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| Tier | Score | Deck 1 | Deck 2 | Deck 3 |
|---|---|---|---|---|
| 1 | 96 | Odd Demon Hunter | ||
| 95 | Odd Paladin | |||
| 92 | Jade Druid | Discard Warlock | Pirate Warrior | |
| 91 | Secret Mage | |||
| 90 | Galakrond Warrior | Reno Priest | ||
| 2 | 89 | Odd Warrior | Reno Quest Mage | Mecha'thun Warlock |
| 88 | Reno Secret Mage | |||
| 87 | Reno Hunter | |||
| 86 | Quest Mage | Big Priest | Kingsbane Rogue | |
| 85 | Togwaggle Druid | |||
| 84 | Linecracker Druid | |||
| 83 | Even Warlock | Reno Warlock | Odd Rogue | |
| 81 | Token Druid | Cube Warlock | Even Shaman | |
| 80 | Murloc Paladin | |||
| 76 | Reno Mage | |||
| 75 | Mech Paladin | |||
| 70 | Albatross Priest (estimate) | |||
| 3 | 60 | Treachery Warlock (estimate) |
| Card | Explanation |
|---|---|
| Blowtorch Saboteur | As Odd Demon Hunter comprises 20% of the "meta slave" meta, this card enjoys high popularity, even in the mirror. |
| Mindbreaker | Like Blowtorch Saboteur, this card targets Odd Demon Hunter, but it also affects one's own hero power. Thus, it is commonly ran in aggro lists that do not rely on its hero power, such as Galakrond Warrior and Token Druid. |
| Glacial Shard/Frozen Shadoweaver | These two cards serve the same purpose: to slow down one of Odd Demon Hunter's key turns can lead to victory. But owing to their mana costs, it is usually ran only by Odd Demon Hunter for the mirror. |
| Secret EateChief Inspector | Secret Mage is increasing in popularity. As long as that deck exists, so will these two tech cards. |
| Skulking Geist | The meta is not lacking in crucial 1-cost spells. Quest Mage relies on 1-cost spells to finish its quest, Jade Druid will often concede after this card is played, and both Odd Warrior and various Warlock decks use 1-cost spells. A well-timed Geist can swing a victory. But owing to its high mana cost, this card is typically only played in control decks as it fits poorly in a mana curve. |
| SpellbreakeIronbeak Owl | Silence is often directed at Voidcaller and Mech Paladin's buffed mechs, but owing to the decline in popularity of Voidcaller and the near disappearance of Mech Paladin, these two cards are less important. |
| Maiev Shadowsong | Maiev's not merely another Spellbreaker. It can be used to neutralize a large minion for two turns and gain the tempo advantage. But when used to bypass taunts, yes, it is another Spellbreaker. |
| Acidic Swamp Ooze/Gluttonous Ooze | For a while, weapons have been among the stronger types of cards in Hearthstone. Weapons tend to be stronger than minions and spells of the same cost. As the Wild format contains must-remove weapons, Oozes will always see play. |
| Dirty Rat | Dirty Rat saw little play when Quest Mage was the premier OTK deck. But now that (Hemet) Mecha'thun Warlock has taken that crown, Dirty Rat is very effective tech against that. |
| Nerub'ar Weblord | Nerub'ar Weblord is played in Even Shaman and Token Druid. As many key minions, such as highlander minions, rely on battlecries this card is effective against those. But its effect is a double-edged sword and thus it is limited to the aforementioned decks. |
If the markets get their way, Fed Chairman Jerome Powell will use the Fed’s Jackson Hole symposium to clarify whether the Fed is at the beginning of a serious rate cutting cycle — or just intending to cut a few times, as insurance against a possible downturn.
Powell speaks Friday morning to kick off the Fed’s annual Jackson Hole symposium in Wyoming, and that event is the main focus of markets in the week ahead. The Fed also releases the minutes of its July meeting Wednesday afternoon, and it is expected to detail discussions around its decision to cut interest rates last month for the first time in more than a decade.
In a briefing following that meeting, Powell discussed the quarter point rate cut as a “midcycle adjustment,” implying it was just considering a few cuts. That comment shook markets, and interest rates have plunged, along with global bond yields.
“What the market wants is clearly that he moves away from the ‘midcycle adjustment’ commentary and transition toward an easing cycle,” said Quincy Krosby, chief market strategist at Prudential Financial.
Markets also will be watching any developments that reveal how trade talks between the U.S. and China are faring. President Donald Trump soothed some nerves in the past week when he delayed some of his latest tariffs on Chinese goods. Trump also said Thursday that discussions are continuing, and that he expects to talk to President Xi Jinping soon, though he gave no details.
Powell speaks at a time when markets have been doubting the Fed’s ability to head off a recession. Since he spoke on July 31, the stock market has been turbulent, with the S&P 500 losing nearly 3%, but the move in interest rates has been massive. The 10-year yield was at 2.07% that day, and touched a low of 1.475% on Thursday before returning to 1.54% by late Friday.
The Treasury’s 30-year bond made a historic move in the past week, when its yield fell to a record low of 1.915%, before rising back above 2% Friday. Also, the most widely watched part of the yield curve inverted, when the 2-year yield made the unusual move of temporarily rising above the 10-year yield. That would be taken as a sign of pending recession if it inverts again and stays that way for some time.
Stocks were lower for the week, but reversed sharper losses by the end of the week. The S&P 500 was up 1.4% Friday at 2,888, but was down 1% for the week. The Dow rose 1.2% to 25,886 Friday, but lost 1.5% for the week.
Dramatic moves in the world’s sovereign yields came as global central banks cut interest rates, and there was talk from a European Central Bank official that the ECB could use a big stimulus program. That puts extra pressure on the Fed, which has emphasized that it could lower rates because of the weak global economy, the impact of trade wars and sluggish inflation. Rates all over the globe moved lower, and the benchmark German 10-year bund set a new low of negative 0.73 Friday morning.
“They don’t want to signal they’re worried about the economy because the economy is doing okay, ” said Pramod Alturi, fixed income portfolio manager at Capital Group. “I think they can do it. It’s going to be a tough communications challenge. The worry is when they try to tow the line, they end up being more hawkish than the market is looking for.”
Michelle Meyer, head of U.S. economics at Bank of America Merrill Lynch, said she is looking for Powell to comment on the yield curve inversion and the market turbulence. “Is he more concerned about the outlook?” she said. “Has he become more concerned since the meeting, given the slowdown in global data, the increase of risks in the trade war and the recent significant moves in the market” she said.
The fed funds futures market is pricing in two to three rate cuts for the balance of the year. Since the Fed meeting, the market has become more concerned about the economy, with weaker global data from Europe and China, as well as a new round of tariffs on Chinese goods, announced by President Donald Trump.
“Is Powell going to stick to the midcycle adjustment? It’s only been three weeks, but you throw in the sharp inversion of the yield curve and the extra consumer tariffs ... is he going to let the market whipsaw him? We’ve seen a big inversion and a sharp drop in rates since that meeting,” said Peter Boockvar, chief market strategist at Bleakley Advisory Group.
Strategists said the Fed tries to avoid making policy changes at the Jackson Hole meeting, but it was done during the financial crisis.
“Is it going to be an academic speech? Or is he going to pull a Ben Bernanke and use Jackson Hole as his FOMC venue. It was really [former Fed Chairman] Bernanke who most notably [used the meeting to discuss policy] when he laid out the case for QE twice,” Boockvar said.
Powell could also have to defend the Fed’s independence, and reiterate that he will stay in his position until his term expires, particularly after President Donald Trump criticized Fed policy and called him “clueless” this week.
Besides the Fed, there are some economic reports of interest in the week ahead. Existing home sales are announced Wednesday and PMI manufacturing and services data is released Thursday.
Krosby said she is watching developments with Huawei, since the temporary licenses for U.S. firms doing business with the black-listed Chinese company end on August 19.
“In terms of headlines this could be a market mover because of Huawei’s importance to Beijing. If there is an extension from the administration it could suggest an improvement in the D.C./Beijing dialogue, no doubt a positive headline,” she said, in an email. “We could find out what happens from a presidential tweet or from the Department of Commerce, which has jurisdiction over the issue.”
