What Happened Last Friday?

Last Friday's Markets were a wierd combination of unexpected news, HoHum trading, and Media Hype.

Friday's Markets had the Financial News Media Talking Heads Were Wild With Excitement!!!

AMZN up 13%

INTC up 7.4%

MSFT up 6.4%

GOOG up 4.8%

FB up 4.2%

Other tech companies, NVDA, AVGO, ADBE, NFLX, BABA were up 2-3%  All in one day!!!!!!!

A BLOWOUT DAY, right?

But wait a minute, the DOW was only up 0.1%, the S&P 500 up 0.8%, and the Russell 2000 was up 0.7%.   How is that possible?

Well, the media forgot to tell us about Cerner’s 8.4% drop, or Expedia’s -15.99%, BIDU -8.1%, Merck -6%, or Tesla down 7% on the week.  Then there were the puts and takes from the CVS announcement of their current wish to buy AETNA.  Energy companies were mixed at best, Pharma cot crushed.

More stocks advanced than declined, as has been the case for months, and there were many new highs, but there were also a few more new lows than has been the case recently.

The government reported that GDP grew more than expected this last quarter (how much is related to the extraordinary weather we don’t know), so this is good news.   And, congress is good with the budget. 

REALITY – A RATHER HO HOM DAY OVERALL  Are we seeing irrational exuberance? Or, maybe it was rational media exuberance to keep pumping ad revenues.

REALITY CHECK

The market has been mixed for the past couple of weeks with the S&P 500 still bouncing around its highs, the Dow off a bit and the Russell 200 down for the whole month of October.  The one outlier is the Nasdaq 100 (QQQ) which gapped up on Friday.  Either these company stocks have been mispriced for weeks, or they are mispriced now. These one-day huge gains in a half-dozen stocks won’t hold.  The QQQ is NOT driving the overall market.

Oil up

US Markets Mixed

Global pulling back - - Asia flat, Latin Am down, Europe pulling back.  China & India best, Mexico getting spanked

Metals & Mining pulling  back

Bonds down for the quarter

Real Estate down

Gold down

Best Sector ETF’s:

Tech
Medical Equip
Home Building
Banks
Semi’s

Down Sectors

GLD
Bio
Pharma

WHERE DO WE GO FROM HERE?

These one-day huge gains in a half-dozen stocks won’t hold.  The QQQ is NOT driving the overall market.

The market is still chugging along.  We should expect this breather to continue for another week, then improvement to end of November, then pause in week one of December, then the charge to the end of the year.  Market should end the year higher than now. 

With market and GDP and employment doing well, one should expect a rate increase.  This alone shouldn’t spook the market – they’re used to them by now and the curve is not really getting flatter. 

So far ECB and Japan are still in easing mode.  No reason to think that Japan will change; Europe has not really dealt with their massive non-performing debt and we are seeing social unrest in both the east and west Europe – so probably no change.

Tax cuts – do we tax the rich or cut from everyone?  We are baking in very large deficits with no end in sight.  We are living on past infrastructure and power that are both eroding quickly while the oligarchs are massing wealth.  No change here – won’t affect markets.

Health care insurance will only get worse – and the opioid “cure” will be watered down so pharma and doctors can still do their thing – no market impact.

Need to watch what happens when the fed begins to not roll-over expired bonds.  The amount will probably be so small as to not make a difference even as the media will latch onto the “news” and whip it for a while.  On the other hand, it makes no sense that high yield European debt is at same interest rate as US Treasuries, or that some Asian and Latin American sovereign debt is at same interest rate as US treasuries.  While the talking heads and their stream of interviewees all think that long term interest rates are headed up (being pressured up by the FED pushing the short-term rates??), ANY bond crisis outside of the US is going to push people to US bonds and will drive interest rates DOWN.  The more the FED raises short-term rates the higher the probability that the next bond hiccup will invert the curve.  

God Bless,

Branson