Market Wrap: How Now Green Dow?

Markets

Market Wrap: How Now Green Dow?

The Dow Jones Industrial set a new record high today amid strong corporate earnings.

Caterpillar (CAT), General Motors (GM), McDonald’s (MCD), and 3M (MMM) all rose today after reporting better-than-expected earnings, getting the bulls in a buying mood.

CAT, MMM, and MCD are all Dow Jones Industrial Average components, and pushed the Dow up to a new record high at 23485.25 today.

The Dow was up +0.9% at 23,473.93 as of 1:47 p.m. ET.

The SPX, Nasdaq, and Russell 2000 all made smaller gains.

This morning, T3 Live Chief Strategic Officer Scott Redler said “if early morning strength fades, then we’ll see how it handles yesterday’s 2564 low.”

We did see the early rally fade to hit SPX 2565.58 before a steady rally into the afternoon. By holding above that 2564 low, it looks like the bulls are still in the mood to win.

So how is earnings season going overall?

For years, we’ve seen a consistent trend with earnings season: expectations get really low, and than companies squeeze over the lowered bar.

On Friday, FactSet released their latest summary of Q3 earnings reports, with 17% of S&P 500 companies having reported. So it doesn’t include today’s beats from Caterpillar (CAT), 3M (MMM), and General Motors (GM).

Still, there are some interesting insights to be gleaned.

76% of companies beat earnings expectations, while 72% of companies beat sales expectations. These numbers are decent enough.

However, blended earnings growth is just 1.7%, down from the 3.0% expected on September 30.

Blended growth combines actual earnings for companies that reported with estimates for companies that have not reported.

We typically see blended earnings growth exceed the estimate at the start of the quarter, so this is a big change.

According to FactSet, General Electric’s (GE) big miss, and weakness in industrial and financial earnings, are the primary culprits.

One thing’s for certain: traders will be looking for big things out of Thursday’s earnings reports from tech giants Microsoft (MSFT), Amazon (AMZN), Twitter (TWTR), and Alphabet (GOOGL). These could swing the aggregate numbers up… or push them down further.

Apple’s (AAPL) report next week will also be an important one to watch, since it’s the biggest component of the SPX.

The stock rose today despite a report from Japanese newspaper Nikkei saying Apple will only produce 20 million iPhone X units this year, half the amount planned. Apple is rumored to be suffering from production issues for iPhone X, which could limit availability.

Just keep in mind that news reports about Apple’s supply chain are notoriously unreliable when it comes to getting a ready on production numbers.

So we really won’t know much until earnings.

Interestingly enough, the VIX finally broke its big losing streak.

The VIX just went 25 straight days with a sub-10 intraday print.

For some perspective, since October 6, 2014, when the CBOE changed the VIX calculation methodology, we’ve had a total of 64 days with a VIX low under 10.

Essentially, we went from having a sub-10 VIX print about once every 20 days to 25 in a row.

But today, the VIX never went lower than 10.39.

Time will tell if this marks the end of an era.