Barring a late-day reversal, DJIA’s streak of Down Friday/Down Monday (DF/DM) will end today at two in a row. Recently we examined the record of past DF/DM occurrencesand noted that a quick DJIA recovery to pre-DF/DM levels was usually positive as it typically meant the worst of the decline was likely over. Today we delve deeper into the history of two or more DF/DMs in a row.
Excluding the most recent occurrence, there have been two or more consecutive DF/DM’s 39 times since 2000. Of these 39, only four occurrences included three in a row. Using the last DF/DM of the streak as the starting point, the average decline from a subsequent high (within seven calendar days of Monday’s close) to the low sometime during the next 90 calendar days was 6.05% and all but three occurrences suffered a subsequent decline. Using Monday’s close as the refence point, the average decline was 4.53%. Only six of the 39 occurrences did not close lower than Monday’s close. The average number of calendar days until the low was reached was 45.
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Looking at the 30 trading days before and the 60 trading days after Monday’s close of the last DF/DM of the streak, the patterns are similar to single DF/DM occurrences. If DJIA did not make a quick recovery to pre-DF/DM levels, then DJIA tended to struggle and drift lower.
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Unless you have been asleep for most of the day in preparation for an upcoming midnight shift, you have probably already heard, over and over, how the 10-year Treasury bond yield falling below the 2-year Treasury bond yield has a perfect record in recent years of forecasting a recession sometime in the future. The result was declines exceeding 3% by DJIA and NASDAQ. S&P 500 just missed this mark falling 2.9%. Since 1971, when NASDAQ began, this combination of losses or worse has only occurred 66 times prior to today. And of these 66 times, 25 occurred during the financial crisis bear in 2008 and early 2009.
Plotting the 30 trading days before and 60 trading days after past occurrences reveals (top chart) initial steep and brisk declines followed by modest average gains over the following 60 trading days (approximately three calendar months). However, market performance did pick up nicely at the 6-month and 12-month later points and the frequency of gains also improved. The market could be in for more choppy trading especially in the often-turbulent months of August, September and October.
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As shown in the LPL Chart of the Day, the spread between the 2-year and 10-year Treasury yields fell as low as -2 basis points (-0.02%) in trading on August 14.
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Typically, yield curve inversion, when long-term yields fall below short-term yields, is viewed as a signal of oncoming recession, although often with a relatively long lead. In the past five economic expansions, the U.S. economy has peaked an average of 21 months after the spread between the 2-year and 10-year yields initially turned negative.
U.S. Economy Remains on Solid Footing
Even though we’re discouraged by the yield curve’s shape right now, we see few signs of danger ahead. Data shows the U.S. economy is on solid footing, and corporate debt spreads have remained contained in this latest bout of volatility. Financial conditions are still historically loose, yet there are few signs of excess in the financial system. U.S. stocks have also been resilient against yield curve inversions in the past: Historically, the S&P 500 Index has rallied an average of 22% from the first inversion to the eventual economic peak.
“We’re not convinced that this yield curve inversion is a sign of imminent recession,” said LPL Research Chief Investment Strategist John Lynch. “The U.S. labor market is at full employment, healthy wage growth is fueling strong consumer activity, and corporate profits are at record levels.”
Global Perspective
Of course, recessions can be self-fulfilling prophecies of market sentiment, and we take that risk seriously. However, it’s a curious time for global fixed income right now, and Treasury yields have been weighed down by intense global buying pressure amid ultra-low sovereign debt yields elsewhere. Because of this, we think the yield curve’s shape has been driven more by technical factors than domestic economic weakness.
Monetary Policy Remains Too Tight
This yield curve inversion sends an important signal to Federal Reserve (Fed) policymakers. U.S. monetary policy is clearly still too tight, even after last month’s 25 basis point (0.25%) rate cut, given trade uncertainty and signs of slowing global growth. The Fed has promised flexibility, and we expect policymakers to enact one or two more cuts by the end of the year. Without an easier Fed, the U.S. dollar may stay elevated and global buying pressure will continue in Treasuries.
What’s Next?
We will continue to monitor the yield curve and incoming economic data. For now, we think the current U.S. economic expansion, now in its 11th year, has more room to run.
We continue to believe there is technical support for the S&P 500 Index as discussed in our August 9 blog, and we’re already seeing some signs of the pessimism that is necessary for forming a bottom. The negative sentiment intensified August 14 following the inversion of the yield curve (discussed in our August 14 blog), so today we want to take a closer look at some key levels the LPL Research team is watching.
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First is resistance, or levels that an index or stock may struggle to rise above. Despite Tuesday’s 1.5% gain, the S&P 500 ran right into its 50-day moving average near 2,940. This level also marked the 2018 highs for the market, adding to its significance.
As for support, or levels at which we think buyers are likely to step into the market, there are three key levels we are watching: 2,822. The intraday low from August 5 is only about 1% below Wednesday’s close, but it may be viewed by short-term traders as a tactical way to gauge whether we have hit the bottom in this current pullback. 200-day moving average. Currently at 2,796, the 200-day moving average is a closely watched trend indicator that is commonly viewed as either support or resistance, depending on where the index sits in relation to it. 2,740. Perhaps the strongest level of support for the S&P 500 is 2,740. As seen in the LPL Research Chart of the Day, Key Levels for the S&P 500 Index, this benchmark has actually tested 2,740 two times so far this year, but it failed to close below that level either time. 2,740 also happens to be 9.5% below the July highs, right in line with a standard 10% correction. “We believe a retest of the December lows remains unlikely,” said LPL Chief Investment Strategist John Lynch. “We think any decline beyond 10% from recent highs would be excessive, and we would recommend that suitable investors rebalance and add to positions accordingly if the S&P 500 falls that far.”
Monday 8.19.19 Before Market Open:
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Monday 8.19.19 After Market Close:
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Tuesday 8.20.19 Before Market Open:
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Tuesday 8.20.19 After Market Close:
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Wednesday 8.21.19 Before Market Open:
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Wednesday 8.21.19 After Market Close:
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Thursday 8.22.19 Before Market Open:
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Thursday 8.22.19 After Market Close:
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Friday 8.23.19 Before Market Open:
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Friday 8.23.19 After Market Close:
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Baidu, Inc. (BIDU) is confirmed to report earnings at approximately 4:30 PM ET on Monday, August 19, 2019. The consensus earnings estimate is $0.92 per share on revenue of $3.78 billion and the Earnings Whisper ® number is $1.03 per share. Investor sentiment going into the company's earnings release has 58% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 70.70% with revenue decreasing by 3.82%. Short interest has increased by 41.3% since the company's last earnings release while the stock has drifted lower by 25.9% from its open following the earnings release to be 36.2% below its 200 day moving average of $151.67. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, July 24, 2019 there was some notable buying of 59,775 contracts of the $165.00 put expiring on Friday, September 20, 2019. Option traders are pricing in a 10.4% move on earnings and the stock has averaged a 6.8% move in recent quarters.
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Home Depot, Inc. (HD) is confirmed to report earnings at approximately 6:00 AM ET on Tuesday, August 20, 2019. The consensus earnings estimate is $3.07 per share on revenue of $31.01 billion and the Earnings Whisper ® number is $3.12 per share. Investor sentiment going into the company's earnings release has 64% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 0.66% with revenue increasing by 1.80%. Short interest has increased by 5.6% since the company's last earnings release while the stock has drifted higher by 8.8% from its open following the earnings release to be 6.7% above its 200 day moving average of $190.89. Overall earnings estimates have been revised lower since the company's last earnings release. On Friday, August 16, 2019 there was some notable buying of 15,615 contracts of the $207.50 put expiring on Friday, August 23, 2019. Option traders are pricing in a 4.2% move on earnings and the stock has averaged a 0.6% move in recent quarters.
