As some fatigue sets in at the end of a long trading week, lots of fingers are pointed at the Fed which held interest rates steady this week and stayed on course to move rates higher in the months ahead.
“Just as the feel-good factor was beginning to return to the markets, buoyed by the result of the U.S. midterms, the Fed swooped in and brought everyone back down to earth,” said Craig Erlam, senior market analyst at OANDA.
There’s been plenty of grumbling over the central bank’s unwillingness to budge on that hawkish stance. Wolf Richter of the Wolf Street blog has had enough of the Wall Street “crybabies” who think the Fed is going to mess everything up. “And yes, it might get ‘quite ugly’ for asset holders because asset prices are heading south, after a decade of Fed-engineered ‘wealth effect.’ That’s the fear, and that’s why the crybabies on Wall Street are making such a racket,” he writes.
It’s not just the Fed that’s bothering folks. Slumping oil prices and signs of trouble in China can be added to the list. But our call of the day has one more niggling issue to add to the mix — midterms.
“We expect a focus on infrastructure and healthcare costs, but one issue may be that S&P 500 returns have been the lowest, on average, with a Republican president and split Congress,” Stifel head of institutional equity strategy Barry Bannister told clients in a recent note.
Here’s his colorful chart that shows what has happened with this historical arrangement, and it seems maybe the optimism right now might be a little overstated:
As the chart shows, there are only four instances of this political set up in history. Bannister acknowledges that poor market outcome may be due to Gridlock + Crises or Global Bad Actors = Poor Crisis Response.
Other research shows that stocks fared pretty well six months later and then a year later after this Republican President, split Congress president, though that most recent incident, with Reagan at the helm, didn’t see a divided Congress from midterms.
Bannister has more than one worry about stocks, as he watches the S&P 500 flirt around a “ceiling” that has seen in creeping above record levels of 2,800. If the dollar keeps marching higher and peaks with a 10% year-on-year gain by early 2019, earnings views for 2019 could be reduced, he warns. They are already forecasting S&P 500 average EPS of $168 for 2019, well below the Street’s forecast of $176.
For now, he’s sticking to defensive stocks — staples, healthcare, utilities and telecom services.
Read: Dennis Gartman says it’s ‘finally’ time to sell stocks
The Dow DJIA, -0.64% , S&P SPX, -0.82% and Nasdaq COMP, -1.22% COMP, -1.22% are down as trading kicks off
Check out the Market Snapshot column for the latest action.
WTI crude US:CLU8 is getting crushed again after falling into a bear market Thursday . an OPEC meeting is also ahead Sunday in Abu Dhabi.
Read: Saudi Arabia ponders a future without OPEC
The dollar DXY, +0.16% is up, largely against the pound GBPUSD, -0.1378% after data showed the fastest economic expansion since 2016. Gold US:GCU8 is edging lower.
Europe SXXP, -0.46% is down, while China SHCOMP, -1.39% and Hong Kong HSI, -2.39% got dragged lower by financials.
In our chart of the day, Bank of America Merrill Lynch sees big trouble in big China ahead.
While China exports have been boosted by the trade war, there are some red flags highlighted in the below chart — weakness for Korea’s Kospi SEU, -0.31% , casino stock Wynn Resorts WYNN, -0.99% Caterpillar CAT, -3.23% and property developer China Evergrande 3333, -1.79% . They all have direct links to the economy’s well being.
These are warning signs of a “big” slowdown in the first quarter of 2019 and further weakness for the yuan, says Bank of America Merrill Lynch.
This comes as the region’s banks got crushed on Friday after regulators said a third of their loans must go to non-state companies.
Disney DIS, +2.97% is up after an earnings beat. CEO Bob Iger also laid out details for the entertainment group’s new streaming service Disney +.
Yelp YELP, -28.28% is plunging on disappointing earnings and a downbeat view, which exposed a pretty fragile business model. Activision is also down on a forecast miss. Dropbox DBX, +5.76% delivered a beat and its shares are also up.
GE GE, -5.99% is taking a hit after JPMorgan slashed its price target on the industrial goods group.
A former Tesla TSLA, -0.61% worker has been charged with embezzling $9.3 million from the company over 2016 to 2017.
A Montana federal judge has blocked the Trump administration’s Keystone XL pipeline plan, halting construction until a full environmental review is completed.
Global leaders, including POTUS, are heading to France this weekend for the 100-year commemorations marking the signing of the Armistice marking the end of World War 1. But there will be no big Bastille Day parade like last year.
#OnThisDay in 1918, Kaiser Wilhelm II abdicated the throne and Germany became a republic. The Armistice would be signed 3 days later in a railway carriage in the Forest of Compiègne, leading to a cessation of hostilities and the end of WWI. pic.twitter.com/85oi2aOXmN
— DMA History (@dixonsma_hist) November 9, 2018
On the data front, producer prices, consumer sentiment and wholesale inventories are on the schedule.
One dead, several injured in Melbourne stabbing incident
Florida Gov. Rick Scott files lawsuits over Senate race that’s still up in the air
In her new book, Michelle Obama says she’ll never forgive POTUS for this
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