(New York)

One of the big developments of this month is not just that stocks have been getting hammered, but that bonds are too. While yields have stagnated from their jump a couple weeks ago, bond funds are seeing major outflows. In fact, investors are withdrawing so much capital from bond funds that it is likely to be the worst month for outflows in the last three years. Through October 19th, investors had pulled almost $25 bn from mutual funds and ETFs that invest in bonds. The losses break 21 straight months of inflows.

FINSUM: A couple things to note here. Firstly, considering Treasuries started the year yielding 2.4% and are now at 3.13%, one month of outflows does not seem too bad. On the negative side, however, it is worrying that bonds are seeing major outflows at the same time as stocks are losing in a big way.

(New York)

The market is so turned on its head right now that yesterday’s 126 point drop in the Dow seems like good news. The market has been so bad lately, that the fact that yesterday’s potential 550 point loss shrunk to only 126 points seemed like a positive development. Investors are worried about the idea of peak earnings, but analysts insist they are overreacting, with many reiterating that earnings will continue to be strong and the economy will stay in expansionary mode. Kate Warne, a strategist at Edward Jones, says that investors will realize this is not the end of the economic cycle just yet. “It’s not peak earnings, it’s peak earnings growth”, says Warne, continuing “The pace is still positive, just the growth rate isn’t as high as it was”.

FINSUM: We tend to agree with the strategists. If earnings still continue to grow in the next couple of quarters and the economy stays strong, it is hard to imagine that stocks will keep falling.

(Washington)

President Trump has been complaining about the Fed’s hawkish behavior for several months. However, yesterday he seemed to escalate his discontent into something more specific. He told the media that he “maybe” regretted appointing Powell to lead the Fed. He said he was intentionally signaling the Fed that he wanted lower interest rates, but he acknowledged that the Fed was an independent entity. When pushed about the circumstances under which he would fire Powell, the President declined to comment.

FINSUM: Investors should keep an eye on whether Trump escalates his rhetoric into action. We doubt he will do anything about the Fed in the near term, but the market would certainly have a big reaction.

(New York)

There are a lot of dark clouds hanging over the market right now—trade war, rates, politics, Italy etc. However, one of the strong bright spots has been earnings. Company performance has been very strong, which has been a real boost against the headwinds. That is why this article scared us so much. Barron’s has run a piece analyzing earnings which shows that all is not what it seems. While earnings have been strong, with about three-quarters of companies beating estimates, what has been lost is that company’s are actually struggling with revenue, with only 58% beating estimates. That is the lowest percentage in six quarters, and shows that companies are having trouble hitting their sales goals.

FINSUM: Markets have reacted to this data, but not in a major way. We are quite worried about revenue struggles as it might indicate that consumers are tightening up and a recession could be on the way.

(New York)

Everyone know the housing market is facing some headwinds. Strong home price growth combined with higher rates is hurting demand. Accordingly, sales and new activity have been falling since the late spring. However, new data shows that home prices seem to have already entered a cyclical downturn that is only going to intensify. A combination of low affordability, slowing demand, and higher rates have conspired to bring down home prices, and it does not look like things will turn around quickly. The Fed is already warning about real estate being a “downside risk” for the economy.

FINSUM: The whole housing market seems to be slowly, but surely, stalling. Homebuilder stocks have been hammered, prices are falling, and rates are rising. It seems like we are in for a downturn.