Progress in trade talks and a steady, but accomodative Fed policy have eased the way for the stock market’s rally to new highs, and both will be in the forefront when President Donald Trump and Jerome Powell speak at separate events in the week ahead.
Against a backdrop of a stabilizing global economy, stocks have hit new highs and bond yields have pushed higher, particularly in the past week with a 23 basis point surge in the 10-year Treasury yield. Yields move opposite price, and the 10-year rose to end the week at 1.94%, its highest closing level since Aug. 1, the day Trump threatened another round of tariffs on China.
Trump speaks to the Economic Club of New York during a Tuesday luncheon, and investors are hoping for clarity on a possible trade deal. The Fed chairman speaks Wednesday to the Congressional Joint Economic Committee, and he also appears before the House Budget Committee Thursday.
There are a few key economic reports, including CPI on Wednesday and retail sales and industrial production on Friday. Empire State manufacturing survey Friday could provide a fresh look at the manufacturing sector in the New York region. Just a few major earnings are expected in the week ahead, including Cisco Wednesday and Walmart and NVIDIA on Thursday.
But trade is likely to remain the more important wild card for markets, as the calendar edges closer to Dec. 15, the date new tariffs on consumer goods from China would go into effect if there is no deal. The House of Representatives also hold impeachment hearings before the public for the first time in the coming week, but the markets have so far ignored the topic and see it unlikely that the Senate would convict the president.
Stock records
Stocks continued to rally to new highs this past week, and the major indices all ended the week at record levels, as bonds sold off hard. Stock market gains were limited part of the session Friday after Trump said that he has not agreed to the tariff rollbacks sought by China.
The S&P 500 was higher for a fifth week, up 0.9%, and is now up about 1.8% for November so far. The S&P closed at 3,093 Friday.
“President Trump is always unpredictable, so we’ll have to see what he says,” said Ed Keon, chief investment strategist at QMA.
Keon expects a trade agreement of some sort in the near future, and that should help risk markets to advance.
“The way we’ve been interpreting this is it probably amounts to a truce. The United States has been using this rhetoric that it’s a phase one deal. China has not embraced the same rhetoric. So I don’t know if we’ll get major progress on the thornier issues in the first deal,” Keon said. “The other question is how hard does the president push in an election year to make further progress in the negotiations, given that China might dig in its heels? That’s unknowable. I have no insight into what the president is going to do.”
Cowen policy strategist Chris Krueger said Trump’s address Tuesday could be important for the direction of a deal. “In our minds, the most critical sections will deal with trade and whether Trump is favoring the “phase one” deal with China and a scheduled rollback of the tariffs. This could well be a trial balloon to gauge the ferocity of expected pushback from influential China hawks. Trump will give remarks and then take questions from two moderators,” wrote Krueger.
Powell’s testimony is not expected to have as much potential to rock markets, after the clear message he sent to markets following the Fed’s rate cut Oct. 30.
“I would expect the chairman to continue the rhetoric he had at his last press conference. They’re probably on hold. It will depend on the data. If anything the data looks a little more promising on the margin. Certainly the consumer and service sector appear to be doing fine and with the GM strike ending, some of the things impacted by that should improve,” said Keon. “They think rates are appropriate for now, and if the economy weakens, they’ll be prepared to take further action.”
The health of the global economy has been a topic of concern in markets for months, but with the global rise in yields and signs of improvement in global PMI data, investors have clearly become more optimistic.
“I’ve been kind of skeptical most of the year, but I do think at the margin, the economic outlook has improved, especially outside the United States,” said Keon. “The recession talk that was pretty active just a month or two ago has really died down. The yield curve is dramatically uninverted. I feel a little better about the economic outlook.”
When the yield curve becomes inverted, short term rates, like the 2-year note yield for instance, rise above the long end, or the 10-year yield. That is very often a recession warning, as investors bet that the economy will be weaker in the longer term than it is in the near term. But there’s been a sudden shift, and now those curves are getting steeper.
Keon said the higher yields are a positive sign, and he is adding to stock holdings, but more in foreign names. “The sense Europe was heading into a recession has died off, and there are signs things are stabilizing,” he said. “This could all change in a minute but it looks like the overall outlook has significantly picked up in the last month or two.”
Dan Suzuki, portfolio strategist at Richard Bernstein Advisors, said he is still cautious about the improvement, though earnings were not as bad as expected, the Fed has cut rates and the trade situation appears to be improving. “That combined with green shoots on the macro front, the markets have really taken that and run with it,” he said, adding the move may have been too optimistic. “It’s out-sized relative to the significance of the data.”
Suzuki said he needs to see more proof that U.S. manufacturing has stabilized, as many believe. ISM manufacturing was better in October than in September, but it is still in contraction. “Why is this definitely the bottom? The jury’s still out,” he said.
“I think you have to answer the question—if this is the bottom and growth is going to rebound here, what’s going to be the catalyst for that?...I don’t see anything in the data that suggests there’s going to be a big rebound for any of those fronts. I see more headwinds to growth than I see tail winds,” he said. “On the investment side, it would be highly unusual to see a big rebo
DJIA has been up 10 of the last 15 years on Monday of expiration week and Friday is up 13 of the last 17 years with an average gain of 0.45%. By the way, it is not a mistake that November Op-Ex day has the same point change and percent change in 2014 and 2015. It was triple checked and its correct. If you go out 2 more decimal places in the percentage calculation, it’s different.
S&P 500, NASDAQ and Russell 2000 have not been as bullish as DJIA around or on November option expiration. S&P 500 has advanced only 16 times during options expiration week while NASDAQ and Russell 2000 have climbed only 15 and 14 times respectively over the past 25 years. All four indices have posted average losses on Monday and aside from DJIA and S&P 500 have been essentially mixed on options expiration day. Friday’s solid average gains across the board are largely due to a sizable gain in 2008. Any weakness next week could be a good entry point for new longs ahead of the usually bullish Thanksgiving holiday.
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The S&P 500 has been on a seemingly uninterrupted run higher over the last several days, but by some measures, it may not be as extended as you would think. The chart below shows the historical percentage spread between the S&P 500 and its 50-day moving average (DMA) over the last three years. Through Thursday's close, the S&P 500 was 3.2% above its 50-DMA, which is relatively high but nowhere near an extreme. The red line in the chart below shows the current percentage spread between the S&P 500's price and its 50-DMA. There have been a number of times since the 2016 election where this spread was higher with the most recent being back in July. In fact, 17% of all prior days in the last three years have seen the S&P 500 close at a higher level relative to its 50-DMA than it is now. That doesn't mean the market isn't overbought, but it's not exactly at unprecedented levels either.
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We've now had nearly a full week of trading since last Wednesday's FOMC meeting where Fed Chair Powell suggested that the punch bowl isn't going to be taken away anytime soon. During that time, we've seen a real shift in leadership as defensive sectors have sold off while cyclical sectors have been on fire. Energy - yes, Energy - has been the top-performing sector with a gain of 3.5% while Industrials aren't far behind with a gain of 2.8%, Behind these two, Technology and Financials have also comfortably outperformed the S&P 500's gain of 1.2%. On the downside, Real Estate and Utilities, two of the market's most popular sectors for much of 2019 due to their dividend yields, have both dropped over 1% while Consumer Staples and Health Care have also sold off.
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Due to the fact that we are also in the thick of earnings season, it's a bit more difficult to see how the Fed's actions last week impacted individual stocks as some of the best and worst performances over the last week have been earnings-related. With that caveat, the tables below list the best and worst-performing S&P 500 stocks over the last week. Starting off with the winners, three S&P 500 stocks are up over 20% in the last week, and all three were due to earnings reports. Overall, 12 stocks have rallied over 10%, while all 25 of the top performers are up over 7%. In terms of sector representation on the list, nearly a third (8) of the stocks on the list are from the Technology sector, while another five come from the Consumer Discretionary sector. The remaining 12 stocks on the list come from five different sectors.
