Hey everyone, we are seeing the markets move around a good deal on Headline News almost on a daily basis, but more in a Chop Fashion than from a trending perspective. But going into the end of this week we did break key support levels. And we could see even more Volatile times shortly so buckle up!
• As the week comes to an end watching price action was like watching a squirrel crossing a 4 lane highway… the week was filled with a Presidential Impeachment inquiry initiation, continuing US-China trade talks including a report out of the White House on Friday that it was considering limiting US investment in China as well as the White House threat to de-list Chinese stocks, a lower than expected reading on consumer confidence in the US and other market moving news, US Equities closed lower on the week…
• The past three months were certainly gut-wrenching, as the S&P 500 climbed to new highs in late July and then pulled back sharply in August. The market has recovered all of August’s losses in September as so far, it looks like we may close the month of September to the upside.
• Federal Open Market Committee (FOMC) members voted to cut key interest rates by 0.25% at their latest meeting. The federal fund rates now stand between 1.75% and 2%. Federal Reserve Chair Jerome Powell stated that he will not accommodate negative interest rates on his watch. But former Fed Chair Alan Greenspan thinks that negative interest rates are inevitable.
• However, the European Central Bank’s (ECB) has a strong negative interest rate policy. The ECB recently cut its key interest rate to -0.5%, down from -0.4%. Then outgoing ECB President Mario Draghi increased quantitative easing (i.e., essentially printing money to buy bonds) to further support the negative interest rate policy. In turn, the euro plunged to a two-year low relative to the U.S. dollar. The troubles in Europe don’t end with negative interest rates or a collapsing currency. It now appears that Europe is also slipping into a recession. The purchasing managers index (PMI) for the European Union (EU) slipped to an 83-month low of 45.6 in September, down from 47 in August. This was a big surprise. Economists were expecting a PMI of 47.3 in September. Even worse, Germany’s manufacturing PMI dropped to 41.4 in September, down from 43.5 in August. That’s the lowest level in more than a decade. Since any reading under 50 signals a contraction, there is no doubt that Europe is facing a decline in economic growth. As you know, Germany is the economic powerhouse in Europe. But Germany’s GDP contracted in the second quarter. And if the latest PMI data are any indication, Germany’s GDP is also set to decline in the third quarter…Remember, two quarters of negative GDP growth in a row officially signals a recession. And a recession in Germany could drive global interest rates even lower.
• Now we have Q3 Earnings coming up on deck. And heading into the end of the third quarter, 113 S&P 500 companies have issued EPS guidance for the quarter. Of these 113 companies, 82 have issued negative EPS guidance and 31 companies have issued positive EPS guidance. The number of companies issuing negative EPS for Q3 is well above the 5-year average of 74. The Information Technology and Health Care sectors are the largest contributors to the overall increase in the number of S&P 500 companies issuing negative EPS guidance for Q3 relative to the 5-year average.
• One major driver we are seeing in the US Markets is Corporate buybacks. This quarter, buybacks have totaled about $176 billion — $40 billion of that is from one company: Microsoft (Nasdaq: MSFT). In the first quarter, stock buybacks accounted for about 50% of earnings growth in the S&P 500…By the second quarter, stock buybacks accounted for almost all of the earnings growth…
Enjoy this Weekly Round-Up:
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