Morning Minutes 10/18/2018

Rising Rates, Sinking Oil Keep Stocks Under Pressure

October 18, 2018
9:00 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

Stock markets around the world are still stuck in reverse, dragged lower by a combination of factors. Dow Futures have been trading down another 100 points or about 0.4%. European indices are flat while in Asia, Shanghai fell 2.3% ahead of tonight’s Chinese retail sales and industrial production reports.

Rising treasury yields have been taking much of the blame for ongoing market declines. Yesterday’s FOMC meeting minutes pointed toward the Fed remaining hawkish and continuing to raise interest rates well into 2019, but this should not have been a surprise to anyone who looked at last month’s Dot Plot of Fed member interest rate forecasts.

The bigger issue to me facing the markets is the inability for stocks to rally for more than a few minutes on good news. For example, in the wake of a stellar earnings report, Netflix opened up 9.3%, but gains faded through the day as investors took profits against the news and the shares finished up 5.3%. Not a bad finish but nothing like the initial burst of enthusiasm and a worrying lack of follow-through.

Today, insurer Travelers has posted strong EPS of $2.54, way above the $2.22 street estimate. This creates another test for the bulls to show whether or not they have the conviction or strength to respond to good news or if the bears still have the upper hand.

Crude oil is under pressure again today with WTI falling 1.7% and dropping well under $70.00/bbl while Brent has fallen 1.8% and dropped under $80.00/bbl. A surprise 6.5 mmbbl build in US oil inventories has knocked prices back down. Energy stocks have been coming off along with energy prices, particularly the drillers and service sector.

Tonight brings earnings reports from American Express and Canadian Pacific. Rogers Communications, Honeywell and SunTrust Banks headline Friday morning’s results.

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