A report that U.S. and Chinese negotiators are hard at work over “multiple memorandums of understanding” for one big agreement gave stock futures a nice bump late Wednesday. But those gains faded into Thursday’s session, which raises the question as to whether the market is finally running out of patience over the seemingly endless talks between Beijing and the U.S.
Another valid question is how do we even know what stocks have “priced in” on that front? Two financial bloggers, Reformed Broker’s Josh Brown and Irrelevant Investor’s Michael Batnick mulled over that topic in a recent video chat. They concluded that investors would be wise to make no assumptions when it comes to whether a market has fully absorbed trade deals, corporate new, etc.
“I think that’s probably the go-to commentary for what’s going on in the market,” says Batnick. “As if you know the odds…you don’t know. You find out after the fact.”
We also pretty much think the Fed is not going to get in the way of more stock gains. As the Real Heiseinberg blog succinctly sums up, it’s more or less a “what-else-do-you-want-from-them scenario.”
As gravity-defying as this post-Christmas bounce looks, the bulls have one plus in their corner: the so-called AD (advancer/decliner) line is at an all-time high — more stocks rising than falling — meaning you can cast aside dark thoughts of an equity plunge. For now.
That doesn’t mean it shouldn’t happen, says our call of the day from Steven DeSanctis, equity strategist at Jefferies who tells MarketWatch that he doesn’t see “sustainable momentum” in the up and up action for stocks since the start of the year.
“Consolidation, a pullback is absolutely necessary,” said DeSanctis in a Wednesday telephone interview. For example, he notes the Russell 2000 RUT, -0.77% is up 16.5% since the start of the year, the third-best start in data stretching back to 1979.
“Anytime you see a big spike up, that’s generally met with a downtick. A 5% to 10% correction would be welcome, and it would be justified,” said the strategist, adding that there’s plenty that could pull that correction trigger — a slowdown in China, Europe or the U.S., lower earnings estimates, profit declines, valuations pulling back.
That last point is a big reason he’d like to see some froth come off the market. S&P 500 companies are currently trading close to 19.8 times forward earnings, he says. That compares to 20 times last August and 16 times at end-2018. Seeing that level dip to 17 times would make stocks look much more attractive right now, he says.
Still DeSanctis maintains that the pullback seen late last year was unjustified “because we don’t see the economy here in the U.S. going into recession,” adding that their “happy-go-lucky” U.S. economist has only penciled in a modest reduction in GDP for 2020 versus 2019. Upbeat results from WalmartWMT, -0.68% this week have only gone further to calm his worries about the economy, he said.
That brings us to the stocks he likes right now. “I will say my favorite sector is consumer discretionary and the retailers. The argument here is that the economy will grow from that consumers side of things,” he said, noting that the fact people have jobs and earning more money, are arguments against a brewing recession.
“The general trend has been very good for the consumer,” said DeSanctis, who adds that “what the companies are saying overall is the consumer is in very good shape.”
“If I owned it I’d sell it all. I’m not even joking. You can’t just injure Zion Williamson on National TV and not go through a long and severe recession,” that was David “El Presidente” Portnoy, founder of Barstool Sports on the major headache that erupted for Nike NKE, -1.37% late Wednesday.
After-HoursTime (EST)Nike Inc. Cl B12:004:0021 Feb4:00
By now, pretty much everyone has seen the photos and videos of Duke forward Zion Williamson writhing in pain after his Nike NKE, -1.37% shoe fell apart midgame, causing an injury to the top NBA draft pick’s knee. Here’s hoping his recovery doesn’t take too long. As for Nike, it’s already looking rough in premarket:
Avis CAR, +17.48% is zooming ahead after beating forecasts, while Domino’sDPZ, -8.95% is taking a hit on its results, with Kraft Heinz KHC, -0.27% Hewlett Packard Enterprises HPE, +0.56% Roku ROKU, -3.45% and DropboxDBX, -0.51% coming after the bell.
China is selling drones to U.S. allies as fast as it possibly can. Meanwhile, Russian President Vladimir Putin warns the U.S. against deploying new missiles in Europe, saying they’ll target the U.S. with even better weaponry.
In a busy day for data, weekly jobless claims came in better than forecast, but December durable goods revealed weak orders across most sectors and the Philly Fed manufacturing index slid into negative territory. Still to come are the Markit manufacturing and services PMI’s, along with existing home sales and leading economic indicators.
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The SPDR S&P 500 ETF Trust (SPY) was trading at $276.62 per share on Thursday afternoon, down $1.79 (-0.64%). Year-to-date, SPY has gained 4.07%.
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