Apr 21, 2023
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“By day the banished sun circles the earth like a grieving mother with a lamp.” – Cormac McCarthy
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Futures this morning have moved modestly into positive territory after trading lower overnight, but after two straight days of modest declines for stocks, there’s a heavy feeling into the weekend. The only economic data on the calendar this morning are preliminary PMI data for April from S&P. In reports for other countries we have seen already this morning, the general trend has been one of weaker readings in manufacturing and improvement in services.
Treasuries are generally trading higher this morning with the biggest moves coming at the short end of the curve. In Fedspeak overnight, Philadelphia Fed President Patrick Harker made some common sense comments when he said that “We need to be a little cautious here to not just respond to the current level of inflation, but where we think it’s going.”
With tomorrow being Earth Day, we wanted to take a quick look at how global equities look heading into the weekend and as we’re close to four full months into the (no longer) new year. While the S&P 500 has been struggling to even take out its February high, the highs from last August before Powell’s Jackson Hole speech tanked the market still loom above. Global equities, however, have fared better. In addition to trading right at the February highs, the MSCI All Country World ETF (ACWI) is also right at the highs from last August as the low-$90s range is a level that has acted as resistance multiple times in the last seven months. Bulls will point to the fact that during the pullback that followed the last unsuccessful breakout, ACWI made a higher low, while bears will highlight the fact that volume during the last leg higher was anemic. Whichever way it breaks from here, though, the move is likely to be a significant one.
Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals. We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!
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Apr 20, 2023
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“Computers are magnificent tools for the realization of our dreams, but no machine can replace the human spark of spirit, compassion, love, and understanding.” – Lou Gerstner
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There was nothing especially insightful or controversial about the above quote from Lou Gerstner, former Chairman and CEO of IBM, when he made it years ago, and it has been applicable for the entire history of computers – that is until now. With the rise of AI tools, whether computers have sentience has become a topic of debate, and as the technology improves, those on the side that believes computers can in fact express compassion, love, and understanding will only grow.
You can ponder what computers with feelings will mean for mankind later (maybe, if you observe, as you celebrate 4/20 day later on), but for now, we have the thick of earnings season to deal with, and this morning, investors aren’t particularly pleased with what they see. The major driver of market weakness this morning is Tesla (TSLA) which is down over 7% after reporting weaker-than-expected margins.
Outside of TSLA yesterday, most earnings reports after the close were better than expected with three-quarters of companies reporting topping EPS forecasts. This morning has been another story, though, as only half of the companies reporting have beat estimates on the bottom line. One trend that could be weighing on markets this morning is guidance. Since yesterday’s close, eight companies have lowered guidance while just two (Calix Networks and D.R. Horton) have managed to raise guidance. It’s only a one-day snapshot, but if it becomes a more persistent trend, it would be a cautionary sign for the economy.
Economic data just released showed that jobless claims came in higher than expected on both an initial and continuing basis, and both are either at or near 52-week highs. The Philly Fed report on manufacturing also came in much weaker than expected and fell to a post-Covid low. Not only that but Prices Paid also dropped sharply falling to its lowest level since June 2020 while Prices Received actually went negative for the first time since May 2020. Later on, we’ll get updates on Existing Home Sales and Leading Indicators.
Related to the broader economy, crude oil just can’t seem to trade and stay above $80 per barrel. Earlier this month, it looked like crude would finally get the push it needed to get there when OPEC+ announced its surprise production cut. In immediate response to that news, prices spiked from the mid $70 to above $80 per barrel, but then completely stalled and traded in a sideways range through the Easter holiday. The fact that there was no follow-through to the announcement was a warning sign.
After Easter, prices traded to build on their gains from earlier in the month, but any upside was completely squashed at the 200-day moving average (DMA) this week. Yesterday, crude oil traded back down below $80 per barrel, and this morning, it is trading down even further and within a dollar of its 50-DMA. The fact that prices can’t catch and hold on to a bid for more than a few days doesn’t say much for the fundamental backdrop of crude.
Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals. We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!
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Apr 19, 2023
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“If you want to build a ship, don’t drum up the people to gather wood, divide the work, and give orders. Instead, teach them to yearn for the vast and endless sea.” – Reed Hastings
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Investors and traders are taking a breather this morning as they digest the latest round of earnings results. A higher-than-expected inflation print in the UK has contributed to the negative tone. Gold, oil, and bitcoin are also trading moderately lower as yields rise in what to this point has been a risk-off environment so far this morning.
It’s still early in earnings season, but we wonder if the batch of earnings since yesterday’s close will be a trend. Of the 23 companies reporting earnings since Tuesday’s close, 65% have exceeded EPS forecasts while just 55% have topped sales estimates. Neither of those rates is exceptionally strong, and the 55% revenue beat rate is weak.
Breaking down the numbers a little bit, though, shows an entirely different picture. Of the eight companies that reported weaker-than-expected EPS, all eight of them were from the Financials sector. In other words, ex Financials, the EPS beat rate was 100%. You can’t get much better than that! In terms of sales, the beat rate wasn’t as strong, but it was still 70%. It’s only one day, but if you’re a bear, the wave of weaker results has started to show up in full force- except it has only been evident in one sector. If that weakness remains ringfenced to the Financials, bulls may stay in the driver’s seat.
