So much news. In fact, some might see the 24 hour new cycle as what it has become. Headline blur. What channel to watch? Who to listen to in real time? How to trade it? Should you trade it? Is anyone even trading anything? Impeachment hearings. Federal Reserve Chair Jerome Powell testifies. China, yet again fails to commit in writing to what that nation agrees to in person. Disney (DIS) Plus sign ups. Weakish macro. Volatility in Treasury yield spreads. Lions. Tigers. Bears. Not Bears, oh my.
The broader indices have moved sideways to slightly higher on rather low volume for days now, seemingly impervious to headline news. Why? We discussed reduced cash balances earlier this week. Portfolio managers have at least to some degree... committed themselves to chasing performance. At the top of the chart. (Nice job, fellas) Risk off now, just after risk on? How embarrassing. Perhaps indefensible. Maybe even fireable. If one has now bet on seeing an actual Phase One trade deal between the U.S. and China, they can not be shaken out immediately. Better to show some high profile winners on year end statements, and pray that there is no "sell the news" event, after such headlines harden.
Trading volume directly attributable to Nasdaq Composite constituents did finally reach its aggregate 50 day SMA on Wednesday after taking three days off. The Nasdaq Composite did not put a record high to the tape on Wednesday. In fact, at the Nasdaq, losers beat winners, and new lows beat new highs, but advancing volume beat declining volume. Disco Inferno. (Churn baby, churn)
By the way, just because I am a statistical nerd, and this is oddly interesting, the Dow Jones Transportation Average has sold off for four days in a row, has closed at the bottom of the day's range for the last two, while experiencing an incredible decline in trading volume. For six consecutive sessions, trading volume attributable to DJTA constituent companies has ended the day a minimum of 13% below the 50 day SMA for that index. Dow Theory?
Then again, the algos see everything that we see. The average might just be pausing at an obvious point of resistance now thrice tested over 12 months. Know what? Target prices and panic points. You'll never max out, but you also know you'll never get jumped by six guys when you try to leave the disco either. Discipline. Best system I know.
Not So Fast, My Friend
So it is, that negotiations between the U.S. and China have supposedly run into headwinds as China seems a little less then enthusiastic about putting pen to paper where as agricultural purchases are concerned. A month back, we were talking about $50 billion worth of soybeans and pork. Riffs thought to be put to bed now seem to be rearing their ugly heads once again.
What if China does not commit to these agricultural purchases? What if China does not agree to curb forced technology transfers as the price of market entry? What if the U.S. does not roll back already enacted tariffs on Chinese imports, but instead moves forward with increases? Well, that would simply mean that the great Autumn 2019 portfolio rotation out of more defensive postures and into a more cyclical positioning would have to be rewound.
This would also likely mean that for corporate America, a third consecutive quarter of earnings contraction that is now winding down, and a projected contraction for a fourth that is projected would be an accurate barometer reading. This could mean that the Atlanta Fed's Q4 GDPNow modeling, that stands at 1.0% (which will change on Friday: Retail Sales, Industrial Production) might also be accurate. Pressure President Trump as political and electoral pressure mount? Not so fast, my friend. This president has already proven far tougher on these issues than anyone had ever expected.
President Trump is not the only president facing growing pressure here. As growing discord between pro-democracy protesters in Hong Kong with authorities remains headline news, the Chinese economy also continues a steady descent toward a lower level of activity. They say that speed kills. Well, we know that a lack of velocity will certainly kill an economy. For those of you who don't stay up all night looking at Chinese monthly macro-economic data-points, the nation's National Bureau of Statistics released October numbers for Fixed Asset Investment, Retail Sales, and Industrial Production late on Wednesday evening (NY time). Ever see Bugs Bunny play baseball? Strike one. Strike two. Strike three. All three items missed expectations, and both retail sales and industrial production did so quite badly. By all means, refuse to ink a deal to buy soybeans and pork though. Even as Chinese domestic hogs die from illness.
Remember when people you met would learn that you worked on Wall Street? Remember all of the questions? As if there were some kind of mystique about it all.
The S&P 500 closed up just a smidge on Wednesday, and now stands 23.4% higher for the year. End the year now, and this is the best year for broader, large caps since 2013. That same index closed at a record on Wednesday afternoon for a 20th time in 2019, edging past the 19 record closes in 2018. No chance at a record number of record closes this year for the S&P 500 however. The index closed at a record 61 times in 2017. I mean... just in case you were wondering why nobody cares. Not quite directly related, but... the technology Sector Select SPDR ETF (XLK) is now up 41.1% year to date. That's interesting.
A Pennant in Queens?
Federal Reserve Chair Jerome Powell testified before the Joint Economic Committee on Wednesday. He'll do the fandango all over again before the House Budget Committee on Thursday morning. Equities seemed to care not. The long end of the Treasury yield curve found a bid side, but that was probably more due to the China story. In short, markets watched Powell, who has become very good at saying nothing, say nothing. For what it is worth, the Fed could probably use a little less transparency. We do not need to know what every Fed official is thinking at all times. Jerome Powell basically said two things I thought important on Wednesday.
"We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth."
"Of course if developments emerge that cause a material reassessment of our outlook, we would respond accordingly."
I was thinking. About baseball. You all know that I'm from Queens. What that means is that I am a Mets fan, and if ... say the Mets win a lot more games next year than they lose, they could win the pennant. Then again, if they lose more games than they win, I would think they probably would not. Hmm... Maybe I'm ready for the Fed.
About Cisco Systems
I watched the post closing bell selloff in Cisco (CSCO) . Back down to the bottom of the range. Readers likely know that I have been long the name at a great entry point. I thought. The round trip has cost me the entire profit, negating the time and energy spent manipulating this position to where I wanted it. What now? Do I put CSCO to bed and move on? I think not.
I will likely add, but I will wait for the peanut gallery to finish placing "holds" on the name and reduce their target prices. the thing is that I did not buy Cisco for their legacy businesses. Obviously global (Chinese) macro (trade) conditions are not helpful here, but all of the stories that I got behind are still stories that are working out in my opinion.
Security segment revenue grew 22% to $815 million. A mere drop in a $13.16 billion bucket, but it's the drop that stands out. In addition, subscription (recurring revenue) as a percentage of software sales (71%) continues to perform. Then there is the return to shareholders. The dividend yield closed Wednesday below 2.9%, but will likely open above 3% (CSCO pays $1.40 annually). The firm also still has $12.7 billion remaining in the current share repurchase authorization.
Sell CSCO? No. After the clown car pulls out, I'll probably buy a few. Probably more than a few. Just thinking out loud. FYI, the $45 level is key.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 214K, Last 211K.
08:30 - PPI (February): Expecting 0.9% y/y, Last 1.4% y/y.
08:30 - Core PPI (February): Expecting 1.6% y/y, Last 2.0% y/y.
10:30 - Natural Gas Inventories (Weekly): Last +34B cf.
11:00 - Oil Inventories (Weekly): Last +7.929M.
11:00 - Gasoline Stocks (Weekly): Last -2.828M.
The Fed (All Times Eastern)
05:30 - Speaker: Reserve Board Gov. Randal Quarles.
09:10 - Speaker: Reserve Board Gov. Richard Clarida.
09:10 - Speaker: Chicago Fed Pres. Charles Evans.
10:00 - Testimony: Federal Reserve Chair Jerome Powell.
12:00 - Speaker: New York Fed Pres. John Williams.
12:20 - Speaker: St. Louis Fed Pres. James Bullard.
Today's Earnings Highlights (Consensus EPS Expectations)