October 23, 2018
9:00 am EDT
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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428
As I had indicated in yesterdayâ€™s Morning Minutes, the China relief rally turned out to be nothing more than a dead cat bounce. Today the bears have taken over again in earnest driving markets downward. While Shanghai falling 2.6% and the Hang Seng dropping more than 3.0% look bad enough, technical breakdowns by the Nikkei (down 2.6%) and the Dax (down 1.8%) appear even more bearish, signaling a broad market retreat.
The US is heading toward a lower open as well with Dow futures down 425 points or 1.7%. Big misses from the Industrials sector indicate that concern companies may not be able to meet inflated expectations was justified and that the next several weeks could see a major readjustment.
Caterpillar is down 6% premarket. EPS of $2.88 were above street $2.85, and sales of $13.51B beat the street, but by maintaining its full year EPS guidance of $11.00-$12.00, the midpoint came in below the $11.65 street estimate. This shows that in the current environment, many investors are looking for any excuse to head for the door.
Harley-Davidson shares have dropped 5% in premarket trading. The motorcycle manufacturerâ€™s earnings bounced back in a big way, as the company reported EPS of $0.68, well above the $0.53 street estimate. Expectations for Harley had already been cut back after last quarterâ€™s big disappointment. Sales, however, continued to disappoint. Although European sales rebounded, a 13.3% drop in US sales from a year ago dragged overall sales down 7.8%. It sure looks like the US tariffs on steel, which have raised the cost of buying autos and motorcycles in the US, are starting to really take their toll. Tomorrowâ€™s results from Ford may provide confirmation.
3M, could come under pressure today as well. The company missed on EPS ($2.58 below street $2.72), sales ($8.20B below street $8.43B) and guidance (full year EPS $9.90-$10.00 below street $10.28), and the street does not appear to be in a forgiving mood. United Technologies also missed estimates, reporting EPS of $1.54, well short of the $1.82 the street had been expecting.
On the positive side, McDonalds beat the street, reporting EPS of $2.10 above the $1.99 consensus analyst estimate.
Amid growing fear and volatility, itâ€™s no surprise that the VIX has popped back above 20 and soared on toward 24, while Gold has rallied 1.25% to approach $1,235/oz. On the other hand, WTI crude oil is down 1.75% under $70 while Brent Crude is back under $80 falling 2.1% after Saudi Arabia indicated it plans to keep the market well supplied and offset the impact of sanctions on Iran even through its political disputes with other countries.
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