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Salesforce (CRM) is confirmed to report earnings at approximately 4:05 PM ET on Thursday, August 22, 2019. The consensus earnings estimate is $0.47 per share on revenue of $3.95 billion and the Earnings Whisper ® number is $0.47 per share. Investor sentiment going into the company's earnings release has 81% expecting an earnings beat The company's guidance was for earnings of $0.46 to $0.47 per share. Consensus estimates are for earnings to decline year-over-year by 32.86% with revenue increasing by 20.39%. Short interest has increased by 179.6% since the company's last earnings release while the stock has drifted lower by 8.4% from its open following the earnings release to be 4.0% below its 200 day moving average of $149.81. Overall earnings estimates have been revised lower since the company's last earnings release. On Monday, August 5, 2019 there was some notable buying of 21,894 contracts of the $145.00 call expiring on Friday, September 20, 2019. Option traders are pricing in a 5.8% move on earnings and the stock has averaged a 3.8% move in recent quarters.
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Target Corp. (TGT) is confirmed to report earnings at approximately 6:30 AM ET on Wednesday, August 21, 2019. The consensus earnings estimate is $1.61 per share on revenue of $18.33 billion and the Earnings Whisper ® number is $1.67 per share. Investor sentiment going into the company's earnings release has 75% expecting an earnings beat The company's guidance was for earnings of $1.52 to $1.72 per share. Consensus estimates are for year-over-year earnings growth of 9.52% with revenue increasing by 3.12%. Short interest has decreased by 12.7% since the company's last earnings release while the stock has drifted higher by 9.3% from its open following the earnings release to be 8.8% above its 200 day moving average of $77.40. Overall earnings estimates have been revised higher since the company's last earnings release. On Monday, August 5, 2019 there was some notable buying of 23,882 contracts of the $70.00 put expiring on Friday, October 18, 2019. Option traders are pricing in a 7.1% move on earnings and the stock has averaged a 6.2% move in recent quarters.
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Estee Lauder Companies, Inc. (EL) is confirmed to report earnings at approximately 6:45 AM ET on Monday, August 19, 2019. The consensus earnings estimate is $0.53 per share on revenue of $3.51 billion and the Earnings Whisper ® number is $0.57 per share. Investor sentiment going into the company's earnings release has 61% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 13.11% with revenue increasing by 6.53%. Short interest has decreased by 4.9% since the company's last earnings release while the stock has drifted lower by 0.4% from its open following the earnings release to be 13.3% above its 200 day moving average of $158.22. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, August 16, 2019 there was some notable buying of 1,514 contracts of the $175.00 put expiring on Friday, September 20, 2019. Option traders are pricing in a 5.7% move on earnings and the stock has averaged a 4.9% move in recent quarters.
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iQIYI, Inc. (IQ) is confirmed to report earnings at approximately 4:30 PM ET on Monday, August 19, 2019. The consensus estimate is for a loss of $0.59 per share on revenue of $1.06 billion. Investor sentiment going into the company's earnings release has 65% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 31.11% with revenue increasing by 13.67%. Short interest has increased by 22.5% since the company's last earnings release while the stock has drifted lower by 10.6% from its open following the earnings release to be 16.0% below its 200 day moving average of $20.34. Overall earnings estimates have been revised lower since the company's last earnings release. On Friday, August 9, 2019 there was some notable buying of 2,500 contracts of the $45.00 call expiring on Friday, January 15, 2021. Option traders are pricing in a 11.2% move on earnings and the stock has averaged a 8.8% move in recent quarters.
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Weibo Corporation (WB) is confirmed to report earnings at approximately 6:15 AM ET on Monday, August 19, 2019. The consensus earnings estimate is $0.56 per share on revenue of $429.38 million and the Earnings Whisper ® number is $0.56 per share. Investor sentiment going into the company's earnings release has 56% expecting an earnings beat The company's guidance was for revenue of $427.00 million to $437.00 million. Consensus estimates are for earnings to decline year-over-year by 16.42% with revenue increasing by 0.65%. Short interest has increased by 52.9% since the company's last earnings release while the stock has drifted lower by 17.6% from its open following the earnings release to be 33.5% below its 200 day moving average of $55.77. Overall earnings estimates have been revised lower since the company's last earnings release. On Monday, August 5, 2019 there was some notable buying of 4,546 contracts of the $30.00 put expiring on Friday, September 20, 2019. Option traders are pricing in a 11.1% move on earnings and the stock has averaged a 7.9% move in recent quarters.
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Kohl's Corporation (KSS) is confirmed to report earnings at approximately 7:00 AM ET on Tuesday, August 20, 2019. The consensus earnings estimate is $1.51 per share on revenue of $4.49 billion and the Earnings Whisper ® number is $1.51 per share. Investor sentiment going into the company's earnings release has 30% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 14.20% with revenue decreasing by 1.75%. Short interest has decreased by 31.2% since the company's last earnings release while the stock has drifted lower by 17.7% from its open following the earnings release to be 26.9% below its 200 day moving average of $62.28. Overall earnings estimates have been revised lower since the company's last earnings release. On Thursday, August 15, 2019 there was some notable buying of 5,014 contracts of the $47.00 call expiring on Friday, August 23, 2019. Option traders are pricing in a 10.4% move on earnings and the stock has averaged a 7.2% move in recent quarters.
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Lowe's Companies, Inc. (LOW) is confirmed to report earnings at approximately 6:00 AM ET on Wednesday, August 21, 2019. The consensus earnings estimate is $2.03 per share on revenue of $21.00 billion and the Earnings Whisper ® number is $1.99 per share. Investor sentiment going into the company's earnings release has 53% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 1.93% with revenue increasing by 0.54%. Short interest has increased by 24.9% since the company's last earnings release while the stock has drifted lower by 7.2% from its open following the earnings release to be 6.1% below its 200 day moving average of $100.00. Overall earnings estimates have been revised lower since the company's last earnings release. On Friday, August 16, 2019 there was some notable buying of 3,368 contracts of the $90.00 put expiring on Friday, August 23, 2019. Option traders are pricing in a 6.9% move on earnings and the stock has averaged a 7.1% move in recent quarters.
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Splunk Inc. (SPLK) is confirmed to report earnings at approximately 4:00 PM ET on Wednesday, August 21, 2019. The consensus earnings estimate is $0.12 per share on revenue of $486.70 million and the Earnings Whisper ® number is $0.16 per share. Investor sentiment going into the company's earnings release has 76% expecting an earnings beat The company's guidance was for revenue of approximately $485.00 million. Consensus estimates are for year-over-year earnings growth of 71.43% with revenue increasing by 25.34%. Short interest has increased by 34.2% since the company's last earnings release while the stock has drifted lower by 0.8% from its open following the earnings release to be 2.9% above its 200 day moving average of $121.28. Overall earnings estimates have been revised higher since the company's last earnings release. On Monday, August 5, 2019 there was some notable buying of 760 contracts of the $135.00 call expiring on Friday, September 20, 2019. Option traders are pricing in a 8.8% move on earnings and the stock has averaged a 7.9% move in recent quarters.
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If the markets get their way, Fed Chairman Jerome Powell will use the Fed’s Jackson Hole symposium to clarify whether the Fed is at the beginning of a serious rate cutting cycle — or just intending to cut a few times, as insurance against a possible downturn.
Powell speaks Friday morning to kick off the Fed’s annual Jackson Hole symposium in Wyoming, and that event is the main focus of markets in the week ahead. The Fed also releases the minutes of its July meeting Wednesday afternoon, and it is expected to detail discussions around its decision to cut interest rates last month for the first time in more than a decade.
In a briefing following that meeting, Powell discussed the quarter point rate cut as a “midcycle adjustment,” implying it was just considering a few cuts. That comment shook markets, and interest rates have plunged, along with global bond yields.
“What the market wants is clearly that he moves away from the ‘midcycle adjustment’ commentary and transition toward an easing cycle,” said Quincy Krosby, chief market strategist at Prudential Financial.
Markets also will be watching any developments that reveal how trade talks between the U.S. and China are faring. President Donald Trump soothed some nerves in the past week when he delayed some of his latest tariffs on Chinese goods. Trump also said Thursday that discussions are continuing, and that he expects to talk to President Xi Jinping soon, though he gave no details.
