[heard on the street] 20181022-20181028

MACROECONOMY

U.S

BUSINESS CONFIDENCE: continues to strengthen, and hiring is accelerating. Business activity is at 3-year high.

GDP

Economists surveyed by The Wall Street Journal forecast GDP growth of 3.4% in the preliminary reading.

HOME SALES

MANUFACTURING

LABOR

TRADE

CHINA

OVERALL

GDP

FIXED ASSET INVESTMENT

growth

by sector

TRADE

Beijing is again relying on state-owned enterprises to generate growth

GOVERNMENT FINANCE

EQUITY

U.S

INDEX LEVEL

S&P 500

Nasdaq down more than 10%.

The U.S. equity outperformance v.s. the rest of the world has stopped.

small caps are approaching bear-market territory.

consumer confidence

VOLATILITY

Wed, the VIX closed above 25 for the first time since Feb Volmageddon.

VIX futures

DAILY TRACKER

Oct 22

After initially opening higher, mounting losses among Goldman Sachs Group, Exxon Mobil and other financial and energy firms sapped the Dow industrials of an early gain, eventually pulling the blue-chip index down 208 points.

A combination of worries—from ongoing trade tensions to concerns about Italy and fresh geopolitical tensions between the U.S. and Saudi Arabia—have made October one of the most volatile months for stocks this year, knocking the Dow industrials off more than 5% from its early-October record high.

The Nasdaq Composite, however, added 0.3%, as technology and other growth companies fared better.

Oct 23

Volatility returned in force to the stock markets Tuesday, sending the Dow Jones Industrial Average tumbling almost 550 points before it. But by the close it was down barely 125, erased nearly all of those losses in the final hours of the trading day.

The Dow industrials slid almost 2% before recovering to finish with a 0.5% loss, and the Nasdaq and S&P 500 traced similar paths. October has a reputation for stock-market volatility, and so far this month it is definitely living up to it.

The S&P 500 fell 0.6% to 2740.69, extending its losing streak to five straight trading sessions, while the Nasdaq Composite shed 0.4% to 7437.54.

Oct 24

An October stock-market rout deepened Wednesday, with an intense late-day selloff sending the Dow industrials into the red for the year and putting the Nasdaq Composite Index down more than 10% from its recent high.

The Nasdaq Composite plunged into correction territory for the first time in more than two years, the latest sign of wavering investor confidence in the technology stocks that have powered the most recent leg of the bull market.

The weakness in the technology sector infiltrated other corners of the market, with the Dow Jones Industrial Average slumping more than 600 points. The blue-chip index and S&P 500 erased all of their 2018 gains.

The tech-heavy index tumbled 4.4%, its biggest one-day loss since August 2011. Netflix Inc. fell 9.4%, its biggest one-day drop since July 2016. Amazon, Alphabet, Facebook and Microsoft all slumped.

Wed is a tough day for U.S. stock as S&P 500 gave up 3% and is now down for the year. Concerns about a slow down in earnings growth, tariffs, higher rates, a stronger US dollar, and global economic weakness are some of the macro themes. Worries about global growth and peaking corporate earnings have recently buffeted stocks around the world, along with commodities. Wednesday’s selloff was driven by the tech sector but accelerated into a rout that sent industrials, financials and materials shares sprawling.

Oct 25

U.S. stocks rebounded sharply Thursday after a bruising start to the week, pushing the S&P 500 and Dow Jones Industrial Average back into the black for the year.

A handful of upbeat corporate reports helped calm investors’ nerves, with shares of Microsoft, Twitter, Tesla , TSLA 5.09% Ford and VisaV -1.98% climbing after releasing stronger-than-expected results. Thursday seemed more like a relief rally following Wednesday’s big selloff, traders said.

The Dow industrials added 401 points, or 1.6%, to 24985, after tumbling more than 600 points Wednesday. The S&P 500 rose 1.9%. The Nasdaq Composite added 2.95%, following the worst day for U.S. tech stocks since 2011.

Investors have been grappling with a range of uncertainties that have unsettled markets, including rising interest rates, concerns that earnings might have peaked and the possibility that trade tensions have weakened Chinese and global economic growth.

Oct 26

Global stocks dropped Friday, dragged lower by lackluster technology earnings in the U.S. and signaling a return to the negative mood that has dominated markets for most of the week.