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On the downside, 8 of the 25 worst performers since last week's FOMC meeting are down over 10% with Arista Networks (ANET) losing nearly a quarter of its value. Again, ANET's decline was tied to an earnings report as opposed to a reaction to the FOMC. In terms of overall sector representation, though, the underperformance of the Real Estate sector highlighted above is also evident on this list as eight of the companies listed come from that sector.
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With less than two months left to go in 2019, the S&P 500 is sitting on a gain of nearly 23% YTD, and all but two of the index's 24 industry groups are up by at least double-digit percentages. The two laggards are Energy (+4.5%) and Drugs and Biotechs (+5.5%), while the three strongest groups are all from the Technology sector (Tech Hardware: +44.8%, Semis: +37.7%, and Software: +32.8%). Surprisingly enough, Banks are even starting to move up the performance list as that group is up just a hair under 30% on the year putting it in fifth place on a YTD basis.
The table below lists where each of the S&P 500's Industry Groups is currently trading with respect to its 50-DMA. While you would expect just about everything to be extended after the recent leg higher, that's not the case. The S&P 500 as a whole is just 3% above its 50-DMA, and just five groups are more than 5% above their 50-DMAs. The two most extended groups are Tech Hardware (think Apple) and Banks. On the downside, there are actually as many Industry Groups trading below their 50-DMAs as there are groups trading more than 5% above their 50-DMAs. As shown at the bottom of the table, Consumer Services, Real Estate, Household & Personal Products, Commercial Services, and Utilities are all currently below their 50-DMAs. These aren't groups that have been lagging the market all year. In fact, three of them are outperforming the S&P 500 on a year to date basis, but in the majority of cases, these are defensive-oriented groups that have fallen out of favor as the market's sentiment has shifted and rates have risen.
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As I head to Las Vegas for my annual pilgrimage to @MoneyShows TradersEXPO I am both thrilled and shocked to hear everybody on Wall Street and the financial media talking about bullish yearend market seasonality and practically every one of them has used the phrase, “seasonally strong period.”
I’m thrilled because it validates what we already know and what I live and breathe: that there are clear evidence-based results of real, consistent, tradable and investable seasonal market patterns. I am shocked at how late many of them are to the party. We’ve been in bullish Best Six Months mode since our Seasonal MACD Buy Signal on October 11.
Since our October 11 Buy Signal we have tactically maneuvered out of our defensive positions in Bonds, Cyclicals, Utilities and others and into the main U.S. equity index ETFs: DIA, SPY, QQQ and IWM and the gamut of seasonally strong growth sectors over three weeks ago. We also put out a brand new Stock Basket of undervalued growth stocks under Wall Street’s radar.
Market seasonality is clearly firing on all pistons as it has been all year, but everyone’s is jumping on the seasonal bandwagon just a two regular seasonal soft patches are about to come around on the calendar. Now that our Bullish Halloween Trading Strategy is complete with some big market gains at the end of October and the beginning of November we are on the lookout for weakness ahead of Thanksgiving.
Next week is two weeks before Thanksgiving and we’ve shown in several recent posts, it is part of the mid-November soft patch. Then stocks usually pick up in anticipation of Thanksgiving and continue to rally through the end of November. After thanksgiving watch out, the first couple weeks of December are notoriously choppy and not especially bullish as tax-loss selling kicks into high gear.
With the market elevated and the news ever changing, stocks will be vulnerable to these perennial weak spots.
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Despite all of the geopolitical events, things still look good for stocks next year with an incumbent running. The potential for a decent trade truce with China, along with an economy that’s still growing and accommodative interest rates add up to a continuation of the bull market.
With the Stock Trader’s Almanac 2020 coming off the press this week here’s a little preview of some our analysis and outlook that’s in the 53rd Annual Edition.
Presidential incumbency is a powerful phenomenon and the driving force behind the 4-Year Presidential Election Cycle. This quadrennial quadrille is what has made the Pre-Election Year the best year of the cycle and Election Year second best. Since 1952 S&P 500 is up 12.5% on average in election years when a sitting president is running for reelection vs. 6.7% in all election years and –1.5% in election years with an open field and no incumbent commander-in-chief running for a second term.
We are also arguably now experiencing some fiscal and monetary policy synchronicity. After several years of conflicting policy the Federal Reserve and the U.S. Federal government are finally getting in synch. Interest rates are historically low and the Fed has lowered rates again at the last three scheduled FOMC meetings at the same time as fiscal policy has been lowering taxes and increasing spending. These dual pro-growth policies should continue to propel the stock market higher.
Gains will of course not come without pause and correction. The world stage will continue to feature some challenging geopolitical, political, diplomatic, trade-related and economic storylines. U.S. presidential campaign politics will increasingly focus on domestic political disputes, standoffs and unfinished business – as well as impeachment proceedings. But when all is said and done, we expect 2020 to be a positive year based on the historical patterns and cycles and current favorable policies, healthy economics, and positive market behavior.
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Now that we’ve survived Octoberphobia and the market has begun to strengthen again, breaking out above resistance and logging new highs on DJIA, S&P 500 and NASDAQ, we are likely to experience a bit of consolidation here in November. Normally the top S&P month of the year and #2 for DJIA, NASDAQ and the Russell 2000, November has been weaker in Pre-Election Years.
As you can see in the updated chart of Pre-Election Year Seasonal Patterns overlaid with 2019 we have been tracking all year November tends to be flat in the Pre-Election Year with a pop around Thanksgiving. Then after the usual first half of December softness the market tends to push toward additional new highs near yearend. Considering the banner performance so far this year and the uncanny tracking of this historical seasonal pattern, we expect the stock to consolidate over the next few weeks and then resume its march higher.
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“An object in motion tends to remain in motion along a straight line unless acted upon by an outside force.” Sir Isaac Newton
What a year it has been for the bulls. The S&P 500 Index recently made four more new highs, and it’s up more than 20% for the year (as of Nov. 4). This leads to the big question: What could happen in the final two months of 2019? Well, we think the bulls might like it.
“A good year tends to see continued strong performance the final two months of the year,” explained LPL Financial Senior Market Strategist Ryan Detrick. “In fact, when the S&P 500 has been up 20% or more for the year heading into the usually bullish November, stocks have never dropped in November, while December also has tended to see a strong upward bias.”
As the LPL Chart of the day shows, going back to 1950, when the S&P 500 was up more than 20% heading into November, then the final two months were up an average of 6.2%. The S&P 500 has also never fallen in the final two months of the year after closing October up more than 20% for the year.
This phenomenon could be due to portfolio managers buying to play catch-up, or it could be that an object in motion stays in motion, as Newton noted more than 300 years ago.
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Monday 11.11.19 Before Market Open:
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Monday 11.11.19 After Market Close:
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Tuesday 11.12.19 Before Market Open:
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Tuesday 11.12.19 After Market Close:
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Wednesday 11.13.19 Before Market Open:
(CLICK HERE FOR WEDNESDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Wednesday 11.13.19 After Market Close:
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Thursday 11.14.19 Before Market Open:
(CLICK HERE FOR THURSDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Thursday 11.14.19 After Market Close:
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Friday 11.15.19 Before Market Open:
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Friday 11.15.19 After Market Close:
([CLICK HERE FOR FRIDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!]())
NONE.
Progress in trade talks and a steady, but accomodative Fed policy have eased the way for the stock market’s rally to new highs, and both will be in the forefront when President Donald Trump and Jerome Powell speak at separate events in the week ahead.
Against a backdrop of a stabilizing global economy, stocks have hit new highs and bond yields have pushed higher, particularly in the past week with a 23 basis point surge in the 10-year Treasury yield. Yields move opposite price, and the 10-year rose to end the week at 1.94%, its highest closing level since Aug. 1, the day Trump threatened another round of tariffs on China.
Trump speaks to the Economic Club of New York during a Tuesday luncheon, and investors are hoping for clarity on a possible trade deal. The Fed chairman speaks Wednesday to the Congressional Joint Economic Committee, and he also appears before the House Budget Committee Thursday.
There are a few key economic reports, including CPI on Wednesday and retail sales and industrial production on Friday. Empire State manufacturing survey Friday could provide a fresh look at the manufacturing sector in the New York region. Just a few major earnings are expected in the week ahead, including Cisco Wednesday and Walmart and NVIDIA on Thursday.
