future, but we see too many dark clouds on the horizon in the short term to dare play that scenario. Full report
Stocks of Interest in the News
From Robinhood “Snacks”: analysis on NKE without mention of Kaepernick instead focusing on Year of the Women – a trend I’m quite bullish on:
Technically… Nike reported its earnings last week. Technically it missed analysts’ expectations for the 1st time in 7 years. But we’re more focused on CEO Mark Parker’s call with investors after the earnings report. Just in time for today’s USA vs. England World Cup match, he thinks 2019 is a “true tipping point” for women’s sports.
Women are winning Nike… 14 of the 24 Women’s World Cup teams enjoy a Nike swoosh across the chest. And the combo of Nike spending big on this ad, covering almost 2/3 of the jerseys, and record TV ratings are doing it. These Nike stats just arrived:
- The US Women’s National Team jersey is the #1 selling soccer jersey — men’s or women’s — ever sold on Nike.com.
- And enthusiasm for women’s apparel has extended to bras — Parker announced Nike’s now the biggest seller of bras across North America.
THE TAKEAWAY
Nike vs. Lululemon… That’s the biggest matchup worth watching right now. Both are focusing on the opposite genders in the same (non-US) places. It’s a fight worth watching.
- Lulu’s 5-year plan: Double men’s sales and quadruple international sales (especially in China) since the majority are sold to North American women.
- Nike’s focus: Sell more to women and to China — 75% of its apparel sold is to men, and China is its fastest-growing market with nearly 20% of all sales.
BUD: Anheuser-Busch InBev, the world’s biggest beer company, is seeking to raise as much as $9.8bn from public listings of a minority stake of it’s Asia Business. I like BUD >$89 for move into $93 if market cooperates, higher if China cooperates.
ROKU Downgrade: Nice timing with my recommended short few days ago to $87. It bounced there today and is setting by running ran back near $94 to reshort on way to to $75.
Macro Matters
Annabel Fiddes, Principal Economist at IHS Markit, talking about Asian Manufacturing said:
“Operating conditions across Taiwan’s manufacturing sector deteriorated at the quickest pace for over seven- and-a-half years in June, according to latest PMI data. Production and total new work both fell at the steepest rates since August 2015, with companies commonly attributing this to weaker global economic conditions and to subsequent drop in foreign demand. Other indicators add to worries that the downturn will stretch into the second half of the year. Business confidence fell to its most negative since September 2015 as many believe the US-Chino trade dispute and subdued global demand will weigh on future output. As a result, purchasing activity and inventories both fell at historically sharp rates, while employment declined again. Unless we see a marked improvement in global demand conditions, particularly across key export markets such as the US and China, it seems unlikely that the sector will recover soon.”
Semiconductor Industry Association sends warning on Chips:
Global chip sales dropped nearly 15% in May from a year ago and logged a fifth straight month of declines, according to the Semiconductor Industry Association (SIA). Global chip sales reached record high levels in Q3’18, and then declined for a second straight quarter. Global chip sales declined 14.6% to $33.1 billion from the year-ago period.
Oil Cuts are Not Rewarded
Oil fell today partly because of fears that a global economic slowdown will hurt oil demand. Oil had its worst reaction to an OPEC meeting in more than four years as the OPEC+ deal to extend output cuts reinforced concerns over a weak demand outlook. … Sustained higher oil prices will either truly crush demand or encourage frackers to pump more oil, boosting supply. Neither ending is a happy one for OPEC. Bloomberg
Trade Wars and More
U.S. Proposes More Tariffs on EU Goods in Airbus-Boeing Dispute
The U.S. added more European Union products to a list of goods it could hit with retaliatory tariffs in a long-running trans-Atlantic subsidy dispute between Boeing Co. and Airbus SE.
The Trade Representative’s office in Washington on Monday published a list of $4 billion worth of EU goods to target in retaliation for European aircraft subsides. The products range from cherries to meat, cheese, olives and pasta, along with some types of whiskey and cast-iron tubes and pipes. It adds to a list of EU products valued at $21 billion that the USTR published in April, according to the release.
Japan cites security concerns in curbing exports to SKorea
Japan has defended its decision to impose export restrictions on South Korea, citing national security concerns and its international duty to keep tabs on sensitive technology transferrable for military uses.