Powell speaks at a time when markets have been doubting the Fed’s ability to head off a recession. Since he spoke on July 31, the stock market has been turbulent, with the S&P 500 losing nearly 3%, but the move in interest rates has been massive. The 10-year yield was at 2.07% that day, and touched a low of 1.475% on Thursday before returning to 1.54% by late Friday.
The Treasury’s 30-year bond made a historic move in the past week, when its yield fell to a record low of 1.915%, before rising back above 2% Friday. Also, the most widely watched part of the yield curve inverted, when the 2-year yield made the unusual move of temporarily rising above the 10-year yield. That would be taken as a sign of pending recession if it inverts again and stays that way for some time.
Stocks were lower for the week, but reversed sharper losses by the end of the week. The S&P 500 was up 1.4% Friday at 2,888, but was down 1% for the week. The Dow rose 1.2% to 25,886 Friday, but lost 1.5% for the week.
Dramatic moves in the world’s sovereign yields came as global central banks cut interest rates, and there was talk from a European Central Bank official that the ECB could use a big stimulus program. That puts extra pressure on the Fed, which has emphasized that it could lower rates because of the weak global economy, the impact of trade wars and sluggish inflation. Rates all over the globe moved lower, and the benchmark German 10-year bund set a new low of negative 0.73 Friday morning.
“They don’t want to signal they’re worried about the economy because the economy is doing okay, ” said Pramod Alturi, fixed income portfolio manager at Capital Group. “I think they can do it. It’s going to be a tough communications challenge. The worry is when they try to tow the line, they end up being more hawkish than the market is looking for.”
Michelle Meyer, head of U.S. economics at Bank of America Merrill Lynch, said she is looking for Powell to comment on the yield curve inversion and the market turbulence. “Is he more concerned about the outlook?” she said. “Has he become more concerned since the meeting, given the slowdown in global data, the increase of risks in the trade war and the recent significant moves in the market” she said.
The fed funds futures market is pricing in two to three rate cuts for the balance of the year. Since the Fed meeting, the market has become more concerned about the economy, with weaker global data from Europe and China, as well as a new round of tariffs on Chinese goods, announced by President Donald Trump.
“Is Powell going to stick to the midcycle adjustment? It’s only been three weeks, but you throw in the sharp inversion of the yield curve and the extra consumer tariffs ... is he going to let the market whipsaw him? We’ve seen a big inversion and a sharp drop in rates since that meeting,” said Peter Boockvar, chief market strategist at Bleakley Advisory Group.
Strategists said the Fed tries to avoid making policy changes at the Jackson Hole meeting, but it was done during the financial crisis.
“Is it going to be an academic speech? Or is he going to pull a Ben Bernanke and use Jackson Hole as his FOMC venue. It was really [former Fed Chairman] Bernanke who most notably [used the meeting to discuss policy] when he laid out the case for QE twice,” Boockvar said.
Powell could also have to defend the Fed’s independence, and reiterate that he will stay in his position until his term expires, particularly after President Donald Trump criticized Fed policy and called him “clueless” this week.
Besides the Fed, there are some economic reports of interest in the week ahead. Existing home sales are announced Wednesday and PMI manufacturing and services data is released Thursday.
Krosby said she is watching developments with Huawei, since the temporary licenses for U.S. firms doing business with the black-listed Chinese company end on August 19.
“In terms of headlines this could be a market mover because of Huawei’s importance to Beijing. If there is an extension from the administration it could suggest an improvement in the D.C./Beijing dialogue, no doubt a positive headline,” she said, in an email. “We could find out what happens from a presidential tweet or from the Department of Commerce, which has jurisdiction over the issue.”
Barring a late-day reversal, DJIA’s streak of Down Friday/Down Monday (DF/DM) will end today at two in a row. Recently we examined the record of past DF/DM occurrencesand noted that a quick DJIA recovery to pre-DF/DM levels was usually positive as it typically meant the worst of the decline was likely over. Today we delve deeper into the history of two or more DF/DMs in a row.
Excluding the most recent occurrence, there have been two or more consecutive DF/DM’s 39 times since 2000. Of these 39, only four occurrences included three in a row. Using the last DF/DM of the streak as the starting point, the average decline from a subsequent high (within seven calendar days of Monday’s close) to the low sometime during the next 90 calendar days was 6.05% and all but three occurrences suffered a subsequent decline. Using Monday’s close as the refence point, the average decline was 4.53%. Only six of the 39 occurrences did not close lower than Monday’s close. The average number of calendar days until the low was reached was 45.
(CLICK HERE FOR THE CHART!)
Looking at the 30 trading days before and the 60 trading days after Monday’s close of the last DF/DM of the streak, the patterns are similar to single DF/DM occurrences. If DJIA did not make a quick recovery to pre-DF/DM levels, then DJIA tended to struggle and drift lower.
(CLICK HERE FOR THE CHART!)
Unless you have been asleep for most of the day in preparation for an upcoming midnight shift, you have probably already heard, over and over, how the 10-year Treasury bond yield falling below the 2-year Treasury bond yield has a perfect record in recent years of forecasting a recession sometime in the future. The result was declines exceeding 3% by DJIA and NASDAQ. S&P 500 just missed this mark falling 2.9%. Since 1971, when NASDAQ began, this combination of losses or worse has only occurred 66 times prior to today. And of these 66 times, 25 occurred during the financial crisis bear in 2008 and early 2009.
Plotting the 30 trading days before and 60 trading days after past occurrences reveals (top chart) initial steep and brisk declines followed by modest average gains over the following 60 trading days (approximately three calendar months). However, market performance did pick up nicely at the 6-month and 12-month later points and the frequency of gains also improved. The market could be in for more choppy trading especially in the often-turbulent months of August, September and October.
(CLICK HERE FOR THE CHART!)
(CLICK HERE FOR THE CHART!)
(CLICK HERE FOR THE CHART!)
As shown in the LPL Chart of the Day, the spread between the 2-year and 10-year Treasury yields fell as low as -2 basis points (-0.02%) in trading on August 14.
(CLICK HERE FOR THE CHART!)
Typically, yield curve inversion, when long-term yields fall below short-term yields, is viewed as a signal of oncoming recession, although often with a relatively long lead. In the past five economic expansions, the U.S. economy has peaked an average of 21 months after the spread between the 2-year and 10-year yields initially turned negative.
U.S. Economy Remains on Solid Footing
Even though we’re discouraged by the yield curve’s shape right now, we see few signs of danger ahead. Data shows the U.S. economy is on solid footing, and corporate debt spreads have remained contained in this latest bout of volatility. Financial conditions are still historically loose, yet there are few signs of excess in the financial system. U.S. stocks have also been resilient against yield curve inversions in the past: Historically, the S&P 500 Index has rallied an average of 22% from the first inversion to the eventual economic peak.
“We’re not convinced that this yield curve inversion is a sign of imminent recession,” said LPL Research Chief Investment Strategist John Lynch. “The U.S. labor market is at full employment, healthy wage growth is fueling strong consumer activity, and corporate profits are at record levels.”
Global Perspective
Of course, recessions can be self-fulfilling prophecies of market sentiment, and we take that risk seriously. However, it’s a curious time for global fixed income right now, and Treasury yields have been weighed down by intense global buying pressure amid ultra-low sovereign debt yields elsewhere. Because of this, we think the yield curve’s shape has been driven more by technical factors than domestic economic weakness.
Monetary Policy Remains Too Tight
This yield curve inversion sends an important signal to Federal Reserve (Fed) policymakers. U.S. monetary policy is clearly still too tight, even after last month’s 25 basis point (0.25%) rate cut, given trade uncertainty and signs of slowing global growth. The Fed has promised flexibility, and we expect policymakers to enact one or two more cuts by the end of the year. Without an easier Fed, the U.S. dollar may stay elevated and global buying pressure will continue in Treasuries.
What’s Next?
We will continue to monitor the yield curve and incoming economic data. For now, we think the current U.S. economic expansion, now in its 11th year, has more room to run.
