The Wall Street Journal - 23.10.2019

THE WALL STREET JOURNAL. ***** Wednesday, October 23, 2019 |B13

MARKETS

Index performance

Source: FactSet

0.5

–1.0

–0.5

0.0

9:30 noon 2 4

Brexittimetable

isrejected

DowJonesIndustrialAverage

S&P500

NasdaqComposite

TD Ameritrade Holding

Corp. expects revenue to fall 15%

next year after the electronic

broker ended trading commis-

sions, an estimate that isn’t as

severe as analysts predicted.

Now that trading commis-

sions are zero, TD Ameritrade

Chief Executive Tim Hockey,

who plans to leave the com-

pany in February, said the com-

pany is focused on ways to earn

revenue while trimming costs.

“There is a series of things

we’ve reprioritized based on a

zero-commission world,” Mr.

Hockey said in an interview.

For the fiscal year ending

September 2020, TD Ameri-

trade expects to report between

$4.9 billion and $5.3 billion in

revenue. Analysts polled by

FactSet forecast $4.98 billion in

revenue next year. Fiscal 2019

revenue totaled $6.02 billion.

The guidance came along-

side better-than-expected fiscal

fourth-quarter earnings. TD

Ameritrade posted $1.05 in ad-

justed earnings per share,

ahead of analysts’ $1 estimate.

TD Ameritrade’s latest re-

sults and guidance follow the

company’s move this month to

eliminate trading commissions,

which accounted for about one-

quarter of its top line. Its move

followed larger e-broker

Charles Schwab Corp.’s and was

matched by E*Trade Financial

Corp. and Fidelity Investments.

TD Ameritrade said some of

its efforts to make up for the

lost revenue will revolve

around its trading business. To

squeeze revenue from active

traders, the company is looking

to expand stock lending and se-

curities-based lending.

BYLISABEILFUSS

TD

Ameritrade

Fo r e c a s t s

Revenue Cut

AUCTIONRESULTS

Here are the results of Tuesday's Treasury auction.

All bids are awarded ata single price atthe market-

clearing yield. Rates are determined by the difference

between that priceand the face value.

TWO-YEAR NOTES

Applications $112,001,594,600

Accepted bids $44,182,080,800

" noncompetitively $106,903,100

" foreign noncompetitively $0

Auction price (rate) 99.815687

(1.594%)

Interest rate 1.500%

Bids at clearing yield accepted 92.62%

Cusip number 912828YP9

The notes, dated Oct. 31, 2019, mature on Oct. 31,

2021.

to $1.1125.

The delay represents a set-

back for Mr. Johnson’s ambi-

tion to pull the country out of

the European Union by Oct. 31.

It also leaves the pound, which

has risen nearly 5% against the

dollar this month, vulnerable to

profit-taking.

The latest twist sent some

investors into haven assets. In

the U.S. government-bond mar-

ket, the yield on the benchmark

10-year U.S. Treasury note fell

to 1.768%, from 1.794% on Mon-

day. Yields fall as bond prices

rise.

Investors were more san-

guine on emerging markets, as

growing optimism over global

trade lifted the currencies of

some developing countries.

The WSJ Dollar Index, which

measures the U.S. currency

against a basket of 16 others,

was up 0.1% to 90.67.

The British pound fell after

U.K. lawmakers endorsed Prime

Minister Boris Johnson’s Brexit

deal but voted

against a time-

table to push it

through Parliament by the end

of the month.

Sterling was down 0.7% to

$1.2873 in late-afternoon New

York trading. The euro fell 0.2%

BYIRAIOSEBASHVILI

Pound Loses Ground Against Dollar

Among individual movers, CURRENCIES

Biogen shares surged $58.36,

or 26%, to $281.87 after the

pharmaceutical company said

it would seek regulatory ap-

proval for a drug that treats

Alzheimer’s disease.

Bristol-Myers Squibb rose

$1.22, or 2.3%, to $54.42 af-

ter the drugmaker reported

favorable results from a trial

for a cancer treatment.

Meanwhile, shares of con-

sumer-products company

Procter & Gamble gained

$3.10, or 2.6%, to $122.18,

and motorcycle maker Har-

ley-Davidson climbed $2.96,

or 8%, to $40.04 after both

companies reported better-

than-expected earnings.

Among the day’s losers,

Hasbro tumbled $20.14, or

17%, to $100.02 after the toy

maker reported weaker-than-

expected revenue.

Travelers , a member of

the Dow, dropped $11.76, or

8.3%, to $130.15 after the in-

surer added to its reserves

because of an increase in

claims payments for lawsuits

and jury awards.

McDonald’s , another Dow

component, slumped $10.58,

or 5%, to $199.27 after it

missed profit expectations.

