1. Dow Jones Takes A Dive
Those of you that were long in the market yesterday would have noticed a pretty spectacular, but distressing, turn of events when the market quickly erased its early gains before sinking into a sea of red. But what was the cause?
As per usual, the culprit was poor economic data mixed with fading optimism about trade negotiations. Weak construction spending managed to push economists to believe that GDP growth forecasts will fall short of expectations for the fourth quarter, sparking a knee-jerk sell-off.
All major US indexes fell yesterday after opening in the green with the Dow Jones, S&P 500 and Nasdaq closing 0.8%, 0.6% and 0.2% respectively while the VIX spiked almost 5%. Ouch! The effects of the sell-off were felt the most in some of the top performing sectors in the last two months, including technology, financials and healthcare.
United Health (-4.1%), Salesforce.com (-6.52%) and AT&T (-2.7%) were among the worst affected by the fallout. The key takeway from all of this is that the markets are still very vulnerable to bad news, and that while the end of the trade war may be in sight, there is still a lot of work to be done.
In times like these it’s always good to remember that the market likes to take the stairs up and the elevator down. The best way to handle it is by diversifying broadly and keeping your cool. Happy investing!
2. Sterling Makes Some Headway
After a crazy few weeks of Brexit madness, analysts are starting to see signs of strength on the horizon for the Pound. Finally a reason for the Brits to smile!
Statisticians have been crunching the numbers and noted a dramatic reduction in the risk of a no-deal catastrophe with the probability falling to a mere 9%. The most likely scenario stands at a 54% chance that the deadline will be pushed out past March 29th, followed by a 37% likelihood that May’s deal makes it through Parliament.
Both outcomes are deemed to have significant upside for the Pound with a delay likely to drive an appreciation into $1.33 territory and a deal passing through parliament going even further to near $1.38. That’s some pretty nice upside!
Since the start of 2019, the Pound has rallied 4% against the dollar and 5% against the Euro and it seems more growth may be in store. The options market has flagged increased activity in upside bets on the pound as many managers start to unwind their Brexit catastrophe hedging measures.
Overall, the tide seems to be turning in favour of the Pound while the Euro sags under the stress of weak economic data, a possible return to quantitative easing and internal political disruptions. Never a dull day in European politics!
Today we are watching…
1. Urban Outfitters (#urban)
US clothing brand, Urban Outfitters, is looking weak today ahead of its earnings. The share is down a whopping 60% from its 52 week high in August 2018 with more potential losses likely if the company misses estimates today. Despite its endeavours to improve its digital footprint, wholesale operations and store aesthetics, its expenses look set to increase significantly. Analysts are leaning towards the probability of an earnings miss today. So keep an eye on this one.
2. Kohl’s (#kss)
Kohl’s is also treading on uncertain grounds ahead of its earnings today, with analysts on the fence about its chances of pulling off an earnings beat today. The company has had a choppy year of trading and faces an improved fiscal outlook, but also significant challenges in terms of its cost structure. Kohl’s has been deepening its ties with Amazon which is set to benefit the company extensively and could well be its saving grace in 2019. The consensus EPS estimate is $2.18 (9.5%) on revenue of $6.68bn (-1.5%).