We continue to believe there is technical support for the S&P 500 Index as discussed in our August 9 blog, and we’re already seeing some signs of the pessimism that is necessary for forming a bottom. The negative sentiment intensified August 14 following the inversion of the yield curve (discussed in our August 14 blog), so today we want to take a closer look at some key levels the LPL Research team is watching.
(CLICK HERE FOR THE CHART!)
First is resistance, or levels that an index or stock may struggle to rise above. Despite Tuesday’s 1.5% gain, the S&P 500 ran right into its 50-day moving average near 2,940. This level also marked the 2018 highs for the market, adding to its significance.
As for support, or levels at which we think buyers are likely to step into the market, there are three key levels we are watching: 2,822. The intraday low from August 5 is only about 1% below Wednesday’s close, but it may be viewed by short-term traders as a tactical way to gauge whether we have hit the bottom in this current pullback. 200-day moving average. Currently at 2,796, the 200-day moving average is a closely watched trend indicator that is commonly viewed as either support or resistance, depending on where the index sits in relation to it. 2,740. Perhaps the strongest level of support for the S&P 500 is 2,740. As seen in the LPL Research Chart of the Day, Key Levels for the S&P 500 Index, this benchmark has actually tested 2,740 two times so far this year, but it failed to close below that level either time. 2,740 also happens to be 9.5% below the July highs, right in line with a standard 10% correction. “We believe a retest of the December lows remains unlikely,” said LPL Chief Investment Strategist John Lynch. “We think any decline beyond 10% from recent highs would be excessive, and we would recommend that suitable investors rebalance and add to positions accordingly if the S&P 500 falls that far.”
Monday 8.19.19 Before Market Open:
(CLICK HERE FOR MONDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Monday 8.19.19 After Market Close:
(CLICK HERE FOR MONDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
Tuesday 8.20.19 Before Market Open:
(CLICK HERE FOR TUESDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Tuesday 8.20.19 After Market Close:
(CLICK HERE FOR TUESDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
Wednesday 8.21.19 Before Market Open:
(CLICK HERE FOR WEDNESDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Wednesday 8.21.19 After Market Close:
(CLICK HERE FOR WEDNESDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
Thursday 8.22.19 Before Market Open:
(CLICK HERE FOR THURSDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Thursday 8.22.19 After Market Close:
(CLICK HERE FOR THURSDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
Friday 8.23.19 Before Market Open:
(CLICK HERE FOR FRIDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Friday 8.23.19 After Market Close:
([CLICK HERE FOR FRIDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!]())
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Baidu, Inc. (BIDU) is confirmed to report earnings at approximately 4:30 PM ET on Monday, August 19, 2019. The consensus earnings estimate is $0.92 per share on revenue of $3.78 billion and the Earnings Whisper ® number is $1.03 per share. Investor sentiment going into the company's earnings release has 58% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 70.70% with revenue decreasing by 3.82%. Short interest has increased by 41.3% since the company's last earnings release while the stock has drifted lower by 25.9% from its open following the earnings release to be 36.2% below its 200 day moving average of $151.67. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, July 24, 2019 there was some notable buying of 59,775 contracts of the $165.00 put expiring on Friday, September 20, 2019. Option traders are pricing in a 10.4% move on earnings and the stock has averaged a 6.8% move in recent quarters.
(CLICK HERE FOR THE CHART!)
Home Depot, Inc. (HD) is confirmed to report earnings at approximately 6:00 AM ET on Tuesday, August 20, 2019. The consensus earnings estimate is $3.07 per share on revenue of $31.01 billion and the Earnings Whisper ® number is $3.12 per share. Investor sentiment going into the company's earnings release has 64% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 0.66% with revenue increasing by 1.80%. Short interest has increased by 5.6% since the company's last earnings release while the stock has drifted higher by 8.8% from its open following the earnings release to be 6.7% above its 200 day moving average of $190.89. Overall earnings estimates have been revised lower since the company's last earnings release. On Friday, August 16, 2019 there was some notable buying of 15,615 contracts of the $207.50 put expiring on Friday, August 23, 2019. Option traders are pricing in a 4.2% move on earnings and the stock has averaged a 0.6% move in recent quarters.
(CLICK HERE FOR THE CHART!)
Salesforce (CRM) is confirmed to report earnings at approximately 4:05 PM ET on Thursday, August 22, 2019. The consensus earnings estimate is $0.47 per share on revenue of $3.95 billion and the Earnings Whisper ® number is $0.47 per share. Investor sentiment going into the company's earnings release has 81% expecting an earnings beat The company's guidance was for earnings of $0.46 to $0.47 per share. Consensus estimates are for earnings to decline year-over-year by 32.86% with revenue increasing by 20.39%. Short interest has increased by 179.6% since the company's last earnings release while the stock has drifted lower by 8.4% from its open following the earnings release to be 4.0% below its 200 day moving average of $149.81. Overall earnings estimates have been revised lower since the company's last earnings release. On Monday, August 5, 2019 there was some notable buying of 21,894 contracts of the $145.00 call expiring on Friday, September 20, 2019. Option traders are pricing in a 5.8% move on earnings and the stock has averaged a 3.8% move in recent quarters.
(CLICK HERE FOR THE CHART!)
Target Corp. (TGT) is confirmed to report earnings at approximately 6:30 AM ET on Wednesday, August 21, 2019. The consensus earnings estimate is $1.61 per share on revenue of $18.33 billion and the Earnings Whisper ® number is $1.67 per share. Investor sentiment going into the company's earnings release has 75% expecting an earnings beat The company's guidance was for earnings of $1.52 to $1.72 per share. Consensus estimates are for year-over-year earnings growth of 9.52% with revenue increasing by 3.12%. Short interest has decreased by 12.7% since the company's last earnings release while the stock has drifted higher by 9.3% from its open following the earnings release to be 8.8% above its 200 day moving average of $77.40. Overall earnings estimates have been revised higher since the company's last earnings release. On Monday, August 5, 2019 there was some notable buying of 23,882 contracts of the $70.00 put expiring on Friday, October 18, 2019. Option traders are pricing in a 7.1% move on earnings and the stock has averaged a 6.2% move in recent quarters.
(CLICK HERE FOR THE CHART!)
Estee Lauder Companies, Inc. (EL) is confirmed to report earnings at approximately 6:45 AM ET on Monday, August 19, 2019. The consensus earnings estimate is $0.53 per share on revenue of $3.51 billion and the Earnings Whisper ® number is $0.57 per share. Investor sentiment going into the company's earnings release has 61% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 13.11% with revenue increasing by 6.53%. Short interest has decreased by 4.9% since the company's last earnings release while the stock has drifted lower by 0.4% from its open following the earnings release to be 13.3% above its 200 day moving average of $158.22. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, August 16, 2019 there was some notable buying of 1,514 contracts of the $175.00 put expiring on Friday, September 20, 2019. Option traders are pricing in a 5.7% move on earnings and the stock has averaged a 4.9% move in recent quarters.
(CLICK HERE FOR THE CHART!)
iQIYI, Inc. (IQ) is confirmed to report earnings at approximately 4:30 PM ET on Monday, August 19, 2019. The consensus estimate is for a loss of $0.59 per share on revenue of $1.06 billion. Investor sentiment going into the company's earnings release has 65% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 31.11% with revenue increasing by 13.67%. Short interest has increased by 22.5% since the company's last earnings release while the stock has drifted lower by 10.6% from its open following the earnings release to be 16.0% below its 200 day moving average of $20.34. Overall earnings estimates have been revised lower since the company's last earnings release. On Friday, August 9, 2019 there was some notable buying of 2,500 contracts of the $45.00 call expiring on Friday, January 15, 2021. Option traders are pricing in a 11.2% move on earnings and the stock has averaged a 8.8% move in recent quarters.
(CLICK HERE FOR THE CHART!)