The Stoxx Europe 600

inched up 0.1% as Brexit un-

certainty weighed on inves-

tor appetite. At midday in

Tokyo, the Nikkei was down

less than 0.1%, Hong Kong’s

Hang Seng Index was down

1%, the Shanghai Composite

was down 0.4% and South

Korea’s Kospi was down 0.3%.

Stocks fell as investors di-
gested the latest flurry of
third-quarter earnings re-
ports and U.K. lawmakers re-
jected a plan to pull Britain
out of the Eu-
ropean Union
by Oct. 31.
The Dow
Jones Industrial Average
slipped 39.54 points, or 0.1%,
to 26788.10. The S&P 500
dropped 10.73 points, or
0.4%, to 2995.99, and the
Nasdaq Composite declined
58.69 points, or 0.7%, to
8104.30.
The Dow had been drifting
higher in midafternoon trad-
ing but slid after U.K. law-
makers said they needed
more time to consider the
110-page divorce deal with
the EU, prolonging uncer-
tainty over Brexit.
Overall market moves have
been muted lately, as U.S.
corporate earnings season
has painted a mixed picture
of the health of companies
and the economy. That has
kept major indexes in a tight
trading range.
With results in from
nearly 20% of the companies
in the S&P 500, earnings are
projected to decline 4.7% for
the third quarter from a year
earlier, according to FactSet,
adding to concerns that U.S.
economic growth is slowing.
That would mark the third
consecutive quarter of de-
clining profits.

BYANNAISAAC
ANDALEXANDEROSIPOVICH

Shares Decline as

Lawmakers Upend

Timetable for Brexit

TUESDAY’S
MARKETS

STREETWISE|By James Mackintosh

Stealth Bear Casts Shadow on U.S. Stocks

Could we
be in a stealth
bear market?
On the face of
it, the ques-
tion is bizarre:
A bear market is usually de-
fined as a 20% fall from a
peak, but the S&P 500 is just
1% off its all-time high. If you
hold the index, you would
laugh at the idea that this is
anything other than a bull
market, albeit a rather slow
one.
Yet almost every other
measure suggests a bear mar-
ket started last year. Dig into
the S&P 500, and it is send-
ing a deeply downbeat mes-
sage, too.
If stock markets go into
decline, historians will date
the global bear market from
Jan. 26, 2018, just before
shares were rocked by a vola-
tility shock. In dollar terms,
German stocks and emerging
markets are down 19% since
then; the eurozone and the
Brexit-challenged U.K. are
down 14%, while Japan is off
about 5%.

T

he U.S. economy has
been performing far
better, and so have its
big stocks. But most investors
in U.S. equities have had a
pretty poor experience since
January 2018, as the market
was held up by a small num-
ber of large stocks. Even the
S&P 500 is up just 4%, less
than one would have earned
just in coupons on 10-year
Treasurys held for the 21
months since then. Add in the
capital gain, and bond inves-
tors who rolled their invest-
ment into every benchmark
10-year Treasury issue since
then would be up a whopping
13%. Relative to bonds, there

is a bear market building up

even in big U.S. stocks.

Investors who picked

smaller companies have had

a truly miserable time, as

the S&P gains all came from

its largest members. On an

equal-weighted basis the in-

dex is up just 1%, and the

flawed Dow Jones Industrial

Average is up 3.7%.

Meanwhile, the small-

stock Russell 2000 index is

down 3.6% from last January

through Monday. By con-

trast, the Russell Top 50

Mega Cap index is up 5%

over the same period.

“There’s quite a lot of evi-

dence now that the bear mar-

ket actually started in Janu-

ary 2018,” said Ian Harnett,

chief investment strategist at

Absolute Strategy Research.

It isn’t just that most

stocks are down. Investors

are miserable, too. Pretty

much every measure of senti-

ment peaked early last year

and has since plunged. Pri-

vate investors were then the

most bullish they had been

since 2010, according to the

American Association of Indi-

vidual Investors, and only

16% reported they were bear-

ish. Investment newsletters

hadn’t been so bullish since

1986, according to Investors

Intelligence.

W

all Street profession-

als were equally

positive. More than

four in five new analyst rec-

ommendations on S&P 500

stocks were upgrades in Jan-

uary 2018, the highest in Re-

finitiv data going back to

1985. Two-thirds are now
      downgrades as profit con-
      cerns grow. Chief executive
      officers' confidence in last
      year’s first quarter was close
      to the postcrisis high reached
      after President Trump was
      elected. Since then it has
      plunged to where it stood as
      the last recession was ending
      in 2009. Derivatives traders
      were buying call options de-
      signed to profit from rising
      markets rather than put op-
      tions that aim to protect
      against market falls. Now the
      two are much more balanced,
      according to Cboe data.
      The lack of exuberance is
      reflected within the S&P. In-
      vestors have been buying sec-
      tors that are most able to
      ride out a weak economy and
      are avoiding those that are
      most exposed to economic
      growth. The industrials, fi-
      nancials, energy and materi-
      als sectors are all down since
      January 2018, reflecting eco-
      nomic weakness.
      Many investors say they
      are still buying U.S. stocks
      because of “TINA”: There is
      no alternative. With the 10-
      year Treasury yielding just
      1.8%, stocks with rock-solid
      dividends or offering growth
      independent of the economic
      outlook hold appeal. Sectors
      such as utilities that are
      treated as bond proxies have

done well as yields have

come down.

