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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

Morning stock market summary

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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.

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