'That Thrilling Kiss.....'

“What a difference a day made, twenty-four little hours, Brought the sun and the flowers, Where there used to be rain.... Lord, what a difference a day makes, There's a rainbow before me, Skies above can't be storm, Since that moment of bliss, That thrilling kiss....” – Dinah Washington – 1959.

And that ‘thrilling kiss’?  Well that was the US mid-term elections......by now you know that the Democrats had a decent showing - taking back the house while the Republicans increased their hold on the Senate - giving both sides something to write home about......in the end - all of the angst and anxiety that has complicated the mkts for the last month appeared to be nothing more than a distant memory.....

US futures surged in the pre-dawn hours as the reality of more ‘centrist Democrats’ winning set in, causing Donny to say that he would negotiate and work with Democrats on issues that concern ‘economic growth, infrastructure, trade and healthcare’.  And as the pundits suggested - a split congress was, in the end, the way the polls had swung…..and maybe, just maybe we can all move on – working with each other vs against……...this way both sides feel more like a part of the process and there is that system of checks and balances that our forefathers fought so hard for.   (I’m probably being a bit naïve – but it is a new day...)

Mkts blasted off yesterday as the excitement over the US mid-term elections took hold and as the curtain rose – much like the sun rising over the Atlantic -  you could hear the Pointer Sisters singing the famous refrain from their 1982 hit “I’m so excited” -  as it echoed off of the buildings on Wall St -

“I'm so excited, and I just can't hide it, I'm about to lose control and I think I like it, I'm so excited, and I just can't hide it, And I know, I know, I know, I know, I know I want you.....I want you....!”

And ‘wanting you’ meant that investors - both home and abroad -  went wild for European & US equities.... taking all the indexes higher as the song never quit....and while the European mkts ended the day up better than 1% - the US mkts exploded!   The Dow ended the day up 535 pts or 2.13%, the S&P surged by 54 pts or 2.14%, the Nasdaq advanced by 194 pts or 2.64% and the Russell surged by 26 pts or 1.67%.   The indexes have now recovered more than half of what they lost during the October massacre - and at the rate we are going yesterday - we will be at new all-time highs by the end of the week!  YTD – the Dow is now up 6%, the S&P is ahead by 5.25%, the Nasdaq is up by 9.6%. (it was only last week when we were looking at YTD LOSSES).   The Russell small cap/mid cap is down 0.8% for the year but this is also about to change.   Isn’t it funny what a difference a day makes? 

Tech – XLK +2.9%, Healthcare – XLV + 2.9%, Financials – XLF + 1.3%, Consumer Disc +2.9%, Communications – XLC +1.8%, Industrials – XLI + 1.6%, Retail – XRT +1%, Even Utilities XLU were up 1.6%!  The FANG stocks each surging nicely after having been clobbered over the past month.  Facebook (+1.06%), Amazon (+6.86%), Apple (+3.03%), Netflix (+5.36%), Alphabet (+3.56%).

The VIX declined 18% to end the day at 16.36 signaling a calming of nerves and if we continue to get a relative sense of calm – then look for this index to fall another 4 pts (or 25%) to the 12 range once again….

The 30-year and 10-year Treasury yields increased to 3.445% and 3.241% respectively, while the 2-year yield rose to 2.969%.  Now remember – the disaster started when 10 yr yields surged up and thru 3.2%.... only to back off to 3.08% during the breakdown but are now back up to 3.2% and investors are doing what?  BUYING STOCKS!  What a difference a day makes!  Now I will caution you…. could we be staring at a recession?  Recall that when the difference between 2-Year and 10-Year Treasuries begins to narrow and right now it is at 27 basis points – the history books tell us to be careful…. because when it inverts – that is when 10s yield less than 2s -  a US recession is likely.  We are NOT there yet but could get there in due time….so stay awake – You don’t’ want to miss it.  My guess is that we will not invert…come close yes, but not invert! 

So a couple of things happened on the way to the Forum yesterday….the Press had a rather contentious ‘meeting’ with the President….While Donny was praising the results – saying that both sides won and how he was willing to work hard to make it happen – the press seemed to be focused on more of the negatives (the mkt was not affected, if anything – investors pushed the mkt higher during this comedy act) … ….vs. focusing on the good that has come out of the mid-terms….and by good – I am praising the fact that so many of the newly elected Democrats are women, minorities,  veterans, younger members of our country  that are not tainted by  ‘years of service’ and the sense that they are ‘owed’ anything.  And to me that is refreshing….

