Market Overview

Markets Move Solidly Higher, But Could They Stay There?

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Could this be another déjà vu all over again day? Market benchmarks are again looking like they might be in rally mode in the early going. But we saw that yesterday as the Dow Jones Industrials ($DJI) cruised past 26,000 out of the gate, only to swing wildly lower as the trading day wore on.

There’s plenty on the agenda today that might impact markets. Earnings are coming out for a number of companies. The Federal Reserve’s Beige Book, a deep-dive look at economic conditions on a regional basis, is coming out this afternoon. We’ll also get a read on the U.S. economy’s December industrial production and capacity utilization this morning.

Goldman Sachs Group Inc (NYSE: GS) earnings came in earlier above Wall Street expectations on both revenues and adjusted profit per share. But, like other major financials, GS said it took a $4.4 billion hit tied to the tax reform law, leaving it with a net adjusted income loss of $2.14 billion. That was smaller than expectations too. Shares were retreating in early trading.

Bank of America Corp (NYSE: BAC) beat on an adjusted basis on earnings but missed revenue forecasts, the company said. It, too, took a tax law-related charge of $2.9 billion but it was still able to post a profit on an adjusted basis. Shares were flat in the early going.

Could traders face another white-knuckle day? Yesterday, the Dow whipped across the 26,000 threshold at the open, surging as much as 300 points from Friday’s close in the early going only to burst like a frozen water pipe by mid-morning. It was a broad strike, accounting for as much as a 384-point swing from the Dow’s high of the day, at 26,086, to its 25,703 intraday low. When the dust settled, the Dow closed flat. (See chart.) In early trading, the Dow was posting triple-digit gains.

The S&P 500 (SPX) and the Nasdaq Composite (COMP) were on similar roller coasters throughout the day, but they saw deeper finishes. The SPX lost 0.35% and the Nasdaq backtracked by 0.51%. In the early going, both benchmarks were moving solidly higher. But, as noted here many times, past performance is no guarantee of what’s ahead.

What happened yesterday? Lots of talk about an overbought market from some analysts; others chatted about over optimism as the Dow headed toward the record books with the quickest 1,000-point gain in history. And so soon, some analysts said, after facing a wall of worry that kept the market advances in tight under-1% ranges for most of last year. Materials, energy and industrials sectors were the biggest laggards. But when it was all over, the percentage moves among the benchmarks followed the same tight ranges they’ve been in for some time.

Cryptocurrencies also crashed yesterday and might still be crashing if today’s early trading is any indication. The price of bitcoin tumbled by as much as 25% and was trading below $10,000 early this morning before recovering somewhat. CNBC reported earlier today that over the 24-hour period, more than $36 billion of the cryptocurrency’s value was wiped out. Talk about tighter regulations in some countries might have contributed to the decline. Bitcoin prices earlier were down some 48% since last month and Bitcoin futures (/BTC) pulled back by 9%.

Perhaps not surprisingly, the market’s fear gauge jumped up yesterday. The Volatility Index (VIX) finished higher by nearly 15%. While that might be worth watching, let’s remember that the VIX is still sitting at historically low levels and still below 12 in the early going today.

Shares of General Electric Company (NYSE: GE) took a drubbing yesterday after the one-time industrial behemoth turned in weak quarterly results hit with $6.2 billion in after-tax charges and a $3 billion contribution to its insurance subsidiary that is expected to grow to $15 billion by 2024, the company said.

On the conference call, Chief Executive John Flannery noted that he was “deeply disappointed at the magnitude of the charge.” What might have been the bigger shocker to Wall Street was when he mentioned that GE was reviewing different structures that could “include separately traded assets, really, in any one of our units if that made sense.” CNBC reported that a breakup could happen as soon as this spring, according to its sources.

djia_hourly_chart1.jpg

FIGURE 1: HOLD ON TIGHT. The markets whipsawed yesterday after roaring into the open at record peaks. As noted in the Dow’s hourly movements above, the index turned lower not long after sailing through the unprecedented 26,000 level before settling relatively flat. Data sources: CME Group, Standard & Poor’s. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.

Bigger Paychecks?

Politicians have told workers that lower taxes, courtesy of the tax reform bill, might be evident in bigger paychecks as soon as next month. But it turns out that many already are expecting to see earnings growth, according to the Federal Reserve Bank of New York’s recent consumer expectations survey.

As measured on a one-year ahead basis, expectations for fatter paychecks in 2018 moved up to 2.7% from 2.6% in November, the NY Fed said. That’s the highest level since 2014, which the Fed attributed to better attitudes from respondents between 40 and 60 years old, and those earning incomes between $50,000 and $100,000 annually.  

Look Ma, No Hands…or People

Technology looks like it’s doing it again, keeping people from actually talking to each other, now, when they buy a car. Alibaba Group Holding Ltd. (NYSE: BABA), the Chinese e-commerce giant, said at this week’s National Retail Federation Conference, that it has started allowing consumers to test drive and even purchase vehicles in an experiment in China that uses automated vending machines as the sales “tool.”

Asian consumers, according to Alibaba, apparently are eager to buy stuff through technology, the Wall Street Journal reported. So Alibaba said it will let them test drive a car for three days as part of a massive consumer experiment to make auto purchases as easy as ordering a café latte. There is a lot of technology involved in choosing options and colors, plus getting credit approval and verification, but Alibaba said this week that it thinks it might help push Asia into becoming the first cashless society of the future. This might be worth watching.  

Uninsured Rates Rising

Last year marked the largest single-year of uninsured U.S. residents since 2008, according to pollster Gallup and Sharecare, the health and wellness platform. Though the rates remained at 12.2% of U.S. adults without health insurance in Q4 compared with Q3, the year ended with a 1.3-percentage point increase from the Q4 2016 low of 10.9%, according to the survey.

What does that mean for insurance companies? Hard to tell at this point, especially considering that one reason might be tied to some insurance companies pulling their offerings from healthcare exchanges, according to Gallup. The uninsured rates were highest among adults ages 18 to 24, up by 2 percentage points, Gallup said. If there’s a silver lining, it might be this: The rate is still well below the 18% peak measured in Q3 2013, Gallup said.

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Posted-In: JJ Kinahan TD Ameritrade The Ticker TapeCryptocurrency News Commodities Markets

 

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