(Bloomberg) -- Things are undoubtedly less tense this morning than yesterday, as Italy jitters are starting to ease after two successful (and oversubscribed) bond auctions. S&P futures are paying more attention to this development versus any flare-up in the trade war talk, as the e-minis are at overnight highs and signaling an open back above the low end of our recent range of 2,700-2,740. Notably, the 10-year yield has boomeranged back ~12bps to 2.88%.
But there was a flare-up (or "flip-flop," in China’s words), with the WSJ reporting that the talks in Beijing may be derailed after another tariff threat from the U.S. These types of headlines would have spooked the market in the past few weeks, at least temporarily, but so far its an absolute shrugfest -- this may change if Italy fears continue to subside and trade concerns revert back to the dominant conversation piece for this tape.
Though as I write this, headlines are crossing from state radio that China is cutting tariffs on a whole host of consumer products, so perhaps this offsets things, assuming there is anything to offset as the spoos just doesn’t seem to be ticking either way. In the meantime, the narrative from the last couple weeks holds, in that this market appears to want to go higher, or at the very least remain rangebound, as any selloffs related to concerning headlines (trade, Korea, Italy, etc.) are bought in a fairly quick fashion.
A Moral Victory for the Bulls
While the S&P 500 creeped lower all Tuesday without any significant sign of a bounce, save for a couple pathetic attempts, I’d look at the session as a moral victory (even though some say there is no such thing) for the stock market given:
- 1) We didn’t go out at lows, thanks to an ~12 handle reversal in the last half hour of trading
- 2) While we did break below our recent range of 2,700-2,740, we did not breach the next support at the 50-day moving average ~2,672, and any real move to the upside in the next day or two would easily make Tuesday look like a mere blip in the grander scheme of things
- 3) We didn’t experience the volatility, the panic or the safety haven bid that ran rampant in other asset classes, like the rout in Italian bonds, or in some trading instruments, like the VIX shooting up more than 40% at one point
- 4) The leadership that we’ve become accustomed to from the tech sector didn’t falter, in fact the group outperformed on a day when traders should have been rotating hand-over-fist into the most defensive groups -- MU, AMAT, FB, AMZN, TWTR all finished in the green, while CRM ripped nearly 5% last night on an earnings beat and looks poised to open at a record
By far the biggest area of pain was in the banks, where the BKX index got bludgeoned to the tune of 3.9% to close just below its 200-day moving average. The group took its cue from a dramatic pullback in treasury yields and some less-than-sanguine commentary from some of the biggest names presenting at the Deutsche Bank financials conference. Traders will remain fixated on every tick of the 10-year yield in addition to commentary from WFC, BAC, and USB, among others, at the Deutsche event and the first day of the Bernstein Strategic Decisions conference.
Notes From the Sell Side
Some of the biggest calls so far..
Keybanc is positive on DRAM pricing trends, and thus reiterates its overweight on MU, one of the strongest stocks in this tape with shares soaring 36% month-to-date..
Goldman has a couple sector notes out, recalibrating ratings in the metal and steel space (upgrading ATI to neutral, downgrading AKS to sell) as well as turning incrementally more cautious on near-term solar fundamentals after meetings in China (reiterating sell on SEDG and JKS)..
BofAML added TGT to its US1 list on confidence in the company’s same-store sales outlook.. Credit Suisse slashed its rating on ABBV to an underperform on Humira longevity concerns..
And Morgan Stanley keeps hammering in-flight media provider GOGO (they’ve been underweight since late 2013!), cutting its price target to $3 (or 42% downside to Tuesday’s close) on business model and funding uncertainty..
Tick-by-Tick Guide to Today’s Actionable Events
- Today -- Sohn conference in Hong Kong with Blue Orca, Oasis Management, and others
- 7:00am -- DSW earnings
- 7:30am -- DKS, CHS, DAKT earnings
- 8:00am -- Germany CPI
- 8:00am -- ADI earnings
- 8:00am -- MCD, MA, USB, DAL, JNPR, EOG at Bernstein Strategic Decisions CEO conference
- 8:15am -- ADP employment change
- 8:30am -- GDP, PCE, wholesale inventories, advance goods trade balance
- 9:00am -- C, CSX, SYY, DPZ, BIIB at Bernstein conference
- 9:00am -- WFC at Deutsche Bank financials conference
- 9:40am -- FEYE at Cowen TMT conference
- 10:00am -- LMT, CLX, ECL, AGN, APA, SLCA at Bernstein conference
- 10:15am -- AMD at Cowen TMT conference
- 10:30am -- CA analyst meeting
- 10:50am -- TSLA, OLED at Cowen TMT conference
- 11:00am -- WMT annual meeting
- 11:00am -- TRMB investor day
- 11:00am -- EAT, SAGE at Bernstein conference
- 11:20am -- HD at RBC consumer & retail conference
- 12:00pm -- AMZN annual meeting
- 12:40pm -- BX at Deutsche Bank financials conference
- 2:00pm -- Fed Beige Book
- 2:00pm -- LVS, HII, CGNX at Bernstein conference
- 2:10pm -- MTCH at Cowen TMT conference
- 3:00pm -- Fed holds open board meeting to discuss Volcker Rule changes
- 3:00pm -- AMAT, BX, STI, ALB, STI, MKC at Bernstein conference
- 4:00pm -- BAC, HPE, UAL, MOS, WGP at Bernstein conference
- 4:05pm -- BOX, KEYS, TLYS earnings
- 4:15pm -- GES, PVH earnings
- 4:30pm -- API oil inventories
- 4:30pm -- SMTC earnings
- 8:00pm -- Stanley Cup Finals: Capitals at Golden Knights (Vegas leads 1-0)
- 9:00pm -- China PMIs
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