But trade is likely to remain the more important wild card for markets, as the calendar edges closer to Dec. 15, the date new tariffs on consumer goods from China would go into effect if there is no deal. The House of Representatives also hold impeachment hearings before the public for the first time in the coming week, but the markets have so far ignored the topic and see it unlikely that the Senate would convict the president.
Stock records
Stocks continued to rally to new highs this past week, and the major indices all ended the week at record levels, as bonds sold off hard. Stock market gains were limited part of the session Friday after Trump said that he has not agreed to the tariff rollbacks sought by China.
The S&P 500 was higher for a fifth week, up 0.9%, and is now up about 1.8% for November so far. The S&P closed at 3,093 Friday.
“President Trump is always unpredictable, so we’ll have to see what he says,” said Ed Keon, chief investment strategist at QMA.
Keon expects a trade agreement of some sort in the near future, and that should help risk markets to advance.
“The way we’ve been interpreting this is it probably amounts to a truce. The United States has been using this rhetoric that it’s a phase one deal. China has not embraced the same rhetoric. So I don’t know if we’ll get major progress on the thornier issues in the first deal,” Keon said. “The other question is how hard does the president push in an election year to make further progress in the negotiations, given that China might dig in its heels? That’s unknowable. I have no insight into what the president is going to do.”
Cowen policy strategist Chris Krueger said Trump’s address Tuesday could be important for the direction of a deal. “In our minds, the most critical sections will deal with trade and whether Trump is favoring the “phase one” deal with China and a scheduled rollback of the tariffs. This could well be a trial balloon to gauge the ferocity of expected pushback from influential China hawks. Trump will give remarks and then take questions from two moderators,” wrote Krueger.
Powell’s testimony is not expected to have as much potential to rock markets, after the clear message he sent to markets following the Fed’s rate cut Oct. 30.
“I would expect the chairman to continue the rhetoric he had at his last press conference. They’re probably on hold. It will depend on the data. If anything the data looks a little more promising on the margin. Certainly the consumer and service sector appear to be doing fine and with the GM strike ending, some of the things impacted by that should improve,” said Keon. “They think rates are appropriate for now, and if the economy weakens, they’ll be prepared to take further action.”
The health of the global economy has been a topic of concern in markets for months, but with the global rise in yields and signs of improvement in global PMI data, investors have clearly become more optimistic.
“I’ve been kind of skeptical most of the year, but I do think at the margin, the economic outlook has improved, especially outside the United States,” said Keon. “The recession talk that was pretty active just a month or two ago has really died down. The yield curve is dramatically uninverted. I feel a little better about the economic outlook.”
When the yield curve becomes inverted, short term rates, like the 2-year note yield for instance, rise above the long end, or the 10-year yield. That is very often a recession warning, as investors bet that the economy will be weaker in the longer term than it is in the near term. But there’s been a sudden shift, and now those curves are getting steeper.
Keon said the higher yields are a positive sign, and he is adding to stock holdings, but more in foreign names. “The sense Europe was heading into a recession has died off, and there are signs things are stabilizing,” he said. “This could all change in a minute but it looks like the overall outlook has significantly picked up in the last month or two.”
Dan Suzuki, portfolio strategist at Richard Bernstein Advisors, said he is still cautious about the improvement, though earnings were not as bad as expected, the Fed has cut rates and the trade situation appears to be improving. “That combined with green shoots on the macro front, the markets have really taken that and run with it,” he said, adding the move may have been too optimistic. “It’s out-sized relative to the significance of the data.”
Suzuki said he needs to see more proof that U.S. manufacturing has stabilized, as many believe. ISM manufacturing was better in October than in September, but it is still in contraction. “Why is this definitely the bottom? The jury’s still out,” he said.
“I think you have to answer the question—if this is the bottom and growth is going to rebound here, what’s going to be the catalyst for that?...I don’t see anything in the data that suggests there’s going to be a big rebound for any of those fronts. I see more headwinds to growth than I see tail winds,” he said. “On the investment side, it would be highly unusual to see a big rebo
DJIA has been up 10 of the last 15 years on Monday of expiration week and Friday is up 13 of the last 17 years with an average gain of 0.45%. By the way, it is not a mistake that November Op-Ex day has the same point change and percent change in 2014 and 2015. It was triple checked and its correct. If you go out 2 more decimal places in the percentage calculation, it’s different.
S&P 500, NASDAQ and Russell 2000 have not been as bullish as DJIA around or on November option expiration. S&P 500 has advanced only 16 times during options expiration week while NASDAQ and Russell 2000 have climbed only 15 and 14 times respectively over the past 25 years. All four indices have posted average losses on Monday and aside from DJIA and S&P 500 have been essentially mixed on options expiration day. Friday’s solid average gains across the board are largely due to a sizable gain in 2008. Any weakness next week could be a good entry point for new longs ahead of the usually bullish Thanksgiving holiday.
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The S&P 500 has been on a seemingly uninterrupted run higher over the last several days, but by some measures, it may not be as extended as you would think. The chart below shows the historical percentage spread between the S&P 500 and its 50-day moving average (DMA) over the last three years. Through Thursday's close, the S&P 500 was 3.2% above its 50-DMA, which is relatively high but nowhere near an extreme. The red line in the chart below shows the current percentage spread between the S&P 500's price and its 50-DMA. There have been a number of times since the 2016 election where this spread was higher with the most recent being back in July. In fact, 17% of all prior days in the last three years have seen the S&P 500 close at a higher level relative to its 50-DMA than it is now. That doesn't mean the market isn't overbought, but it's not exactly at unprecedented levels either.
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We've now had nearly a full week of trading since last Wednesday's FOMC meeting where Fed Chair Powell suggested that the punch bowl isn't going to be taken away anytime soon. During that time, we've seen a real shift in leadership as defensive sectors have sold off while cyclical sectors have been on fire. Energy - yes, Energy - has been the top-performing sector with a gain of 3.5% while Industrials aren't far behind with a gain of 2.8%, Behind these two, Technology and Financials have also comfortably outperformed the S&P 500's gain of 1.2%. On the downside, Real Estate and Utilities, two of the market's most popular sectors for much of 2019 due to their dividend yields, have both dropped over 1% while Consumer Staples and Health Care have also sold off.
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Due to the fact that we are also in the thick of earnings season, it's a bit more difficult to see how the Fed's actions last week impacted individual stocks as some of the best and worst performances over the last week have been earnings-related. With that caveat, the tables below list the best and worst-performing S&P 500 stocks over the last week. Starting off with the winners, three S&P 500 stocks are up over 20% in the last week, and all three were due to earnings reports. Overall, 12 stocks have rallied over 10%, while all 25 of the top performers are up over 7%. In terms of sector representation on the list, nearly a third (8) of the stocks on the list are from the Technology sector, while another five come from the Consumer Discretionary sector. The remaining 12 stocks on the list come from five different sectors.
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On the downside, 8 of the 25 worst performers since last week's FOMC meeting are down over 10% with Arista Networks (ANET) losing nearly a quarter of its value. Again, ANET's decline was tied to an earnings report as opposed to a reaction to the FOMC. In terms of overall sector representation, though, the underperformance of the Real Estate sector highlighted above is also evident on this list as eight of the companies listed come from that sector.
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With less than two months left to go in 2019, the S&P 500 is sitting on a gain of nearly 23% YTD, and all but two of the index's 24 industry groups are up by at least double-digit percentages. The two laggards are Energy (+4.5%) and Drugs and Biotechs (+5.5%), while the three strongest groups are all from the Technology sector (Tech Hardware: +44.8%, Semis: +37.7%, and Software: +32.8%). Surprisingly enough, Banks are even starting to move up the performance list as that group is up just a hair under 30% on the year putting it in fifth place on a YTD basis.
