Market Rally Interrupted By Sell-Off Reaction To Saudi Journalist News

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Posted: Oct 16, 2018 10:06 AM
Market Rally Interrupted By Sell-Off Reaction To Saudi Journalist News

It was another rollicky session for the market on Monday, as the Dow Jones Industrial Average spent most of the session crossing the unchanged line. I was impressed that successive rallies took out the highs from the previous rally attempt. However, the markets sold off as news was crossing the wire that the Saudi royal family was readying a report owning up to their security forces committing the atrocious murder of Jamal Khashoggi.

Apparently, the report will say the murder wasn’t the intention of those that green-lighted the operation but rather committed by overzealous operators who went rogue.

Widows & Orphans

Even at the highs of the session, investors were largely focused on safe havens sectors that used to be called “widows and orphans.”  Consumer Staples consists of large companies without any pricing power. However, household names with steady cash flows joined Real Estate and Utilities that rallied higher on the day.

Industrials were higher on strength in defense contractors, airlines, and rail operators. After the close, J.B. Hunt Transport Services (JBHT) posted financial results that largely beat the Street, but the operating margins for the two largest business units were lower.

S&P 500 Index

-0.59%

Communication Services (XLC)

-0.39%

Consumer Discretionary (XLY)

-0.23%

Consumer Staples (XLP)

+0.61%

Energy (XLE)

-0.84%

Financials (XLF)

-0.45%

Health Care (XLV)

-0.69%

Industrials (XLI)

+0.19%

Materials (XLB)

-0.33%

Real Estate (XLRE)

+0.62%

Technology (XLK)

-1.64%

Utilities (XLU)

+0.47%

The big loser of the session was Technology. It’s remarkable that the degree of selling in these tech names, which seemed unstoppable just a month earlier. There was no doubt these stocks would give some back at some point, but this was a real free fall. From a long-term macro point of view, the party is just getting started in new tech:

  • Cloud
  • IOT
  • Big Data
  • AR/VR
  • Autonomous Cars
  • Robots
  • Learning Machines

Earnings Trends

We are following earnings consensus trends closely, and some are beginning to pull back, although most are still significantly higher than estimates three months ago. Ironically, Apple (AAPL) is still seeing improvements in its earnings consensus, but took it on the chin more than the rest of tech yesterday.

Big Tech Earnings Trends

Current

Week Ago

90-Days Ago

Facebook

$8.30

$8.32

$9.27

Apple

$13.72

$13.71

$13.25

Amazon

$25.32

$25.34

$20.22

Netflix

$4.36

$4.36

$4.65

Alphabet

$47.92

$48.01

$47.43

Microsoft

$4.93

$4.93

$4.61

NVidia

$7.99

$8.03

$7.87

After the close, Adobe (ADBE) updated its financials with revenue and earnings slightly below consensus but there was strong growth in all of their businesses (FY19 revenue +20% against consensus +19.3%).

  • Digital Media +20%
  • Digital Experience +20%

The addressable market is expected to edge to $108 billion in 2021 from $83 billion in 2020. 

Technical Hurdle

For technology and the NASDAQ, the key is getting back above the 200-day moving average on the chart, which means a close above 7506.

NASDAQ Composite

The S&P 500 has also tripped below its 200-day moving average after Friday’s rebound attempt fell short. The key number today is 2767. 

S&P 500

Today's Session

Earnings reports this morning are helping to lift the markets higher.  Goldman Sachs (GS), Morgan Stanley (MS), and Johnson and Johnson (JNJ) beat and are indicating higher. BlackRock (BLK) beat on earnings, but their sales missed and the stock is down by 4%.

Let's see if the market can build on the positive momentum into the open and on the day.