Yoshihide Suga, the chief Cabinet secretary, said Tuesday that the move was part of “appropriately implementing export controls for national security reasons.”
But Suga, like other officials, also cited a “lack of trust” after exchanges with South Korea at the Group of 20 summit in Osaka did not yield “satisfactory solutions.”
“That, I must say, seriously damaged our relationship of mutual trust,” he said.
The trade ministry said Monday that exports related to manufacturing computer chips, such as fluorinated polyimides used for displays, must apply for approval for each contract beginning Thursday.
Samantha Says
Market Commentary from Samantha’s Live Trading Room and StockTwits Premium Chat Room
Jul. 2nd, 9:17 am GM! Quiet morning after markets rallied Mon, bringing SPX into its expected move for Mon – $35. And what happens most often at expected moves? They retreat and we did. On Macro front today: RBA cut rates as expected, ECB said they would not. On Economic release front – after horrid Global PMI data yday – we have at least ADP report Wed and then NFP Friday, which will be interpreted as mucho important as last major data release before Fed rate decision July 31st. Buckle Up!
Jul. 2nd, 11:21 am SWKS: July 85 Calls coming in. China play along with AVGO and WYNN
Jul. 2nd, 11:35 am SPY: July 15th 294 10K Puts coming in (I like as hedge)
Wall Street Jane’s Journal
Jane is not only Samantha’s Live Trading Room moderator, she facilitates client engagement and relays Samantha’s trade ideas into the LaDucTrading StockTwits Premium Room. A former banking VP during the GFC, she now actively trades full-time and actively shares her trading ideas, plan and process.
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Confirmation Bias: the tendency to interpret new evidence as confirmation of one’s existing beliefs or theories.
At my previous life in the world of banking I worked on troubled corporate debt so, for the most part, the only thing I saw was a situation where there were already problems that needed to be resolved. If they couldn’t be resolved, the bank would seek repayment in full and the borrower would usually liquidate assets or file for bankruptcy protection.
Throughout the financial crisis I witnessed numerous cases of fraud, dealt regularly with people lying to the bank (and to me), and just generally saw the worst sides of people on a regular basis. As you can imagine, my general outlook on life was affected by this daily exposure of negativity.
I also witnessed a lot of “kick the can” when it came to distressed debt – restructured in a way where a loan can be counted as performing and allocated as such on the banks books, but knowing the underlying problems weren’t truly resolved and would, once again, be a problem at a future date.
When I left banking in 2016 to start my trading career, I carried over this ingrained negative bias to all things markets and the economy. Certainly there was data deterioration at that time, but what I didn’t recognize until much later was how this negative bias translated into a confirmation bias that all was upside down, the markets had it all wrong, and the worst of times were right in front of us.
In addition to the data, I would fill my days reading news with a negative bias. No wonder I carried that over to my trading – always looking for short opportunities rather than opening my eyes to a two-sided market – and a bullish one at that.
Boy how I missed out on market opportunities due to my lack of willingness to see the bigger picture for what it was / is.
Then one day I saw a statistic that said something to the effect of, the market goes up 75% of the time. It sounds stupid to tell you this was an epiphany for me, but it was. Why? Because it finally made me realize I was trying to make bearish trades in what was clearly in a technical bull market.
Moreover, I finally began to recognize that I need not be a bull or a bear….I need to be the best technician I can be. I eliminated financial TV altogether and drastically cut down on reading articles with a clear bias. Do I know what the macro backdrop is, of course. Am I aware of market moving events, yes. BUT, only once I separated the plethora of information from the technical analysis did my trading really start to improve. Certainly I still struggle with the usual weaknesses – psychology, over trading, not cutting losers, etc. but I’m not trying to fight a b battle of wills as a bull or a bear. Frankly, it’s much less stressful to just follow price.
I should add that some people have the ability to separate a macro bias from their daily trading. I was and am not one of those people. Thus, I am not a bull or a bear – I am a technician.
Great Reads
Advances in Science: Oyster Shells Inspire Scientists To Create Glass That’s Much Harder to Shatter
They were found through a quirk of the region’s geopolitical history, which left a photographic trail of WWII aerial photos and declassified Cold War-era spy satellite images: The “Sacred Forests” of Northern Ethiopia