* S&P, Nasdaq green, Dow dips; small caps outperform
* Comm svcs leads major S&P sector gainers; energy weakest group
* Dollar, crude, gold down; U.S. 10-Yr T-Nt yield ~0.84%
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FIXED INCOME ETF SHORTS MAKE A MOVE (1515 EDT/1915 GMT)
S3 Partners is out with a note on fixed income ETF short activity.
Ihor Dusaniwsky, Managing Director of Predictive Analytics at S3, says that there are 438
fixed income ETFs with just over $1 trillion of assets.
Among these ETFs, there is nearly $22 billion of short interest with the majority of the
short-selling activity centered in the corporate bond space.
That said, for the year, he says that fixed income ETF short exposure has fallen by about
$488 million, with a $381 million drop occurring just in the past week alone.
Dusaniwsky says that the 3 most shorted domestic Fixed Income ETFs are:
iShares iBoxx USD High Yield Corporate Bond ETF HYG
iShares iBoxx USD Investment Grade Corp Bond ETF LQD
iShares 20+ Year Treasury Bond ETF TLT
Meanwhile, amid the recent drop in fixed income ETF short exposure, the U.S. 10-Year
Treasury yield has now hit its highest level since early June.
This after the ICE BofAML Move Index, which tracks bond market implied volatility,
hit an all-time low in late September. The MOVE also hit its highest levels since June this
HUNKER DOWN WITH HIGH-QUALITY THROUGH YEAR-END (1400 EDT/1800 GMT)
The Wells Fargo Investment Institute (WFII) Global Equity Strategy Team is out with a report
stating that their preference for high-quality stocks into year-end.
WFII says that, historically, "high-quality stocks have tended to provide higher returns
during the latter stages of economic expansions, recessionary periods, and periods with market
Although there is no uniform definition of "high quality," it can stand for companies known
for their business success and stock-price growth. WFII then focuses in on companies with
consistent earnings growth, strong ROE, and low financial leverage.
To this end, and despite the prospects for heightened volatility surrounding the COVID-19
pandemic and U.S election-policy uncertainty, WFII says they believe large-cap U.S. stocks in
the communication services, consumer discretionary, healthcare, and
tech sectors offer higher-quality characteristics heading into year-end.
EARLY PUSH FADES, STOCKS MODESTLY NEGATIVE IN MIDDAY TRADE (1246 EDT/1646 GMT
Stocks started the trading day with strength. That, however, didn't last long as the S&P
500's opening gap higher led to an exhausted rise in just the first minute of the
session. This as markets continue to play the stimulus waiting game.
Indeed, the benchmark index has since turned modestly negative on the day, hitting a low so
far in the noon hour after President Trump said he does not want a COVID-19 aid deal to bail out
Here is where markets stand around the halfway mark of the trading day:
THIRD QUARTER EARNINGS STATE OF PLAY: CLEARING LOW HURDLES (1235 EDT/1635 GMT)
Third-quarter reporting season charges forward, with about one-third of the companies in the
S&P 500 having posted results.
Dire expectations amid pandemic-related shutdowns and plunging demand have set a rather low
bar of expectations, a bar most companies have cleared.
Of the 135 firms that have reported, 84% have beaten earnings consensus, while 81% posted
better-than-expected revenue, according to Refinitiv.
Analysts now see S&P 500 earnings, in aggregate, to have dropped by 16.7% from the
year-ago quarter, a substantial improvement over the 21.4% estimated annual drop as of October
1, per Refinitiv.
Here's a look at the evolution of third-quarter earnings growth estimates, broken down by
sector, courtesy of Refinitiv:
High-profile names expected on deck next week include Pfizer Inc, Caterpillar Inc
, 3M co and Microsoft Corp on Tuesday, and Boeing Co, United
Parcel Service Inc and Ford Motor Co on Wednesday.
Thursday's docket includes heavy hitters Apple Inc, Amazon.com, Facebook
Inc, Alphabet Inc, and Twitter Inc.
