- So what triggered the sell-off?
- Inflation less than expected — buy!
- Market is oversold: Here’s what starts the next bounce
- Weather alert: Cold winter could double natgas prices
- Tariffs more costly than… Obamacare?
- Tearing out toilets for tax avoidance… readers write about the health effects of 5G… mainstream vs. 5 Min. coverage of “MBS”… and more!
The market’s free fall has been arrested. At least for the moment.
At last check, the Dow and the S&P 500 are down about a half percent on the day. The Nasdaq is slightly in the green.
It’s a darn sight better than yesterday — when the Dow and the S&P slid 3% and the Nasdaq 4%.
The mainstream fumbled for explanations. Was it “rising interest rates”? Was it “renewed trade tensions”? Was it both?
The president certainly had an opinion…
That was the headline. The reality is his remarks were all over the map.
On the one hand, “The problem, in my opinion… is the Fed. The Fed is going loco.”
On the other hand, “Actually, it’s a correction that we’ve been waiting for for a long time, but I really disagree with what the Fed is doing.”
Early this morning it looked as if the sickening plunge was set to continue… and then the inflation numbers came out.
The consumer price index inched up 0.1% in September. The “expert consensus” figured on a 0.2% increase. With inflation running cooler than expected, the thinking is that the Fed might not raise interest rates as rapidly as the Fed has advertised in recent weeks.
The year-over-year inflation rate is now running 2.2%, down a touch from 2.3% the month before. As always, any resemblance to your own cost of living is purely coincidental; the real-world inflation rate from Shadow Government Statistics is 10%.
But no matter how you measure it, inflation has been easing up since early summer and is now the lowest since February.
As the day wears on, a modest drop in the Dow has accelerated to a more significant 300 points.
From a record high only eight days ago at 26,828, the Big Board is now below 25,300 — a drop of more than 6%.
At least the traditional safe havens are performing their traditional roles during a stock sell-off. U.S. Treasuries are rallying, which means their yields are headed down for the first time in days. The yield on a 10-year note is back to 3.17%. Gold, meanwhile, has popped back above $1,200.
The stock market is clearly in “oversold” territory right now. That is, it’s fallen too far too fast. At the very least, a short-term bounce is coming — perhaps later today, perhaps tomorrow, perhaps next week.
And a potential catalyst for that jump is baked into the calendar.
Earnings season starts tomorrow. As we said earlier this week, FactSet anticipates year-over-year profit growth for the S&P 500 companies of 19.3%. That would amount to three quarters of standout growth, a stretch last seen in 2011.
The headliners tomorrow will be three of the Big Four commercial banks — J.P. Morgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC).
“J.P. Morgan and Citigroup have both beaten estimates for the past eight quarters,” says Alan Knuckman, our eyes and ears in the Chicago options trading pits.
“And on average J.P. Morgan’s stock has increased 3.4% over the course of a month after releasing their earnings, while Citigroup’s stock has grown a little over 2%.
“I expect JPM and Citi to report strong earnings, because a healthy stock market gives these investment banks plenty of opportunities to generate lucrative underwriting fees. In case you’re unfamiliar, underwriting fees that banks collect for helping companies raise capital through the selling of new shares of stock and/or bonds.”
Wells Fargo, still scandal-scarred, has missed estimates for the least three quarters. For the first several days of the month, WFC shares were steadily increasing.
“That tells us,” says Alan, “ that the market is optimistic that Wells Fargo can either meet or exceed estimates.
And the stock could have a lot of room to run if the company’s worst days are now in the rearview mirror.”
There’s nothing like corporate earnings to steal the thunder from Fed policy, trade wars and other “macro” factors.
As you can imagine, Alan is expecting a standout earnings season. If it doesn’t propel the market to new heights, it absolutely can power individual companies higher.
Alan has spent the last several weeks refining his earnings season trading strategy — mindful that bull markets don’t last forever and this particular bull market is nearly 10 years old.
In fact, he says the next six weeks of earnings season might mark your final opportunity to bag the really big gains. If you’ve sat out a major portion of this bull market, you’re looking at a six-week window of opportunity to make up for lost time — starting tomorrow.
Alan lays out the strategy for you when you follow this link — no long video to watch.
The stock market swoon is dragging down the oil price as well.
Meanwhile, natural gas is set for a big rally — just in time for winter.
“Natural gas storage levels are the lowest we have seen since 2003,” says analyst Jody Chudley, who works closely with our income specialist Zach Scheidt.
“Based on where we are today it appears that the United States is going to head into winter with approximately 3.25 trillion cubic feet of natural gas in storage. That is down more than 15% from where storage levels were going into last winter.”
For the moment, this development is flying under the radar and natgas prices remain suppressed. Since 2015, natgas has traded between $1.60–3.75 per million Btu. That’s very low by historical standards; the shale revolution this decade has made it seem as if we’ll have cheap and abundant gas forever.
“What has happened this year,” says Jody, “is that a cold April and a hot summer have not allowed natural gas inventory levels to build as they normally would. So the unusually low storage levels aren’t because of a lack of supply. They are because of higher-than-normal demand.
“Where that leaves us is one unusually cold winter away from natural gas storage levels drawing down to a level that would panic the market. I’ve seen one estimate that suggests that if we were to get a cold winter similar to the polar vortex of 2013–14, natural gas storage levels could drop below 500 billion cubic feet.
