US stocks pull back from key resistance; MS slumps after earnings miss

Summary:

• US markets pull back from key resistance levels

• Philly Fed and jobless claims beat; Morgan Stanley falls after earnings miss

• US100 the most bearish on D1, then US500 and US30

There’s been some selling seen in the US indices ahead of the Wall Street open, with the market pulling back after reaching their highest level in 1-month during Wednesday’s session. On the data front there’s been some better than expected 2nd tier data, but this on its own is unlikely to have a lasting impact on the markets. Just under an hour ago the latest Philadelphia Fed manufacturing index showed a higher than forecast reading of 17.0 against a consensus estimate of 9.5. New orders were one component that was particularly strong (21.3 v 13.3) but the employment index was poor (9.6 v 19.1) and viewed in the context of the prior index reading being the worst since August 2016, maybe the rise this time out isn’t as positive as it first appeared.

Despite a bounceback in the Philadelphia manufacturing index, it remains pretty low compared to recent years. Source: XTB Macrobond

At the same time as the manufacturing data, there was also the release of the weekly initial jobless claims, which fell unexpectedly to 213k from 216k prior. Given that the median estimate was for a rise to 219k this is a decent beat and it continues to suggest a robust labour market.

Jobless claims in the US fell last week and this unemployment indicator remains extremely low by historical standards. Source: XTB Macrobond

The big US banks have been in focus this week with JP Morgan delivering a disappointing set of results for the past quarter, while the Bank of America Merrill Lynch and Goldman Sachs both beat. Today, it was the turn of Morgan Stanley, and unfortunately for investors there was more bad news on this front. ESP came in at $0.80 vs an expected $0.89 as the firm's two biggest business units, Wall Street trading and advisory and wealth management both suffered revenue declines amid a difficult market environment last year. This meant that companywide revenue declined 10% to $8.55B, compared to an expected $9.3B. The firm posted the weakest fixed-income trading results of its peers, plunging 30% to $564m, compared to the $806M estimate.    

Morgan Stanley also updated its strategic goals, giving investors guidance on performance metrics for 2019. During last year’s review, Gorman said that the bank could earn returns on average common equity of 10 to 13 percent, expand its market share in investment banking and trading and boost wealth management profit margins to 26 to 28 percent. The bank achieved those goals in 2018 and reiterated those targets for 2019, according to Thursday’s presentation.

“In 2018 we achieved record revenues and earnings, and growth across each of our business segments – despite a challenging fourth quarter,” Gorman said in the earnings statement. “While the global environment remains uncertain, our franchise is strong and we are well positioned to pursue growth opportunities and serve our clients.”

Morgan Stanley stock had a bad year in 2018, falling 24% and the stock is called to open lower by more than 4% on the open.

Morgan Stanley’s stock is called to open lower by around 4% and the recovery from lows of 36.78 seen just after Christmas is no under threat. Source: xStation

In terms of Wednesday’s price action the most negative of the large cap US indices was the US 100 which ended the day in the red. The US500 was mixed, managing to eke out a small gain but fading into the close after earlier gaining nicely. The US30 fared the best and while it did end off its highs, it still managed to hold on to the bulk of the gains.

Nasdaq futures printed a shooting star on D1 yesterday with the market respecting a falling trendline going all the way back to the record highs in September. Price is also around the 50 day SMA and unless the market can get above 6740 then we could see another push lower. Source: xStation