Oil majors Chevron Corp and Exxon Mobil Corp are due to round out the week
DEBATE HANGOVER: FOCUS ON POLICY (1145 EDT/1545 GMT)
With the last of the presidential debates between incumbent Donald Trump and his Democratic
challenger Joe Biden in the rear view mirror, market participants are getting a clearer picture
as to how a win by either candidate will affect the markets.
In a research note from UBS, Mark Haefele, chief investment officer of Global Wealth
Management writes that a Biden win, to no one's surprise, would likely benefit sustainable
energy firms, but points out that sustainability indexes have performed well during the Trump
presidency, boosted by legislation at the state level.
The candidates' sparring over the handling of the coronavirus pandemic also provided a
contrast between the two, with Trump urging a faster economic re-opening and Biden vowing, with
his more cautious approach 'to shut down the virus, not the economy.'
"Both arguments may be debating history as far as investors are concerned, as the future
economic path is now more contingent both on fiscal negotiations and on vaccine approval and
distribution," Haefele writes. "We expect a vaccine to be widely available by 2Q21, and some
form of fiscal resolution after the election."
Where China is concerned, "We think a potential Biden administration would feature more
predictable and less openly hostile policy toward China, benefiting export-sensitive sectors in
Asia," the note says, while adding "we expect US-China tensions to persist after the US
elections, particularly in the technology space where we see an ongoing move toward a more
bipolar tech world."
UBS, which currently sees a "blue wave" as the most probable outcome - at a 50% probability
- also notes that debates rarely cause decided voters to switch sides, and with about 47 million
votes already cast by mail, candidate-switching is even less likely.
Real Clear Politics currently sets odds of a Biden win at 64.4% vs. Trump's 36.3%, while
political odds exchange PredictIt sells shares of a Biden win for 64 cents, and a second Trump
term for 41 cents.
EMERGING MARKETS - IS IT CHRISTMAS YET? (1057 EDT/1457 GMT)
It's still 63 days to go (not that we are counting!) until Christmas, but some investors
think emerging markets might be in line for an (early) Santa rally.
Looking beyond the whole U.S. election rollercoaster, Morgan Stanley turns bullish on both
EM FX and sovereign credit, betting that if an effective vaccine comes out, developing nations
will benefit "more fully in a global growth recovery."
Citi agrees, and - like Morgan Stanley - is bullish on currencies of Mexico, Brazil,
Colombia and South Africa, predicting a vaccine will see investors rotate out of Asia and into
much battered commodities producers and Latam.
"EM FX is the asset that is most tethered to a global synchronised recovery," says Emso
Asset Management's Patrick Esteruelas.
And investors have been piling in already. Flow tracker EPFR finds emerging equity funds
extended their longest inflow streak since mid-January this week to Wednesday while emerging
bond funds raked in over $2 billion for the third week running. Though there is still some space
to go for that Santa rally, as this graphic from EPFR shows:
(Karin Strohecker and Tom Arnold)
U.S. BUSINESS ACTIVITY EXPANDS AT FASTEST PACE IN 20 MONTHS - MARKIT (1040 EDT/1440 GMT)
The U.S. manufacturing and services sectors have continued to expand this month as the
economy slouches through its recovery from the pandemic recession.
According to global financial information firm IHS Markit's "flash" purchasing managers'
indexes (PMI), which provide a preview of business activity this month, manufacturing
activity picked up nominally, rising one-tenth of a point to a reading of 53.3.
In the services sector, however, which suffered a significant blow from
mandated shutdowns and social distancing protocols, activity rebounded at a faster pace, hitting
a level of 56, beating the consensus.
Taken together, the composite of the two marks the fastest expansion of business activity in
A PMI number above 50 indicates growth.
"The US economy looks to have started the fourth quarter on a strong footing, with business
activity growing at a rate not seen since early 2019," writes Chris Williamson, chief business
economist at IHS Markit. "The service sector led the expansion as increasing numbers of
companies adapted to life with COVID19, while manufacturing continued to report solid growth
amid rising demand from households and businesses."
"A slowdown in hiring and weaker new order inflows were in part attributable to hesitancy in
decision making ahead of the presidential election," Williamson added.