Weibo Corporation (WB) is confirmed to report earnings at approximately 6:15 AM ET on Monday, August 19, 2019. The consensus earnings estimate is $0.56 per share on revenue of $429.38 million and the Earnings Whisper ® number is $0.56 per share. Investor sentiment going into the company's earnings release has 56% expecting an earnings beat The company's guidance was for revenue of $427.00 million to $437.00 million. Consensus estimates are for earnings to decline year-over-year by 16.42% with revenue increasing by 0.65%. Short interest has increased by 52.9% since the company's last earnings release while the stock has drifted lower by 17.6% from its open following the earnings release to be 33.5% below its 200 day moving average of $55.77. Overall earnings estimates have been revised lower since the company's last earnings release. On Monday, August 5, 2019 there was some notable buying of 4,546 contracts of the $30.00 put expiring on Friday, September 20, 2019. Option traders are pricing in a 11.1% move on earnings and the stock has averaged a 7.9% move in recent quarters.
(CLICK HERE FOR THE CHART!)
Kohl's Corporation (KSS) is confirmed to report earnings at approximately 7:00 AM ET on Tuesday, August 20, 2019. The consensus earnings estimate is $1.51 per share on revenue of $4.49 billion and the Earnings Whisper ® number is $1.51 per share. Investor sentiment going into the company's earnings release has 30% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 14.20% with revenue decreasing by 1.75%. Short interest has decreased by 31.2% since the company's last earnings release while the stock has drifted lower by 17.7% from its open following the earnings release to be 26.9% below its 200 day moving average of $62.28. Overall earnings estimates have been revised lower since the company's last earnings release. On Thursday, August 15, 2019 there was some notable buying of 5,014 contracts of the $47.00 call expiring on Friday, August 23, 2019. Option traders are pricing in a 10.4% move on earnings and the stock has averaged a 7.2% move in recent quarters.
(CLICK HERE FOR THE CHART!)
Lowe's Companies, Inc. (LOW) is confirmed to report earnings at approximately 6:00 AM ET on Wednesday, August 21, 2019. The consensus earnings estimate is $2.03 per share on revenue of $21.00 billion and the Earnings Whisper ® number is $1.99 per share. Investor sentiment going into the company's earnings release has 53% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 1.93% with revenue increasing by 0.54%. Short interest has increased by 24.9% since the company's last earnings release while the stock has drifted lower by 7.2% from its open following the earnings release to be 6.1% below its 200 day moving average of $100.00. Overall earnings estimates have been revised lower since the company's last earnings release. On Friday, August 16, 2019 there was some notable buying of 3,368 contracts of the $90.00 put expiring on Friday, August 23, 2019. Option traders are pricing in a 6.9% move on earnings and the stock has averaged a 7.1% move in recent quarters.
(CLICK HERE FOR THE CHART!)
Splunk Inc. (SPLK) is confirmed to report earnings at approximately 4:00 PM ET on Wednesday, August 21, 2019. The consensus earnings estimate is $0.12 per share on revenue of $486.70 million and the Earnings Whisper ® number is $0.16 per share. Investor sentiment going into the company's earnings release has 76% expecting an earnings beat The company's guidance was for revenue of approximately $485.00 million. Consensus estimates are for year-over-year earnings growth of 71.43% with revenue increasing by 25.34%. Short interest has increased by 34.2% since the company's last earnings release while the stock has drifted lower by 0.8% from its open following the earnings release to be 2.9% above its 200 day moving average of $121.28. Overall earnings estimates have been revised higher since the company's last earnings release. On Monday, August 5, 2019 there was some notable buying of 760 contracts of the $135.00 call expiring on Friday, September 20, 2019. Option traders are pricing in a 8.8% move on earnings and the stock has averaged a 7.9% move in recent quarters.
(CLICK HERE FOR THE CHART!)
If the markets get their way, Fed Chairman Jerome Powell will use the Fed’s Jackson Hole symposium to clarify whether the Fed is at the beginning of a serious rate cutting cycle — or just intending to cut a few times, as insurance against a possible downturn.
Powell speaks Friday morning to kick off the Fed’s annual Jackson Hole symposium in Wyoming, and that event is the main focus of markets in the week ahead. The Fed also releases the minutes of its July meeting Wednesday afternoon, and it is expected to detail discussions around its decision to cut interest rates last month for the first time in more than a decade.
In a briefing following that meeting, Powell discussed the quarter point rate cut as a “midcycle adjustment,” implying it was just considering a few cuts. That comment shook markets, and interest rates have plunged, along with global bond yields.
“What the market wants is clearly that he moves away from the ‘midcycle adjustment’ commentary and transition toward an easing cycle,” said Quincy Krosby, chief market strategist at Prudential Financial.
Markets also will be watching any developments that reveal how trade talks between the U.S. and China are faring. President Donald Trump soothed some nerves in the past week when he delayed some of his latest tariffs on Chinese goods. Trump also said Thursday that discussions are continuing, and that he expects to talk to President Xi Jinping soon, though he gave no details.
Powell speaks at a time when markets have been doubting the Fed’s ability to head off a recession. Since he spoke on July 31, the stock market has been turbulent, with the S&P 500 losing nearly 3%, but the move in interest rates has been massive. The 10-year yield was at 2.07% that day, and touched a low of 1.475% on Thursday before returning to 1.54% by late Friday.
The Treasury’s 30-year bond made a historic move in the past week, when its yield fell to a record low of 1.915%, before rising back above 2% Friday. Also, the most widely watched part of the yield curve inverted, when the 2-year yield made the unusual move of temporarily rising above the 10-year yield. That would be taken as a sign of pending recession if it inverts again and stays that way for some time.
Stocks were lower for the week, but reversed sharper losses by the end of the week. The S&P 500 was up 1.4% Friday at 2,888, but was down 1% for the week. The Dow rose 1.2% to 25,886 Friday, but lost 1.5% for the week.
Dramatic moves in the world’s sovereign yields came as global central banks cut interest rates, and there was talk from a European Central Bank official that the ECB could use a big stimulus program. That puts extra pressure on the Fed, which has emphasized that it could lower rates because of the weak global economy, the impact of trade wars and sluggish inflation. Rates all over the globe moved lower, and the benchmark German 10-year bund set a new low of negative 0.73 Friday morning.
“They don’t want to signal they’re worried about the economy because the economy is doing okay, ” said Pramod Alturi, fixed income portfolio manager at Capital Group. “I think they can do it. It’s going to be a tough communications challenge. The worry is when they try to tow the line, they end up being more hawkish than the market is looking for.”
Michelle Meyer, head of U.S. economics at Bank of America Merrill Lynch, said she is looking for Powell to comment on the yield curve inversion and the market turbulence. “Is he more concerned about the outlook?” she said. “Has he become more concerned since the meeting, given the slowdown in global data, the increase of risks in the trade war and the recent significant moves in the market” she said.
The fed funds futures market is pricing in two to three rate cuts for the balance of the year. Since the Fed meeting, the market has become more concerned about the economy, with weaker global data from Europe and China, as well as a new round of tariffs on Chinese goods, announced by President Donald Trump.
“Is Powell going to stick to the midcycle adjustment? It’s only been three weeks, but you throw in the sharp inversion of the yield curve and the extra consumer tariffs ... is he going to let the market whipsaw him? We’ve seen a big inversion and a sharp drop in rates since that meeting,” said Peter Boockvar, chief market strategist at Bleakley Advisory Group.
Strategists said the Fed tries to avoid making policy changes at the Jackson Hole meeting, but it was done during the financial crisis.
“Is it going to be an academic speech? Or is he going to pull a Ben Bernanke and use Jackson Hole as his FOMC venue. It was really [former Fed Chairman] Bernanke who most notably [used the meeting to discuss policy] when he laid out the case for QE twice,” Boockvar said.
Powell could also have to defend the Fed’s independence, and reiterate that he will stay in his position until his term expires, particularly after President Donald Trump criticized Fed policy and called him “clueless” this week.
Besides the Fed, there are some economic reports of interest in the week ahead. Existing home sales are announced Wednesday and PMI manufacturing and services data is released Thursday.
Krosby said she is watching developments with Huawei, since the temporary licenses for U.S. firms doing business with the black-listed Chinese company end on August 19.
