Even the earnings flop from Apple and Amazon didn’t ding the stock market
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There are more and more reasons accumulating for why it’s time to sell stocks. But there’s only one reason to buy: The stock market is going up.
Like so many times this year, we had plenty of reason to lighten up on stocks this past week. There were earnings disappointments from the likes of
(BA); a weak U.S. gross domestic product release; and even a quick flattening of the yield curve. The stock market ignored it all.
Dow Jones Industrial Average
advanced 142.54 points, or 0.4%, while the
rose 1.3% and the
gained 2.7%. All three finished the week at record highs.
Some of it was worth ignoring. The yield curve—the difference between short-and long-term Treasury yields—dropped 0.15 percentage point in a single day, a massive move that was blamed on fears that the Federal Reserve would raise interest rates too quickly. Yet technical reasons were most likely behind the narrowing.
For most of us, the only time we need to watch the curve is when it “inverts.” That’s when short-term rates are higher than long-term rates, and it’s usually a sign that a recession is on its way. The current difference is at 1.0678 points. We’re nowhere near that yet.
Even the earnings flop from Apple and Amazon didn’t ding the stock market—and it didn’t really hurt Apple or Amazon stock either. Apple fell on Friday after only meeting earnings forecasts and missing on sales, but still finished the week up 0.8%. Amazon dropped this past Friday after it missed on everything, but it too finished the week higher, up 1.1%. “[Investors] viewed poor earnings results and supply chain constraints from Apple and Amazon as a short-term problem and nothing that will derail their dominance,” writes Edward Moya, senior market analyst for the Americas at Oanda.
A sourpuss, particularly one who sold during September’s 5% drawdown—especially in the face of so much bad news—might suggest that the market resilience is something to be feared, not celebrated. Regardless, the pros, at least, may have no choice but to go all in, especially if they need to catch up with the market by the end of the year, notes Frank Gretz of Wellington Shields, and that could keep the bull market rolling. “The market has ignored /survived a lot of bad news,” he writes. “To whatever degree, higher seems likely.”
History suggests there’s a good chance the market is heading higher, at least based on one measure of breadth. The NYSE Cumulative Advance/Decline Line, which tracks rising versus falling stocks in aggregate, finally hit a record high this past week, something it hadn’t done since June. When the A/D line has hit a new high after more than 90 days, the S&P 500 has been higher three months later 22 out of 25 times since 1935, according to Sundial Capital Research’s Jason Goepfert, while gaining a median 4.1%. “Over a very long history, probabilities favor rising stocks, or at least only limited declines, after breakouts in breadth,” he explains.
This coming week there are earnings from
(ROKU), a Fed meeting, and the release of October’s payrolls numbers, and any could be used as an excuse to sell.
Write to Ben Levisohn at Ben.Levisohn@barrons.com