After Thursday’s rally on Wall Street, U.S. futures pointed to opening declines of 0.9% and 1.1% for the Dow Jones Industrial Average and the S&P 500, respectively. The Dow Jones Industrial Average closed down around 300 points on Friday as investors continued a retreat from risky assets.

A bad Friday capped off a bad week in the stock market. Shares of tech firms and other fast-growing companies led the decline as investors reacted to disappointing results from Google parent Alphabet and Amazon.com.

Sales at Amazon.com and Google parent Alphabet disappointed investors, sending the two tech behemoths’ stocks down. The results dragged on other large tech names, including shares of Facebook, Netflix and Apple. Shares of Amazon slumped 8%, while Alphabet fell 2.7%. Facebook, Netflix and Apple each dropped more than 1.5%.

BY SECTORS

BANKS

bank shares get slammed/plunged, with regional banks lagging the overall banking index, mainly due to investors' increasing concern about the lower loan growth.

On wed, bank stock got slammed again, widening the sector's underperformance.

US investment banks outperformed European peers on equity deals and IPO.

TECH

Bounced on Mon, helped by Amazon

Although black Wed, there were other high-profile positive earning surprises that drove up the stock price, such as Microsoft and Tesla.

Thursday, google and other tech stocks outperformed Nasdaq 100.

ENERGY

continue to underperform as the crude oil rally stalls

DEFENSIVE SECTORS: experiencing inflows

(1) UTILITIES

(2) CONSUMER

McDonald’s strong third-quarter results Tuesday pushed its shares up sharply.

CYCLICAL SECTORS: underperformed

(1) SEMICONDUCTORS: suffered from the worst month since the great recession

(2) ADVANCED MICRO DEVICES (AMD)

(3) INDUSTRIAL

(4) TRANSPORTATION

(5) MANUFACTURING

Manufacturers see signs of new risks. Rising costs, a stronger dollar and concerns over growth in China led to a selloff affecting shares of 3M, Caterpillar and other industrial bellwethers.

CHINA

AISA OVERVIEW

hong kong stock market continues to sink.

Chinese stock soared for a second day as officials talked up the economy and released new details on proposed personal income tax cuts. The Shanghai Composite has surged nearly 7% since Thursday, when the Chinese benchmark closed at its lowest in nearly four years.

The tax proposals would boost household consumption modestly next year. China was likely to see a pickup in public investment in the next month or two.

Major indexes in Shanghai, Japan and Hong Kong slumped Tuesday after Chinese officials moved to ramp up financing for private businesses, the latest step to try to stabilize the country’s financial markets.

The Chinese stock market’s sharpest two-day advance since 2015, over the previous two sessions, proved short-lived despite coordinated efforts from leaders and regulators to calm investors.

RATES

U.S

The Fed is raising rates and investors are naturally worried about what might happen if the central bank gets the economy wrong.

muni bonds are more stable compared with treasuries.

treasury holders

treasury yield curve

Oct 23: The yield on the benchmark 10-year U.S. Treasury note settled at 3.166%, down from 3.196% Monday but well off its low for the day.

foreign investor demand for longer-dated treasuries has slowed.

fed fund rate

LOBOR-OIS (overnight indexed swap) spread is no longer declining.

junk bond yields: have been climbing this month.

holdings and flows

IRS

CHINA

inflows into China's domestic bond market have slowed sharply.

CURRENCY

INFLATION: for advanced economics

USD
Dollar continued to grind higher

higher dollar + rising treasury yield and bond spread = tightened financial conditions in U.S.

CNY: continues to drift lower

A weakening yuan is likely to help Chinese exporters that price their goods in dollars but pay most costs in their home currency. However, the decline may add to tensions between the U.S. and China. Both countries have placed billions of dollars worth of tariffs on each other’s goods.

The currency weakness came amid stock-market volatility this week that started in China and quickly went global. The Shanghai Composite jumped 4.1% on Monday and slid 2.3% on Tuesday, then seesawed through the rest of the week. Major U.S. indexes swung wildly on Wednesday and Thursday.