“If that were to happen, we would see natural gas prices double in a hurry.”
Consider yourself on notice.
Here’s a trade war milestone: The tax increases resulting from Trump tariffs now exceed the tax increases that came with Obamacare.
So say Bryan Riley and Andrew Wilford from the National Taxpayers Union Foundation, writing in the Washington Examiner (which isn’t exactly a left-wing outfit, last we checked).
The tipping point, they say, was the Sept. 19 announcement of a 10% levy on $200 billion of Chinese imports.
“With the added $20 billion in trade taxes coming from this latest round of tariffs, the National Taxpayers Union Foundation now estimates the total annual cost of enacted tariffs to be $41.65 billion. That easily outpaces the tax bill from the Affordable Care Act for next year ($34.6 billion) after accounting for recent changes to the ACA.”
Next year, they estimate the tariffs will total $132.55 billion, dwarfing the $67.2 billion tax burden from Obamacare.
Great moments in tax planning: In the final weeks of the 2018 Illinois governor’s campaign, a major issue is… the front-runner’s toilets.
The front-runner is Democrat J.B. Pritzker, heir to the Hyatt hotel fortune. A decade ago, he and his wife bought a second mansion on Astor Street in Chicago’s Gold Coast neighborhood — next door to their home, in fact. The place remained vacant and started falling apart.
Fast-forward to October 2015: According to a report by the Cook County inspector general, the couple had five toilets removed from the second house. As a result, the property would end up on the tax rolls as “uninhabitable” — and be assessed at only 10% of the market value.
As recently as Monday, Pritzker said he had “followed the rules.” But on Tuesday, he promised to stroke a check by week’s end for $330,000 in back taxes.
Not that these developments will keep Pritzker from the governor’s mansion in Springfield. The scandal’s been, uhh, swirling for days, but polling data show he has a 22-point lead over GOP incumbent Bruce Rauner.
To the mailbag, and a response to yesterday’s episode of The 5 we were anticipating…
“I’ve been educated on the dangers of 5G and I’m not jumping up and down with enthusiasm,” a reader writes. “It’s going to cost the lives of people, especially children, because of the immensely multiplied Wi-Fi danger.”
Says another: “With all the promoting you are doing for 5G investments, I would appreciate an evaluation of potential health impacts.
“Clearly, the exposure or dose is going to rise dramatically with 5G compared with 4G, and there have been reports that 4G is not without its effects.
“True, most of these reports are given the ‘fringe, fake-news’ treatment by the mainstream media, when they are mentioned at all, but given the quality of reporting in the MSM today, that is almost an endorsement.
“In any case, if there were a credible report tomorrow that 4G raises your risk of tumors and 5G is likely to be worse, what would we do? Assuming there is no way to mitigate the effect while keeping our phones, would most people give them up? Reduce their usage?
“Or are we addicted to them to the point that there is no point to even researching whether they may harm us? Is the idea of going back to pre-smartphone days just inconceivable?”
The 5: “We’ve heard this stuff for years regarding wireless,” says Ray Blanco. “Bees disappearing. Brain cancer. While it’s impossible to prove a negative, there is no good evidence that there is anything to be worried about.
“Here’s brain cancer incidence going back to 1992, as compiled by the National Cancer Institute. Over that time cellphone use has skyrocketed. If anything, it appears cellphone use reduced brain cancer.
“There’s also the Million Women Study, which found no increase.
“5G is more of the same. Faster? Sure. But so is your Wi-Fi. More small-site coverage? Sure, but I bet everyone reading this has Wi-Fi service at home.”
By the way, Ray says all this as a cancer survivor himself. Not that that makes him more of an authority than anyone else… but he does have an incentive to research the facts more thoroughly than a lot of us…
After our take Tuesday on the disappearance of Saudi Arabian journalist Jamal Khashoggi, a reader took exception to our characterization of the media coverage.
We said: “This huge story was picked up by the foreign press instantly. The Trump-obsessed U.S. media were slower on the uptake.”
The reader says: “I am middle of the road, I watch both sides. I saw this news on CNN on Sunday, several times throughout the day. You are the slow ones two days later.
“Just report and stop focusing on trying to make the ‘other side’ look bad.”
The 5: We were watching Al-Jazeera, Deutsche Welle, RT and other channels pursuing the story aggressively all day Friday.
There’s no “side” we take here; we hold Fox News, CNN and MSNBC in equal contempt.
The reason we didn’t discuss it until Tuesday is that we don’t report the news here; lots of outlets do that. What we do is dig for “the story no one else is telling.”
The notion that the House of Saud might be on its last legs, and that Mohammed bin Salman might be the harbinger of its fall? You won’t be seeing that in The New York Times or The Washington Post — which are too busy covering up for their past lapses in coverage.
As the media critic Adam Johnson tweeted this morning, “Shout-out to everyone who ran PR for MBS by making him look like a sexy bold risk taker and not just a power-hungry failson.”
The 5 Min. Forecast
P.S. As the day wears on, the Dow has trimmed its losses back to about 150 points… and the Nasdaq is holding onto a slight gain.
We’re still of the opinion the bull market dating to March 2009 has one last hurrah before it rolls over. But it’s late in the game if you want to seize the moment.
Indeed, the six weeks of earnings season starting tomorrow might be the last window of opportunity to squeeze out big gains.
The good news: The opportunity is so big, a small sum just might make your retirement.