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It’s the second day of earnings season, and although only six companies reported this morning on a combined basis, they generated just under $108 billion in revenues. Relative to expectations, the results were also strong. The only company to miss top-line revenue forecasts was UnitedHealth (UNH) while the only one to miss EPS forecasts was Goldman Sachs (GS). In the case of Goldman, though, if you back out a litigation expense for that company, results were much stronger than expected. Despite the strong results from companies reporting, the initial reaction from investors has been to sell the news as most of these companies are trading down in the pre-market.
Outside of earnings, shares of Target (TGT) are down sharply after reporting weaker than expected holiday sales. The stock had been a darling in the retail sector over the last year, so this bad news is having an outsized impact on the stock which is trading down over 5% in the pre-market. While TGT is a large retailer, we would caution against extrapolating this as a sign of consumer weakness at this point.
In economic news, the December PPI missed expectations on both a headline and core basis, and that follows yesterday’s CPI which also missed forecasts at both the headline and core level. If the FOMC is looking for significant and persistent inflation, it’s going to have to wait a bit longer.
Investors have had somewhat of a ‘sell the news’ reaction to the initial reports this earnings season, and one big reason is that the markets have rallied sharply heading into the reporting period. As shown in our snapshot of S&P 500 sectors in our Trend Analyzer, every sector with the exception of Materials is currently trading at overbought levels including three that are at what we classify as ‘extreme’ overbought levels.