Earnings Not Carrying Stocks Higher

US companies are making money, just not enough to satisfy the investing appetites at this stage of the expansion.

Traders have been poring over third quarter reports for the better parts of two weeks now, and what they're seeing is unimpressive. Gone are the heady days of the early internet boom, when companies reported growth at torrid paces. Today's market is mundane, predictable, and eventually more conditioned to move on Fed-speak, rate moves, or geopolitics, rather than fundamentals, those boring profit statements from multi-nationals.

The good news is that stocks aren't experiencing another October like the last, when the indices tumbled day after day, wiping out most of the annual gains from 2018. That underlying fear of having a rug pulled out from under may be why nobody is either irrational or exuberant at this juncture.

This and next week are the busiest reporting weeks of the month. Unless there are some big negative surprises, one can reasonably expect markets to simply glide along until the Fed meeting at the end of October, when another 25 basis point cut in the federal funds rate is expected.

At the Close, Tuesday, October 22, 2019:
Dow Jones Industrial Average: 26,788.10, -39.54 (-0.15%)
NASDAQ: 8,104.30, -58.69 (-0.72%)
S&P 500: 2,995.99, -10.73 (-0.36%)
NYSE Composite: 13,071.86, -16.76 (-0.13%)

October Surprise? S&P 500 Closing In On All-Time High; McDonald's (MCD) Misses

For a Monday, trading wasn't very impressive. The back-and-forth of the equity markets we've been seeing for many months have elicited a cautionary mood. There's modest dip-buying and rallies are being sold, though not excessively. It makes a great market for traders on commission or those who are in and out of stocks faster than political media pundits can say, "Russia."

It being the heart of third quarter earnings season, there are likely to be bumps and grinds, but the news of the day was the S&P picking up 20 points to close above 3,000, the first time it's been there since September 19. Prior to that, the S&P remained at elevated levels for the last two weeks in July, topping out at 3,025.86 on the 26th before taking a five percent dive in August.

The question now, with impeachment talk fading, troops coming out of Syria and a tentative cease fire between the Kurds and Turks imposed, a China deal looking better every day, and still-solid employment figures, is whether the index can make a new all-time high and hold there. The Fed is certainly doing its part, adding as much liquidity as it can, as quickly as possible, but yields on the 10-year note are not making it any easier, reaching 1.80% on Monday. The good news from the bond pits is that the curve is no longer inverted and hasn't been for some time, easing recession fears.

Thus, there are shifting winds, buffeting the sails of sellers and buyers alike, but the S&P 500 appears to be marching toward uncharted territory. Another session like Monday's would put it over the top.

As far as alternatives, the aforementioned bond arena is looking better and better, though far-out alternatives like gas generators, extra canned goods, firewood, and gardening supplies have taken the front seat on the road to self-sufficiency.

It's no joke that preppers are still prepping for the inevitable crash and burn, or civil war, or zombie apocalypse. It's coming, but no one knows when. For the most part, all those canned goods have to be rotated at last every few years, but, hey, everybody has to eat.

Gold bugs and silver surfers have been backstabbed repeatedly by the futures traders whose sole mission in life, it seems, is to keep a lid on the price of precious metals. They've done a stellar job, smashing down gold every time it crests above $1500, and silver, whenever it gets to $18 per ounce, is sold as if it's some form of monetary kryptonite.

That leaves stocks, or maybe it's time to think about buying a few cows and a brace of chickens. McDonald's (MCD) may be thinking along those lines. They missed on both top and bottom line estimates with EPS coming in at $2.11 vs. $2.21 expected. Overall, it wasn't bad, however. Despite a miss on domestic same store sales - +4.8% vs. +5.2% expected - which is causing a decline of about four percent in pre-market trading, most companies would be happy with growth above four percent, especially established brands like Mickey D's.

Investors always overreact, and this is no different, though with a multiple closing in on 30, maybe the fast food giant is a bit overpriced above $200 per share.

You want fries with that sell order?

At the Close, Monday, October 21, 2019:
Dow Jones Industrial Average: 26,827.64, +57.44 (+0.21%)
NASDAQ: 8,162.99, +73.44 (+0.91%)
S&P 500 3,006.72, +20.52 (+0.69%)
NYSE Composite: 13,088.61, +81.97 (+0.63%)

WEEKEND WRAP: QE Is Back and Here To Stay

As can be easily shown by the numbers below, Friday's little blood-letting brought markets close to break-even for the week, that being the most likely outcome for stocks in the near-term and over the past 21 months.

Bullish and bearish arguments can generally be tossed to the trash heap at this juncture. Many funds will be soon closing their books on 2019, with a pretty fair profit baked in and the ugly returns from 2018 fading fast into the distance.