“In terms of headlines this could be a market mover because of Huawei’s importance to Beijing. If there is an extension from the administration it could suggest an improvement in the D.C./Beijing dialogue, no doubt a positive headline,” she said, in an email. “We could find out what happens from a presidential tweet or from the Department of Commerce, which has jurisdiction over the issue.”
Barring a late-day reversal, DJIA’s streak of Down Friday/Down Monday (DF/DM) will end today at two in a row. Recently we examined the record of past DF/DM occurrencesand noted that a quick DJIA recovery to pre-DF/DM levels was usually positive as it typically meant the worst of the decline was likely over. Today we delve deeper into the history of two or more DF/DMs in a row.
Excluding the most recent occurrence, there have been two or more consecutive DF/DM’s 39 times since 2000. Of these 39, only four occurrences included three in a row. Using the last DF/DM of the streak as the starting point, the average decline from a subsequent high (within seven calendar days of Monday’s close) to the low sometime during the next 90 calendar days was 6.05% and all but three occurrences suffered a subsequent decline. Using Monday’s close as the refence point, the average decline was 4.53%. Only six of the 39 occurrences did not close lower than Monday’s close. The average number of calendar days until the low was reached was 45.
(CLICK HERE FOR THE CHART!)
Looking at the 30 trading days before and the 60 trading days after Monday’s close of the last DF/DM of the streak, the patterns are similar to single DF/DM occurrences. If DJIA did not make a quick recovery to pre-DF/DM levels, then DJIA tended to struggle and drift lower.
(CLICK HERE FOR THE CHART!)
Unless you have been asleep for most of the day in preparation for an upcoming midnight shift, you have probably already heard, over and over, how the 10-year Treasury bond yield falling below the 2-year Treasury bond yield has a perfect record in recent years of forecasting a recession sometime in the future. The result was declines exceeding 3% by DJIA and NASDAQ. S&P 500 just missed this mark falling 2.9%. Since 1971, when NASDAQ began, this combination of losses or worse has only occurred 66 times prior to today. And of these 66 times, 25 occurred during the financial crisis bear in 2008 and early 2009.
Plotting the 30 trading days before and 60 trading days after past occurrences reveals (top chart) initial steep and brisk declines followed by modest average gains over the following 60 trading days (approximately three calendar months). However, market performance did pick up nicely at the 6-month and 12-month later points and the frequency of gains also improved. The market could be in for more choppy trading especially in the often-turbulent months of August, September and October.
(CLICK HERE FOR THE CHART!)
(CLICK HERE FOR THE CHART!)
(CLICK HERE FOR THE CHART!)
As shown in the LPL Chart of the Day, the spread between the 2-year and 10-year Treasury yields fell as low as -2 basis points (-0.02%) in trading on August 14.
(CLICK HERE FOR THE CHART!)
Typically, yield curve inversion, when long-term yields fall below short-term yields, is viewed as a signal of oncoming recession, although often with a relatively long lead. In the past five economic expansions, the U.S. economy has peaked an average of 21 months after the spread between the 2-year and 10-year yields initially turned negative.
U.S. Economy Remains on Solid Footing
Even though we’re discouraged by the yield curve’s shape right now, we see few signs of danger ahead. Data shows the U.S. economy is on solid footing, and corporate debt spreads have remained contained in this latest bout of volatility. Financial conditions are still historically loose, yet there are few signs of excess in the financial system. U.S. stocks have also been resilient against yield curve inversions in the past: Historically, the S&P 500 Index has rallied an average of 22% from the first inversion to the eventual economic peak.
“We’re not convinced that this yield curve inversion is a sign of imminent recession,” said LPL Research Chief Investment Strategist John Lynch. “The U.S. labor market is at full employment, healthy wage growth is fueling strong consumer activity, and corporate profits are at record levels.”
Global Perspective
Of course, recessions can be self-fulfilling prophecies of market sentiment, and we take that risk seriously. However, it’s a curious time for global fixed income right now, and Treasury yields have been weighed down by intense global buying pressure amid ultra-low sovereign debt yields elsewhere. Because of this, we think the yield curve’s shape has been driven more by technical factors than domestic economic weakness.
Monetary Policy Remains Too Tight
This yield curve inversion sends an important signal to Federal Reserve (Fed) policymakers. U.S. monetary policy is clearly still too tight, even after last month’s 25 basis point (0.25%) rate cut, given trade uncertainty and signs of slowing global growth. The Fed has promised flexibility, and we expect policymakers to enact one or two more cuts by the end of the year. Without an easier Fed, the U.S. dollar may stay elevated and global buying pressure will continue in Treasuries.
What’s Next?
We will continue to monitor the yield curve and incoming economic data. For now, we think the current U.S. economic expansion, now in its 11th year, has more room to run.
We continue to believe there is technical support for the S&P 500 Index as discussed in our August 9 blog, and we’re already seeing some signs of the pessimism that is necessary for forming a bottom. The negative sentiment intensified August 14 following the inversion of the yield curve (discussed in our August 14 blog), so today we want to take a closer look at some key levels the LPL Research team is watching.
(CLICK HERE FOR THE CHART!)
First is resistance, or levels that an index or stock may struggle to rise above. Despite Tuesday’s 1.5% gain, the S&P 500 ran right into its 50-day moving average near 2,940. This level also marked the 2018 highs for the market, adding to its significance.
As for support, or levels at which we think buyers are likely to step into the market, there are three key levels we are watching: 2,822. The intraday low from August 5 is only about 1% below Wednesday’s close, but it may be viewed by short-term traders as a tactical way to gauge whether we have hit the bottom in this current pullback. 200-day moving average. Currently at 2,796, the 200-day moving average is a closely watched trend indicator that is commonly viewed as either support or resistance, depending on where the index sits in relation to it. 2,740. Perhaps the strongest level of support for the S&P 500 is 2,740. As seen in the LPL Research Chart of the Day, Key Levels for the S&P 500 Index, this benchmark has actually tested 2,740 two times so far this year, but it failed to close below that level either time. 2,740 also happens to be 9.5% below the July highs, right in line with a standard 10% correction. “We believe a retest of the December lows remains unlikely,” said LPL Chief Investment Strategist John Lynch. “We think any decline beyond 10% from recent highs would be excessive, and we would recommend that suitable investors rebalance and add to positions accordingly if the S&P 500 falls that far.”
Monday 8.19.19 Before Market Open:
(CLICK HERE FOR MONDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Monday 8.19.19 After Market Close:
(CLICK HERE FOR MONDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
Tuesday 8.20.19 Before Market Open:
(CLICK HERE FOR TUESDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Tuesday 8.20.19 After Market Close:
(CLICK HERE FOR TUESDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
Wednesday 8.21.19 Before Market Open:
(CLICK HERE FOR WEDNESDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Wednesday 8.21.19 After Market Close:
(CLICK HERE FOR WEDNESDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
Thursday 8.22.19 Before Market Open:
(CLICK HERE FOR THURSDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Thursday 8.22.19 After Market Close:
(CLICK HERE FOR THURSDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
Friday 8.23.19 Before Market Open:
(CLICK HERE FOR FRIDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Friday 8.23.19 After Market Close:
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Baidu, Inc. (BIDU) is confirmed to report earnings at approximately 4:30 PM ET on Monday, August 19, 2019. The consensus earnings estimate is $0.92 per share on revenue of $3.78 billion and the Earnings Whisper ® number is $1.03 per share. Investor sentiment going into the company's earnings release has 58% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 70.70% with revenue decreasing by 3.82%. Short interest has increased by 41.3% since the company's last earnings release while the stock has drifted lower by 25.9% from its open following the earnings release to be 36.2% below its 200 day moving average of $151.67. Overall earnings estimates have been revised lower since the company's last earnings release. On Wednesday, July 24, 2019 there was some notable buying of 59,775 contracts of the $165.00 put expiring on Friday, September 20, 2019. Option traders are pricing in a 10.4% move on earnings and the stock has averaged a 6.8% move in recent quarters.