The table below lists where each of the S&P 500's Industry Groups is currently trading with respect to its 50-DMA. While you would expect just about everything to be extended after the recent leg higher, that's not the case. The S&P 500 as a whole is just 3% above its 50-DMA, and just five groups are more than 5% above their 50-DMAs. The two most extended groups are Tech Hardware (think Apple) and Banks. On the downside, there are actually as many Industry Groups trading below their 50-DMAs as there are groups trading more than 5% above their 50-DMAs. As shown at the bottom of the table, Consumer Services, Real Estate, Household & Personal Products, Commercial Services, and Utilities are all currently below their 50-DMAs. These aren't groups that have been lagging the market all year. In fact, three of them are outperforming the S&P 500 on a year to date basis, but in the majority of cases, these are defensive-oriented groups that have fallen out of favor as the market's sentiment has shifted and rates have risen.
(CLICK HERE FOR THE CHART!)
As I head to Las Vegas for my annual pilgrimage to @MoneyShows TradersEXPO I am both thrilled and shocked to hear everybody on Wall Street and the financial media talking about bullish yearend market seasonality and practically every one of them has used the phrase, “seasonally strong period.”
I’m thrilled because it validates what we already know and what I live and breathe: that there are clear evidence-based results of real, consistent, tradable and investable seasonal market patterns. I am shocked at how late many of them are to the party. We’ve been in bullish Best Six Months mode since our Seasonal MACD Buy Signal on October 11.
Since our October 11 Buy Signal we have tactically maneuvered out of our defensive positions in Bonds, Cyclicals, Utilities and others and into the main U.S. equity index ETFs: DIA, SPY, QQQ and IWM and the gamut of seasonally strong growth sectors over three weeks ago. We also put out a brand new Stock Basket of undervalued growth stocks under Wall Street’s radar.
Market seasonality is clearly firing on all pistons as it has been all year, but everyone’s is jumping on the seasonal bandwagon just a two regular seasonal soft patches are about to come around on the calendar. Now that our Bullish Halloween Trading Strategy is complete with some big market gains at the end of October and the beginning of November we are on the lookout for weakness ahead of Thanksgiving.
Next week is two weeks before Thanksgiving and we’ve shown in several recent posts, it is part of the mid-November soft patch. Then stocks usually pick up in anticipation of Thanksgiving and continue to rally through the end of November. After thanksgiving watch out, the first couple weeks of December are notoriously choppy and not especially bullish as tax-loss selling kicks into high gear.
With the market elevated and the news ever changing, stocks will be vulnerable to these perennial weak spots.
(CLICK HERE FOR THE CHART!)
Despite all of the geopolitical events, things still look good for stocks next year with an incumbent running. The potential for a decent trade truce with China, along with an economy that’s still growing and accommodative interest rates add up to a continuation of the bull market.
With the Stock Trader’s Almanac 2020 coming off the press this week here’s a little preview of some our analysis and outlook that’s in the 53rd Annual Edition.
Presidential incumbency is a powerful phenomenon and the driving force behind the 4-Year Presidential Election Cycle. This quadrennial quadrille is what has made the Pre-Election Year the best year of the cycle and Election Year second best. Since 1952 S&P 500 is up 12.5% on average in election years when a sitting president is running for reelection vs. 6.7% in all election years and –1.5% in election years with an open field and no incumbent commander-in-chief running for a second term.
We are also arguably now experiencing some fiscal and monetary policy synchronicity. After several years of conflicting policy the Federal Reserve and the U.S. Federal government are finally getting in synch. Interest rates are historically low and the Fed has lowered rates again at the last three scheduled FOMC meetings at the same time as fiscal policy has been lowering taxes and increasing spending. These dual pro-growth policies should continue to propel the stock market higher.
Gains will of course not come without pause and correction. The world stage will continue to feature some challenging geopolitical, political, diplomatic, trade-related and economic storylines. U.S. presidential campaign politics will increasingly focus on domestic political disputes, standoffs and unfinished business – as well as impeachment proceedings. But when all is said and done, we expect 2020 to be a positive year based on the historical patterns and cycles and current favorable policies, healthy economics, and positive market behavior.
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Now that we’ve survived Octoberphobia and the market has begun to strengthen again, breaking out above resistance and logging new highs on DJIA, S&P 500 and NASDAQ, we are likely to experience a bit of consolidation here in November. Normally the top S&P month of the year and #2 for DJIA, NASDAQ and the Russell 2000, November has been weaker in Pre-Election Years.
As you can see in the updated chart of Pre-Election Year Seasonal Patterns overlaid with 2019 we have been tracking all year November tends to be flat in the Pre-Election Year with a pop around Thanksgiving. Then after the usual first half of December softness the market tends to push toward additional new highs near yearend. Considering the banner performance so far this year and the uncanny tracking of this historical seasonal pattern, we expect the stock to consolidate over the next few weeks and then resume its march higher.
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“An object in motion tends to remain in motion along a straight line unless acted upon by an outside force.” Sir Isaac Newton
What a year it has been for the bulls. The S&P 500 Index recently made four more new highs, and it’s up more than 20% for the year (as of Nov. 4). This leads to the big question: What could happen in the final two months of 2019? Well, we think the bulls might like it.
“A good year tends to see continued strong performance the final two months of the year,” explained LPL Financial Senior Market Strategist Ryan Detrick. “In fact, when the S&P 500 has been up 20% or more for the year heading into the usually bullish November, stocks have never dropped in November, while December also has tended to see a strong upward bias.”
As the LPL Chart of the day shows, going back to 1950, when the S&P 500 was up more than 20% heading into November, then the final two months were up an average of 6.2%. The S&P 500 has also never fallen in the final two months of the year after closing October up more than 20% for the year.
This phenomenon could be due to portfolio managers buying to play catch-up, or it could be that an object in motion stays in motion, as Newton noted more than 300 years ago.
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- $NVDA
- $WMT
- $CRON
- $CGC
- $CSCO
- $ACB
- $OSTK
- $DHI
- $NEPT
- $TLRY
- $JD
- $FOLD
- $GOOS
- $TSN
- $AAP
- $SWKS
- $JCP
- $AMAT
- $LK
- $CBS
- $SE
- $NBEV
- $DXC
- $HUYA
- $TME
- $YY
- $CGEN
- $CTEK
- $QRTEA
- $HIIQ
- $DF
- $WIX
- $TWOU
- $BEP
- $KEM
- $NOG
- $NTAP
- $SAGE
- $WB
- $VIAB
- $ROK
- $RETA
- $GO
- $TDW
- $ERJ
Monday 11.11.19 Before Market Open:
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Monday 11.11.19 After Market Close:
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Tuesday 11.12.19 Before Market Open:
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Tuesday 11.12.19 After Market Close:
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Wednesday 11.13.19 Before Market Open:
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Wednesday 11.13.19 After Market Close:
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Thursday 11.14.19 Before Market Open:
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Thursday 11.14.19 After Market Close:
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Friday 11.15.19 Before Market Open:
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Friday 11.15.19 After Market Close:
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NVIDIA Corp. (NVDA) is confirmed to report earnings at approximately 4:20 PM ET on Thursday, November 14, 2019. The consensus earnings estimate is $1.58 per share on revenue of $2.90 billion and the Earnings Whisper ® number is $1.64 per share. Investor sentiment going into the company's earnings release has 70% expecting an earnings beat The company's guidance was for earnings of $1.48 to $1.66 per share. Consensus estimates are for earnings to decline year-over-year by 5.39% with revenue decreasing by 8.83%. Short interest has decreased by 11.1% since the company's last earnings release while the stock has drifted higher by 30.4% from its open following the earnings release to be 23.3% above its 200 day moving average of $168.57. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, October 23, 2019 there was some notable buying of 4,074 contracts of the $195.00 call expiring on Friday, November 15, 2019. Option traders are pricing in a 7.3% move on earnings and the stock has averaged a 6.2% move in recent quarters.
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Walmart Inc. (WMT) is confirmed to report earnings at approximately 7:00 AM ET on Thursday, November 14, 2019. The consensus earnings estimate is $1.09 per share on revenue of $128.99 billion and the Earnings Whisper ® number is $1.15 per share. Investor sentiment going into the company's earnings release has 85% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 0.93% with revenue increasing by 3.28%. Short interest has increased by 1.5% since the company's last earnings release while the stock has drifted higher by 6.1% from its open following the earnings release to be 11.5% above its 200 day moving average of $107.15. Overall earnings estimates have been revised higher since the company's last earnings release. On Monday, November 4, 2019 there was some notable buying of 2,732 contracts of the $119.00 call expiring on Friday, November 15, 2019. Option traders are pricing in a 4.2% move on earnings and the stock has averaged a 3.8% move in recent quarters.