On the funding issues at the Fed and primary dealers, some are already calling it a crisis. In a nutshell, on October 1, the entire overnight lending facility nearly froze up and the Fed has been lending to the primary dealers, buying back their collateral for cash, at a frantic pace.

What many are calling, tongue-in-cheek "not QE" is exactly QE, on steroids. The Fed has to buy up more securities than the Treasury department can issue, thus, they'll be buying up foreign debt (read: at negative interest rates), in what can only be seen by any cogent observer as backdoor currency destruction.

What the Fed doesn't want to reveal is that they will have to continue doing Temporary Open Market Operations (TOMO) and Permanent OPO (POMO) well past the second quarter of next year, which they have already admitted to being their current forecast timetable. By June of next year, at the end of the second quarter, the Fed will probably be sopping up $100 billion per month, and that's a conservative estimate.

The overarching objective is to keep the current expansion (Ponzi scheme) going, so that the stock market continues toward and beyond new all-time highs and bonds continue to lower in yield. The problem, ultimately, is that it cannot go on forever, but negative interest rates will likely take care of that, reducing the monetary base to a point at which the Fed and central bankers around the world will have run out of options.

Then, it will be the average citizen who pays the price for experimental Keynesian economics, or, as a former president used to term it, "voodoo economics."

Stock up on canned goods. Great for the holidays and essential during catastrophes.

At the Close, Friday, October 17, 2019:
Dow Jones Industrial Average: 26,770.20, -255.68 (-0.95%)
NASDAQ: 8,089.54, -67.31 (-0.83%)
S&P 500: 2,986.20, -11.75 (-0.39%)
NYSE Composite: 13,006.64, -32.59 (-0.25%)

For the Week:
Dow: -46.39 (-0.17%)
NASDAQ: +32.50 (+0.40%)
S&P 500: +15.93 (+0.54%)
NYSE Composite: +73.73 (+0.62%)

Peaceful Markets Lulling Bulls and Bears Alike into Complacency

Stocks had no direction whatsoever on Thursday, same as many of the sessions from the past few months.

There doesn't seem to be any momentum in either direction, but, as the old adage says, "never short a dull market." This being the middle of third quarter earnings season, there will likely be action on the names which are reporting, though moves during such a period are often discounted as mere knee-jerk reactions.

Everything else, bonds, precious metals, oil, also seems to be in a state of suspended animation. Volatility has been wrung out of markets, which is probably a positive, since there are fears of a repeat of last October, when stocks were battered. This being a non-prime election year, perhaps a significant period of calm might be beneficial.

If you think it's easy to write about nothing, the above sentences should prove that it's not.

At the Close, Thursday, October 17, 2019:
Dow Jones Industrial Average: 27,025.88, +23.90 (+0.09%)
NASDAQ: 8,156.85, +32.67 (+0.40%)
S&P 500: 2,997.95, +8.26 (+0.28%)
NYSE Composite: 13,039.23, +44.34 (+0.34%)

IMF Warns Pension Funds, Insurers, Shadow Banking On Overvalued Stocks

At last, some honesty.

The International Monetary Fund (IMF) and World Bank, holding its week-long annual meeting in (where else?) Washington, DC from October 15-20, has issued a report about stock valuations and the dangers faced by pension funds, insurers, and institutional investors.

Because low interest rates in many parts of the world are cause investors to reach for yield, the IMF sees inherent risk of overvaluation and imprudent borrowing as potential pitfalls should an economic downturn occur.

Their solution would be for more stringent regulation and closer monitoring of large institutional investors and so-called "shadow banking" outlets like insurers and non-bank financial companies. Obviously, the chiefs at the IMF have not read their history well enough, as there's ample proof that during ties of loose monetary policy, central bankers have a tendency to look the other way, fall suddenly into deep sleep, or simply miss obvious signs of trouble developing.

Famously, leading up to the Great Financial Crisis, then-chairman, Ben Bernanke, dubiously opined on May 17, 2007, "The subprime mess is grave but largely contained." A year later, the global economy was in tatters, fending off complete collapse.

While there are certainly signs that stocks are overvalued, and those signs have been apparent for a long time, years, in fact, the conceptual framework currently in use by investors is that the Fed and other central banks, fully in control of markets, will not allow any serious decline in equities, particularly in developed nations, and especially int eh United States.

That's the kind of certitude and unabashed frothiness that leads not-so-directly to insolvency, like trying to catch a falling knife.

It's laudable for the IMF to issue such a report and offer potential solutions to problems which may arise, but who's listening?

At the Close, Wednesday, October 15, 2019:
Dow Jones Industrial Average: 27,001.98, -22.82 (-0.08%)
NASDAQ: 8,124.18, -24.52 (-0.30%)
S&P 500: 2,989.69, -5.99 (-0.20%)
NYSE Composite: 12,994.89, -11.15 (-0.09%)