Positive Earnings Halt Market Decline

Commentary

Initially, the market resumed its decline from yesterday’s closing session due to the bleak prospect of Congress passing a pandemic stimulus package to offset current economic weakness. However, when 29 out of 32 of the SP-500 components report better than expected earnings and are accompanied by surprisingly positive economic data, it covers a lot sins. Because of this, equities were able to withstand the usual selling attacks that have been occurring in the final hour of trading.

Bullish Events

  • Real Estae: Existing Home Sales for Sept-2020 (m/m) increased +9.4% vs estimates @ 5.0% and previous @ 2.0%. Actual home sales were @ 6.54mm vs estimates @ 6.3mm and previous @ 5.98mm.Some 29 out of 32 companies reporting earnings today beat expectations.
  • Labor Market: Initial Jobless Claims, while still historically high, were less than expected: actual @ 787k vs estimates @ 860k and previoius @ 842k.

Bearish Events

  • Coronavirus Pandemic: As the pandemic continues to spread throughout Europe and the United States, a major sticking point between Congressional Democrats and Treasury Secretary Mnunchin is the inclusion of funding for local and state governments.

Market Summary

Benchmark IndexPrice1D-Chg
SP-5003,453.49+17.93 / +0.52%
Nasdaq-10011,662.91-2.46 / -0.02%
DJ-3028,363.66+152.84 / +0.54%
Russell 2K1630.25+26.48 / +1.65%
US Dollar92.92+0.20 / +0.22%
Euro1.18176-0.00368 / -0.31%
Yen0.95330-0.00300 / -0.31%
10 Yr Treasury Rate0.85+0.03 /+3.66%
Gold1,903.68-20.64 / -1.07%
WTI Crude Oil40.65+0.62 / +1.55%
DJ US Real Estate316.68-0.69 / -0.22%

ETF Summary

  • The market clearly reflected a preference for “risk-on” as today’s leading equity indexes were the Russell-2000 (IWM), Brazil (EWZ) and Latin America (ILF).
  • Treasuries Bonds (TLT) and Homebuilders (ITB) were weaker, which should be expected in a rising interest rate environment. 10-Year Treasury rates ($TNX) have more than doubled from the low established in March-2020.
  • Out of the 11 major US sectors, Energy (XLE), Financials (XLF) and Healthcare (XLV) outperformed while Real Estate (XLRE) and Technology (VGT) lagged.

Techncial Analysis Chart of the Day

Today we shall take a look at bond rates, which, by the way, have almost as much to do with the stock market as stocks. The 10-year treasury rate is a widely followed indicator and often reflects market sentiment towards risk, especially when there is no Fed intervention to influence rates. The weekly chart below shows a breakout from the descending triangle after spending most of the year near the lower range. Simply put, there is not much in the way of resistance for the 10-year rate to reach 100 basis points plus. Psychologically, this could be a game changer with the implication of ripple effects across other asset classes besides equities. At the very least, longer-term treasury bonds (e.g. TLT), which are interest-rate sensitive, will have a difficult time maintaining their value and this makes the Fed’s accomodative policy more expensive to maintain.

Click image to enlarge

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