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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.
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