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Cronos Group Inc. (CRON) is confirmed to report earnings at approximately 7:00 AM ET on Tuesday, November 12, 2019. The consensus estimate is for a loss of $0.03 per share on revenue of $9.73 million and the Earnings Whisper ® number is ($0.04) per share. Investor sentiment going into the company's earnings release has 60% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 0.00% with revenue increasing by 238.20%. Short interest has increased by 11.1% since the company's last earnings release while the stock has drifted lower by 45.1% from its open following the earnings release to be 43.0% below its 200 day moving average of $14.94. Overall earnings estimates have been revised lower since the company's last earnings release. On Tuesday, October 29, 2019 there was some notable buying of 6,300 contracts of the $10.00 call expiring on Friday, December 20, 2019. Option traders are pricing in a 12.3% move on earnings and the stock has averaged a 3.5% move in recent quarters.
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Canopy Growth Corporation (CGC) is confirmed to report earnings at approximately 5:00 PM ET on Thursday, November 14, 2019. The consensus estimate is for a loss of $0.27 per share on revenue of $111.02 million and the Earnings Whisper ® number is ($0.29) per share. Investor sentiment going into the company's earnings release has 53% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 64.47% with revenue increasing by 521.96%. Short interest has increased by 21.2% since the company's last earnings release while the stock has drifted lower by 25.6% from its open following the earnings release to be 41.5% below its 200 day moving average of $36.71. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, October 23, 2019 there was some notable buying of 6,403 contracts of the $7.50 put expiring on Friday, June 19, 2020. Option traders are pricing in a 12.0% move on earnings and the stock has averaged a 13.0% move in recent quarters.
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Cisco Systems, Inc. (CSCO) is confirmed to report earnings at approximately 4:05 PM ET on Wednesday, November 13, 2019. The consensus earnings estimate is $0.81 per share on revenue of $13.14 billion and the Earnings Whisper ® number is $0.83 per share. Investor sentiment going into the company's earnings release has 68% expecting an earnings beat The company's guidance was for earnings of $0.80 to $0.82 per share. Consensus estimates are for year-over-year earnings growth of 9.46% with revenue increasing by 0.52%. Short interest has decreased by 21.3% since the company's last earnings release while the stock has drifted higher by 3.1% from its open following the earnings release to be 5.7% below its 200 day moving average of $51.76. Overall earnings estimates have been unchanged since the company's last earnings release. On Friday, November 8, 2019 there was some notable buying of 6,707 contracts of the $45.00 put expiring on Friday, December 20, 2019. Option traders are pricing in a 4.8% move on earnings and the stock has averaged a 4.9% move in recent quarters.
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Aurora Cannabis Inc (ACB) is confirmed to report earnings at approximately 5:00 PM ET on Thursday, November 14, 2019. The consensus estimate is for a loss of $0.03 per share on revenue of $72.82 million and the Earnings Whisper ® number is ($0.05) per share. Investor sentiment going into the company's earnings release has 60% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 133.33% with revenue increasing by 220.71%. The stock has drifted lower by 35.1% from its open following the earnings release to be 45.8% below its 200 day moving average of $7.03. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, November 6, 2019 there was some notable buying of 9,910 contracts of the $3.50 call expiring on Friday, November 29, 2019. Option traders are pricing in a 14.6% move on earnings and the stock has averaged a 4.3% move in recent quarters.
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Overstock.com, Inc. (OSTK) is confirmed to report earnings at approximately 8:00 AM ET on Tuesday, November 12, 2019. The consensus estimate is for a loss of $0.70 per share on revenue of $404.59 million. Investor sentiment going into the company's earnings release has 35% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 54.84% with revenue decreasing by 8.17%. Short interest has decreased by 46.4% since the company's last earnings release while the stock has drifted lower by 53.9% from its open following the earnings release to be 37.7% below its 200 day moving average of $15.57. Overall earnings estimates have been unchanged since the company's last earnings release. On Friday, November 8, 2019 there was some notable buying of 728 contracts of the $5.00 call expiring on Friday, January 15, 2021. Option traders are pricing in a 18.3% move on earnings and the stock has averaged a 10.9% move in recent quarters.
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D.R. Horton, Inc. (DHI) is confirmed to report earnings at approximately 6:30 AM ET on Tuesday, November 12, 2019. The consensus earnings estimate is $1.25 per share on revenue of $4.81 billion and the Earnings Whisper ® number is $1.28 per share. Investor sentiment going into the company's earnings release has 70% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 2.46% with revenue increasing by 6.77%. Short interest has decreased by 9.7% since the company's last earnings release while the stock has drifted higher by 15.5% from its open following the earnings release to be 11.6% above its 200 day moving average of $45.82. Overall earnings estimates have been revised higher since the company's last earnings release. On Wednesday, October 30, 2019 there was some notable buying of 11,277 contracts of the $55.00 call and 2,743 contracts of the $50.00 put expiring on Friday, November 15, 2019. Option traders are pricing in a 6.2% move on earnings and the stock has averaged a 5.7% move in recent quarters.
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Neptune Wellness Solutions Inc. (NEPT) is confirmed to report earnings at approximately 6:00 AM ET on Monday, November 11, 2019. The consensus estimate is for a loss of $0.04 per share on revenue of $9.83 million and the Earnings Whisper ® number is ($0.03) per share. Investor sentiment going into the company's earnings release has 52% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 33.33% with revenue increasing by 81.67%. Short interest has increased by 47.0% since the company's last earnings release while the stock has drifted lower by 23.9% from its open following the earnings release to be 16.6% below its 200 day moving average of $4.25. Overall earnings estimates have been revised higher since the company's last earnings release. On Tuesday, November 5, 2019 there was some notable buying of 4,016 contracts of the $6.00 call expiring on Friday, May 15, 2020. Option traders are pricing in a 24.0% move on earnings and the stock has averaged a 4.9% move in recent quarters.
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Tilray, Inc. (TLRY) is confirmed to report earnings at approximately 4:05 PM ET on Tuesday, November 12, 2019. The consensus estimate is for a loss of $0.29 per share on revenue of $50.57 million and the Earnings Whisper ® number is ($0.36) per share. Investor sentiment going into the company's earnings release has 57% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 45.00% with revenue increasing by 403.33%. Short interest has increased by 11.1% since the company's last earnings release while the stock has drifted lower by 43.1% from its open following the earnings release to be 49.5% below its 200 day moving average of $46.36. Overall earnings estimates have been revised lower since the company's last earnings release. On Thursday, October 24, 2019 there was some notable buying of 3,248 contracts of the $22.50 call expiring on Friday, November 22, 2019. Option traders are pricing in a 15.8% move on earnings and the stock has averaged a 9.6% move in recent quarters.
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Progress in trade talks and a steady, but accomodative Fed policy have eased the way for the stock market’s rally to new highs, and both will be in the forefront when President Donald Trump and Jerome Powell speak at separate events in the week ahead.
Against a backdrop of a stabilizing global economy, stocks have hit new highs and bond yields have pushed higher, particularly in the past week with a 23 basis point surge in the 10-year Treasury yield. Yields move opposite price, and the 10-year rose to end the week at 1.94%, its highest closing level since Aug. 1, the day Trump threatened another round of tariffs on China.
Trump speaks to the Economic Club of New York during a Tuesday luncheon, and investors are hoping for clarity on a possible trade deal. The Fed chairman speaks Wednesday to the Congressional Joint Economic Committee, and he also appears before the House Budget Committee Thursday.
There are a few key economic reports, including CPI on Wednesday and retail sales and industrial production on Friday. Empire State manufacturing survey Friday could provide a fresh look at the manufacturing sector in the New York region. Just a few major earnings are expected in the week ahead, including Cisco Wednesday and Walmart and NVIDIA on Thursday.