Meanwhile, stocks with a

long record of dividend

growth have beaten even the

megacaps, with the S&P 500

Dividend Aristocrats index re-

turning nearly 12% including

dividends since global equi-

ties peaked in January 2018.

What has to happen for

the stealth bear market to

turn into a real bear market?

A U.S. recession is the most

obvious reason to buy even

low-yielding safe assets, as

investors switch from seeking

a return on their investments

to worrying about the return

of their investments.

F

aced with falling prof-

its, dividend cuts and

highly leveraged listed

companies, fear of a reces-

sion will show there is an al-

ternative, just as it has else-

where.

Negative bond yields in

Europe and zero yields in

Japan haven’t created a

TINA-like rush for stocks

among investors who want

safety.

For the moment, the U.S.

economy appears to be grow-

ing slowly rather than facing

imminent recession, although

recessions are notoriously

hard to predict.

I remain hopeful that U.S.

growth will continue, a U.S.-

China trade deal will be con-

cluded and the prospects of a

sneaky bear coming out of

the shadows to ravage stocks

will recede. With investors

cautious, improved geopolitics

and renewed growth could

lead to a big bounce. But this

remains a hope, and it would

be foolish to ignore the signs

of serious trouble already vis-

ible in the markets.

BigU.S.stockshaveresistedtheglobaldownturnbutlaggedbehindTreasuryssincelastyear.

Indexes, change since Jan. 26, 2018

Relative performance of S&P 500 vs. bonds since 1988*

S&P 500 equal-weight sectors,

change since Jan. 26, 2018

*S&P 500 total return relative to 10-year Treasury Note: Data through Monday

Source: Refinitiv

MSCIAll-country

worldex-USA

Russell2000

S&P500

S&P500

equal-weighted

300 RECESSION

–50

0

50

100

150

200

250

%

1990 2000 ’10

10

–25

–20

–15

–10

–5

0

5

%

2018 ’19

Utilities

Realestate

Informationtechnology

Communicationservices

Consumerstaples

Industrials

Healthcare

Consumerdiscretionary

Financials

Materials

Energy

47%

197

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1

6



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–39

The metal has surged about 45% this year amid calls for limited production and steady demand.

ILYA NAYMUSHIN/REUTERS

about an economic slowdown.

Stocks, bonds and commodities

have logged a rare synchronous

rally, as low interest rates and

ebbing recession fears propel

rallies in a range of investments.

Palladium has outpaced

other assets as analysts project

that steady demand and limited

production will continue to lead

to supply shortages. Unlike its

close relative platinum, which is

used in diesel engines, palla-

dium has benefited from a rosy

outlook for consumption that

analysts expect to persist as

governments around the world

aim to combat climate change.

“Increasing environmental

scrutiny of vehicle emissions in

China and Europe has clearly

been constructive for palladium

demand,” ING analysts said in a

recent note.

Palladium demand exceeded

supply for the sixth consecutive

year in 2018, according to esti-

mates from Johnson Matthey

PLC, a London-based metals

trader and one of the world’s

largest makers of catalytic con-

verters.

Hedge funds and other spec-

ulative investors are positioned

for further gains in the small,

volatile market. They pushed

net bullish bets on palladium to

their highest level in nearly two

months during the week ended

Oct. 8, Commodity Futures

Trading Commission data show.

Net bullish bets fell slightly dur-

ing the period ended Oct. 15.

Figures for the week ended

Tuesday will be released on Fri-

day.

Despite the rally, some ana-

lysts are wary of a swift rever-

sal. Palladium is prone to out-

size swings when sentiment

changes, and a reversal in other

precious metals such as plati-

num and gold could drag palla-

dium down as well.

A booming rally in the sil-

very-white metal palladium has

continued in October, under-

scoring how bets on the future

of auto technology and environ-

mental regulations continue to

ripple through commodity mar-

kets.

Used in cat-

alytic convert-

ers that scrub

emissions in gasoline car en-

gines, palladium has soared

about 5% this month, bringing

its 2019 rally to nearly 45%.

Last week, it closed at an all-

time high of $1,735 a troy

ounce. Most-active futures

edged up 0.2% to $1,728.50 on

Tuesday.

The surge in prices makes

palladium one of the market’s

best-performing assets in 2019,

which has been a banner year

on Wall Street despite worries

BYAMRITHRAMKUMAR

Palladium Price Keeps Soaring

As Fears of a Shortage Build

COMMODITIES