I don’t usually execute these types of articles anymore, but sometimes it’s necessary or pertinent to do so. Friday was a strange day for me and as such, you’re gonna hear about it! The major averages fell sharply on Friday as bond yields climbed further, ending the week near the highs. The benchmark 10-year Treasury note yield rose 2.5 basis points to 2.949%, the highest since January 2014. That extended the weeklong climb to 12 basis points. The 2-year note yield gained 2.3 basis points to 2.457%, the highest since August 2008. More importantly though, the spread between the 2-year note yield and the 10-year note yield, a widely-watched measure of the yield curve, widened to 49 basis points from 41 basis points on Tuesday.
The concern of rising rates and a possibility for the yield curve to invert in the not too distant future proved a risk-off scenario for equities on the final two trading days of the week. So far nothing too strange right, in fact and as it pertains to the markets, pretty much par for the 2018 course, right?
So now let’s talk about the major averages which suffered through a Thursday and Friday session to end what had been looking like a positive week. Bank stocks failed to rally on expected and reported strong results, but on both Thursday and Friday the Financial Sector Spiders (XLF) managed to finally gain traction. The Dow Jones Industrial Average fell 201.95 points on Friday, or 0.8%, to 24,462.94. The index finished the week 0.4% higher in spite of Thursday and Friday’s sell-offs. The S&P 500 declined 22.99 points Friday, or 0.9%, to 2,670.14 with 10 of the 11 main indexes ending with losses. The index still posted a 0.4% gain over the week. The Nasdaq Composite Index dropped 91.93 points to 7,146.13, a decline of 1.3% as shares of AAPL led tech stocks lower. Over the week, the tech-heavy index rose 0.5 percent. On the whole, the major indexes performed relatively well, but it’s not about what they did last week, investors are focused on what they’ll do in the week to come.
We can see just how fearful of rising rates and treasury yields investors have become in 2018 through the following chart of the S&P 500 vs. 10-year Treasury yield. It’s pretty compelling stuff.
On another note, the S&P 500 unfortunately finds itself back below the 50-DMA…once again. The good news, however, is that the struggle continues for the benchmark index for both bulls and bears alike. While the bears would desire another breach of the 200-DMA or achieving a double-bottom from the February lows near term, the bulls desire the S&P 500 to manage a closing week above the 50-DMA on volume. Right now, nobody is achieving what they desire most, as the tug-of-war persists between risk-on and risk-off sentiment. And it’s a tough battle as earnings are rising quickly for corporations in light of tax reform, but equity market sentiment is also found battling protectionist political policies and rising yields. So until investors pick a more determined direction with volume… range bound persist for some time to come.
In terms of earnings season so far, WOW! The numbers keep ratcheting higher as earnings have come in strong. The latest data is that out of the 87 S&P 500 firms that have reported earnings, the average sales growth rate is 10.6 percent. Pretty awesome numbers huh? And of the 87 companies in the S&P 500 that have reported earnings to date for Q1 2018, 79.3% have reported earnings above analyst expectations. This is above the long-term average of 64% and below the average over the past four quarters of 75%. During the week of Apr. 23, 181 S&P 500 companies are expected to report quarterly earnings.
You can see why many investors are frustrated right. The earnings coming in are quite robust and expected to continue as such throughout earnings season and the year, but a great deal of geopolitical and debt/yield issues are holding equity markets in-check thus far. At some point though, at some point… But before that point arrives, possibly and more critically important are the tech earnings set for release next week. Stay on your toes folks as the biggies are set to report. Leading tech companies and FANG-focused corporate earnings will be forthcoming from Facebook (FB), Amazon (AMZN), Alphabet (GOOGL) and Microsoft (MSFT). Other titans of industry like Boeing (BA) and Exxon Mobil (XOM) will also be reporting next week. We’ll discuss earnings and more in Finom Group’s more dedicated research report tomorrow, but for now…INCOMING!!!
