There are no good vibes in the stock market right now. This past earnings season had several companies beat expectations but guide lower on revenue going forward which is a sign that growth is waining in the global economy. Some of the strongest stocks over the last few years have been taken to the woodshed like Nvidia (they make computer chips) which was down 19% on Friday after their earning release Thursday evening (record earnings, I believe). Being down that much means that the dip buyers have left the building.
The price of oil has also dropped 27% (from $77 to $56) since the October 3rd high in what may be a foreboding sign for the global economy. When economic activity is rising, demand for oil increases, and oil prices tend to go up. But when economic activity is slowing down, demand for oil diminishes, and oil prices tend to go down. This dynamic may be a symptom of what is to come but that may be a question for 2019.
The chart below of the S&P 500 largely looks the same as the other major indices so everything is correlating to the same price action. Good or bad? Depends on what happens next.

What to look for next week:
- A bit more rally on Monday and then a resumption of selling into the Thanksgiving holiday. A close above 2,815 would change the bearish thesis to neutral (we closed at 2,737 on Friday).
- Housing data on Tuesday and durable goods orders on Wednesday.
- Watch oil to see if it breaks below $55.
Chart of the Week!
Underwriting standards and credit quality have deteriorated in the high yield debt markets. In the United States, the most highly indebted speculative grade firms now account for a larger share of new issuance than before the financial crisis. New deals also include fewer investor protections, these so-called covenant-lite loans account for up to 80% of new loans up from 30% in 2007. With rising leverage, weakening investor protections, and eroding debt cushions, average recovery rates for defaulted loans have fallen to 69% from the pre-crisis average of 82%. A sharp rise in defaults could have a large negative impact on the real economy given the importance of leveraged loans as a source of corporate funding. (IMF)

Macro Snippets
- General Electric has attempted to reassure investors about its financial health, issuing a statement saying it was “a fundamentally strong company with a sound liquidity position”, after a negative comment from an analyst sent its shares tumbling on Friday. The company also said it was “taking aggressive action to strengthen our balance sheet through accelerated deleveraging and position our businesses for success”. Stephen Tusa, an analyst at JPMorgan who has had a consistently bearish view of GE, on Friday published a note cutting his target price for the shares from $10 to $6, and warning that the company had about $100bn in liabilities and “zero” enterprise free cash flow, even after the 92% cut in the dividend announced last week. (FT)
- Tesla‘s 2016 acquisition of SolarCity is back in the spotlight. In a bid to lift lagging sales, the company is cutting prices on its residential solar systems by as much as 25% after it streamlined its sales and marketing organization. Last year, Tesla stopped selling solar door-to-door, and earlier this year it ended a long-standing deal to sell solar at Home Depot. (Seeking Alpha)
- If you were wondering just how widespread false content and accounts are on Facebook, wonder no more. The social network removed over 1.6B fake accounts – mostly linked to commercially motivated spam attacks – between April and September of this year. (Seeking Alpha)
That is all for now until next week’s Market Update. If someone forwarded you a copy of this report, you can sign-up directly at www.kiscocap.com.
Please reach out to me if there is anything you want to discuss about the markets, your portfolio (for clients) or if you would like a copy of the firm’s brochure if you are not a client.
Regards,
Paul J. McCarthy, III
President – Kisco Capital
(347) 709-9539