But trade is likely to remain the more important wild card for markets, as the calendar edges closer to Dec. 15, the date new tariffs on consumer goods from China would go into effect if there is no deal. The House of Representatives also hold impeachment hearings before the public for the first time in the coming week, but the markets have so far ignored the topic and see it unlikely that the Senate would convict the president.
Stock records
Stocks continued to rally to new highs this past week, and the major indices all ended the week at record levels, as bonds sold off hard. Stock market gains were limited part of the session Friday after Trump said that he has not agreed to the tariff rollbacks sought by China.
The S&P 500 was higher for a fifth week, up 0.9%, and is now up about 1.8% for November so far. The S&P closed at 3,093 Friday.
“President Trump is always unpredictable, so we’ll have to see what he says,” said Ed Keon, chief investment strategist at QMA.
Keon expects a trade agreement of some sort in the near future, and that should help risk markets to advance.
“The way we’ve been interpreting this is it probably amounts to a truce. The United States has been using this rhetoric that it’s a phase one deal. China has not embraced the same rhetoric. So I don’t know if we’ll get major progress on the thornier issues in the first deal,” Keon said. “The other question is how hard does the president push in an election year to make further progress in the negotiations, given that China might dig in its heels? That’s unknowable. I have no insight into what the president is going to do.”
Cowen policy strategist Chris Krueger said Trump’s address Tuesday could be important for the direction of a deal. “In our minds, the most critical sections will deal with trade and whether Trump is favoring the “phase one” deal with China and a scheduled rollback of the tariffs. This could well be a trial balloon to gauge the ferocity of expected pushback from influential China hawks. Trump will give remarks and then take questions from two moderators,” wrote Krueger.
Powell’s testimony is not expected to have as much potential to rock markets, after the clear message he sent to markets following the Fed’s rate cut Oct. 30.
“I would expect the chairman to continue the rhetoric he had at his last press conference. They’re probably on hold. It will depend on the data. If anything the data looks a little more promising on the margin. Certainly the consumer and service sector appear to be doing fine and with the GM strike ending, some of the things impacted by that should improve,” said Keon. “They think rates are appropriate for now, and if the economy weakens, they’ll be prepared to take further action.”
The health of the global economy has been a topic of concern in markets for months, but with the global rise in yields and signs of improvement in global PMI data, investors have clearly become more optimistic.
“I’ve been kind of skeptical most of the year, but I do think at the margin, the economic outlook has improved, especially outside the United States,” said Keon. “The recession talk that was pretty active just a month or two ago has really died down. The yield curve is dramatically uninverted. I feel a little better about the economic outlook.”
When the yield curve becomes inverted, short term rates, like the 2-year note yield for instance, rise above the long end, or the 10-year yield. That is very often a recession warning, as investors bet that the economy will be weaker in the longer term than it is in the near term. But there’s been a sudden shift, and now those curves are getting steeper.
Keon said the higher yields are a positive sign, and he is adding to stock holdings, but more in foreign names. “The sense Europe was heading into a recession has died off, and there are signs things are stabilizing,” he said. “This could all change in a minute but it looks like the overall outlook has significantly picked up in the last month or two.”
Dan Suzuki, portfolio strategist at Richard Bernstein Advisors, said he is still cautious about the improvement, though earnings were not as bad as expected, the Fed has cut rates and the trade situation appears to be improving. “That combined with green shoots on the macro front, the markets have really taken that and run with it,” he said, adding the move may have been too optimistic. “It’s out-sized relative to the significance of the data.”
Suzuki said he needs to see more proof that U.S. manufacturing has stabilized, as many believe. ISM manufacturing was better in October than in September, but it is still in contraction. “Why is this definitely the bottom? The jury’s still out,” he said.
“I think you have to answer the question—if this is the bottom and growth is going to rebound here, what’s going to be the catalyst for that?...I don’t see anything in the data that suggests there’s going to be a big rebound for any of those fronts. I see more headwinds to growth than I see tail winds,” he said. “On the investment side, it would be highly unusual to see a big rebo
DJIA has been up 10 of the last 15 years on Monday of expiration week and Friday is up 13 of the last 17 years with an average gain of 0.45%. By the way, it is not a mistake that November Op-Ex day has the same point change and percent change in 2014 and 2015. It was triple checked and its correct. If you go out 2 more decimal places in the percentage calculation, it’s different.
S&P 500, NASDAQ and Russell 2000 have not been as bullish as DJIA around or on November option expiration. S&P 500 has advanced only 16 times during options expiration week while NASDAQ and Russell 2000 have climbed only 15 and 14 times respectively over the past 25 years. All four indices have posted average losses on Monday and aside from DJIA and S&P 500 have been essentially mixed on options expiration day. Friday’s solid average gains across the board are largely due to a sizable gain in 2008. Any weakness next week could be a good entry point for new longs ahead of the usually bullish Thanksgiving holiday.
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The S&P 500 has been on a seemingly uninterrupted run higher over the last several days, but by some measures, it may not be as extended as you would think. The chart below shows the historical percentage spread between the S&P 500 and its 50-day moving average (DMA) over the last three years. Through Thursday's close, the S&P 500 was 3.2% above its 50-DMA, which is relatively high but nowhere near an extreme. The red line in the chart below shows the current percentage spread between the S&P 500's price and its 50-DMA. There have been a number of times since the 2016 election where this spread was higher with the most recent being back in July. In fact, 17% of all prior days in the last three years have seen the S&P 500 close at a higher level relative to its 50-DMA than it is now. That doesn't mean the market isn't overbought, but it's not exactly at unprecedented levels either.
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We've now had nearly a full week of trading since last Wednesday's FOMC meeting where Fed Chair Powell suggested that the punch bowl isn't going to be taken away anytime soon. During that time, we've seen a real shift in leadership as defensive sectors have sold off while cyclical sectors have been on fire. Energy - yes, Energy - has been the top-performing sector with a gain of 3.5% while Industrials aren't far behind with a gain of 2.8%, Behind these two, Technology and Financials have also comfortably outperformed the S&P 500's gain of 1.2%. On the downside, Real Estate and Utilities, two of the market's most popular sectors for much of 2019 due to their dividend yields, have both dropped over 1% while Consumer Staples and Health Care have also sold off.
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Due to the fact that we are also in the thick of earnings season, it's a bit more difficult to see how the Fed's actions last week impacted individual stocks as some of the best and worst performances over the last week have been earnings-related. With that caveat, the tables below list the best and worst-performing S&P 500 stocks over the last week. Starting off with the winners, three S&P 500 stocks are up over 20% in the last week, and all three were due to earnings reports. Overall, 12 stocks have rallied over 10%, while all 25 of the top performers are up over 7%. In terms of sector representation on the list, nearly a third (8) of the stocks on the list are from the Technology sector, while another five come from the Consumer Discretionary sector. The remaining 12 stocks on the list come from five different sectors.
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On the downside, 8 of the 25 worst performers since last week's FOMC meeting are down over 10% with Arista Networks (ANET) losing nearly a quarter of its value. Again, ANET's decline was tied to an earnings report as opposed to a reaction to the FOMC. In terms of overall sector representation, though, the underperformance of the Real Estate sector highlighted above is also evident on this list as eight of the companies listed come from that sector.
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With less than two months left to go in 2019, the S&P 500 is sitting on a gain of nearly 23% YTD, and all but two of the index's 24 industry groups are up by at least double-digit percentages. The two laggards are Energy (+4.5%) and Drugs and Biotechs (+5.5%), while the three strongest groups are all from the Technology sector (Tech Hardware: +44.8%, Semis: +37.7%, and Software: +32.8%). Surprisingly enough, Banks are even starting to move up the performance list as that group is up just a hair under 30% on the year putting it in fifth place on a YTD basis.