Now while it was frustrating to watch – there was some entertainment value….and afterwards we found out that Jim Acosta (CNN fame) has now been banned from the WH.  And not to be outdone – Jeff Sessions announced his resignation ‘at the request of the President’ and this sent ‘Old Timers – Chucky Schumer, Nancy Pelosi, & Richie Blumenthal’s over the edge….– as they all took the time to announce yet another investigation…..and this my friends will be the story of our time…investigation upon investigation…..Is anyone else tired of it?   I for one am disgusted – Politics is a dirty game and we all know it – You all decided to make that bed so now SLEEP in it…..Enough of the BS….and by the way….the Democrats may want to reconsider the leadership…..and hand over the reins to the next generation….

Doug Schoen at Fox news suggests that it would be a ‘cataclysmic error’ to put Nancy back in the speaker’s chair…Why?  Because the winners in the election do not support Nancy’s view…they were smarter, more moderate, more centrist who appear to be providing ‘compelling alternatives to some Republican policies’.  Their views helped them to win in some of the rust belt states where Donny thought he was well seated.  The last thing the Dems should do now (now that they are back in control) is revert to a generation that is out of touch with the country.  Just sayin’ 

US futures are off by 13 pts this morning as the euphoria cools off a bit and the reality of the surge yesterday settles in….now do not be surprised – a 2+% move is sure to be met by some short term profit taking as the trader types try to ring the cash register…but remember – Santa Claus is only 47 days away…..

With mid-terms now behind, us – look for investors to focus on the old concerns and new issues…. The FED – today’s FOMC announcement is expected to yield nothing and rates are still expected to rise next month.  Inflation – so they tell us it is still sub 2%, but wages are suggesting something subtler….so stay tuned to that -because that is where we will see the start of something new….and holiday spending…that is sure to become the topic du jour or topic du mois (that French for MONTH).

The National Retail Federation (NRF) is looking for a 4.3% - 4.8% increase in Holiday 2018 spending vs. last year and that is well above the 5-year average of 3.9%.   And this projection was BEFORE oil went from $75.barrel to $62/barrel….so just think of all the ‘extra’ money you have to spend on presents that you are not spending on gas! 

European mkts are also all a bit lower – (think profit taking).  The EC (Euro Commission) and the IMF (Int’l Monetary Fund) are both expected to publish their forecasts for the European community later today.  FTSE + 0.27%, CAC 40 -0.15%, DAX -0.19%, EUROSTOXX -0.13%, SPAIN +0.02% and ITALY -0.60%.
The O’Neil methodology also flipped last night….

US Market Upgraded to Confirmed Uptrend. The S&P 500 and Nasdaq staged a Day 7 follow-through day (FTD) yesterday. The S&P 500 rose 2.1%, clearing above its 200-DMA on volume 9% above Tuesday. The Nasdaq rose 2.6%, also clearing above its 200-DMA on volume 16% above Tuesday. The next level of resistance is the 50-DMA at 2,833 (+0.7%) on the S&P 500 and 7,723 (+2%) on the Nasdaq. Note that Europe was also upgraded to Confirmed Uptrend following FTDs across many markets yesterday.
Growth ideas rallied sharply higher with multiple names both on and off the U.S. Focus List regaining their respective 50-DMA or making new highs. Given the severity of correction, however, there remains multiple levels of resistance that still need to be cleared by the majority of individual ideas and the major averages. Within the S&P 500, 252 stocks are still trading below their respective 200-DMA. Therefore, our recommendation is to increase risk gradually, buying only high relative strength quality growth ideas that have either recovered quickly or held up well as the market corrected.

Oil which traded down yesterday is up slightly this morning at $61.80.  Yesterday’s low was $61.20 – ever closer to that $60 number I identified.  Reports that the Russian’s and Saudi’s are discussing production CUTS in 2019 Yeah…well how’s that working for you?  The US has tripled our production and the EIA (Energy Info Admin) expects that we will be producing oil at the rate of 12 mil/barrels per day next year.  We remain in the $60/$65 price range. 

Gold is down $2 more at $1,226 as the Dollar index – DXY firms and moves a bit higher.  With rates expected to go up next month the dollar will get stronger and that happens then all commodities should come under price pressure.  Inverse relationship…strong dollar/weaker commodities, and weak dollar/strong commodities.  

The market commentary is the opinion of the author and is based on decades of industry and market experience; however no guarantee is made or implied with respect to these opinions. This commentary is not nor is it intended to be relied upon as authoritative or taken in substitution for the exercise of judgment. The comments noted herein should not be construed as an offer to sell or the solicitation of an offer to buy or sell any financial product, or an official statement or endorsement of O’Neil Securities, Incorporated or its affiliates.