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Apr 18, 2023
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“The income tax created more criminals than any other single act of government.” – Barry Goldwater
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It’s a positive tone in the futures market this morning as the market builds on yesterday’s gains with some strong earnings reports from Bank of America (BAC), J&J (JNJ), and Lockheed Martin (LMT). It hasn’t all been sunshine and lollipops, though, as both Goldman Sachs (GS) and JB Hunt (JBHT) are down close to 4%. Coming up as we send this, we’ll get updates on Building Permits and Housing Starts at 8:30 Eastern.
Accountants across the country are breathing a sigh of relief this morning as they close the books on another tax season, although their relief is probably being drowned out by the collective swearing on the part of Americans who have taxes due. While today may be the worst day of the year for Americans who owe any taxes, it could get even worse for a lot of Americans this year as IRS plans to hire 87,000 new agents will inevitably lead to a lot more Americans being audited as well!
As bad as Tax Day may be for many Americans, seasonally it isn’t the worst time of year. In fact, over the last 25 years, the S&P 500 has been up in the week after the Federal Tax deadline 19 times for a median gain of 0.83%. That compares to a median gain of 0.31% with positive returns 57% of the time for all one-week periods over the last 25 years.
Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals. We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!
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Apr 17, 2023
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“Either write something worth reading or do something worth writing.” – Ben Franklin
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Futures were flat up until a few minutes ago, but have moved modestly into positive territory this morning following a better-than-expected Empire Manufacturing report. Just as important as the headline beat was the fact that Prices Paid fell back down to what is basically post-pandemic lows. Despite the bounce in futures, treasury yields have moved higher following the release of the report.
While it didn’t end on a positive note, stocks finished the week higher last week with the S&P 500 up by about 0.8%. Small and mid-caps led the way higher with gains of about 1.5% while mega-caps in the Nasdaq 100 barely finished the week higher. In many respects, last week was mostly about a reversion to the mean where the most overbought sectors underperformed while sectors that were either oversold or neutral heading led the way higher. As shown in the image below from our Trend Analyzer, Financials, Energy, and Industrials were all oversold or neutral heading into the week, and they rallied more than 2%. Meanwhile, all five sectors that were overbought were all either down or up less than 1%. The only exception to the trend was Real Estate. Even though it was one of five sectors below its 50-day moving average coming out of the Easter weekend, it was still the worst-performing sector in the week.
After a strong one-month rally off the October lows, the last five months or so have been a lot like watching paint dry as the S&P 500 is barely higher now than it was at the end of November. Six months removed from the low last October, in order for the S&P 500 to keep its uptrend intact, it’s going to need to clear resistance above its early February high just below 4,200 or roughly $418 in SPY.
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Apr 14, 2023
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“When you put your hand in a flowing stream, you touch the last that has gone before and the first of what is still to come.” – Leonardo da Vinci
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We’ll get to earnings in a sec, but just wanted to note that Retail Sales came in significantly weaker than expected falling 1.0% m/m versus forecasts for a decline of 0.5%. It was a similar size miss after stripping out Autos, but Ex Autos and Gas the decline wasn’t quite as small as expected (-0.3% vs -0.6%). Import Prices also fell 0.6% m/m versus forecasts for a decline of -0.1%. Futures have been little changed on the news. Do you think the Fed will take any of this into account?
Well, it looks like earnings season has kicked off on a positive note. Of the six companies reporting this morning, all of them topped EPS forecasts, and PNC was the only one that had weaker-than-expected revenues. Even here, though, the miss was extremely narrow. All six stocks that have reported are also trading higher in the pre-market, but the star of the show so far has been JPMorgan Chase (JPM), which is trading up 6% as we write this. That’s an impressive gain! Looking through our Earnings Database, there has never been a time since 2000 when JPM gapped up 6% or more in reaction to earnings. Heading into today, the record for the largest opening gap in JPM in reaction to earnings was on 7/17/08.
Back after that July 2008 report, JPM’s CFO Michael Cavanaugh reported that losses in its home equity business were less than expected, and while he noted that, “It’s too early to declare victory”, he added that “The trend of deterioration may be slowing a bit here.” That type of positive tone helped investors breathe a sigh of relief, but you don’t need the chart below to remind you that the trend of deterioration was only about to get worse. In other words, back then, like now, it was important to stay on top of trends and developments in the market and not become dogmatic based on a single metric or point in time. Like a river, the market is always moving, and especially in the rapids, if you don’t move with it, you’re guaranteed to go overboard.
Speaking of the chart below, the red dots indicate each time since 2000 that JPM rallied 5% on its earnings reaction day, and if today’s gain holds, it will be the first time in more than a decade that the stock has rallied that much on an earnings reaction day. The period since 2000 for JPM can be divided into two distinct periods. First, from 2000 through 2012, the stock was essentially range bound with the upper bound capped in the mid-30s. In 2013, the stock broke out of that range and rose nearly four-fold over the next nine years. What’s interesting, though, is that not a single one of the stock’s prior 5%+ rallies in reaction to earnings occurred during that nine-year leg higher, but there were six occurrences in the 12-year period where the stock did nothing.
Our Morning Lineup keeps readers on top of earnings data, economic news, global headlines, and market internals. We’re biased (of course!), but we think it’s the best and most helpful pre-market report in existence!
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