The table below lists where each of the S&P 500's Industry Groups is currently trading with respect to its 50-DMA. While you would expect just about everything to be extended after the recent leg higher, that's not the case. The S&P 500 as a whole is just 3% above its 50-DMA, and just five groups are more than 5% above their 50-DMAs. The two most extended groups are Tech Hardware (think Apple) and Banks. On the downside, there are actually as many Industry Groups trading below their 50-DMAs as there are groups trading more than 5% above their 50-DMAs. As shown at the bottom of the table, Consumer Services, Real Estate, Household & Personal Products, Commercial Services, and Utilities are all currently below their 50-DMAs. These aren't groups that have been lagging the market all year. In fact, three of them are outperforming the S&P 500 on a year to date basis, but in the majority of cases, these are defensive-oriented groups that have fallen out of favor as the market's sentiment has shifted and rates have risen.
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As I head to Las Vegas for my annual pilgrimage to @MoneyShows TradersEXPO I am both thrilled and shocked to hear everybody on Wall Street and the financial media talking about bullish yearend market seasonality and practically every one of them has used the phrase, “seasonally strong period.”
I’m thrilled because it validates what we already know and what I live and breathe: that there are clear evidence-based results of real, consistent, tradable and investable seasonal market patterns. I am shocked at how late many of them are to the party. We’ve been in bullish Best Six Months mode since our Seasonal MACD Buy Signal on October 11.
Since our October 11 Buy Signal we have tactically maneuvered out of our defensive positions in Bonds, Cyclicals, Utilities and others and into the main U.S. equity index ETFs: DIA, SPY, QQQ and IWM and the gamut of seasonally strong growth sectors over three weeks ago. We also put out a brand new Stock Basket of undervalued growth stocks under Wall Street’s radar.
Market seasonality is clearly firing on all pistons as it has been all year, but everyone’s is jumping on the seasonal bandwagon just a two regular seasonal soft patches are about to come around on the calendar. Now that our Bullish Halloween Trading Strategy is complete with some big market gains at the end of October and the beginning of November we are on the lookout for weakness ahead of Thanksgiving.
Next week is two weeks before Thanksgiving and we’ve shown in several recent posts, it is part of the mid-November soft patch. Then stocks usually pick up in anticipation of Thanksgiving and continue to rally through the end of November. After thanksgiving watch out, the first couple weeks of December are notoriously choppy and not especially bullish as tax-loss selling kicks into high gear.
With the market elevated and the news ever changing, stocks will be vulnerable to these perennial weak spots.
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Despite all of the geopolitical events, things still look good for stocks next year with an incumbent running. The potential for a decent trade truce with China, along with an economy that’s still growing and accommodative interest rates add up to a continuation of the bull market.
With the Stock Trader’s Almanac 2020 coming off the press this week here’s a little preview of some our analysis and outlook that’s in the 53rd Annual Edition.
Presidential incumbency is a powerful phenomenon and the driving force behind the 4-Year Presidential Election Cycle. This quadrennial quadrille is what has made the Pre-Election Year the best year of the cycle and Election Year second best. Since 1952 S&P 500 is up 12.5% on average in election years when a sitting president is running for reelection vs. 6.7% in all election years and –1.5% in election years with an open field and no incumbent commander-in-chief running for a second term.
We are also arguably now experiencing some fiscal and monetary policy synchronicity. After several years of conflicting policy the Federal Reserve and the U.S. Federal government are finally getting in synch. Interest rates are historically low and the Fed has lowered rates again at the last three scheduled FOMC meetings at the same time as fiscal policy has been lowering taxes and increasing spending. These dual pro-growth policies should continue to propel the stock market higher.
Gains will of course not come without pause and correction. The world stage will continue to feature some challenging geopolitical, political, diplomatic, trade-related and economic storylines. U.S. presidential campaign politics will increasingly focus on domestic political disputes, standoffs and unfinished business – as well as impeachment proceedings. But when all is said and done, we expect 2020 to be a positive year based on the historical patterns and cycles and current favorable policies, healthy economics, and positive market behavior.
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Now that we’ve survived Octoberphobia and the market has begun to strengthen again, breaking out above resistance and logging new highs on DJIA, S&P 500 and NASDAQ, we are likely to experience a bit of consolidation here in November. Normally the top S&P month of the year and #2 for DJIA, NASDAQ and the Russell 2000, November has been weaker in Pre-Election Years.
As you can see in the updated chart of Pre-Election Year Seasonal Patterns overlaid with 2019 we have been tracking all year November tends to be flat in the Pre-Election Year with a pop around Thanksgiving. Then after the usual first half of December softness the market tends to push toward additional new highs near yearend. Considering the banner performance so far this year and the uncanny tracking of this historical seasonal pattern, we expect the stock to consolidate over the next few weeks and then resume its march higher.
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“An object in motion tends to remain in motion along a straight line unless acted upon by an outside force.” Sir Isaac Newton
What a year it has been for the bulls. The S&P 500 Index recently made four more new highs, and it’s up more than 20% for the year (as of Nov. 4). This leads to the big question: What could happen in the final two months of 2019? Well, we think the bulls might like it.
“A good year tends to see continued strong performance the final two months of the year,” explained LPL Financial Senior Market Strategist Ryan Detrick. “In fact, when the S&P 500 has been up 20% or more for the year heading into the usually bullish November, stocks have never dropped in November, while December also has tended to see a strong upward bias.”
As the LPL Chart of the day shows, going back to 1950, when the S&P 500 was up more than 20% heading into November, then the final two months were up an average of 6.2%. The S&P 500 has also never fallen in the final two months of the year after closing October up more than 20% for the year.
This phenomenon could be due to portfolio managers buying to play catch-up, or it could be that an object in motion stays in motion, as Newton noted more than 300 years ago.
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- $NVDA
- $WMT
- $CRON
- $CGC
- $CSCO
- $ACB
- $OSTK
- $DHI
- $NEPT
- $TLRY
- $JD
- $FOLD
- $GOOS
- $TSN
- $AAP
- $SWKS
- $JCP
- $AMAT
- $LK
- $CBS
- $SE
- $NBEV
- $DXC
- $HUYA
- $TME
- $YY
- $CGEN
- $CTEK
- $QRTEA
- $HIIQ
- $DF
- $WIX
- $TWOU
- $BEP
- $KEM
- $NOG
- $NTAP
- $SAGE
- $WB
- $VIAB
- $ROK
- $RETA
- $GO
- $TDW
- $ERJ
Monday 11.11.19 Before Market Open:
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Monday 11.11.19 After Market Close:
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Tuesday 11.12.19 Before Market Open:
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Tuesday 11.12.19 After Market Close:
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Wednesday 11.13.19 Before Market Open:
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Wednesday 11.13.19 After Market Close:
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Thursday 11.14.19 Before Market Open:
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Thursday 11.14.19 After Market Close:
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Friday 11.15.19 Before Market Open:
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Friday 11.15.19 After Market Close:
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NONE.
NVIDIA Corp. (NVDA) is confirmed to report earnings at approximately 4:20 PM ET on Thursday, November 14, 2019. The consensus earnings estimate is $1.58 per share on revenue of $2.90 billion and the Earnings Whisper ® number is $1.64 per share. Investor sentiment going into the company's earnings release has 70% expecting an earnings beat The company's guidance was for earnings of $1.48 to $1.66 per share. Consensus estimates are for earnings to decline year-over-year by 5.39% with revenue decreasing by 8.83%. Short interest has decreased by 11.1% since the company's last earnings release while the stock has drifted higher by 30.4% from its open following the earnings release to be 23.3% above its 200 day moving average of $168.57. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, October 23, 2019 there was some notable buying of 4,074 contracts of the $195.00 call expiring on Friday, November 15, 2019. Option traders are pricing in a 7.3% move on earnings and the stock has averaged a 6.2% move in recent quarters.
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Walmart Inc. (WMT) is confirmed to report earnings at approximately 7:00 AM ET on Thursday, November 14, 2019. The consensus earnings estimate is $1.09 per share on revenue of $128.99 billion and the Earnings Whisper ® number is $1.15 per share. Investor sentiment going into the company's earnings release has 85% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 0.93% with revenue increasing by 3.28%. Short interest has increased by 1.5% since the company's last earnings release while the stock has drifted higher by 6.1% from its open following the earnings release to be 11.5% above its 200 day moving average of $107.15. Overall earnings estimates have been revised higher since the company's last earnings release. On Monday, November 4, 2019 there was some notable buying of 2,732 contracts of the $119.00 call expiring on Friday, November 15, 2019. Option traders are pricing in a 4.2% move on earnings and the stock has averaged a 3.8% move in recent quarters.