So here’s my perspective on Friday: Started out pretty much the same as any other Friday as I completed my e-mail communications by about 6:00 a.m. EST. Friday is usually Daddy-Daughter Day, when I can and if work-related needs have previously been met. By 9:00 a.m. my daughter, Talia (Tally for ease of pronunciation for a 2 1/2 –year old) was itching to get out of the house and go to the park to play on the playground. We left the house by 9:00 and arrived at the park, some 3 minutes down the road. Keep in mind I purchased a $2,000 playground set for the backyard that she literally uses maybe once a week (SMH right?). Whatareyagonna do?
So we get to the park and she’s got the run of the place because it’s so early and a school day. Up the rock wall and down the slide, over and over. Then on to the swings and finally a few other toddlers show up as it is clear parents will do what is necessary to keep these little rug rats entertained throughout the day. I say this because none of the parents at the park this early look spry, showered or with enough sleep the previous night. Again, whatareyagonna do?
So as I intently watch Tally run around and with fingers crossed she doesn’t fall or hit her head on something she says, “What’s that sound?” It’s so cute too, when she does that, putting her hand to her ear and pausing everything she had been doing. “It’s a police car honey.” And it was a police car, but on TV she heard that sound and it was an ambulance so…., “No its ambulance, Daddy. A few minutes went by and again, “What’s that sound.” Again I told her it was a police car and again she informed me of my error LOL!
I heard my text alert go off from my iPhone, which was in my pocket. It was close to 10:00 a.m. at this time and I read the text as shown in the screen shot below.
It wasn’t until the first text from my wife, who teaches high school English only a few miles up the road that I looked out beyond the park, parking lot to see what was developing on the main road. Police were setting up a perimeter at the main intersection. I grabbed Tally and told her we were going to get “big French fries”. For those of you with a Chic-fil-a in your home town, you know what I mean. We had to pass Forest High School no matter what our destination was from the park.
The shooting took place at Forest High School in Ocala, Florida, where I have lived for the last 6 years and am now raising a family. One of the reasons, I left Miami-Dade and Broward county after living in these areas most of my life was the crime rate and overpopulation. Ocala, Florida is a small, rural town but world famous for its horse breeding and training grounds. Most every horse you see on the derbies at some point can find their lineage having roots in Ocala, Florida. It’s also famous for being one of John Travolta’s homesteads. In leaving Miami several years ago, I thought I was finding a slower, safer pace of life. But times, they are-a-changing aren’t they? The world has gone and gotten itself in a way that finds every aspect of big city life simulated in even the smallest of towns and cities.
My wife is a high school teacher, as I mentioned before and has friends that teach at Forest High School, where one former student shot another student in the ankle. Her best friend, whom is out on maternity leave, also teaches at Forest High School and her classroom was in the same hall as where the shooting took place. The next photograph came from my wife texting with a friend who was teaching the day of the shooting and what her kids were doing when the shots were heard.
The kids piling every piece of furniture in the classroom agains the door. As Tally and I made our way to Chic-fil-a, the streets were filled with detours, ambulances and police cars escorting school busses to and from local schools. It was crazy, but fortunately in the end found the shooting victim harmed, but not killed. These are the days we live in, these are the days and they are seemingly only increasingly concerning and as events such as this one continue to occur.
The Stoneman Douglas High School shooting seems only a few short weeks ago and now this, fortunately more minor school shooting in Ocala, Florida occurs. When I think about what my kids will be confronted with in the coming years as they head off to school, I can’t help but to see the vast difference in society today from when I was in high school. I didn’t have Facebook or Twitter back then and if I had “beef” with someone we handled it like jerky teens did, with our words and fists if it “needed to go that far”. But nowadays it seems as though kids lack the coping skills to dialogue face-to-face. Were we simply more socially capable than today’s generation? Or is gun control the issue. I don’t know, but I do care as a parent knowing the potential threats out there. Investing may be far easier than we think and easier to manage through than what our children will be left to fend for in the coming decades.
One more thing, as it didn’t even occur to me until much later that day… I could have possibly picked up a football and threw it from the park to Forest High School…too close, too close indeed. And, that was my Friday!
Tags: SPX VIX SPY DJIA IWM QQQ TNX
