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“If I read as many books as most men do, I would be as dull-witted as they are.” – Thomas Hobbes
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
Markets are looking to start the day positively with several key economic reports and Fed speakers. The ADP Employment report just hit the tape and came in modestly weaker than forecasts. Still coming up, we have the ISM Services report at 10 AM which is expected to fall slightly from 56.0 down to 55.6. Besides the economic data, we’ll also get the Beige book at 2 PM Eastern and some Fed speakers, including the Chair himself who will appear at the Dealbook Summit at 1:45 Eastern.
There’s a lot of important economic and Fed-related data for the market to navigate today. Still, bulls can only hope that the news comes in as positive as yesterday’s earnings reports after the close. As mentioned in yesterday’s email, Salesforce (CRM) was the big report of the after-hours session. While expectations were already high, the stock exceeded the bar trading 13% higher in the pre-market. That puts it on pace for the largest upside gap in reaction to earnings since March 2023. If the gains hold through the end of the session, it would be the best one-day reaction to earnings since August 2020.
CRM may be a company with a market cap of $350 billion, but regarding earnings, it’s extremely volatile. Historically, the stock’s average one-day change in reaction to earnings has been nearly 7%, but as shown in the chart below, two of its last three reports have been followed by double-digit percentage moves in reaction to earnings. Typically, you expect stocks to become less volatile in reaction to earnings as they become larger, but as CRM and other mega-cap stocks have illustrated in recent quarters, that doesn’t always seem to be the case.
We showed this chart yesterday, but we wanted to update it to include yesterday and today. Provided CRM doesn’t reverse course and trade sharply lower on the session, today will be the 54th day in a row that the stock has closed at overbought levels (1+ standard deviations above 50-DMA). That’s already easily a record high, but with CRM trading 2.8 standard deviations above its 50-DMA this morning, there’s the potential for this streak to extend several more days.
What makes yesterday’s after-hours earnings news even more impressive is that CRM’s surge was relatively modest. Of the four companies that reported after the close with sales of $500 million or more, CRM is trading up the least and is the only one that didn’t report an earnings triple play! As shown in the table, Marvell (MRVL) and Okta (OKTA) are both up slightly more in the pre-market, and Pure Storage (PSTG) is trading up over 20%. It’s hard to remember another time when four mid-to-large companies reported earnings after-hours and they traded up at least 10%. Looking at how these companies traded heading into earnings, it’s not as though they hadn’t rallied into their earnings reports. As of yesterday’s close, all four were above their 50 DMAs, three were at overbought levels, and two were up over 50%!