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Cronos Group Inc. (CRON) is confirmed to report earnings at approximately 7:00 AM ET on Tuesday, November 12, 2019. The consensus estimate is for a loss of $0.03 per share on revenue of $9.73 million and the Earnings Whisper ® number is ($0.04) per share. Investor sentiment going into the company's earnings release has 60% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 0.00% with revenue increasing by 238.20%. Short interest has increased by 11.1% since the company's last earnings release while the stock has drifted lower by 45.1% from its open following the earnings release to be 43.0% below its 200 day moving average of $14.94. Overall earnings estimates have been revised lower since the company's last earnings release. On Tuesday, October 29, 2019 there was some notable buying of 6,300 contracts of the $10.00 call expiring on Friday, December 20, 2019. Option traders are pricing in a 12.3% move on earnings and the stock has averaged a 3.5% move in recent quarters.
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Canopy Growth Corporation (CGC) is confirmed to report earnings at approximately 5:00 PM ET on Thursday, November 14, 2019. The consensus estimate is for a loss of $0.27 per share on revenue of $111.02 million and the Earnings Whisper ® number is ($0.29) per share. Investor sentiment going into the company's earnings release has 53% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 64.47% with revenue increasing by 521.96%. Short interest has increased by 21.2% since the company's last earnings release while the stock has drifted lower by 25.6% from its open following the earnings release to be 41.5% below its 200 day moving average of $36.71. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, October 23, 2019 there was some notable buying of 6,403 contracts of the $7.50 put expiring on Friday, June 19, 2020. Option traders are pricing in a 12.0% move on earnings and the stock has averaged a 13.0% move in recent quarters.
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Cisco Systems, Inc. (CSCO) is confirmed to report earnings at approximately 4:05 PM ET on Wednesday, November 13, 2019. The consensus earnings estimate is $0.81 per share on revenue of $13.14 billion and the Earnings Whisper ® number is $0.83 per share. Investor sentiment going into the company's earnings release has 68% expecting an earnings beat The company's guidance was for earnings of $0.80 to $0.82 per share. Consensus estimates are for year-over-year earnings growth of 9.46% with revenue increasing by 0.52%. Short interest has decreased by 21.3% since the company's last earnings release while the stock has drifted higher by 3.1% from its open following the earnings release to be 5.7% below its 200 day moving average of $51.76. Overall earnings estimates have been unchanged since the company's last earnings release. On Friday, November 8, 2019 there was some notable buying of 6,707 contracts of the $45.00 put expiring on Friday, December 20, 2019. Option traders are pricing in a 4.8% move on earnings and the stock has averaged a 4.9% move in recent quarters.
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Aurora Cannabis Inc (ACB) is confirmed to report earnings at approximately 5:00 PM ET on Thursday, November 14, 2019. The consensus estimate is for a loss of $0.03 per share on revenue of $72.82 million and the Earnings Whisper ® number is ($0.05) per share. Investor sentiment going into the company's earnings release has 60% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 133.33% with revenue increasing by 220.71%. The stock has drifted lower by 35.1% from its open following the earnings release to be 45.8% below its 200 day moving average of $7.03. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, November 6, 2019 there was some notable buying of 9,910 contracts of the $3.50 call expiring on Friday, November 29, 2019. Option traders are pricing in a 14.6% move on earnings and the stock has averaged a 4.3% move in recent quarters.
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Overstock.com, Inc. (OSTK) is confirmed to report earnings at approximately 8:00 AM ET on Tuesday, November 12, 2019. The consensus estimate is for a loss of $0.70 per share on revenue of $404.59 million. Investor sentiment going into the company's earnings release has 35% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 54.84% with revenue decreasing by 8.17%. Short interest has decreased by 46.4% since the company's last earnings release while the stock has drifted lower by 53.9% from its open following the earnings release to be 37.7% below its 200 day moving average of $15.57. Overall earnings estimates have been unchanged since the company's last earnings release. On Friday, November 8, 2019 there was some notable buying of 728 contracts of the $5.00 call expiring on Friday, January 15, 2021. Option traders are pricing in a 18.3% move on earnings and the stock has averaged a 10.9% move in recent quarters.
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D.R. Horton, Inc. (DHI) is confirmed to report earnings at approximately 6:30 AM ET on Tuesday, November 12, 2019. The consensus earnings estimate is $1.25 per share on revenue of $4.81 billion and the Earnings Whisper ® number is $1.28 per share. Investor sentiment going into the company's earnings release has 70% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 2.46% with revenue increasing by 6.77%. Short interest has decreased by 9.7% since the company's last earnings release while the stock has drifted higher by 15.5% from its open following the earnings release to be 11.6% above its 200 day moving average of $45.82. Overall earnings estimates have been revised higher since the company's last earnings release. On Wednesday, October 30, 2019 there was some notable buying of 11,277 contracts of the $55.00 call and 2,743 contracts of the $50.00 put expiring on Friday, November 15, 2019. Option traders are pricing in a 6.2% move on earnings and the stock has averaged a 5.7% move in recent quarters.
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Neptune Wellness Solutions Inc. (NEPT) is confirmed to report earnings at approximately 6:00 AM ET on Monday, November 11, 2019. The consensus estimate is for a loss of $0.04 per share on revenue of $9.83 million and the Earnings Whisper ® number is ($0.03) per share. Investor sentiment going into the company's earnings release has 52% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 33.33% with revenue increasing by 81.67%. Short interest has increased by 47.0% since the company's last earnings release while the stock has drifted lower by 23.9% from its open following the earnings release to be 16.6% below its 200 day moving average of $4.25. Overall earnings estimates have been revised higher since the company's last earnings release. On Tuesday, November 5, 2019 there was some notable buying of 4,016 contracts of the $6.00 call expiring on Friday, May 15, 2020. Option traders are pricing in a 24.0% move on earnings and the stock has averaged a 4.9% move in recent quarters.
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Tilray, Inc. (TLRY) is confirmed to report earnings at approximately 4:05 PM ET on Tuesday, November 12, 2019. The consensus estimate is for a loss of $0.29 per share on revenue of $50.57 million and the Earnings Whisper ® number is ($0.36) per share. Investor sentiment going into the company's earnings release has 57% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 45.00% with revenue increasing by 403.33%. Short interest has increased by 11.1% since the company's last earnings release while the stock has drifted lower by 43.1% from its open following the earnings release to be 49.5% below its 200 day moving average of $46.36. Overall earnings estimates have been revised lower since the company's last earnings release. On Thursday, October 24, 2019 there was some notable buying of 3,248 contracts of the $22.50 call expiring on Friday, November 22, 2019. Option traders are pricing in a 15.8% move on earnings and the stock has averaged a 9.6% move in recent quarters.
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When Nevada state set the regulations for sports betting in 1985, they restricted betting to professional sports. Over the years, Nevada loosened the rules to include college sports and the Olympics. Despite that, the state still does not allow for election betting. There is still talk of Vegas presidential odds, though. The 2016 U.S. Presidential Election is slated to take place on November 8th, 2016, and there are some excellent odds at online sportsbooks for not just who will win the 2016 Presidential Election, but individual caucuses, primaries, nominations, and more.This would be because no single day will influence the path of the nation as much as electing a new commander in chief to lead our country. The Republican party will take to Las Vegas and the rest of Nevada on February 23 for their primary in the state. Democrats won't go to the polls again until February 27, when they take to South Carolina. 2016 US Presidential Election - Next President of the United States. Hillary Clinton EVEN; Donald Trump +250; Marco Rubio +400; Bernie ... RealClearPolitics - 2016 U.S. Presidential Election Betting Odds The opening on the Supreme Court just weeks before the 2020 Election introduces a new level of risk, reward, and prop bets to political gambling on Trump vs. Biden.
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