Ridin’ the Storm Out: What to Do With This Market?

New York Stock Exchange (NYSE) Building in the Lower Manhattan Financial District, New York City. (Photo: Tomasz Zajda/AdobeStock/PPD)

Major stock market averages traded in a 2% range Thursday, rallying off the morning lows to close near their afternoon highs, as Major Market averages settled with their second strongest day of the month.

Market breadth has not had nearly the volatility of market averages, as advancing issues beat decliners Thursday by 3 to 2. This was exactly the mirror image of their 3 to 2 losses on Wednesday when stocks came all the way back from losses of 1.5% to 2% losses midday, to unchanged with an hour to go. In the last hour Wednesday, stocks faded, closing with losses half what they were at midday.

Following the failed recovery from Wednesday, The final stats from Thursday are impressive:

· The Dow Jones Industrial Average (^DJI); +208 or +0.82% at 25,289 traded in a 500 point range and was the lone index with less than a 1% gain.

· The S&P 500 (^SPX), +28.62, or +1.06% at 2730, broke a 5-day losing streak, after holding a key near term support level during the initial selloff.

· The Russell 2000 (^RUT), +21.60, or +1.45% at 1524.12, held the psychological 1500 level after trading lower each of the last 2 days. The Russell was the worst performing market average in October, -11%, as fears of an economic downturn typically have an outsized impact on small cap stocks.

· The NASDAQ Composite (^IXIC), +122, or +1.7% at 7259, traded below 7100 during the morning selloff, threatening the Oct 29 closing low of 7050.29. The NASDAQ should get another big test today as 2 bellwether technology names, Applied Materials, AMAT; and Nvidia, NVDA traded sharply lower following their earnings reports in after hours trading Thursday.

· The DJ Transports, +160, or +1.5% to 10,615, is the only Index to have posted gains each of the last 3 days, and is poised to regain its 200 day moving average of 10,730. We’ve highlighted the Transports before as a potential leading indicator. It’s still front and center.

Friday Morning, we’re getting yet another data point that the heavy selling which marked the lows from late October/early November may have reached an exhaustion point. Stock market averages opened with losses close to -1%, following numerous high profile earnings disappointments and realization that the recently negotiated Brexit deal, has a near zero probability of being approved by the British Parliament. Merely 75 minutes into trading, the steep losses from the first half hour of trading have been erased, with the DJIA and S&P 500 are sporting moderate gains.

Once again….more confusion, and little conviction.

At the near exact Midpoint of Q4, if there is any consensus among investors it’s that they are conflicted, and collectively have a very low level of conviction, regardless if they tilt bullish or bearish on their outlook for where we are in the cycle for the economy and/or corporate earnings.

Additionally, we’ve seen no let up in volatility for either single stock names under the microscope of their Q3 earnings reports, or Market Indices swinging wildly in a blizzard of macro headlines ranging from Trade and tariffs to Brexit talks, and a flurry comments from FED Governors and regional Presidents, just out of their quiet period following their November FOMC meeting and policy statement last week.

With 6 weeks left in 2018, we’re entering what is seasonally a very friendly time on the calendar for stock market performance. While this would typically aid investor confidence into year end, my guess is it’s just adding to the perfect storm of information overload that’s giving investors unease.

If recent data and history are any guide, the recovery off the lows from the Q1 lows, investor and business confidence level near all time highs, the surprising strength in retail sales earlier this week, and the slightly less hawkish comments from FED officials the last couple days, investors may be best served by exercising some patience and riding out this storm of market anxiety.