The Institute for Supply Management (ISM), whose manufacturing and services PMI reports for
October are due the first week of November, has also shown an expansion...
ISM and Markit PMI indexes differ in the weight they give to various subcomponents, such as
new orders and employment. The chart below shows how wide these differences can be.
The stock market is mixed headed into the weekend, with healthcare boosting the S&P
into the green, the Dow languishing near zero and tech firms pulling the Nasdaq
into negative territory.
All three indexes are on course for losses on the week.
MORE BULLS THAN BEARS FOR FIRST TIME SINCE FEBRUARY (1005 EDT/1405 GMT)
Optimism over the short-term direction of the U.S. stock market has hit a near 7-month high
in the latest American Association of Individual Investors (AAII) Sentiment Survey. With this,
pessimism dipped, while neutral sentiment rose.
AAII reported that bullish sentiment, or expectations that stock prices will rise over the
next six months, gained 1.0 percentage point to 35.7%. Optimism was last higher on April 8, 2020
(36.6%). Nevertheless, bullish sentiment remains below its historical average of 38.0% for the
33rd consecutive week and the 38th week this year.
Bearish sentiment fell by 2.7 percentage points to 33.0%. Pessimism was last lower on
February 19, 2020 (28.7%). Bearish sentiment remains above its historical average of 30.5% for
the 35th consecutive week and the 37th time this year.
Neutral sentiment increased 1.8 percentage points to 31.2%, to a 12-week high. Even with the
increase, neutral sentiment is below its historical average of 31.5% for the 39th time out of
the past 41 weeks.
With these changes, the bull-bear spread improved to +2.72 from minus 0.97 last week. This
is the spread's first positive reading since February 20, or one day after what proved to be a
significant top in the S&P 500:
In this week’s special question, AAII asked its members how the recent increase in
coronavirus cases is impacting their outlook for stocks.
About 28% of respondents said that the recent increase is causing them to be more cautious
and is negatively affecting their outlook for stocks. This compares to 27% of respondents who
said that it's having little to no impact on their outlook for stocks.
S&P 500: A COMING SLOG? (0910 EDT/1310 GMT)
Coming into yesterday, the S&P 500 had fallen 5 of 7 days. That said, after an early
Thursday dip to 3,415 found support near the 50-day (10-week) moving average, at about 3,405,
the benchmark index reversed, and closed higher.
E-Mini futures are suggesting modest upside follow-through on Friday.
Nevertheless, of concern, although still positive, a weekly momentum measure is threatening
to roll over. Indeed, the MACD, appears at risk of breaking below its signal line, which would
be a bearish signal.
Still, if the SPX can overwhelm its most recent intraday reaction high at 3,515.76,
potential will increase for new highs above 3,588.11.
However, even in that event, much additional upside could prove to be a struggle. Of note,
since late 2018, the average foray into record-high territory has only been 4.6% above the prior
peak, with the median push only 2.5% above the prior high. Those levels are at 3,678 and 3,755.
But complicating the issue is the log-scale resistance line from late 2018, which
essentially capped strength in early September. This line, on a weekly basis, is now at about
3,630, or only a little more than 1% above the prior high. The line is ascending about 5-10
points per week, so over the next month or so, it will be a stiff hurdle in the 3,635/3,665
area, or only about 1%-2% above the prior high, and about 5%-6% above current levels.
Conversely, breaking down below the 3,405 area, can see pressure intensify. The rising
20-week moving average (WMA), which supported the market in late-September, now comes in at
The September 24 low is at 3,209.45, and the 40-WMA (200-DMA) is now at around 3,120. These
levels are about 7%-10% below Thursday's close.
Thus, based on what may be significant levels, action over the coming weeks, may be quite
choppy, and especially volatile.
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FOR FRIDAY'S OTHER LIVE MARKETS' POSTS PRIOR TO 0800 EDT/1200 GMT CLICK HERE:
(Terence Gabriel is a Reuters market analyst. The views expressed are his own)
UK house prices rise in May as boisterous north offsets quiet London