BITCOIN

COMMODITY

GOLD: continues to recover

CRUDE OIL: tumbled on the news

This Tuesday, crude oil posted its biggest one-day loss since July, declining 4.2% to $66.43 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, dropped 4.2% to $76.44 a barrel.

others

midterm election

Mr. Trump’s job-approval rating rose to a new high of 47%, with 49% disapproving of his performance, compared with 44% approval and 52% disapproval in September.

hong kong, zhuhai, macau bridge

The world’s longest sea bridge opened on Tuesday, snaking 34 miles across China’s Pearl River estuary to form a pillar of Beijing’s plan to merge 11 cities, 70 million people in its southern region into one megalopolis. The links are part of a plan to create an integrated region that officials have dubbed the “Greater Bay Area.” The bridge will put Hong Kong, Macau and the Chinese city of Zhuhai within an hour of each other.

TRADE TALKS

The U.S. is refusing to resume trade negotiations with China until Beijing comes up with a concrete proposal to address Washington’s complaints about forced technology transfers and other economic issues, said officials on both sides of the Pacific.

The impasse threatens to undermine a meeting between Presidents Trump and Xi Jinping scheduled for the end of November at the Group of 20 leaders summit in Buenos Aires.

U.S. and Chinese efforts to get trade talks restarted are going nowhere. Washington won’t negotiate unless Beijing gives the U.S. a firm proposal to address subsidies, forced technology transfers and other issues. Beijing won’t produce a plan unless the two sides talk first. The result: no trade talks, no trade proposals and an impasse that threatens to undermine a meeting of the Presidents Trump and Xi Jinping in Buenos Aires.

TECH EARNING SEASONS

If earnings season is the football playoffs, then yesterday was pretty darn close to the Super Bowl. Two of the largest and most influential companies in the world, Alphabet and Amazon, reported, and so did two much smaller (but still influential) tech firms, Snap and Twitter.

Amazon

High level: Amazon chugged along on its profit streak, snagging a fourth-straight quarter of putting more than $1 billion in the bank. The final figure? $2.88 billion in profit, up from $256 million a year ago.

Drilling down: Even with nine zeros on your bottom line, top-line numbers can still hurt. Amazon stock slumped ~9% after hours, mostly because it forecasted lower-than-expected holiday season sales and reported disappointing Q3 revenue of $56.58 billion (but jeez that's a lot of money).

Bottom line: Amazon's focused on high-margin businesses (like AWS, where revenue surged 46% in Q3). Those help offset the costs that come with global expansion and pre-holiday-season logistics.

Alphabet

High level: Google's parent (-5% after hours) was under the microscope in Q3, using one hand to fight a record fine from the EU and the other to deal with the scrutiny of its privacy practices from U.S. lawmakers. And wouldn't you know, revenue missed estimates for the quarter.

Drilling down: "Traffic Acquisition Costs" (or TAC) came in at 23% of ad revenue, unchanged from last quarter. That's what Google pays out to other manufacturers to use its services, and there's concern growing partner payouts could squeeze margins.

Bottom line: That news was somewhat overshadowed by a NYT report that Andy Rubin, the creator of Android, was given a $90 million exit package when he left in 2014. That exit followed allegations of sexual misconduct.

Twitter

High level: Twitter saw Q3 monthly active users fall by nine million to 326 million. That's the steepest decline ever and more than Twitter was bracing for.

Drilling down: Despite a shrinking user base, Twitter extracted more money from those it's got remaining. Revenue climbed 29% to $758.1 million—the biggest jump since Q1 of 2016.

Bottom line: Twitter stock's 15% surge yesterday shows investors just may be getting used to the idea of separating user growth from business performance.

Snap

High level: *See Twitter* But seriously, the headlines are nearly identical. Snap (-8% after hours) reported a second-straight quarter of declining user numbers, but...

Drilling down: Revenue rose 43% to $297.7 million—the most money Snap has ever made in a quarter. That's due in large part to a shift to programmatic ad sales from relationship-based ad sales.

Bottom line: That February redesign seriously didn't do Snap any favors, but don't count it out just yet (maybe). CEO Evan Spiegel has reportedly set a goal for Snap to achieve profitability as a public company for the very first time in 2019.

+ Don't worry, we didn't forget about you, Intel (+3.25% after hours).The tech giant toppled expectations on earnings and revenue, plus offered optimistic full-year guidance.