Well, yesterday began rather innocuous with most companies beating earnings and several key names offering improved guidance; after limping out of the gate, things quickly went south. Why?

The Good News

Economic data continues to be very impressive.  At an annualized pace of 667,000, September New Homes surged 18.9 from August, blowing away Wall Street consensus and hitting a ten-year point. 

Regional Performance:

• +33.3%: Northeast
• +10.6%: Midwest
• +25.8%: South
• +2.9%: West

Red Flags: Inventory plunged to five months of supply from six and average prices leaped to $385,200, the third highest on record. 

Business Investment

In May, business investment on durable goods drifted to its lowest point since October 2010. Since then, it’s rebounded and has even gathered momentum, hitting a 20-month high in September. For all the talk of stirring Main Street consumers, it’s critical that businesses put big money to work to generate big jobs with big wages.

Yellow Flags?

The 10-year yield broke through a key resistance point in place since March, surging 39 basis points since September 9^th.  Many consider the bond market a canary in the coal mine when it comes to the economy and Federal Reserve, and equity investors do pay attention.

Speaking of the Fed, President Trump told Lou Dobbs on Fox Business last night that the choice for the next chairman is down to two or three candidates, including Janet Yellen.  Make no mistake; the market wants Yellen. It would be cool with Powell, but it would be more resistant to John Taylor and his tough- love approach to interest rates.

Confusion out of Washington, D.C. may have shaken the market more than anything else yesterday.  It’s no coincidence when Representative Kevin Brady, chairman of the Committee on Ways and Means Committee, threw the possibility of changes to 401Ks back into the mix. The market buckled and took a few hours to regain equilibrium.

All the major indices finished lower, although off the lows of the session.

• Dow -112
• S&P 500 -12
• NASDAQ -35

No sector escaped unscathed during the session, but an earnings miss at Masco (MAS) pushed industrials to the worst sector performance of the session.

S&P 500 Index	-0.47%
Consumer Discretionary (XLY)	-0.38%
Consumer Staples (XLP)	-0.30%
Energy (XLE)	-0.70%
Financials (XLF)	-0.60%
Health Care (XLV)	-0.14%
Industrials (XLI)	-0.99%
Materials (XLB)	-0.53%
Real Estate (XLRE)	-0.25%
Technology (XLK)	-0.54%
Utilities (XLU)	-0.44%

There were a lot of earnings after the close. Two standouts are Las Vegas Sands (LVS) and Tractor Supply (TSCO), which both beat top and bottom lines.

Today’s Session

Equity futures have been edging higher all morning, but there is a sense of cautiousness that suggest this session could go either way – in a big way. 

The big earnings winner is Twitter (TWTR), which cleared a low hurdle and even admitting to inflated user numbers.  The stock is finding lots of buyers.  Of course, this puts it back in the takeover rumor mill.  The stock, however, isn’t a bellwether and the market will need real leadership.

 

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