Stocks today worked both sides of the fence before a mixed closing with the Dow lower while the NASDAQ was higher. At the close the Dow was off 22 points at 21,785. Trading volume was higher across the board. IBD reported that its optimism index has now posted positive readings in each of the last 12 months which is something not seen since 2005. Markets are still in rally mode although big firms like Merrill, Fidelity and Blackrock are advocating moving to high quality bonds as a way to mitigate risk while still recommending equity exposure.
Interest rates are falling and it is affecting bank stocks. Art “Colonel” Hogan, chief guru market strategist (CGMS) at Wunderlich Securities told CNBC that “We are walking away from the prospect of a December rate hike”. The reasons for the decline in rates are a combination of massive (4x) demand for new bond issues, persistently low inflation and rising geopolitical risks. The banks, which are sitting on piles of cash, have been hoping for higher rates to help improve margins but with bond markets now forecasting doubt in the Fed narrative of interest rate hikes, the earnings outlook for banks appears less rosy.
Shares of Disney were lower when the company CEO “Box office” Bob Iger lowered the company’s forward earnings guidance. Other media stocks including Comcast, CBS and Viacom all fell in sympathy with “The House of Mouse”. Theater Box office revenues are down 15% this year and the three big movie chains have lost $4 billion in market value which is a lot of popcorn! You would have to go back 20 years to find a worse movie season or a period where the popcorn was more stale.