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Home Depot, Inc. (HD) is confirmed to report earnings at approximately 6:00 AM ET on Tuesday, August 20, 2019. The consensus earnings estimate is $3.07 per share on revenue of $31.01 billion and the Earnings Whisper ® number is $3.12 per share. Investor sentiment going into the company's earnings release has 64% expecting an earnings beat. Consensus estimates are for year-over-year earnings growth of 0.66% with revenue increasing by 1.80%. Short interest has increased by 5.6% since the company's last earnings release while the stock has drifted higher by 8.8% from its open following the earnings release to be 6.7% above its 200 day moving average of $190.89. Overall earnings estimates have been revised lower since the company's last earnings release. On Friday, August 16, 2019 there was some notable buying of 15,615 contracts of the $207.50 put expiring on Friday, August 23, 2019. Option traders are pricing in a 4.2% move on earnings and the stock has averaged a 0.6% move in recent quarters.
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Salesforce (CRM) is confirmed to report earnings at approximately 4:05 PM ET on Thursday, August 22, 2019. The consensus earnings estimate is $0.47 per share on revenue of $3.95 billion and the Earnings Whisper ® number is $0.47 per share. Investor sentiment going into the company's earnings release has 81% expecting an earnings beat The company's guidance was for earnings of $0.46 to $0.47 per share. Consensus estimates are for earnings to decline year-over-year by 32.86% with revenue increasing by 20.39%. Short interest has increased by 179.6% since the company's last earnings release while the stock has drifted lower by 8.4% from its open following the earnings release to be 4.0% below its 200 day moving average of $149.81. Overall earnings estimates have been revised lower since the company's last earnings release. On Monday, August 5, 2019 there was some notable buying of 21,894 contracts of the $145.00 call expiring on Friday, September 20, 2019. Option traders are pricing in a 5.8% move on earnings and the stock has averaged a 3.8% move in recent quarters.
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Target Corp. (TGT) is confirmed to report earnings at approximately 6:30 AM ET on Wednesday, August 21, 2019. The consensus earnings estimate is $1.61 per share on revenue of $18.33 billion and the Earnings Whisper ® number is $1.67 per share. Investor sentiment going into the company's earnings release has 75% expecting an earnings beat The company's guidance was for earnings of $1.52 to $1.72 per share. Consensus estimates are for year-over-year earnings growth of 9.52% with revenue increasing by 3.12%. Short interest has decreased by 12.7% since the company's last earnings release while the stock has drifted higher by 9.3% from its open following the earnings release to be 8.8% above its 200 day moving average of $77.40. Overall earnings estimates have been revised higher since the company's last earnings release. On Monday, August 5, 2019 there was some notable buying of 23,882 contracts of the $70.00 put expiring on Friday, October 18, 2019. Option traders are pricing in a 7.1% move on earnings and the stock has averaged a 6.2% move in recent quarters.
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Estee Lauder Companies, Inc. (EL) is confirmed to report earnings at approximately 6:45 AM ET on Monday, August 19, 2019. The consensus earnings estimate is $0.53 per share on revenue of $3.51 billion and the Earnings Whisper ® number is $0.57 per share. Investor sentiment going into the company's earnings release has 61% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 13.11% with revenue increasing by 6.53%. Short interest has decreased by 4.9% since the company's last earnings release while the stock has drifted lower by 0.4% from its open following the earnings release to be 13.3% above its 200 day moving average of $158.22. Overall earnings estimates have been revised higher since the company's last earnings release. On Friday, August 16, 2019 there was some notable buying of 1,514 contracts of the $175.00 put expiring on Friday, September 20, 2019. Option traders are pricing in a 5.7% move on earnings and the stock has averaged a 4.9% move in recent quarters.
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iQIYI, Inc. (IQ) is confirmed to report earnings at approximately 4:30 PM ET on Monday, August 19, 2019. The consensus estimate is for a loss of $0.59 per share on revenue of $1.06 billion. Investor sentiment going into the company's earnings release has 65% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 31.11% with revenue increasing by 13.67%. Short interest has increased by 22.5% since the company's last earnings release while the stock has drifted lower by 10.6% from its open following the earnings release to be 16.0% below its 200 day moving average of $20.34. Overall earnings estimates have been revised lower since the company's last earnings release. On Friday, August 9, 2019 there was some notable buying of 2,500 contracts of the $45.00 call expiring on Friday, January 15, 2021. Option traders are pricing in a 11.2% move on earnings and the stock has averaged a 8.8% move in recent quarters.
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Weibo Corporation (WB) is confirmed to report earnings at approximately 6:15 AM ET on Monday, August 19, 2019. The consensus earnings estimate is $0.56 per share on revenue of $429.38 million and the Earnings Whisper ® number is $0.56 per share. Investor sentiment going into the company's earnings release has 56% expecting an earnings beat The company's guidance was for revenue of $427.00 million to $437.00 million. Consensus estimates are for earnings to decline year-over-year by 16.42% with revenue increasing by 0.65%. Short interest has increased by 52.9% since the company's last earnings release while the stock has drifted lower by 17.6% from its open following the earnings release to be 33.5% below its 200 day moving average of $55.77. Overall earnings estimates have been revised lower since the company's last earnings release. On Monday, August 5, 2019 there was some notable buying of 4,546 contracts of the $30.00 put expiring on Friday, September 20, 2019. Option traders are pricing in a 11.1% move on earnings and the stock has averaged a 7.9% move in recent quarters.
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Kohl's Corporation (KSS) is confirmed to report earnings at approximately 7:00 AM ET on Tuesday, August 20, 2019. The consensus earnings estimate is $1.51 per share on revenue of $4.49 billion and the Earnings Whisper ® number is $1.51 per share. Investor sentiment going into the company's earnings release has 30% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 14.20% with revenue decreasing by 1.75%. Short interest has decreased by 31.2% since the company's last earnings release while the stock has drifted lower by 17.7% from its open following the earnings release to be 26.9% below its 200 day moving average of $62.28. Overall earnings estimates have been revised lower since the company's last earnings release. On Thursday, August 15, 2019 there was some notable buying of 5,014 contracts of the $47.00 call expiring on Friday, August 23, 2019. Option traders are pricing in a 10.4% move on earnings and the stock has averaged a 7.2% move in recent quarters.
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Lowe's Companies, Inc. (LOW) is confirmed to report earnings at approximately 6:00 AM ET on Wednesday, August 21, 2019. The consensus earnings estimate is $2.03 per share on revenue of $21.00 billion and the Earnings Whisper ® number is $1.99 per share. Investor sentiment going into the company's earnings release has 53% expecting an earnings beat. Consensus estimates are for earnings to decline year-over-year by 1.93% with revenue increasing by 0.54%. Short interest has increased by 24.9% since the company's last earnings release while the stock has drifted lower by 7.2% from its open following the earnings release to be 6.1% below its 200 day moving average of $100.00. Overall earnings estimates have been revised lower since the company's last earnings release. On Friday, August 16, 2019 there was some notable buying of 3,368 contracts of the $90.00 put expiring on Friday, August 23, 2019. Option traders are pricing in a 6.9% move on earnings and the stock has averaged a 7.1% move in recent quarters.
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Splunk Inc. (SPLK) is confirmed to report earnings at approximately 4:00 PM ET on Wednesday, August 21, 2019. The consensus earnings estimate is $0.12 per share on revenue of $486.70 million and the Earnings Whisper ® number is $0.16 per share. Investor sentiment going into the company's earnings release has 76% expecting an earnings beat The company's guidance was for revenue of approximately $485.00 million. Consensus estimates are for year-over-year earnings growth of 71.43% with revenue increasing by 25.34%. Short interest has increased by 34.2% since the company's last earnings release while the stock has drifted lower by 0.8% from its open following the earnings release to be 2.9% above its 200 day moving average of $121.28. Overall earnings estimates have been revised higher since the company's last earnings release. On Monday, August 5, 2019 there was some notable buying of 760 contracts of the $135.00 call expiring on Friday, September 20, 2019. Option traders are pricing in a 8.8% move on earnings and the stock has averaged a 7.9% move in recent quarters.
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