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It was a bloody day in markets today, as the Nasdaq closed down 160bps and the S&P closed down 92bps.
This is the first day of meaningful selling since October 14th, when ASML reported terrible earnings, which sent chip stocks spiraling.
Today was one of those days of selling that no one can quite explain. People have blamed resurgent 10y yields fear of TSLA and MAG7 earnings, but nothing is persuasive.
Those are the most difficult days to trade.
Interestingly, we rallied in the last hour or so to end substantially off the lows.
I made a few trades today that I’ll discuss at the end of this note, particularly one around last night’s expose. If you haven’t read that, check it out here:
But first, I wanted to take the opportunity to talk about earnings and the economy.
Economy
The economy continues to slowly improve or hold firm. The Conference Board released their monthly update to the Leading Indicator Index this week, showing a slight improvement from September.
Meanwhile, their coincident indicator index continues to show a stable economy.
My proprietary Fed indicator aggregates data that the Fed watches in an effort to get an idea of their view of the economy. It shows something similar to the Leading Index, ticking up slightly off the lows. It booked its first MoM improvement since February.
Here it is plotted against real GDP growth, which is at a firm 3%.
Same story with the Citi Economic Surprise Index.
These numbers are back or almost back to healthy levels and trending in the right direction.
Earnings
I wrote on Sunday that Q3 earnings season would kick off with a bang this week. I suggested that we might be looking at earnings growth of almost 30% YoY this quarter.
With 22/100 companies reporting and some of the biggest companies seeing significant earnings beats, the index’s revenue is growing at 22.56% YoY.
How do you justify P/E ratios being as high as they are?
With this level of growth.
Tesla earnings after the bell today have sparked a serious rally, with NQ futures up 55bps as I’m writing this.
Every indication so far is that earnings will continue to surprise to the upside in tech.
The situation in SPX is a little less exciting.
SPX is seeing just 3.5% YoY growth this quarter, held down by materials and industrials.
Note the single biggest growth sector: Tech.
While we’re here, let’s check in with RTY.
Growth of 1.48%, with Tech at -6.41%. A good view on why no one wants to own small-caps.
wrote a great piece about the market as a casino, and how he no longer has any interest being in the “second tier” casino.I think that’s an astute point. From a vibes and momentum point of view, you want to be in the top-tier casino.
Interestingly, the earnings data says the same thing: We want to own the winners in this market.
Anything else is just a waste of our time.
The Trades
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